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
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.
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
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
- 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.
- 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.
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
How the Free Zone Administration
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
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
Free Zone's Adm. website
Province in Focus Panama