HISTORY

Panama has been a country of commerce almost from the time the New World began to be colonized. Centuries before the Panama Canal was built, merchandise crossed this narrow isthmus between North And South America on mule trains. Gold and silver plundered from the Incas of Peru traveled this way to be loaded onto galleons bound for Spain. The same galleons brought luxuries from Europe, bartered at fairs at the Atlantic ports of Portobelo, Chagres and Nombre de Dios and carried back across by the same mule trains to the “Southern Sea” destined for colonies along the West Coast of South America.

Since 1917, only three years after the opening of the Panama Canal, the possibility of having a free zone area in Colon was discussed. It was not, however, until the end of WWII that the idea became substance. During the war many locals obtained employment in the construction of defense facilities and service facilities for the movement of troops, and with the end of troop arrivals, came the hard times. Later, Dr. Enrique A. Jimenez, President of the Republic in 1945, took the initiative to make the free zone project a reality, making use of the geographic position of the ports and the interoceanic waterway, a compulsory route for worldwide navigation. He recommended the reconsideration of a project prepared by George E. Roberts, Vice President of the First National City Bank of New York, which contemplated the creation of a free zone area in Colon and which had been submitted to the Government in 1929.

In 1946, the Government employed Dr. Thomas E. Lyons, renown authority on free zones, to carry out a feasibility study in the area suggested for the project. Based on his recommendations, the Government approved Law No. 18 of June 17, 1948, which creates the Colon Free Zone as an autonomous institution.

Nowadays, at the city of Colon, commerce goes at fast pace, in volumes which the earlier traders would have been unable to conceive. The reason is the Colón Free Zone at the Atlantic mouth of the Panama Canal. Its growth in recent years is eclipsing the Canal itself in terms of the country’s progress and reputation. Today, the Zone occupies an area of more than 800 acres. Over 2000 companies operate or are represented there. Containers clog the roads; buyers and representatives of thousands of trademarks flock in and out to generate the staggering $11 billion which the Colón Free Zone turns over now in the course of a year.

Colón Free Zone is easy to understand. It is a segregated, walled area where companies may import free from import duties or quotas and with a minimum of taxes. The obvious result, from the beginning was that merchants could import in bulk from the Far East, Europe and the U.S.A. and re-export in quantities to suit their Latin American clients.

Expansion has been steady and the original walled area of 94 acres had been filled with warehouses and showrooms by 1978. Hemmed in by the city of Colón around half of its perimeter and with the waters of Manzanillo Bay lapping almost to the foundations of the buildings on the other side, there was nowhere for the Free Zone to go – except into the bay with landfills and across the bay where former Canal Zone land had reverted to Panama under treaties between Panama and the U.S.A.

Accordingly, 131 acres were set aside at Old France Field, so named for an old airstrip which served the Atlantic port before the present France Field runway was built in World War II. This became exclusively a warehouse area in contrast to the original Free Zone, with its mix of warehouses and showrooms, which is now known as the Commercial Area. It is now joined to France Field by a bridge.

The variety of merchandise and brand names available is awesome, hardly surprising when you consider that any day’s inventory can be in the range of $1.5 billion. Companies vary from mega-stores with hundreds of famous brands and luxury goods, down to small variety stores or single agency businesses. A number of large multinationals have also realized the advantages offered.

Not all of the business in the Free Zone involves the merchandise rolling in and out of the gates. If quantities are big enough and transportation suitable, a Free Zone company will find it more convenient to have goods shipped direct from source to customer, although. Most Colón Free Zone companies have their main offices and showrooms in the Commercial Sector separated from the city of Colón by a high security wall. A visitor’s pass can be easily obtained from the administration’s reception office just inside the gate. Take in consideration that since the Colón Free Zone is not designed for retail sales, and merchandise cannot be carried out with the purchaser, some companies will send goods to Tocumen International Airport in-bond to be collected by a visitor on departure.

But the commerce of the Free Zone is in grosses, case-lots and container loads. It is a city dedicated only to commerce, with sidewalks often thronging with people and streets jammed with trucks and trailers. But after 5 p.m. when the workers and the buyers and business people have gone to their homes and hotels, the security guards are the only inhabitants.

Reasons for the phenomenal success of the Cólon Free Zone are numerous. Not only is the use of the U.S. dollar as the currency of the country owing to the special relationship of Panama with the USA since the construction of the Panama Canal. Another reason is that the Zone has access to 5 huge ports all situated within a few miles radius.

The Free Zone is a classic example of interaction between Government and private enterprise. Panama’s laws have always been aimed at encouraging business, including the establishment of companies from abroad. The Free Zone laws establish that businesses may operate with the absolute minimum of controls (incredibly, merchandise entering and leaving the Free Zone requires the filling of only one form).

Some tax and other benefits are as follows:
0% taxes on income derived from export activities
0% tariffs and quotas on imports and exports
Highly competitive costs
Immigration benefits for executives and foreigners

INFRASTRUCTURE AND SERVICES

The Colon Free Zone is today more than just a traditional free zone; it is a Global Logistic Center for the world. Its annual commercial transactions generate US$11,000 million in imports and exports. The success of the Colon Free Zone is reflected in the more than 400 hectares and 1,800 established companies and 250,000 visitors a year.

The existence of the International Financial Center, the efficient maritime infrastructure, the free circulation of the US$ Dollar as legal tender, a great many fiscal incentives under an exceptional tax free system on sales or manufactures and on imports and re-exportations to foreign countries, tax exemption on income generated abroad, and a sophisticated communication network are some of the factors that contribute to facilitate the operations from the Colon Free Zone and which makes it an ideal center for International Commerce.

The businessmen and investors will find:

The largest collection and redistribution center of cargo in the Americas

Open to businessmen from Monday to Friday from 8:00 a.m. to 5:p.m

Modern display rooms, warehouses and commercial premises

Security inside and in the surrounding areas

Twenty five local and international banks provide services

Large labor force is available

High technology communications network

Air terminal in the France Field area to transport passengers or businessmen between the terminal cities of Panama and Colon

Specialized labor force and at a low cost

Multinational freight companies provide services in less than 24 hours

Proximity to the ports, railroad terminal, airport, cruise ship terminal and 5 star hotels

INVESTMENT RECOGNITION SYSTEM

Recovery of the amount of investment in infrastructure

Compensation in the rent payments

The lease back system consists in the recognition of the user’s investments on public works. Through this mechanism, the user gets back the amount of the investment in infrastructure through a compensation in the monthly rent payments to the administration of up to 70% of the monthly rent.

In this way, the construction and habilitation of a property inside the free zone is facilitated, giving the new user the opportunity to start operations quicker to the benefit of the new enterprise.

GETTING STARTED

Any person or company can set up operations in the Colón Free Zone by applying to the Administration and supplying commercial and bank references, a Panamanian Government tax clearance (paz y salvo) and the articles of incorporation in the case of a company. No commercial license is required and no minimum capital investment is stipulated. The only condition is that a minimum of five Panamanians be employed.

Setting up can be achieved in any one of four ways:

A premises can be rented from a private owner.
A 20-year lease can be obtained on a lot of land and a company can construct its own facilities subject to Administration approval of plans.
An existing company can be used as a representative. A number of companies are organized for this service and the advantages they offer provide a convincing argument for this type of operation. The representative company makes transport arrangements, receives goods, does the documentation, packs and re-packs if necessary, re-exports, bills and even collects. The instructing company retains title to the merchandise. Agreements of this sort need approval of the Administration and the condition will be that at least 60% of the goods be re-exported. The advantages of this system are obvious: no capital investment, no overheads, no headaches providing the relationship between owner and representative is a good one.
Merchandise can be handled by the public warehouse system. The businessman stores his merchandise in a public warehouse but in other respects functions like any other business established in the Free Zone. As in the case of employing a representative, the advantages are: no overheads such as salaries, rent, telephone.

MARKET FACTORS

The Colón Free Zone functions just like any other marketplace —its success is due in large measure to price and variety. Prices are bound to be competitive because of volume. The basic premise of the Free Zone is that goods arrive in large quantities from factory or supplier in the Orient, Europe, North or Latin America. Variety is constantly improved as the Free Zone grows and ever more companies introduce new lines.

Delivery time is the other vital factor which boosts the commercial movement statistics each year. Weeks and even months can be cut off delivery times for Latin American clients who order from the Colón Free Zone because firstly, the goods are already here on the continent and not subject to manufacturing quotas and freight schedules from half way round the world. Secondly, Free Zone companies, anxious to turn over their inventories as fast as possible, assisted by the almost total lack of red tape and supremely knowledgeable in the paperwork involved in all the countries of the marketplace, dispatch the goods in record time.

Thirdly, the transport network from Panama to all parts of the Latin America and the Caribbean is unbeatable. This rapidity of service allows customers to operate on inventory margins which otherwise would be impossible and therefore saves them interest charges.

BACKGROUND AND LEGAL BASIS

The tendency of the world economy in the 21st century is characterized by the disappearance of borders and an increase in the movement of goods. Hence, legal frameworks and observances that allow for the best development of these changes are required to guarantee the technology transfer, investment and national progress. Panama, as a member of the WTO and negotiating the materialization of the Free Trade Area of the Americas (FTAA), has addressed the topic of intellectual property as a priority in its policy agenda. The creation and enforcement of the decisions of the department of intellectual property in the Colon Free Zone Administration is a measure of the will of the government to make effective the protection of intellectual property rights, not only at the national level, but also in international markets, which our country plans to enter.

The privileged geographical position of Panama has allowed the Colon Free Zone to traditionally exercise a leading role as a logistic distribution center. Therefore, the work of the intellectual property department has been indispensable to assure that the infrastructure and the services offered by the free zone are not used for the illegal traffic of goods. This year marks the fourth year since the creation of the intellectual property department whose duties have been carried more efficiently, adjusting to the changes that the new projects and expansion of the free zone require.

The executive decree No.79 of August 1st, 1997, which regulate Articles 176 and 177 of law 35 of 1996, empowers the Colon Free Zone Administration to guard the intellectual property rights in the Colon Free Zone.

HOW THE FREE ZONE ADMINISTRATION FUNCTIONS

Responsibility for the efficient running and continued development of the Colón Free Zone is in the hands of the Free Zone Administration. The Zone is an autonomous institution of the Panamanian Government and functions under clearly defined laws and precedents. The Administration controls rents, public warehousing, promotion, development and construction. It keeps statistics and administers the flow of imports and exports.

THE USER’S ASSOCIATION

The User’s Association of the Colón Free Zone is an active and prestigious body with its own offices, conference and exhibition rooms, whose principal function is to look after the rights and interests of its members and increase the prosperity of the Free Zone. It publishes an annual directory and catalogue, “FOB Zona Libre de Colon”. Its website, www.colonfreezone.com, which includes company, product and trademark information, features individual home pages for most of the companies operating in the zone. The Users Association also organizes commercial missions abroad with the aim of introducing its products to foreign companies.

FUTURE OF THE COLON FREE ZONE

An ambitious project, which unites existing infrastructure and transport entities (maritime installations, airports, railway) into one permanent network to facilitate the movement of cargo from coast to coast across the Isthmus of Panama, will be developed in Colón within the next five years, which entails the expansion of the Colon Free Zone to a further 1200 hectares (approximately 3000 acres). The planning of the project involves coordination of the Civil Aviation Authority (DAC), the Maritime Authority of Panama (AMP), the Interoceanic Regional Authority (ARI), the Colón Free Zone Administration (CFZ) and the Customs Department. From the private sector, port operators of Manazanillo International Terminal, Colon Container Terminal, Panama Ports, Cocosolo Ports Terminal, the Panama Canal Railway Company and the Enrique A. Jiménez Airport to France Field are involved.

The project will integrate the railroad terminal, the three ports, France Field airport and a new road system. This will permit the development and establishment of new companies dedicated to commerce, light industry, service and high tech industries as well as multimodal transportation to complement each other in a secure and integrated area. This will operate within one customs regime, allowing the efficient and economic transfer of goods from one modal to another without paying any fees. As well as reducing the cost of freight and bureaucratic requirements the center will reduce the transport time for cargo making export operations more economic and efficient.

The purpose is to convert the Colón Free Zone into the “Multimodal Logistics Center of the Americas”, attracting new investors and buyers and helping to increase international commerce.

http://www.zonalibredecolon.com.pa/main_eng.htm

Special thanks to Focus Publications (Int.), S.A.

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