The View from the Colon Free Trade Zone

The View from the Colon Free Trade Zone

In 1696 the Scotsman William Patersen had visions of a Panama Canal:

“The time and expense of navigation to China, Japan, the Spice Islands, and the far greatest part of the East Indies will be lessened more than half, and the consumption of European commodities and manufactures will soon be more than doubled. Trade will increase trade, and money will beget money, and the trading world shall need no more want work for their hands, but will rather want hands for their work. Thus this door of the seas, and key of the universe, with anything of reasonable management, will, of course, enable its proprietors to give laws to both oceans…”

It’s 2014 and the US-built Canal, now under Panamanian sovereignty, has existed for a full hundred years. Trade begets trade, and money increases money. Claire and I received an invitation to visit J. Cain & Co., a third-party logistics firm in the city of Colon, on the Caribbean side of the Isthmus. It’s located in a hypermodern extension of the Colon Free Trade Zone called the MIT Logistics Park, which is managed by a consortium attached to the Manzanillo International Terminal (MIT), one of the three container ports in Colon. Here, behind a regulation barbed-wire fence, at a stone’s throw from vast staging areas stacked five containers high, a special customs office has been constructed at the consortium’s expense, staffed by Panamanian officials. Goods are delivered from the US and Asia to the warehouses, clear customs electronically, and are repackaged are redistributed across Central and South America. We are about to discover how new laws are given to both sides of the oceans.

MIT_Logistics-Park

Christian Smith is a grandson of James W. Cain, who established the company in 1951. He gave one of the sharpest corporate presentations I’ve yet seen. The company’s slogan, “500 Years of Services to the World,” recalls the transshipment functions of the Isthmus under the Spanish empire, when the trade fairs of nearby Portobelo dealt in gold, silver and human slaves… The core values of the company are integrity, discipline, teamwork, passion and commitment. Their strategy is to bring multinationals to Panama as a logistics hub for Central and South America.

Colon’s three container terminals have a total of 23% of Latin America’s port cranes and move 3.5 million TEUs a year, compared to 3.2 million at Balboa Terminal on the Pacific side. In a partnership with the US firm SSA Marine, $550 million has been invested in the Manzanillo Terminal since 1994, after Panama privatized its port operations. The Colon Free Zone, founded in 1948, is the largest in the Western hemisphere and second-largest in the world after Hong Kong. Only 5% of the goods unloaded here remain in Panama; the rest move on to other countries in the region. The advantages of the Free Zone are the Canal itself; the railroad, highway and fiber optics linking it to Balboa Port in Panama City, and to the Panama-Pacific Free Trade Zone; the Tucomen airport in Panama City, hub of the regionally dominant airline Copa; the Panamerican highway; the currency stability of a dollarized economy; a liberalized financial sector with all the major global banks; business-friendly legislation with no taxes on foreign income; and an environment subject to few natural disasters and therefore enjoying low insurance premiums.

Corredor-Mesoamerica

The Panamerican Highway is growing in importance as the International Development Bank funds an integrated transport corridor, the “MesoAmerican (Biological) Corridor,” which seems to be the green-neoliberal inheritor of the Plan Puebla-Panama (sometimes the word “biological” is used to describe it, sometimes not). But the Panamerican Highway stops just after Panama City, at the so-called “Darien Gap,” whose impenetrable jungle is how Panama tries to protect itself from the narco-violence and endless civil war in Colombia. The role of the Panamanian airline Copa becomes all the more important in that light. With clients such as DHL and FedEx as well as important passenger services, it has expanded tremendously since it went public around twenty years ago, raising capital on the New York Stock Market to extend its reach across Central and South America. The Panama Pacifico Special Economic Area is being developed on the former Howard Air Force base by the London and Regional Properties Corporation, as a combination real-estate project, logistics park and manufacturing center. It’s set to take off when the new bridge from Panama City is completed; companies like Dell and 3M already have operations there. The current campaign to attract the regional HQs of multinationals to Panama has gained extra strength because of the unfriendly climate for business under neighboring leftist regimes, notably Venezuela and Ecuador.

The MIT Logistics Park itself looks like a bunch of warehouses with cross-docking capacities, so close to the port that you could practically bring the containers on a crane (however they use trucks that enter through a secure gate). A direct rail connection is available if the customer requires it. The park was designed according to US standards in collaboration with the Panama-based firm McKinney Internacional. It has 71,000 sq meters of warehouse space and is currently expanding into part of the 17,000 sq meters remaining free in the park. It is surrounded by a security fence and represents the first extension of the Colon Free Zone outside of its historic area, which is all contiguous and surrounded by a single perimeter.

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J. Cain & Co has ISO 9001:2008 certification for Logistics Services: Import and Export, Warehousing, Inventory Management, Product Transformation, Distribution and Shipping Agency. A 250 kilowatt solar system has been installed on the roof and the company has a carbon emissions plan to shrink its carbon footprint. Five years ago, the same firm that did the job for the Port of Singapore set up an information-technology system based on barcode readers was set up to track the location and condition of everything in the company, along with a web portal where customers can follow their orders. The goods are classified by tariff codes, and the software ensures compliance with customs regulations, so that an order can clear customs virtually at the same time that it is processed physically for reshipment. The company offers a full range of logistics services with a specialization in refrigerated pharmaceuticals. Cross-dock services with “pick and pack” redistribution of container loads permit, for example, a regional shoe supplier to fill single containers with a full range of products from different Asian factories; price tags and packaging are added by the company before each container leaves for a store that could be anywhere in Central or South America.

J. Cain & Co basically does what hundreds of other companies in the Free Zone do, but better and faster with more highly modernized facilities. For anyone who has studied Foreign Trade Zones in the US, this looks like the exact same model, with some additional advantages due to the stripped-down nature of Panamanian laws. The Free Zone’s turnover has doubled over the last ten years, rising to $10 billion last year. 3PLs allow multinationals to coordinate all their operations from a single regional base in Panama, gaining economies of scale and undercutting the local competition in any given nation. rade begets trade, and money increases money, as William Patersen said long ago, with the prospect of a Panama Canal gleaming in his eye. However, Patersen also convinced the Scottish to invest half the nation’s available capital in a colonial venture that failed in the first year, resulting in the deaths of half the colonists and the bankruptcy of the country, which had to merge into the UK as a result.

Over the last year, the revenues of the Colon Free Zone have plummeted by some $3 billion according to Christian Smith (these figures need to be verified). The problem is that Ecuador, a dollarized country, is applying import restrictions because it is short on dollars; while Venezuela has been unable to meet its payments and currently owes some $1 billion to Free Zone companies. Goods are piling up in the container yards as firms are not able to sell their products. One can wonder whether the attempt to take over major portions of the Central and South American economies from a single distribution point will not inevitably provoke tariff wars and trade barriers as countries are drained of all their foreign exchange and begin suffering the consequences of failed national industries and plummeting internal commerce. Meanwhile, the Canal expansion project is currently on the skids as the Panama Canal Authority refuses to pay cost overruns to the European building consortium. Trouble in paradise? Or just a momentary blip on the expansive horizons of a world governed by the laws of free trade?

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