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Colon Free Zone

Getting Started
Market Factors
How the Free Zone Adm. Function
The User's Association
Future of the Colon Free Zone
Related Links

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 travelled 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.

Nowadays, a dozen or so leagues to the west, at the city of Colon, commerce continues at a faster pace, in volumes which those 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. The Free Zone was started 54 years ago on an 87 acre plot adjacent to the city of Colón with a couple of warehouses occupied by a handful of hopeful and ambitious Panamanian merchants. 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.

The rationale of the Colón Free Zone is easy to grasp. 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. Taking advantage, also, of Panama’s position on the major sea route of the Americas, they could deliver the merchandise rapidly and with a knowledge and understanding of customs and import requirements into neighbouring countries with which suppliers in non-Latin countries could not compete.

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 region of $1.5 billion. Companies vary greatly in size from mega-stores which carry hundreds of famous brands of 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, although complying with the normal entry and exit paperwork as though the merchandise had passed through the zone, will find it more convenient to have goods shipped direct from source to customer.

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.

The area is bisected by streets and avenues —miles of warehouses and showrooms— some with fancy window displays which almost give a visitor the impression of being on a normal shopping street. The impression is erroneous, 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 least 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, however, 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 Colón Free Zone is a prime example. 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.

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 licence 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:

  1. A premises can be rented from a private owner.
  2. 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.
  3. An existing company can be used as a representative. A number of companies are organised 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.
  4. 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, despatch 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.

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.

Related Links

FOB ColonFreeZone website
Colon Free Zone's Adm. website
Colon Province in Focus Panama

 

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