A Cheer for Panama Pact
Chips made by Tico company Jack’s Snacks have reached Panamanian bellies for about three decades. But, faced with high tariffs and tough competition, owner Tomás Pozuelo was thinking about halting exports to the southern neighbor.
Not any more. The two countries signed a free-trade agreement one year ago, and lawmakers here took a key step toward ratifying the treaty this month.
“The treaty with Panama was long overdue,” Pozuelo said. “It’s something we needed.
We were going (to get priced) out of the market.”
Now, Jack’s Snacks is making an “aggressive” push into Panama, Pozuelo said. He expects exports there to increase by 20 percent a year once the treaty goes into effect and the 15 percent tariff on snack food disappears.
From medicine to furniture to food, Tico exporters are preparing for greater access to 3.24 million Panamanian consumers.
A Legislative Assembly committee on Aug. 6 approved the treaty, sending it to the floor. The Arias administration is pushing lawmakers to ratify it by December.
While the Central American Free-Trade Agreement with the United States (CAFTA) encountered fierce opposition here before it was approved by referendum last year, the treaty with Panama has been much less controversial.
“This is a fair trade agreement,” said Elizabeth Fonseca, a Citizen Action Party (PAC) lawmaker who opposed CAFTA but voted for the treaty with Panama in the International Affairs Committee this month. “(Panama) is similar to Costa Rica in terms of size, population … and per capita income. …There aren’t the same asymmetries as with CAFTA.”
The treaty, already ratified in Panama, will eliminate tariffs for nearly 80 percent of agricultural goods and 93 percent of industrial goods that cross the border. With some exceptions, the remaining goods will lose their tariffs gradually over three to 17 years, according to a Foreign Trade Ministry (COMEX) report.
Economist Alberto Trejos said the treaty presents a “huge opportunity” for Tico exporters because Panama is so close, and because few countries have broad access to the Panamanian market.
While the terms apply equally for both countries, Tico exporters stand to benefit more because Costa Rica has stronger agricultural and manufacturing sectors, Trejos said. Panama’s strengths are its service and financial sectors.
“They need to buy from the rest of the world things that we are very good at (producing),” Trejos said. “I am guessing that … we will run a significant surplus.”
Costa Rica has run a trade surplus with Panama nearly every year since 1990, according to figures from COMEX.
In 2006, some 3.3 percent of Costa Rica’s exports went to Panama, creating a $105 million surplus for Costa Rica. Medicine was Costa Rica’s biggest export, followed by insecticides, electric cables and food products.
“You hear from all the people who produce food that this treaty will promote new sales for everyone,” said Carlos Berrocal, trade manager at the bakery Musmanni.
The treaty will eliminate 10 percent tariffs on Musmanni’s baked goods over the next five years. The company, which now has 14 stores in Panama, is planning to open at least 45 stores in the next five years, said William Downing, general manager of Musmanni Panama.
Musmanni also sells to two Panamanian supermarket chains, a food distributor, and smaller retailers such as Quiznos and Subway. Berrocal said he expected those exports to increase at least 10 percent every year for the next five years.
Now Musmanni must learn to cater to the Panamanian palate, Berrocal said. The company sells a traditional Panamanian bread called moña de huevo, but the recipe isn’t quite right, he said.
“We have to learn the Panamanian taste,” he said. “We have to learn what they like and how to produce it.”
For some exporters, the treaty offers a chance to make up for sluggish sales during this year’s global economic downturn.
Javier Freer, head of exports at Pastas Roma, said the company sold 10 percent less pasta to Central America from March to June than it had banked on.
As ingredients and fuel prices spiked, Pastas Roma increased prices and lost potential customers, Freer said. The company can become more competitive under the treaty, which eliminates 15 percent tariffs on pasta over five years.
“If new export opportunities open up, you’re less affected by decreases in sales to other countries,” Freer said.
Jack’s Snacks, which exports more than half of its products to Panama, began preparing for the treaty about a year ago, when it was signed. The company doubled its points of sale in Panama to 4,000 and began swallowing the 15 percent tariff, rather than tacking it onto prices, Pozuelo said.
Noticing that cinnamon was a popular flavor in Panama, Jack’s created a new cereal, “Cinnamon Crunch.”
The U.S. snack giant Frito-Lay, which has a plant in Panama, dominates the market there, but Pozuelo is hoping to jump from third to second place, crowding out the Panamian brand Rizadas.
Still, Pozuelo said, the treaty is no miracle; it merely puts Jack’s on an even playing field with competitors who don’t pay tariffs. He criticized lawmakers for waiting a year to send the pact to the Legislative Assembly floor.
“We have been paying 15 percent because the government delayed us,” he said. “I’m not going to sit here and say, ‘Thank you, government.’”
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