Panama: Retail Business And The Free Trade Treaty

The Free Trade Treaty between the United States and Panama will bring large numbers of import companies, such as Nike, J.C. Penny and Wal-Mart, which have been establishing their manufacturing centers in Asia, due especially to the low production costs, and others will set up in the Republic of Panama.

Section 293 of Panama’s Constitution sets forth that only the following persons may carry on retail business:

1. Panamanians by birth
2. ……………
3. ……………..
4. National or foreign bodies corporate and foreign natural persons who, at the date this Constitution came into force, were already carrying on retail business according to the law.
5. Bodies corporate organized by Panamanians or foreigners empowered to engage in business individually in accordance with this section, as well as those who, without having being constituted as mentioned earlier, were engaged in retail business when this Constitution came into force. Foreigners who are not authorized to carry on retail business can nonetheless participate in companies selling manufactured products themselves.
6. Carrying on retail business means selling to consumers or to its representatives or agencies of manufacturing or mercantile companies, or any other activity as may be classified by the law as being part of such commerce.

Excluded from this rule are cases where a farmer or the manufacturer from the craft industry sells his/her own products.

The law will establish a surveillance and penalty system to prevent those who, according to this section cannot engage in retail business from doing so for using third parties or any other fraudulent means.

Since Panama’s Constitution prohibits foreigners to carry on retail business, how will companies wishing to enter the Panamanian market go about establishing themselves here? The only existing legal way is for a company constituted before the coming into force of this Constitution, that is, before October 11, 1972 to do so, as set forth in the Supreme Court of Justice’s ruling of June 16, 1978, concerning the legal-administrative nullity suit filed by COSCO, S.A., now called Price Mart.

This ruling indicated the lawfulness of the fact that two of the directors of a corporation named W.D. Panama S.A. are or were part of the Board of Directors of the corporation W.D. DE PANAMA S.A. and that they were U.S. citizens, by explaining that the said corporation requested a Commercial license type B to the Division of Inland Commerce for carrying on retail business and that at the time, Decree 90 of March 25, 1971 was in effect, which Decree expressed that the exercise of retail business was exclusively reserved to Panamanians, in accordance with the provisions of Section 234 of the national Constitution in effect at that time.

The legal-administrative court resolved in the above-mentioned ruling that the (Type B) Commercial License for carrying on retail business was issued to the aforesaid company because the 1972 Constitution recognized the rights acquired during the effectiveness of the previous constitution, that is, the 1946 constitution.

The other possibility that is mentioned is for the free trade treaty negotiators to undertake to modify the constitution so as to allow foreigners to engage in retail business in our country, thus eliminating the restriction that exists in the present constitution.