RESTRICTED WORLD TRADE WT/ACC/PAN/4 9 May 1995 ORGANIZATION (95-1194)

Original: English

ACCESSION OF

Memorandum on Services Regime

The following communication has been received from the Permanent Mission of Panama.

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The Permanent Mission of Panama to the World Trade Organization herewith submits the following memorandum on the Services Regime of the Republic of Panama for the information of member countries examining the accession of Panama to the Organization. WT/ACC/PAN/4 Page 2

Memorandum on Services Regime

I. Market structure

The services sector represents approximately 73 per cent of the Gross Domestic Product of the Republic of Panama. The geographic position has structured a wide economic activity specialized in services.

During the Conquest and Colonization, the country was the path for precious metal flows to Europe, as well as the fairs of Chagres, Nombre de Dios and Portobelo were a trade centre across the sea.

Afterwards, the industry development and the expansion of world trade made necessary the modernization of the transisthmian route, with the construction of the Transisthmian Railroad first, and then, with the .

Due to the advantages obtained with these transportation facilities, in 1948 the Colon Free Zone was created, conceived as a centre for the development of trade, storage and reshipment of any kind of goods exchanged in the international market.

Since the 1970s the International Banking Centre began its operations. More recently, the Panama Stock Exchange has been created. Support services activities such as ports and airports services have also contributed to generate a platform of services, that has shaped the economic development of the country.

Among the biggest sectors related to the provision of services directly to the foreign trade sector are tourism, the Colon Free Zone, the Panama Canal and the Transisthmian Oil Pipeline.

Due to the fact that Panama has no paper currency and that there are no restrictions on capital flows, services such as banking, air transport, insurance and retail sales to tourists cannot be measured in a disaggregated manner within the GDP, but are related in a considerable way to the foreign trade sector. Therefore, it is estimated that the total of these services represent more than 25 per cent of the GDP.

The Services Balance has traditionally presented a superavit, averaging US$1,000 million in the last three years.

II. Regulatory framework

There are no restrictions on remittance of capital nor foreign exchange controls.

Panama does not have a specific legislation that regulates foreign investment. The Constitution establishes that and foreigners are equal to the law. The common law regime in investment matters applies equally to national and foreign investors. WT/ACC/PAN/4 Page 3

1. Colon Free Zone (CFZ)

The Colon Free Zone is one of the most important freight and commodities redistribution centres of the Western Hemisphere. In 1993, imports through the CFZ rose to US$4,522.2 million and re- exports to US$5,133.4 million. There are more than 1,600 established enterprises using the facilities offered by the CFZ to import, store, repack and re-export a great amount of products from all over the world.

Financial services

1. Banking

Panama is renowned for its International Banking Centre: 108 operate in Panama, from which 84 are foreign banks.

Banking in Panama is regulated by Cabinet Decree No. 238 of 1970 (see Annex), which created the National Banking Commission, as amended by Law No. 93 of November 1974. There are no restrictions for the establishment of foreign banks in the country. Every complying with the requisites established by the Banking Commission may operate in Panama.

Cabinet Decree No. 238 of 1970 establishes three (3) classes of licence:

1. General Licence: permits the offering of a wide range of banking services, both within or outside Panama. (US$1,000,000 minimum paid-in capital).

2. International Licence: to exclusively conduct foreign transactions from Panama (requirements are minimal, among them, must maintain US$500,000 in National Bonds, free of encumbrances).

General Licence banks must pay Annual tax of US$25,000. International Licence banks must pay Annual tax of US$15,000. (Law 1 of February 1985).

3. Representation Licence: for foreign banks to establish local representative offices.

It is possible for a foreign bank that obtains a licence in Panama to be administered by other banks already established in Panama. (Resolution No. 16-89 adopted by National Banking Commission October 1989).

Numbered accounts are allowed. (See Annex, Law 18 of 28 January 1959, whereby regulations are enacted on coded bank accounts).

2. Insurance and reinsurance companies

There are no restrictions on establishing a foreign insurance or reinsurance company.

Any company that wants to operate in Panama may operate under the same conditions as national companies, as long as it complies with the requirements of the law, which applies equally to nationals and foreigners. Law 55 of 1984 regulates insurance. National and foreign insurance companies must have a minimum paid-in capital, maintain a guaranty deposit, be authorized and operate under supervision of the Insurance Commissioner of the Ministry of Commerce and Industry. WT/ACC/PAN/4 Page 4

Law 56 of 1985 regulates reinsurance. Reinsurance companies must have a minimum paid-in or assigned capital, in each case, of not less than B 250,000. Licences are issued by the National Reinsurance Commission, which supervises the activities of these companies, through the Insurance Commissioner.

Insurance brokers are regulated by Law Decree 17 of 22 August 1957. It is required to be a Panamanian citizen, resident in the Republic or a foreigner with at least five (5) years of residence in the Republic, to obtain a licence as an insurance broker.

To obtain a licence as insurance broker, a juridical person must:

(a) Present a Certificate of the Public Registry, attesting its registration in the Mercantile Section of the Registry, and the name of the agent of the corporation;

(b) Provide a Copy of the Articles of Incorporation, including the name of the Directors, domicile and authorized capital;

(c) Provide Document certifying that the agent of the corporation is a licensed insurance broker, who has been practising habitually and permanently for the last two years;

(ch) To maintain the deposit established by law;

(d) Certificate of the shareholders of the corporation, signed by the Secretary or Treasurer. The shareholders must be licensed insurance brokers.

Financial enterprises

Financial enterprises are regulated by Law 20 of November 1986, are defined as natural or juridical persons, other than banks, insurance companies, cooperatives, mutual companies and savings and loans associations, engaged in making loans for personal or family purposes. Juridical or natural persons must have a minimum paid-in capital of B 150,000. Interest allowed is fixed by Resolution of Ministry of Commerce and Industries between 1.5 per cent and 2.0 per cent per month depending on fluctuations in London Interbank Offering Rate.

These companies must pay annual tax equal to 2.5 per cent of their paid in capital as of 31 December of each year. Tax not to exceed B 12,500. (Law 1 of February 1985).

3. Securities

Cabinet Decree No. 247 of 16 July 1970 created the National Securities Commission (NSC), which regulates the public offering of securities and mutual funds. The Decree also empowers the NSC to regulate brokers dealers and exchanges.

The NSC operates within the Ministry of Commerce and Industry. Five presidential appointees act as Commissioners: The Minister of Commerce and Industry, the General Manager of the and three members from the private sector (banks, commerce and industry). The NSC has an Executive Director, a staff of 20 divided into four Departments: Legal, Corporate Finance, Broker-dealer Registration and Compliance.

Securities regulations in Panama provide a flexible and straightforward registration procedure. There are two types of filings: WT/ACC/PAN/4 Page 5

1. Registration of Initial Public Offerings (IPO) with the National Securities Commission and the Panama Stock Exchange.

2. Securities issued on a foreign market seeking listing on the Panama Stock Exchange.

Decree 44 of 31 May 1988 authorizes the creation of stock exchanges and regulates their installation and operation.

4. Tourism

There are no restrictions for foreign investment in hotels in Panama.

Activities developed by travel agencies are considered retail trade, therefore only may be provided by Panamanians.

5. Construction

There are no restrictions on establishing a construction company owned by foreigners in the Republic of Panama, as long as it complies with the legal requirements. In this connection, no company or corporation may use a professional designation related to engineering or architecture (construction) unless it has a licensed professional (engineer or architect) in charge of the works.

6. Transport

6.1 Maritime transport

Law 2 of 1980 creates the Directorate General of Consular and Shipping Department within the Ministry of Finance and Treasury to oversee all aspects of Merchant Marine.

In 1993, the Panamanian Merchant Marine had a total fleet of 12,500 vessels, equivalent to 77.1 million of Gross Registered Tons, that transported freight amounting to 157,980,301 long tons.

On the other hand, around 12,000 vessels navigate through the Panama canal annually.

As part of this maritime infrastructure Panama has 16 ports, some of them operating under concessions given to private enterprises (Almirante, Puerto Armuelles). Commercial ports are: Balboa, Cristobal, Coco Solo and Las Minas Bay. Of all, the two most important access ways for cargo are Cristobal and Balboa: in 1991, Cristobal moved a total freight of 398,331 metric tonnes and Balboa, 945,103 metric tonnes (more than 75 per cent of these, were containers freight). The Administration of national ports is the responsibility of the National Port Authority (Law 42 of 1974).

6.2 Land transport

There are no restrictions on land freight transportation.

Land transportation of passengers is a public service to be provided by natural or legal persons under concessions granted by the State, in the public interest and can only be provided by Panamanian nationals. WT/ACC/PAN/4 Page 6

6.3 Air transport

The Civil Aeronautic Authority Office, is the government institution responsible for the regulation and administration of air transport, aviation and airports within the Republic.

There are no restrictions for the establishment of enterprises engaged in maintenance or repair of aircraft.

Foreign air transport companies are providing services in Panama.

7. Retail trade

The National Political Constitution establishes that retail trade is reserved to Panamanians (Article 288). Retail trade means selling to the consumer, representing or acting as agent for manufacturing or trading companies or any other activity that the law classifies as retail trade.

The provision of services, however, excepting those qualified as retail trade by legislation in force, is considered wholesale trade. (Law 25 of 26 August 1994.)

8. Public services

There are several State monopolies providing public services. Such is the case of the electricity services (Instituto de Recursos Hidraulicos y Electrificacion), and drinkingwater supplyand sewerage (Instituto de Acueductos y Alcantarillados Nacionales).

Postal and telegraph services are also a State Monopoly, under one Department of the Ministry of Government and Justice. However, several national and foreign companies provide courier services. (Decree 30 of 8 February 1989.)

The telecommunications sector is currently subject to a transformation process. The National Assembly has recently approved the law that transforms the former State monopoly (Instituto Nacional de Telecommunicaciones) into a Corporation (INTEL, S.A.) (Law 5 of 9 February 1995). This is the first step of the process, that will include the selling of part of the capital of INTEL, S.A., the remaining regulations are still in the making.

9. Professional services

Panamanian legislation concerning professional services in some cases limits the provision to Panamanian providers. In other cases there are residency requirements.

(a) Legal Services. (Law 9 of 18 April 1984)

The Supreme Court of Justice will grant licences to practise the profession of attorney only to those fulfilling the following requisites:

(1) Panamanian nationals;

(2) To have a professional title in law, issued by the University of Panama or Universidad Santa Maria La Antigua, or by any other university established in the future whose titles have a legal recognition; WT/ACC/PAN/4 Page 7

(3) To have a professional title in law, issued by a university with renowned prestige, title that has to be previously ratified by the university of Panama, except in cases when international conventions exempt the applicant form this obligation.

(b) Certified Public Accountants. (Law 57 of 1 September 1978.)

To obtain a licence to practise as an authorized public accountant, it is necessary to be Panamanian.

The Technical Board of Accountants can grant special permits to practise the profession, except the power to give public certifications, to foreign professional only in the following cases:

1. When the individual is a citizen of a country that accords the same rights to Panamanians.

2. When the individuals are internal auditors employed by foreign companies or banking institutions with subsidiaries or branches located in Panama, or by international bodies of Public International Law, that need to carry out such tasks related with their organization.

3. When it is proven that at the time there are no national professionals available for the kind of job required.

4. When they are married to Panamanians, or have lived in the country for more than ten (10) years.

Only natural persons who have a Certified Public Accountant's Licence can set up corporations to provide the services specific to the profession.

The legal persons thus constituted, besides complying with the legal requirements to which the type of entity selected is subject must satisfy the following specific conditions:

(a) Only certified public accountants can be partners, shareholders, directors, members of the board or legal representatives of said legal persons. In the case of joint-stock corporations, those stocks must be registered.

(b) The legal persons referred to in this chapter may represent or be associated with foreign firms, associations, corporations and legal or natural persons dedicated to activities proper to the profession of certified public accountants in their country of origin or to coordinating internationally the professional practice of public accountancy, but said relationship must always be carried out through active and effective association and representation with foreign, legal or natural persons, as long as the Panamanian Certified Accountants perform all the functions proper to the profession.

(c) Legal persons associated with foreign, legal or natural persons, in accordance with the above may add to their corporate letterheads and signs the business name of said firms, associations, corporations, or legal persons. On the corporate letterheads or signs the business name of the national legal person will have at all times at least the same prominence as the business name of the foreign entity. WT/ACC/PAN/4 Page 8

(c) Engineers and architects (Law No. 15 of 26 January 1959.)

To exercise engineering or architectural professions in the Republic of Panama, it is necessary to have a licence.

To obtain a licence to work as an engineer and/or architect, it is necessary:

(a) To be Panamanian, or be married to a Panamanian, have Panamanian children and give evidence of good character and morals.

In the case of foreigners with Panamanian spouse or children, they must have qualified for permanent residence in the country.

(b) To have obtained a degree or final diploma in the corresponding field from a national university or from a foreign university whose academic standing has been recognized by the University of Panama and to have registered said degree or diploma with the Ministry of Education.

(c) To be citizen of a country which permits to Panamanians the exercise of such professions under same conditions.

Foreign professionals in the field of engineering and architecture may be employed for purposes limited to their specialized field, as long as the Engineering and Architecture Technical Board is satisfied that there are no Panamanian professionals suitable to render said services. If the period for which the foreigner is employed is more than 12 months, the employing entity must employ a Panamanian professional who will receive necessary training so that he can take the place of the foreigner when the contract is over. Permits to employ foreign experts for less than 12 months will not be renewed.