RESTRICTED
WORLD TRADE WT/ACC/PAN/4
9May1995
ORGANIZATION(95-1194)
Original: English
ACCESSION OFPANAMA
Memorandum onServices Regime
Thefollowing communication hasbeenreceived from thePermanent Mission ofPanama.
_______________
ThePermanent Mission ofPanama totheWorld Trade Organization herewith submits the
following memorandum ontheServices Regime oftheRepublic ofPanama fortheinformation of
member countries examining theaccession ofPanama totheOrganization.WT/ACC/PAN/4
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Memorandum onServices Regime
I. Market structure
Theservices sector represents approximately 73percentoftheGross Domestic Product of
theRepublic ofPanama. Thegeographic position hasstructured awideeconomic activity specialized
inservices.
During theConquest andColonization, thecountry wasthepathforprecious metal flows to
Europe, aswellasthefairsofChagres, Nombre deDiosandPortobelo were atrade centre across
thesea.
Afterwards, theindustry development andtheexpansion ofworld trade made necessary the
modernization ofthetransisthmian route, withtheconstruction oftheTransisthmian Railroad first,
andthen, withthePanama Canal.
Duetotheadvantages obtained withthese transportation facilities, in1948 theColon Free
Zone wascreated, conceived asacentre forthedevelopment oftrade, storage andreshipment ofany
kindofgoods exchanged intheinternational market.
Since the1970s theInternational Banking Centre began itsoperations. More recently, the
Panama Stock Exchange hasbeencreated. Support services activities suchasportsandairports services
havealsocontributed togenerate aplatform ofservices, thathasshaped theeconomic development
ofthecountry.
Among thebiggest sectors related totheprovision ofservices directly totheforeign tradesector
aretourism, theColon FreeZone, thePanama Canal andtheTransisthmian OilPipeline.
DuetothefactthatPanama hasnopaper currency andthatthere arenorestrictions oncapital
flows, services suchasbanking, airtransport, insurance andretail salestotourists cannot bemeasured
inadisaggregated manner within theGDP, butarerelated inaconsiderable waytotheforeign trade
sector. Therefore, itisestimated thatthetotalofthese services represent more than25percentof
theGDP.
TheServices Balance hastraditionally presented asuperavit, averaging US$1,000 million in
thelastthree years.
II. Regulatory framework
There arenorestrictions onremittance ofcapital norforeign exchange controls.
Panama doesnothaveaspecific legislation thatregulates foreign investment. TheConstitution
establishes thatPanamanians andforeigners areequal tothelaw.Thecommon lawregime ininvestment
matters applies equally tonational andforeign investors.WT/ACC/PAN/4
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1. Colon FreeZone (CFZ)
TheColonFreeZoneisoneofthemostimportantfreightandcommoditiesredistributioncentres
oftheWestern Hemisphere. In1993, imports through theCFZrosetoUS$4,522.2 million andre-
exports toUS$5,133.4 million. There aremore than1,600 established enterprises using thefacilities
offered bytheCFZtoimport, store, repack andre-export agreat amount ofproducts from allover
theworld.
Financial services
1. Banking
Panama isrenowned foritsInternational Banking Centre: 108banks operate inPanama, from
which 84areforeign banks.
Banking inPanama isregulated byCabinet Decree No.238of1970(seeAnnex), which created
theNational Banking Commission, asamended byLawNo.93ofNovember 1974. There areno
restrictions fortheestablishment offoreign banks inthecountry. Every bank complying withthe
requisites established bytheBanking Commission mayoperate inPanama.
Cabinet Decree No.238of1970 establishes three (3)classes oflicence:
1. General Licence: permits theoffering ofawiderange ofbanking services, bothwithin
oroutside Panama. (US$1,000,000 minimum paid-in capital).
2. International Licence: toexclusively conduct foreign transactions from Panama
(requirementsareminimal,amongthem,mustmaintainUS$500,000inNationalBonds,
freeofencumbrances).
General Licence banks mustpayAnnual taxofUS$25,000. International Licence banks
must payAnnual taxofUS$15,000. (Law 1ofFebruary 1985).
3. Representation Licence: forforeign banks toestablish localrepresentative offices.
Itispossible foraforeign bankthatobtains alicence inPanama tobeadministered byother
banks already established inPanama. (Resolution No.16-89 adopted byNational Banking Commission
October 1989).
Numbered accounts areallowed. (SeeAnnex, Law18of28January 1959, whereby regulations
areenacted oncoded bankaccounts).
2. Insurance andreinsurance companies
There arenorestrictions onestablishing aforeign insurance orreinsurance company.
Anycompany thatwants tooperate inPanama mayoperate under thesameconditions asnational
companies, aslongasitcomplies withtherequirements ofthelaw,which applies equally tonationals
andforeigners. Law55of1984regulates insurance. National andforeign insurance companies must
haveaminimumpaid-incapital,maintainaguarantydeposit,beauthorizedandoperateundersupervision
oftheInsurance Commissioner oftheMinistry ofCommerce andIndustry.WT/ACC/PAN/4
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Law56of1985regulates reinsurance. Reinsurance companies musthaveaminimum paid-in
orassigned capital, ineachcase, ofnotlessthanB250,000. Licences areissued bytheNational
Reinsurance Commission, which supervises theactivities ofthese companies, through theInsurance
Commissioner.
Insurance brokers areregulated byLawDecree 17of22August 1957. Itisrequired tobe
aPanamanian citizen, resident intheRepublic oraforeigner withatleastfive(5)years ofresidence
intheRepublic, toobtain alicence asaninsurance broker.
Toobtain alicence asinsurance broker, ajuridical person must:
(a) Present aCertificate ofthePublic Registry, attesting itsregistration intheMercantile
Section oftheRegistry, andthename oftheagent ofthecorporation;
(b) Provide aCopy oftheArticles ofIncorporation, including thename oftheDirectors,
domicile andauthorized capital;
(c) Provide Document certifying thattheagent ofthecorporation isalicensed insurance
broker, whohasbeenpractising habitually andpermanently forthelasttwoyears;
(ch) Tomaintain thedeposit established bylaw;
(d) Certificate oftheshareholders ofthecorporation, signed bytheSecretary orTreasurer.
Theshareholders must belicensed insurance brokers.
Financial enterprises
Financial enterprises areregulated byLaw20ofNovember 1986, aredefined asnatural or
juridical persons, other thanbanks, insurance companies, cooperatives, mutual companies andsavings
andloans associations, engaged inmaking loans forpersonal orfamily purposes. Juridical ornatural
persons musthaveaminimum paid-in capital ofB150,000. Interest allowed isfixed byResolution
ofMinistry ofCommerce andIndustries between 1.5percentand2.0percentpermonth depending
onfluctuations inLondon Interbank Offering Rate.
These companies must payannual taxequal to2.5percentoftheir paidincapital asof
31December ofeachyear. Taxnottoexceed B12,500. (Law 1ofFebruary 1985).
3. Securities
Cabinet Decree No.247of16July1970 created theNational Securities Commission (NSC),
which regulates thepublic offering ofsecurities andmutual funds. TheDecree alsoempowers the
NSC toregulate brokers dealers andexchanges.
TheNSCoperates within theMinistry ofCommerce andIndustry. Fivepresidential appointees
actasCommissioners: TheMinister ofCommerce andIndustry, theGeneral Manager oftheNational
Bank ofPanama andthree members from theprivate sector (banks, commerce andindustry). The
NSChasanExecutive Director, astaffof20divided intofourDepartments: Legal, Corporate Finance,
Broker-dealer Registration andCompliance.
Securities regulations inPanama provide aflexible andstraightforward registration procedure.
There aretwotypes offilings:WT/ACC/PAN/4
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1. Registration ofInitial Public Offerings (IPO) withtheNational Securities Commission
andthePanama Stock Exchange.
2. Securities issued onaforeign market seeking listing onthePanama Stock Exchange.
Decree 44of31May1988 authorizes thecreation ofstock exchanges andregulates their
installation andoperation.
4. Tourism
There arenorestrictions forforeign investment inhotels inPanama.
Activitiesdevelopedbytravelagenciesareconsideredretailtrade,thereforeonlymaybeprovided
byPanamanians.
5. Construction
There arenorestrictions onestablishing aconstruction company owned byforeigners inthe
Republic ofPanama, aslongasitcomplies withthelegalrequirements. Inthisconnection, nocompany
orcorporation mayuseaprofessional designation related toengineering orarchitecture (construction)
unless ithasalicensed professional (engineer orarchitect) incharge oftheworks.
6. Transport
6.1 Maritime transport
Law2of1980 creates theDirectorate General ofConsular andShipping Department within
theMinistry ofFinance andTreasury tooversee allaspects ofMerchant Marine.
In1993, thePanamanian Merchant Marine hadatotalfleetof12,500 vessels, equivalent to
77.1million ofGross Registered Tons, thattransported freight amounting to157,980,301 longtons.
Ontheother hand, around 12,000 vessels navigate through thePanama canal annually.
Aspartofthismaritime infrastructure Panama has16ports, some ofthem operating under
concessions given toprivate enterprises (Almirante, Puerto Armuelles). Commercial portsare:Balboa,
Cristobal, Coco SoloandLasMinas Bay. Ofall,thetwomostimportant access ways forcargo are
Cristobal andBalboa: in1991, Cristobal moved atotalfreight of398,331 metric tonnes andBalboa,
945,103 metric tonnes (more than75percentofthese, werecontainers freight). TheAdministration
ofnational ports istheresponsibility oftheNational PortAuthority (Law 42of1974).
6.2 Land transport
There arenorestrictions onlandfreight transportation.
Land transportation ofpassengers isapublic service tobeprovided bynatural orlegalpersons
under concessions granted bytheState, inthepublic interest andcanonlybeprovided byPanamanian
nationals.WT/ACC/PAN/4
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6.3 Airtransport
TheCivilAeronauticAuthorityOffice,isthegovernmentinstitutionresponsiblefortheregulation
andadministration ofairtransport, aviation andairports within theRepublic.
There arenorestrictions fortheestablishment ofenterprises engaged inmaintenance orrepair
ofaircraft.
Foreign airtransport companies areproviding services inPanama.
7. Retail trade
TheNational Political Constitution establishes thatretail trade isreserved toPanamanians
(Article 288). Retail trade means selling totheconsumer, representing oracting asagent for
manufacturing ortrading companies oranyother activity thatthelawclassifies asretail trade.
Theprovision ofservices, however, excepting those qualified asretail trade bylegislation in
force, isconsidered wholesale trade. (Law 25of26August 1994.)
8. Public services
There areseveral Statemonopolies providing public services. Suchisthecaseoftheelectricity
services (Instituto deRecursos Hidraulicos yElectrificacion ),anddrinking water supply andsewerage
(Instituto deAcueductos yAlcantarillados Nacionales ).
Postal andtelegraph services arealsoaStateMonopoly, under oneDepartment oftheMinistry
ofGovernment andJustice. However, several national andforeign companies provide courier services.
(Decree 30of8February 1989.)
Thetelecommunications sector iscurrently subject toatransformation process. TheNational
Assembly hasrecently approved thelawthattransforms theformer Statemonopoly (Instituto Nacional
deTelecommunicaciones )intoaCorporation (INTEL, S.A.)(Law 5of9February 1995). Thisis
thefirststepoftheprocess, thatwillinclude theselling ofpartofthecapital ofINTEL, S.A., the
remaining regulations arestillinthemaking.
9. Professional services
Panamanian legislation concerning professional services insome cases limits theprovision to
Panamanian providers. Inother cases there areresidency requirements.
(a) Legal Services. (Law 9of18April 1984)
TheSupreme Court ofJustice willgrant licences topractise theprofession ofattorney only
tothose fulfilling thefollowing requisites:
(1) Panamanian nationals;
(2) Tohaveaprofessional titleinlaw,issued bytheUniversity ofPanama orUniversidad
Santa Maria LaAntigua, orbyanyother university established inthefuture whose
titles havealegalrecognition;WT/ACC/PAN/4
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(3) Tohaveaprofessional titleinlaw,issued byauniversity withrenowned prestige, title
thathastobepreviously ratified bytheuniversity ofPanama, except incases when
international conventions exempt theapplicant form thisobligation.
(b) Certified Public Accountants. (Law 57of1September 1978.)
Toobtain alicence topractise asanauthorized public accountant, itisnecessary tobe
Panamanian.
TheTechnical Board ofAccountants cangrantspecial permits topractise theprofession, except
thepower togivepublic certifications, toforeign professional onlyinthefollowing cases:
1. When theindividual isacitizen ofacountry thataccords thesame rights to
Panamanians.
2. When theindividuals areinternal auditors employed byforeign companies orbanking
institutions withsubsidiaries orbranches located inPanama, orbyinternational bodies
ofPublic International Law, thatneed tocarry outsuch tasks related withtheir
organization.
3. When itisproven thatatthetimethere arenonational professionals available forthe
kindofjobrequired.
4. When theyaremarried toPanamanians, orhavelived inthecountry formore than
ten(10)years.
Onlynatural persons whohaveaCertified Public Accountant 'sLicence cansetupcorporations
toprovide theservices specific totheprofession.
Thelegalpersons thusconstituted, besides complying withthelegalrequirements towhich
thetypeofentity selected issubject must satisfy thefollowing specific conditions:
(a) Only certified public accountants canbepartners, shareholders, directors, members
oftheboard orlegalrepresentatives ofsaidlegalpersons. Inthecaseofjoint-stock
corporations, those stocks must beregistered.
(b) Thelegalpersons referred tointhischapter mayrepresent orbeassociated withforeign
firms, associations, corporations andlegalornatural persons dedicated toactivities
proper totheprofession ofcertified public accountants intheircountry oforigin or
tocoordinating internationally theprofessional practice ofpublic accountancy, butsaid
relationship must always becarried outthrough active andeffective association and
representationwithforeign,legalornaturalpersons,aslongasthePanamanianCertified
Accountants perform allthefunctions proper totheprofession.
(c) Legal persons associated withforeign, legal ornatural persons, inaccordance with
theabove mayaddtotheircorporate letterheads andsigns thebusiness name ofsaid
firms, associations, corporations, orlegal persons. Onthecorporate letterheads or
signs thebusiness name ofthenational legalperson willhaveatalltimes atleastthe
same prominence asthebusiness name oftheforeign entity.WT/ACC/PAN/4
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(c) Engineers andarchitects (Law No.15of26January 1959.)
Toexercise engineering orarchitectural professions intheRepublic ofPanama, itisnecessary
tohavealicence.
Toobtain alicence towork asanengineer and/or architect, itisnecessary:
(a) TobePanamanian, orbemarried toaPanamanian, havePanamanian children and
giveevidence ofgood character andmorals.
Inthecaseofforeigners withPanamanian spouse orchildren, theymusthavequalified
forpermanent residence inthecountry.
(b) Tohaveobtained adegree orfinaldiploma inthecorresponding fieldfromanational
university orfromaforeign university whose academic standing hasbeenrecognized
bytheUniversity ofPanama andtohaveregistered saiddegree ordiploma withthe
Ministry ofEducation.
(c) TobecitizenofacountrywhichpermitstoPanamanianstheexerciseofsuchprofessions
under same conditions.
Foreign professionals inthefieldofengineering andarchitecture maybeemployed forpurposes
limited totheirspecialized field, aslongastheEngineering andArchitecture Technical Board issatisfied
thatthere arenoPanamanian professionals suitable torender saidservices. Iftheperiod forwhich
theforeigner isemployed ismore than12months, theemploying entity mustemploy aPanamanian
professional whowillreceive necessary training sothathecantaketheplace oftheforeigner when
thecontract isover. Permits toemploy foreign experts forlessthan12months willnotberenewed.