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Panama Table of Contents


Colón Free Zone

The CFZ has grown rapidly to become the second largest free zone in the world, after Hong Kong. The CFZ, in existence since 1953, was a base for 460 companies in the late 1980s. Goods from foreign countries were landed and stored or repackaged there and shipped onward without being subject to Panama's customs duties. Among the CFZ services offered were commercial intermediation, break bulk, warehousing, assembly, and transshipment. In addition to its excellent location, foreign firms were attracted to the CFZ because of good transport, communications, and banking services. A state-owned corporation operated the free zone, providing the necessary infrastructure and services.

The CFZ has contributed greatly to Panama's economy. In 1983 the CFZ provided direct employment for 6,000 workers. CFZ earnings in export services were second only to the canal. In 1985 CFZ imports and re-exports totalled US$3.3 billion, down from a peak of US$4.3 billion in 1981; value added in the CFZ made a net contribution of 2.8 percent to GDP. The declining figures reflected the Latin American recession and the concomitant fall in regional trade. The CFZ linked producers in industrialized countries, which in 1984 supplied 60 percent of CFZ imports, primarily with Latin American countries, and accounted for 59 percent of CFZ exports. Since 1983 Japan's exports to the CFZ have surpassed those of the United States; in that year, Japan exported 21 percent of the goods entering the CFZ, followed by the United States (15.5 percent), Taiwan (10 percent), and Hong Kong (9.3 percent).

Observers believed that dependence on the Latin American markets might limit the growth potential of the CFZ. Other constraints to growth included competition from Miami and the tendency of Latin American countries to circumvent the CFZ through bilateral transactions. The greatest potential for CFZ growth lay in expanding manufactured exports, especially to the United States, under the terms of the Caribbean Basin Initiative (CBI). Until the mid-1980s, the value added for manufacturing in the CFZ was rather small; transport, storage, and warehousing contributed the largest share. CFZ activities declined between 1982 and 1984, but stabilized in 1985 and expanded by 15 percent in 1986.

Data as of December 1987