Created in 1948, the CFZ is administered as an autonomous division of the Panamanian government. Located near the Caribbean entrance of the Panama Canal in the city of Colon, the CFZ is within close proximity to three different ports on the Atlantic and one on the Pacific.

The CFZ continues to play a key role in regional and global trade, as does the Panama Canal. People from all over the World come to Panama to do business in the CFZ, but the largest buyers, in order of largest to smallest, are Colombia, Venezuela, Panama (domestic market), Guatemala, Ecuador, Costa Rica, United States, Chile, Cuba, Honduras, Peru, Brazil, Nicaragua and El Salvador. By some estimates, these countries account for 80% of all purchases in the CFZ. 

In 2010, it was reported that more than $11.4 billion in merchandise was exported from the CFZ. Mostly, goods are imported from China, the largest individual supplier, followed by Taiwan, United States, Japan, Korea, France, Mexico, Italy, Puerto Rico, Switzerland, United Kingdom, Malaysia and Germany. These countries supply more than 75% of all goods imported into the CFZ.

Buyers typically come to the CFZ to purchase and import consumer retail products, such as electric appliances, clothing, jewelry, perfumes, cosmetics, sporting goods, electronics, liquor, and cigarettes.

The CFZ does not offer traditional retail shopping. Most buyers are representatives of retail stores in their home countries, and enter the CFZ in order to purchase goods to fill their store’s shelves and stock inventory. Buyers usually will purchase 20 and 40 foot long containers full of items they will resell in their home country. Many suppliers in the CFZ have a minimum purchase order, like a pallet-sized quantity, so it is not too difficult to fill a container when you buy in such bulk. 

Benefits of Doing Business in the Colon Free Trade Zone

The benefits of doing business in the CFZ are many, but mainly they surround the fact that all goods imported and exported through the CFZ are duty free – no taxes are changed. The CFZ offers free movement of goods and absolute exemption from tax on imports and re-exports.  Furthermore, there is 0% taxation on profit earned from re-exporting, 0% taxation on the payment of dividends, and zero corporate income tax.

Beyond the fiscal benefits, importers and exports to and from the CFZ also experience unique advantages. Importers, or buyers, are able to visit the free trade zone and have access to an excellent assortment of goods all in one place. The CFZ provides buyers with the opportunity to fill one container with a variety of items, whereas if they traveled to a factory in China they would most likely have to purchase a large quantity of just one item. 

Another benefit of importing from the CFZ is Panama’s longstanding status as an international banking center. There are more than 100 different banks operating in Panama, and a large majority work with buyers in CFZ and provide easy access to credit. Additionally, Panama’s currency and that of the CFZ is the dollar which adds an element of stability to all transactions.

Exporters, suppliers of goods to companies reselling in the CFZ, also have their own set of advantages and benefits of doing business with companies in the CFZ. Selling to an established merchant in the CFZ provides the exporter with quick access to the global market. An exporter can sell to one merchant, duty free, and easily have their products distributed and retailed throughout Central America, the Caribbean, and the Andean region of South America.

Established CFZ merchants have longstanding customers and contacts which allows exporters to focus on their core business – manufacturing or supplying the product. By selling to one merchant instead of having to deal with customs clearance, distributors and retailers in foreigner countries, exporters can effectively eliminate them and employ the CFZ merchant. A valued CFZ merchant will supply customer service, sales, marketing, financing, third party logistics and distribution all in one.

Moreover, merchants bear the financial risk of offering terms on the sale to their customers, not the exporter. And of course a key feature is the fact that duties end up being the responsibility of the final buyer once the goods enter their country. 

Future of the Colon Free Zone

The Colon Free Zone (CFZ) continues to play a major role in regional trade and so does the Panama Canal. Currently, the Panama Canal is undergoing a major expansion to allow post Panamax ships to transit through the canal via a third set of locks. Scheduled to be completed in 2014, the Panama Canal expansion is expected to foster additional growth in the CFZ. 

Burdened with long shipping routes around the southern tip of South America or cross continental land routes, post Panamax ships coming from Asia will soon be able to provide customers in North America and Latin America with an all-water transit through the Canal. As a result the increased traffic, primarily from the Pacific to the Atlantic, will result in greater amounts of cargo being unloaded in the CFZ. 

Many ports along the Atlantic coast of the U.S. and Latin America, as well as in the Caribbean, are heavily investing in updating their infrastructure (docks, channels, equipment, warehouses) to allow for larger vessels. However, not all ports are going to be able to accommodate such large ships with an immense cargo load.

Therefore, cargo ships transiting the canal have the opportunity to unload containers at the Panamanian port at the Atlantic’s Canal entrance/exit point and redistribute them via smaller vessels. The CFZ is collocated with the port, which is the premier transshipment port in the region. So, once the expansion is done, the CFZ expects to receive a much larger quantity of containers full of merchandise ready to be re-exported throughout the region.

The Panamanian government’s ambitious $5.25 billion Canal expansion project is already benefiting the economy with a huge influx of investment. And it is expected that as soon as 2015 the Canal will be profitable and provide a much larger revenue stream.

With increased revenue and a growing economy, the Panamanian government has developed plans to integrate existing CFZ infrastructure and transport entities, including all four Panamanian ports, France Field airport near the CFZ, the Panama railway, and the new highway connecting Colon and Panama City. The CFZ will have one permanent network to aid the movement of cargo from ocean to ocean. The plan is slated to begin within the next five years, which also includes adding approximately 1,200 hectares (3,000 acres) of area to the CFZ.