Due to its strategic location at the mouth of two oceans, Panama, from the time of the conquistadors, has served as the crossroad of trade for the Americas. Today the country is an international trading, banking, and services center. Trade liberalization and privatization over the last several years, while flawed, have added some substance to these assertions. Panama’s dollar-based economy offers low inflation and zero foreign exchange risk. Panama’s Government actively seeks foreign investment. The downturn of Panama’s economy, which started in 1999, modestly reversed itself at the start of 2003. Panama still struggles to overcome the departure of the US military, low prices for its primary exports, higher prices for petroleum imports, reduced trade and investment due to the regional and worldwide economic slowdown, and contraction of domestic demand, however, growth in tourism, telecommunications, and maritime sectors along with recent growth in construction portends that first quarter 2003 gains in the Panamanian economy might continue. The sectors of Panama’s economy that have suffered in 2002 were manufacturing and construction, traditional agriculture, retail sales, fishing, and the exports sector (the Colon Free Zone in particular). According to the Government of Panama (GOP), the economy grew 0.8% in real terms in 2002, compared to 0.3% real growth in 2001. Although Panama’s 2002 per capita GDP is among the highest in the region at US$3,699, this figure is unreliable as an indicator of prosperity overall, because of Panama’s highly skewed income distribution. Panama’s income distribution is second only to Brazil in the hemisphere in terms of inequality. The Survey of Living Standards, produced by the World Bank and the Government of Panama in 2000, estimated that 37% of all Panamanians live in poverty, including over 50% of children under age 10, and 95% of the indigenous population. GDP grew 2.0% during the first quarter of 2003. The GOP predicts GDP growth of 2-2.5% for 2003. Due to the evolution and composition of Panama’s largely services based economy, the extent and nature of local competition is limited in most non-service sectors. Although the United States is Panama’s most important trading partner, with about 40% of the import market, and U.S. products enjoy a high degree of acceptance in Panama, competition is strong in several sectors including: telecommunications equipment, automobiles, heavy construction equipment, consumer electronics, computers, apparel, gifts, and novelty products. Panama’s merchandise imports increased in 2002 by 3.5 percent over 2001 to a total of US$3.1 billion. The value of Panama’s total merchandise exports in 2002 reached US$756 million, a decrease of 6.5 percent over the previous year. The Colon Free Zone alone represents a larger market than Panama’s entire internal market. Free Zone imports totaled US$4.45 billion in 2002, with exports of US$ 4.8 billion. These figures mark a decrease of 6.5% and 10% respectively in comparison to 2001, when imports decreased 0.6% and exports increased 0.4%. The total net contribution of the CFZ to the Panamanian trade balance (Exports-Imports) was US$369.3 million, down slightly from 2001. In 1999, the CFZ experienced one of its worse years ever, a disastrous 23% decline. Zone imports are mostly luxury goods, electronic products, clothing, and other consumer products. Because of this product mix, U.S. market share is somewhat lower in the Zone than in Panama. Hong Kong is the Free Zone’s biggest supplier, while Colombia and Ecuador are the two largest destinations for Zone re exports. As a direct effect of economic slow down of the economy, Panama’s agriculture sector continued to reduce its contribution to the GDP in 2002, which stands now at 6.9%. Falling prices for export commodities such as coffee and sugar continued affecting those sectors, reducing their exports on an average of 2%. Banana exports decreased 13% due to access problems to EU markets and to local labor unrest. Traditional commodities such as rice, corn and beans suffered setbacks due to bad weather conditions (drought caused by El Nińo), forcing an increase in imports. The sectors that experienced the highest growth rates were fruits (mainly melons, watermelons and pineapples) with 7% average increase, and beef with 3% increase. Some agricultural imports are still subject to high duties while non-tariff barriers have proven to be a persistent obstacle to agricultural market opening. The Fisheries sector suffered a setback with exports decreasing 12% due to recurring problems with shrimp virus (the White Spot Virus). Panama paved the way for tuna exports by signing the International Dolphin Conservation Program Agreement in 1998. 2002 witnessed advanced growth in the sector with tuna exports increasing to USD 14 million (a 49% increase), mainly to U.S. markets.