WORLD TRADE
ORGANIZATIONG/SCM/N/95/PAN
3 July 2003
(03-3573)
Committee on Subsidies and
Countervailing MeasuresOriginal:  Spanish
SUBSIDIES
New and Full Notification Pursuant to Article XVI:1 of the
GATT 1994 and Article 25 of the SCM Agreement
PANAMA
The following communication, dated 30 June 2003, has been received from the Permanent
Mission of Panama.
_______________
The Republic of Panama is submitting the attached notification pursuant to the provisions on
full notifications in Article XVI:1 of the GATT 1994 and Article 25 of the Agreement on Subsidies
and Countervailing Measures.
In accordance with Article 25.7 of the SCM Ag reement, it should be recognized that this
notification of measures does not prejudge either their legal status under the GATT 1994 and the
SCM Agreement, the effects under the SCM Agreement or the nature of the measures themselves.
CONTENTS
Page
I. GRANTING OF TAX CREDIT CERTIFICATES  (CAT) ...................................................2
II. EXEMPTIONS GRANTED TO ENTERPRISES LOCATED IN THE EXPORT
PROCESSING ZONES............................................................................................................3
III. EXEMPTIONS GRANTED TO ENTERPRISES INCLUDED IN THE
OFFICIAL INDUSTR Y REGIST ER .....................................................................................5G/SCM/N/95/PAN
Page 2
I. GRANTING OF TAX CREDIT CERTIFICATES (CAT)
1. Description of the subsidy
The Tax Credit Certificate (CAT) is a subsidy to which all enterprises exporting non-
traditional goods wholly or partially produced or processed in Panama.
The CAT is a tax credit consisting of a registered, transferable, non-interest bearing document
(bond) payable to the Ministry of the Economy and Finance, with a maturity period of nine months.  It
is issued in the national currency and used to pay income tax, dividend tax, supplementary tax,
property tax, import tax and the tax on the transfer of tangible personal property (ITBM).
In order to be eligible for the CAT, the enterprise exporting non-traditional goods must show
a minimum share of 20 per cent in national content and national value added.  As a rule, the higher the
national content, the higher the amount of the CAT, per unit of non-traditional product exported.
2. Period of notification
2001 and 2002.
3. Objective of the programme
The basic objective of the programme is to promote non-traditional exports of goods wholly
or partly produced or processed in Panama with a view to contributing to the country's development.
4. Background and authority
See paragraph A.4 of the last notificatio n (doc. G/SCM/N/71/PAN).  The corresponding
legislation can be found in doc. G/SCM/Q3/PAN/1 3.  In addition, under the procedure for programme
extensions, within the framework of the SCM Committee, the following law has been published:  Law
No. 62 of 26 December 2002 "Amending articles of Law 23 of 1997 and Law 28 of 1995 extending
the scope of production tax incentives, and Article 376 A of the Penal Code"1, with a view to
extending the programme until 31 December 2005.
5. Form of subsidy
Tax credit in the form of a certificate used for the payment of national and import taxes.  This
credit amounts to 15 per cent of the national value added of the exported goods.
6. Beneficiaries and mechanism
All natural and legal persons exporting non-traditional goods who, on request and following a
study are found to meet the national value added requirements laid down by law (a minimum of
20 per cent for persons established in the metropolitan region and a minimum of 10 per cent for
persons located outside the metropolitan region).2
                                                     
1 Official Gazette No. 24.709 of 30 December 2002.  The text of Law No. 62 of 26 December 2002 is
attached to this notification.
2 This percentage of national value added is calculated on the basis of production or manufacturing
costs of the exported product.  The production cost is equivalent to the sales cost minus profits, provided they do
not exceed 12 per cent of the capital invested in the production of the product to be exported.G/SCM/N/95/PAN
Page 3
7. Estimated amount of the subsidy
According to the information provided by the Directorate of Foreign Trade Services of the
Vice-Ministry of Foreign Trade based on resolutions issued during the past two years for which
information is available, the total value of CATs granted was US$32,010,748 in 2001 and
US$23,720,180 in 2002.
8. Duration of the subsidy
The programme is scheduled to last until 31 December 2005.3
9. Statistical data permitting an assessment of the trade effects of the subsidy
Table 1
Value of CAT Resolutions and Export Value, by Beneficiary Sector
2002 2001
CAT F.O.B.
EXPORT
VALUE
(thousands of US$)CAT F.O.B.
EXPORT
VALUE
TOTAL ......... 23,770.20 192,490.20 32,010.70 227,549.10
Source:  National Directorate of Foreign Trade Services, VICOMEX, MICI.
II. EXEMPTIONS GRANTED TO ENTERPRISES LOCATED IN THE EXPORT
PROCESSING ZONES
1. Description of the programme
The Export Processing Zones (EPZs) are tax free areas – in other words, enterprises
established in the EPZs as well as any activity, operation, transaction, processing and transfer of
movable and immovable property, purchase and import of construction materials and equipment, rawmaterials, equipment, machinery, tools, accessories, inputs and any goods or services required for the
operations of such enterprises within the EPZ, are 100 per cent free of national direct and indirect
taxes, contributions, duties and levies.
The capital of companies established in the EPZs is also free of direct or indirect national
taxes, including patent or licence taxes.
Moreover, a special migration regime has been established for foreigners whose companies
are located  within the EPZs, provided the amount invested exceeds US$250,000.  Foreign investors
(with spouses and minor children) are entitled to apply for a permanent residence visa as investors,
and foreigners (with spouses and minor children) hired by companies located within the EPZs as
managerial staff, executives, experts or technicians may apply for temporary residence visas valid forthe duration of their contract, subject to the laws  laid down in the Labour Code of the Republic of
Panama.  Foreigners (with spouses and minor children) wishing to carry out transactions with
companies established in the EPZs may apply for a resident business visa valid for one year.  Other
special labour provisions have been developed for enterprises covered by the special EPZ regime.
                                                     
3 In accordance with Articles 3 and 4 of Law No. 62 of 26 December 2002.G/SCM/N/95/PAN
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2. Period of notification
2001 and 2002.
3. Objective of the programme
(a) To create a special, integrated and simplified regime for the establishment and operation of
EPZs with a view to contributing to the coun try's development by generating employment and
foreign exchange.
(b) To enable Panama to be incorporated in the global economy by promoting exports of goods
and services, encouraging investment creation and stimulating scientific, technological,
economic, cultural, educational and social development in the country.
4. Background and authority
See paragraph B.4 of the last notification (doc. G/SCM/N/71/PAN).
5. Form of subsidy
The subsidy granted under this programme is based on complete exemption from national
direct and indirect taxes, contributions, duties and levies for the enterprises established in the EPZs as
well as for any activity operation, transaction, processing and transfer of movable and immovable
property, purchase and import of construction materials and equipment, raw materials, equipment,machinery, tools, accessories, inputs and any goods or services required for the operations of such
companies within the EPZ.
6. Beneficiaries and mechanism
All natural and legal persons, whether nationals or foreigners, engaged in the production of
goods and services either as manufacturing, assembly and processing enterprises for finished and
semi-finished goods or as services export or general service enterprises, may obtain a licence to set up
their operations in an export processing zone.
Sales of raw materials, semi-finished goods and packaging supplied by domestic companies to
the industries located within the export processing zones are considered to be exports, but are not
eligible for the Tax Credit Certificate (CAT).  Nor may enterprises or industries established in the
export processing zones opt for or benefit from CATs.
To obtain the mentioned licence, the enterprise must submit to the Technical Secretariat of the
National Commission on Export Processing Zones of the Ministry of Trade and Industry:  a formal
application, a certificate of authorization for the processing zone, certification of the capital invested,a project study for the planned project and documents certifying the applicant's standing.  Once these
requirements have been met, the National Commission on Export Processing Zones grants the licence
and registers it in the official register of the export processing zones.
7. Estimated amount of the subsidy
No estimate available.
8. Duration of the subsidy
Not specified in Law No. 25 of 1992.G/SCM/N/95/PAN
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9. Statistical data permitting an assessment of the trade effects of the subsidy
Table 2
PANAMA:  Value of Exports from the Processing Zones, 1997-2001
Year No. of Enterprises Exports
Net Weight (t)F.O.B. Value
(millions of US$)
1997 19 1,886.4 19.3
1998 22 3,606.4 25.7
1999 39 2,968.8 20.5
2000 48 10,322.9 26.0
2001(P)57 23,853.8 52.1
(P) Preliminary figures
Source: Auditor General of the Republic and National Directorate of Foreign Trade Services,
VICOMEX, MICI.
Table 3
PANAMA:  Existing Processing Zones and Number of Enterprises
Registered1 as of 20 June 2003
PROCESSING ZONENo. of Enterprises
Registered
ZONA PROCESADORA DE EXPORTACIÓN ALBROOK, S.A 6
COROZAL PROCESSING FREE ZONE CORP. 9
ZONA PROCESADORA ESTATAL DAVIS 18
ZONA PROCESADORA DE ISLA MARGARITA 10
ZONA PROCESADORA PANEXPORT 26
ZONA PROCESADORA PROINEXPORT, S.A 2
ZONA PROCESADORA SCHLOBHOM 2
ZONA PROCESADORA TELEPUERTO PANAMA S.A. 1
ZONA DE TECNOLOGÍA Y TELECOMUNICACIONES, S.A. 0
TECHNOLOGY DEVELOPMENT CENTER INC 0
Total 74
1Law No. 25 of 30 November 1992.
Source:  National Directorate of Foreign Trade Services, VICOMEX.
III. EXEMPTIONS GRANTED TO ENTERPRISES INCLUDED IN THE OFFICIAL
INDUSTRY REGISTER
1. Description of the subsidy
The programme establishes three categories of registers on the basis of which enterprises may
avail themselves of different incentives and benefits.  Each enterprise must register in one of these
categories.
(a) Enterprises wholly engaged in export production
These companies enjoy the following tax incentives:G/SCM/N/95/PAN
Page 6
(i) Full exemption from taxes on introduction, contributions, levies and customs duties
and fees, along with the tax on the transfer of tangible property applied to imports of
machinery, equipment and spare parts used in the production process, excluding
construction materials, vehicles, furniture, office supplies and any other imputs not
used in the production process;
(ii) full exemption from income tax on profits, with the exception of mining industries or
those using the country's natural resources;
(iii) full exemption from export taxes;(iv) full exemption from sales tax;(v) full exemption from production taxes;(vi) full exemption from taxes on the enterprises' capital or assets, except licence and
immovable property taxes;
(vii) creation of special funding programmes on a preferential basis compared to what is
normally available on the market.
(b) Enterprises partially engaged in export production
These companies enjoy the following tax incentives:
(i) Full exemption from income tax on profits obtained from production for export, with
the exception of mining industries or those using the country's natural resources;
(ii) full exemption from export taxes;(iii) full exemption from export sales tax;(iv) full exemption from export production tax;
(v) creation of special funding programmes on a preferential basis compared to what is
normally available on the market;
(vi) deduction from the taxable income of fixed costs such as interests, depreciation and
maintenance, provided total export sales do not exceed 20 per cent of the total valueof sales.
(c) Enterprises engaged in production for the domestic market
These companies enjoy the following tax incentives:
(i) 100 per cent exemption, during the first five (5) years of validity of Law No. 3 of
1986, from taxes on introduction, contributions, levies and customs duties and fees on
imports of raw materials, semi-finished or intermediate products, inputs, spare parts
for machinery and equipment, containers and packaging entering into the compositionor the production process, on which they shall pay only the ITBM;G/SCM/N/95/PAN
Page 7
(ii) from the sixth year onwards, companies may import the goods described above by
paying an import tax equivalent to three per cent (3%) of the c.i.f. value of the foreign
inputs, plus the ITBM;
(iii) exemption from income tax on net profits reinvested in the expansion of their
production capacity or in producing new articles, applicable to the portion of thatreinvestment in excess of twenty per cent (20%) of taxable income in the tax year
concerned;
(iv) special carry-over regime for losses;(v) special depreciation formula;
(vi) application of an import tax of three per cent (3%) of the c.i.f. value on the
introduction of machinery and equipment used in the production process, with the
additional payment of the ITBM.
2. Period of notification
2001 and 2002.
3. Objective of the programme
The basic objective of the programme is to provide the stimulation needed to promote
industrial activity and exports, which are important to the achievement of progress and thedevelopment of the country's economy.
4. Background and authority
The legal instruments regulating the Official Industry Register programme are listed in the
last notification ( doc. G/SCM/N/71/PAN).
5. Form of subsidy
Tax exemptions according to the category in which each particular enterprise is registered, as
described in part III.1 above (Description of the subsidy).
6. Beneficiaries and mechanism
All companies engaged in industrial manufacturing or assembly activities in the territory of
Panama are eligible for this programme.  Manufacturing industries are those engaged in processing
raw materials and semi-finished goods and producing goods.  Assembly industries are those engaged
in the production of finished goods by putting together inputs and semi-finished parts.  They include
small and medium industrial enterprises which meet the above requirements.
The enterprises concerned by the programme must be registered in the Official Industry
Register.  Registration is subject to a decision by the Ministry of Trade and Industry, and entitles the
enterprise to the benefits and incentives provid ed for under the programme in accordance with the
category selected from the date on which the decision is issued and for the period of validity of the
registration.
Enterprises benefiting from total exemption from income tax on profits generated by export
activities are not eligible for the Tax Credit Certificate (CAT) incentive.G/SCM/N/95/PAN
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7. Estimated amount of the subsidy
Table 5
Value of Tax Incentives Granted under the Official Industry
Register (1999-2001) (Millions of US$)
YEARType of benefit1999 2000 2001
Import tax exemption or rebate 23.7 27.3 22.2
Income tax exemption or rebate for
reinvestment14.6 15.2 11.3
Other incentives* 6.4 7.4 6.6
*Exemption from income tax only.
Source: Fiscal Studies Department, Directorate-General of Revenue, Ministry of the Economy and
Finance.
8. Duration of the subsidy
The duration is dependent on the expiry date of the official registration of an enterprise in a
particular branch of economic activity under the Uniform Industrial Classification (CIIU), subject to
the exceptions below:4
(a) For companies engaged entirely in export production, the following benefits are to be
eliminated in accordance with Decision of 22 November 2002 "Official Industry
Register" of the SCM Committee (doc. G/SCM/84):
(i) Full exemption from income tax on profits (Article 6(b) of Law No. 3 of
1986);
(ii) full exemption from taxes on the enterprises' capital or assets (Article 6(e) of 
Law No. 3 of 1986);
(iii) creation of special funding programmes on a preferential basis compared to
what is normally available on the market (Article 14(d) of Law No. 3 of
1986).
(b) For companies partially engaged in export  production, the following benefits are to be
eliminated in accordance with Decision of 22 November 2002 "Official Industry
Register" of the SCM Committee (doc. G/SCM/84):
(i) Full exemption from income tax on profits for export (Article 12 of Law
No. 3 of 1986 pursuant to Article 6(b) of the same Law);
(ii) creation of special funding programmes on a preferential basis compared to
what is normally available on the market (Article 14(d) of Law No. 3 of1986);
                                                     
4 Official Gazette No. 24.798 of 12 May 2003, Resolution No. 32 of the Ministry of Trade and Industry
of 31 December 2002.  The text of the Resolution is attached to this notification.G/SCM/N/95/PAN
Page 9
(iii) deduction from the taxable income of taxable fixed costs (such as interests,
depreciation, maintenance, etc.) for enterprises partially engaged in export
production (Article 12, paragraph, of Law No. 3 of 1986).
9. Statistical data permitting an assessment of the trade effects of the subsidy
No statistical information available to assess the trade effects of the programme.G/SCM/N/95/PAN
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ANNEX 1
LEGISLATIVE ASSEMBLY
LAW NO. 62
(26 December 2002)
Amending Articles of Law 23 of 1997 and Law 28 of 1995 Extending the Scope of Production
Tax Incentives, and Article 376 A of the Penal Code
THE LEGISLATIVE ASSEMBLY
HEREBY DECREES:
Article 1.   Paragraph 11 of Article 78 of Law 23 of 1997 is hereby amended and
paragraphs 13 and 14 added, as follows:
Article 78 :  The following shall be considered offences under this section:
11. Importing animals or products or by-products of animal origin representing a zoosanitary risk
and originating in or coming from areas, countries or regions affected by exotic diseases, without the
appropriate phytozoosanitary import licence, preceded by a corresponding risk assessment based on
the standards and guidelines laid down in the International Zoosanitary Code of the International
Office of Epizootics (IOE) a nd the Codex Alimentarius.
12. Fraudulently obtaining or issuing a phytozoosanitary licence for importing animals or
products or by-products of animal origin from areas, countries or regions affected by exotic diseases.
13. Importing used equipment and machinery, wi thout complying with the phytozoosanitary
requirements laid down by the Executive Directorate for Agricultural Quarantine of the Ministry of
Agricultural Development.
Article 2.   Paragraph 3 of Article 79 of Law 23 of 1997 shall read as follows:
Article 79.   The offences mentioned in the previous article shall be sanctioned as follows:
3. In the cases envisaged in paragraphs 11, 13 and 14 of the previous article, the penalty shall be
a fine of not less than 500,000 balboas (B 500,000.00)  and not more than 2 million balboas
(B 2,000,000.00) .
In the cases envisaged in paragraph 12 of the previous article, the penalty shall be a fine of
not less than 250,000 balboas (B 250,000.00)  and not more than 1 million balboas (B 1,000,000.00) .
Article 3.   The second paragraph of Article 13 of Law 28 of 1995 shall read as follows:
Article 13.   …
From 1 January 2003 until 31 December 2005, exporters of non-traditional goods shall still be
entitled to apply for Tax Credit Certificates, but the value of the CATs shall be reduced to 15 per cent
(15 %) of the national value added of the exported goods.G/SCM/N/95/PAN
Page 11
Article 4.   Article 28 of the Law of 1995 shall read as follows:
Article 28.   Laws No. 108 of 1974, No. 2 of 1991, No. 4 of 1993 and No. 12 of 1993 are
hereby repealed as of 31 December 2005.
Article 5.   Article 376 A of the Penal Code shall read as follows:
Article 376 A.   Whoever, other than in the cases specified in the previous article, introduces
into the country animals or products or by-products of animal origin or any goods of agricultural
origin representing a zoosanitary risk and originating in or coming from areas, countries or regions
affected by exotic diseases, without the appropriate phytozoosanitary import licence, preceded by a
corresponding risk assessment based on the standards and guidelines laid down by the International
Office of Epizootics (IOE) and the Codex Alimentarius, as well as us ed equipment or machinery that
has been employed in agricultural activities, wit hout complying with the requirements laid down by
the Executive Directorate for Agricultural Quarantine of the Ministry of Agricultural Development,
shall be liable to imprisonment for a term of 5 to 8 years and a 200 to 350 day fine.
Article 6.   This Law amends paragraph 11 and adds paragraphs 13 and 14 to Article 78 and
amends paragraph 3 of Article 79 of Law 23 of 15 July 1997, as amended by Law 44 of
1 August 2001;  amends Articles 13 and 28 of La w 28 of 20 June 1995, as well as Article 376 A of
the Penal Code, and repeals, as from 31 December 2005, Law 108 of 1974, Law 2 of 1991, Law 4 of
1993 and Law 12 of 1993.
Article 7.   This Law shall enter into effect upon enactment.
FOR COMMUNICATION AND IMPLEMENTATION
Approved at third hearing, in the Palacio Justo Arosemena, Panama City, on
16 December 2002.
Jorge Ricardo Fabrega Carlos R. Alvarado A.
General Secretary President
NATIONAL EXECUTIVE ORGAN – PRESIDENCY OF THE REPUBLIC – PANAMA,
REPUBLIC OF PANAMA, 26 DECEMBER 2002
Mireya Moscoso Norberto Delgado Duran
President of the Republic Minister of the Economy and FinanceG/SCM/N/95/PAN
Page 12
MINISTRY OF TRADE AND INDUSTRY
RESOLUTION NO. 32
(31 December 2002)
THE MINISTRY OF TRADE AND INDUSTRY
in application of its legal powers,
WHEREAS:
The Panamanian State has approved Law No. 23 of 15 July 1997, the Protocol of Accession
of the Republic of Panama to the World Trade Organization (WTO).
As part of the commitments undertaken on accession, the Republic of Panama agreed
progressively to eliminate all measures corresponding to the definition of prohibited subsidy in
Article 3 of the WTO Agreement on Subsidies and Countervailing Measures, including prohibitedsubsidies covered by Law No. 3 of 20 March 1986.
The Ministry of Trade and Industry, by virtue of these commitments, began ex officio  issuing
resolutions annulling export subsidies granted through the Official National Industry Registry.
At the WTO's Fourth Ministerial Conference, the Committee on Subsidies and Countervailing
Measures approved procedures for extensions under Article 27.4 of the Agreement on Subsidies and
Countervailing Measures for certain developing country Members.
In view of the above, the Panamanian State requested the WTO Committee on Subsidies and
Countervailing Measures for an extension of the export subsidies.
On 22 November 2002, the Committee granted the Republic of Panama an extension for
export subsidies under Article 27.4 of the WTO Agreement on Subsidies and Countervailing
Measures relating to the transition period for the elimination of such subsidies.
The extension was granted up to 31 December 2003, but may be continued, on the basis of the
procedures approved at the Fourth Ministerial Conference, through the end of calendar year 2007
subject to annual review by the Committee, which will examine the fulfilment of the obligations
assumed by the Panamanian State.
Taking into consideration the Committee's Decision, it is appropriate to amend all the
resolutions issued ex officio  annulling prohibited subsidies as from 1 January 2003.
HEREBY RESOLVES:
ARTICLE ONE:  TO AMEND  all the resolutions annulling prohibited subsidies as from
1 January 2003 in order to extend the validity of those subsidies up to 31 December 2003.
ARTICLE TWO:  TO INFORM  those concerned that the extension may be continued up to
the end of calendar year 2007, on the basis of the procedures approved at the WTO's Fourth
Ministerial Conference, subject to annual review by the Committee, which will examine the fulfilmentof the obligations assumed by the Panamanian State.
ARTICLE THREE:  TO FORWARD  this Resolution to the Auditor General of the Republic
for signature.G/SCM/N/95/PAN
Page 13
ARTICLE FOUR:  TO FORWARD  a certified copy of this Resolution to the Ministry of the
Economy and Finance.
LEGAL BASIS:  Law No. 23 of 15 July 1997, Law No. 38 of 31 July 2000, Decision of
22 November 2002 of the Committee on Subsidies and Countervailing Measures.
Done in the Province of Panama, Republic of Panama, on 31 December 2002.FOR IMPLEMENTATION AND PUBLICATION
JOAQUIN E. JÁCOME DIEZ
Ministry of Trade and Industry
SIGNATURE:
ALVIN WEEDEN GAMBOA
AUDITOR GENERAL OF THE REPUBLIC
__________