What Does Mercosur Represent for Panama?

During the inauguration ceremony for the elected president, José Raúl Mulino detailed the actions he plans to take once he assumes control of the country on July 1st.

Mulino emphasized the importance of expanding the Panama Canal watershed, implementing the "My First Job" program, and managing public funds—topics that, according to the private sector, should be on the agenda for the first 100 days of the new administration.

But Mulino also referenced the country's foreign trade and how it could help the Panamanian agricultural sector increase its production by accessing more markets.

The elected president said that the international community has shown interest in forming trade alliances with the country, and revealed that President Luiz Inácio Lula da Silva suggested starting discussions for Panama to negotiate a Free Trade Agreement (FTA) with Mercosur.

Originally composed of Brazil, Argentina, Uruguay, Paraguay, and Venezuela (the latter suspended since 2017), the Southern Common Market (Mercosur) has an annual trade balance exceeding $600 billion, with China, the United States, and the Netherlands as its main markets.

The trading bloc, which includes associated states such as Chile, Colombia, Ecuador, Guyana, Peru, Suriname, and Bolivia, primarily exports minerals, soybeans, meat, and fuel. Meanwhile, among the products imported by the bloc are nuclear reactors, boilers, machinery, mechanical devices, electrical equipment, mineral fuels, mineral oils, and mineral waxes.

According to Mulino, achieving a Free Trade Agreement (FTA) with Mercosur would provide the country with significant political and economic leverage, complementing what Panama already has with Central America and the Dominican Republic. “We need to open doors and more doors to export our products, ensuring our entrepreneurs receive government support to seek these markets, without affecting our own. Most importantly, we must overcome the limitations of the agricultural sector, enabling it to produce food and grains for the world through the necessary incentives to plant more, sell more locally, and export further,” said the president-elect.

But what would pursuing an FTA with Mercosur mean for Panama?

According to the Commercial Intelligence Office (Intelcom) of the Ministry of Commerce and Industries, Panama's exports to Mercosur countries are low, with none of them ranking among the top 10 destinations for Panamanian exports. The top destinations include China, Japan, the United States, the Netherlands, India, South Korea, Canada, Spain, and Germany.

Between 2018 and the first quarter of 2024, Panamanian exports to Brazil, Argentina, Uruguay, and Paraguay—representing a combined market of 273.9 million people—totaled $39.8 million. The year 2018 saw the highest export volume in the past 15 years, reaching $8.4 million.

Individually, Brazil is the main destination within Mercosur for Panamanian exporters, accounting for over 80% of shipments. According to Intelcom data, Panamanian exports to Brazil, Uruguay, Argentina, and Paraguay include aluminum waste, frozen fish (excluding fillets), iron and copper scrap, fats and oils, cocoa, recyclable cardboard, and pharmaceuticals, among others.

Bianca Morán, President of the Panamanian Association of Exporters (Apex), considers Mulino’s statements about increasing foreign trade as positive.

Regarding the idea of pursuing an FTA with Mercosur, exporters believe that exploring areas of cooperation should precede embarking on a trade treaty negotiation. Panama currently has 23 active trade agreements, including FTAs, Trade Promotion Agreements, and Trade Alliances.

Intelcom data indicates that, as of the end of the first quarter of 2024, Panama’s total exports amounted to $187 million, with 82.1% destined for countries with which Panama has a trade agreement.

In the case of trade blocs as destinations for our exports, the European Union ranks first, followed by the Central American Common Market (MCCA) and the Latin American Integration Association (ALADI)," the data from the Commercial Intelligence Office details.

The president of Apex indicated that it is important to reach a consensus with the export sector before starting negotiations for a free trade agreement (FTA) and explained that currently, the sector is focused on expanding its presence in the Caribbean and Europe.

"We are focused on moving towards certified markets that pay better for Panamanian products," she explained. Other consulted exporters noted that Panama should focus on the quality of its products, as being a small country means its export volume is low. Therefore, it is important to focus on value-added products to improve the return on investment.

Actions to be Taken by the New Administration

The president of Apex stated that the incoming government should focus on modernizing institutions to boost foreign trade, as it is easier to import than to export.

"We need to develop an exporter's plan to modernize the systems of the institutions involved in foreign trade. While the Ministry of Commerce and Industries has a high percentage of digitalized processes, other ministries like Agricultural Development and the Ministry of Environment are lagging behind, and their platforms do not connect with each other to facilitate bureaucratic procedures," she explained.

In this regard, Raúl Montenegro, president of the Panamanian Industrialists' Union (SIP), commented that, compared to other countries, bureaucratic procedures in Panama can take up to six times longer, complicating the work of the private sector.

In his opinion, the incoming government should focus on reducing the time it takes for businesses to obtain permits and authorizations to operate and export. For Apex, it is also important to develop and enhance a national brand, which Panama lacks compared to other countries, as this would make its products more visible.