A longstanding tariff dispute between Panama and Colombia, which appears to be escalating, could ultimately prevent Panama from joining the Pacific Alliance, a trade bloc currently formed of Chile, Colombia, Mexico and Peru.
Panama has been contesting Colombia’s tariffs on textile imports from the Colón Free Zone for years, but Colombia’s refusal to lift the tariffs despite a recent World Trade Organisation (WTO) ruling in favour of Panama has added fuel to the fire.
“Colombia argues that those imports could constitute illicit trade, that has been the legal claim,” says Diego Moya-Ocampos, senior analyst for IHS Country Risk in the Americas.
Panama doesn’t agree with the argument, and with Venezuela, one of Colón’s major customers, virtually out of business, the government feels pressured to solve the dispute and increase textile exports to Colombia. The latest WTO ruling, which rejected Colombia’s appeal to review a previous decision in favour of Panama, has comforted the country in its opinion. Now various Panamanian officials have threatened to “retaliate” if Colombia doesn’t lift the tariffs by the end of July.
A meeting held on July 26 between the two countries’ trade ministers didn’t result in an agreement, and Panamanian media say that if no agreement is reached by next Tuesday (August 2), Panama will request WTO arbitration to define a final deadline for Colombia to comply, after which it will impose its own discriminatory measures against Colombian imports.
But according to Moya-Ocampos, Panama would gain nothing from such measures, not least because “Panama imports more from Colombia than Colombia imports from Panama”. “I think it is in both sides’ interests to reach an agreement that can be implemented, because the goal of Panama is to join the Pacific Alliance but this has been a longstanding obstacle to that goal,” he tells GTR.
In his opinion, the Colombian government is likely to “seek to remove the tariff”, but may be evaluating remaining legal actions. However, he warns that without an official stance from the Colombian government, it’s difficult to assess what the next steps may be.