Jun 12, 1998

PANAMA: TARIFF CUT LEADS TO CLOSURE OF FACTORIES

Panama City, Jun 10 (IPS/Silvio Hernandez) -- The closing-down of two foreign-owned manufacturing plants and the threat of closure of another are the result of a reduction of tariffs implemented as a requisite for Panama's entry into the World Trade Organisation (WTO), according to local trade unionists and industrialists.  

The April closure of a Philip Morris cigarette processing plant and the announcement two weeks ago of the liquidation of a Colgate Palmolive factory are the first two cases of replacement of local production by imports favoured by the new tariff policy.  

The closure of Philip Morris' factory in Panama, which exported 70% of the goods it produced to Puerto Rico, meant the loss of 105 jobs in the factory and 300 on the tobacco plantations.  

And another 200 workers will swell the ranks of the unemployed when Colgate Palmolive pulls out.  

The Swiss transnational Nestle, meanwhile, is considering closing a tomato pulp processing plant in the city of Nata, 180 kms west of the capital, in order to cut costs and boost the competitiveness of its products on the local market.

The vacuum left by the closures will be filled by imports favoured by the new tariffs announced last November to pave the way for Panama's entry into the WTO, say industrialists. Multilateral lending institutions were demanding that Panama join the world trade body.  

On Jan. 1, tariffs on imports of 2,200 products were slashed to an upper limit of 15 percent. Exceptions are a continued 40 percent duty on dairy products, a gradual reduction of the duty on rice from 60 to 30 percent by the year 2000, and a continued 15 to 20 percent duty on imported cars.  

Felix Murgas, secretary-general of the Union of the Industry of Oil, Soap and Derivatives, said the Panamanian economy would not only be affected by the loss of jobs, but also "by the climate of insecurity generated by the closing of the companies." 

Murgas criticised the government's economic policies, which he said "lead to an increase in the closure of sources of jobs instead of expanding the job market."  

The structural adjustment programme implemented by President Ernesto Perez Balladares since late 1994 has been based on the privatisation of public enterprises, the slashing of tariffs and reforms of labour legislation, with the aim of significantly reducing unemployment and poverty.  

But while the proportion of the population living below the poverty line dropped from 45 to 38 percent over the past four years, unemployment continues to afflict close to 14 percent of Panama's economically active population of 1.1 million, as in late 1994.  

Alberto Pons, acting president of the Association of Industrialists of Panama, said the withdrawal of Philip Morris and Colgate and the possibility of a close-down by Nestle were "the direct consequence of the reduction of tariffs, which makes it cheaper to import goods than to produce them at home."  

In late 1997, the Association of Industrialists warned that half of the 67,000 workers employed by its 500 member companies would lose their obs due to competition from low-cost imports that would flood the local market.  

Pons refuted the argument that the goods to be imported by Colgate Palmolive and Philip Morris would be of higher quality than those produced in Panama, as claimed by company executives, because "the quality standards of the transnationals are the same in any country."  

He added that the only reason the two firms were closing their factories in Panama "is the reduction of tariffs, which makes it possible to bring products into the country at low cost and makes it more difficult to produce them locally."  

The government justified the cut in tariffs by the need to eliminate distortions caused by protectionist duties enjoyed by some sectors and to foster imports that would help reduce the cost of the basic consumer basket of food products.