DISCOVER GLOBAL MARKETS: Free Trade Agreements – Highlighted Countries

Australia

Costa Rica

Israel

Oman

Bahrain

Dominican Rep.

Jordan

Panama

Canada

El Salvador

Mexico

Peru

Chile

Guatemala

Morocco

Singapore

Colombia

Honduras

Nicaragua

South Korea

Australia

Market Overview

  • Total U.S.-Australia bilateral trade in 2011: US$49.8 billion
  • U.S. merchandise exports to Australia: US$24.854 billion (not include Dec)
  • U.S. services exports to Australia: US$11 billion
  • Australia’s rank as a U.S. export market in 2012: 13th largest
  • Principal U.S. exports to Australia in 2012: see Chapter 4
  • Australia-U.S. Free Trade Agreement (AUSFTA) elimination of tariffs provided new

market opportunities for U.S. companies.

Australia is the world's 13th largest economy, with a GDP of almost US$1.4 trillion. It is the fourth largest economy in the Asia-Pacific region and is forecast to grow at 3.25% in both 2011-12 and 2012-13. Australia’s per-capita GDP of US$60,000 is among the highest in the world. The economy has recorded 20 years of uninterrupted annual growth to 2011 and now enjoys the highest terms of trade in 140 years. Growth in commodity exports to Asia buoyed Australia through the GFC although it has impacted adversely on manufacturing because of the strong Australian dollar.

The economic outlook for Australia is favorable, led by private investment in mining and commodity exports to emerging Asia, including China. Australia’s economic stability has been supported by prudent fiscal policy and ongoing structural reforms, with unemployment currently at 5.1% and government net debt only 8% of GDP. Recent controversial reforms include a carbon tax (from 1 July 2012) and a proposal for a mineral resources rent tax, which is expected to pass Parliament this year.

In 2010, Australia exported more than US$210 billion worth of merchandise goods and imported around US$202 billion worth of merchandise products, respectively the 15th and 13th largest globally. The United States is an important economic partner for Australia, standing as its third largest trading partner as well as largest source of foreign investment and primary destination for Australian investment. In 2010-11, Australia recorded a total trade surplus of A$22 billion in 2010-11, a marked turnaround on the $3 billion deficit of the previous year.

The Australia-U.S. Free Trade Agreement (AUSFTA) came into effect in 2005 and

bilateral goods and services trade increased by 52% to US$50 billion in 2010. Over this period, U.S. goods exports to Australia grew 56% to $22 billion and the trade surplus expanded by 87% from US$11.1 billion to US$20.7 billion. The stock of Australian direct investment in the United States rose by 20% in 2010 to US$49.5 billion. Australia was the tenth largest investor in the United States in 2010.

The Australian financial system remained resilient throughout the GFC and Australian banks have rebounded. The four largest are now among the world’s 11 remaining AA rated banks. The Australian stock market is currently the largest liquid stock market in the Asia-Pacific region (ex-Japan) and ranks sixth in the world, with a total market capitalization of US$1,136 billion. The market capitalization of floating stocks in Australia is more than double that of Hong Kong (US$480 billion) and more than four times larger than that of Singapore.

Australia has a large services sector (80% of GDP), but is also a significant resources, energy and food exporter. Australia’s abundant and diverse resources attract high levels of foreign investment and include extensive reserves of coal, iron ore, copper, gold, natural gas, uranium and renewable energy sources. A series of major investments, such as the US$40 billion Gorgon LNG project led by Chevron, will significantly expand the resources sector. Currently there is a vast investment pipeline of around $430 billion – equivalent to 30% of nominal GDP. However, with the high dollar, trade exposed industries outside the resources and energy sector have come under great pressure.

  • We advise American firms examining the Australian market to pay attention to macro measures of opportunity, which give it more purchasing power relative to that in less- developed economies. Along with the Free Trade Agreement, the case for entering or expanding in the Australian market is stronger than the population of 23 million might suggest, particularly with the strong Australian dollar stimulating greater demand for U.S. products and services.
  • Australia’s relative market appeal remains convincing, with few barriers to entry, a familiar legal and corporate framework, sophisticated consumer and industrial

sectors, and a straightforward, English-speaking business culture. The Australia-U.S. Free Trade Agreement enhanced the long and successful trading relationship by eliminating tariffs on almost all U.S. manufactured and agricultural goods.

  • We believe 2012 will continue to show demand for American companies with

innovative products and technologies in the Australian market. We invite you to contact us to help you analyze and execute your objectives for the Australian market.

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Bahrain

Market Overview

The United States and the Kingdom of Bahrain share a strong bilateral relationship based on a joint commitment to the security and stability of the region. Bahrain is a firm but discreet regional actor, taking an active role as a member of the Gulf Cooperation Council (GCC), which includes Saudi Arabia, Kuwait, the United Arab Emirates, Qatar and Oman. The Government of Bahrain is a monarchy with a population of 1.2 million (51% expats), ruled by King Hamad bin Isa Al Khalifa since 1999. Bahrain enjoys a liberal economy and lifestyle.

Bahrain entered into a Free Trade Agreement (FTA) with the United States on August 1, 2006. The agreement seeks to expand and promote the scope of economic, commercial, investment, and trade relations between the two countries. Bahrain acceded to the World Trade Organization in 1995. In 2012, the Heritage Foundation listed Bahrain as the world‘s 12th freest economy – the highest ranking in the region. The World Bank‘s ―Doing Business 2012‖ report ranks Bahrain at No. 38 out of 183 countries in the world for ―ease of doing business‖ for foreign investors. Bahrain ranked 46 on Transparency International‘s Corruption Perceptions Index in 2011.

Bahrain's almost $22.6 billion (2010) GDP economy has been growing four to five percent per year between 2005 and 2010. In 2011, however, growth slowed to 1.5 percent, mainly due to civil and political unrest in Bahrain (see Chapter 6, Political Violence). Growth estimates for 2012 are between 2 to 3 percent. Bahraini citizens enjoy a per capita income estimated at $17,850. The Government of Bahrain has kept its price inflation low and its currency stable (the Bahraini Dinar is pegged at .377 to one U.S. dollar).

U.S. exports to Bahrain in 2010 reached $1.213 billion, a decrease of 3 percent over the previous year, and resulting in a trade surplus of $694.7 million. Corresponding U.S. imports from Bahrain were $518.4 million, an increase of 23.4 percent. Bahrain is currently the 81st largest export market for U.S. goods. The stock of U.S. foreign direct investment (FDI) in Bahrain in 2009 was $281 million; up from $257 million in 2008.

The U.S. is consistently one of Bahrain‘s leading trading partners with $1.73 billion in U.S. exports to Bahrain in 2011, the highest on record. U.S. products that traditionally do particularly well are aircraft and motor vehicles, mechanical and electrical, and medical equipment. U.S. firms are also involved in major infrastructure projects. More than 180 U.S. companies are currently represented in Bahrain.

Bahrain‘s economy is based primarily on dwindling hydrocarbon resources. Oil and gas revenue accounted for 78% of the Government‘s revenue in 2011. In 2010, the Kingdom of Bahrain initiated a $5 billion project to modernize the country‘s oil and gas facilities and seek to double oil production by 2013. In 2011, the Government increased fiscal expenditure and announced new projects in the oil & gas sector. Bahrain is not a member of Organization of the Petroleum Exporting Countries (OPEC).

Due to its relatively limited energy reserves, Bahrain is diversifying its economy away from oil and gas production. The kingdom‘s long-term ―Economic Vision 2030‖ development plan highlights the need for diversification by increasing the number of Bahrainis in the workforce (“Bahrainization”). The plan also seeks to raise the standards of industrialization, privatization, training and education of the Bahraini work force, establishing Bahrain as a regional center for human capital.

The Government of Bahrain has actively sought to develop the transportation and communication infrastructure necessary to attract and foster international business. With the Government seeking to reduce Bahrain‘s reliance on oil, Bahrain has become a regional financial center with a regulatory infrastructure of high international standards. To overcome its small size, Bahrain has further sought to position itself as a regional services hub. After early success, the financial, telecommunications, and transportation sectors have faced stiff competition from Dubai and elsewhere. In its quest to increase foreign investment, the

Government of Bahrain has targeted six "economic clusters" for further expansion: tourism, information and communication technology, health care, education and training, business services, and financial services. Downstream aluminum and petrochemicals industries also remain priorities.

Based on the 2011-2012 budget, government expenditures accounted for approximately 26 percent of Bahrain's GDP. The Government is heavily involved in industry, with wholly or partially government-owned parastatals dominating certain sectors of the economy. In 2006, the Government transferred control of all parastatal companies to a quasi-independent holding company – Bahrain Mumtalakat Holding Company – to increase the productivity and the profitability of the Government's investments. Mumtalakat was also established to serve as a quasi-sovereign wealth fund to invest in international financial markets and international projects.

Market Challenges

The divide between the government and the private sector is not well defined in Bahrain, leading to potential conflicts of interest. U.S. companies have noted a lack of transparency in government project tendering at times. The GOB implemented a new tender law in January 2003 to promote a more transparent tendering process. The Tenders Board regulates and oversees most of the Government’s tenders and purchases.

Entrenched local business interests with government influence can cause problems for potential competitors. Interpretation and application of the law sometimes varies by ministry, and may be dependent on the stature and connections of an investor's local partner. Departures such as these from the consistent, transparent application of regulations and the law remain rare, and investors are usually pleased with government cooperation and support.

Bureaucracy and poor coordination between ministries on occasion impedes new industrial ventures. The Government's priority of "Bahrainization" of the labor force – a quota system requiring employers to employ a minimum percentage of Bahrainis – can lead to delays and confusion over work permit issuance and renewal. The Crown Prince launched a labor reform process seeking to promote the employment and training of Bahraini workers. The process resulted in legal changes in the labor field. Companies must pay 10BD for every non-Bahraini employee; a percentage of the funds collected gets transferred to a Labor Fund (Tamkeen), which facilitates capital transfers for training, enhancing performance of companies, and conducting seminars for small and medium businesses. This fee is currently suspended as of March, 2012, but companies should verify whether it has resumed prior to hiring non-Bahrainis.

Periodically – usually due to the Bahraini Government‘s efforts to promote greater numbers of Bahraini citizens in the workforce – foreign firms have problems obtaining required work permits and residence visas for expatriate employees. However, this is not a matter of high-level policy and can often be resolved on a case-by-case basis. All travelers to Bahrain face increased scrutiny from Bahraini authorities, and the Government of Bahrain has refused to allow some U.S. citizens permission to enter Bahrain.

Market Opportunities

Bahrain offers a number of advantages as a business or investment destination, including the U.S.-Bahrain Free Trade Agreement (in force as of August 1, 2006), and a Bilateral Investment Treaty (BIT) with the United States (in force as of May 2001). English is widely spoken, and the openness of a centuries-old trade-based culture makes businesses and visitors feel welcome. The presence of the U.S. Navy's Fifth Fleet, and Bahrain's designation as a major non-NATO U.S. ally have given the island international recognition. Bahrain is connected to

Saudi Arabia by the 25 km (16 mile) long King Fahad Causeway, permitting easy access to other GCC markets.

Although oil and gas production will remain the backbone of Bahrain‘s economy for years to come, the non-petroleum sector of the economy is making great strides. Growth areas include: finance, high value manufacturing and industrial services, information technology, health care and medical equipment, education and training, construction and engineering, ports, professional services, renewable energy construction, and tourism.

The Government of Bahrain has substantially liberalized Bahrain's economy and deepened commercial ties with the United States. Bahrain permits 100 percent foreign-ownership of a business or branch office, without the need for a local partner. Bahrain has no tax on corporate income, personal income, wealth or capital gains, withholding, death/inheritance. There is no restriction on repatriation of capital, profits or dividends.

The Commercial Section of the U.S. Embassy, encourages U.S. companies interested in coming to Bahrain to consult with them for additional details and guidance.

Market Entry Strategy

In general, establishing a business presence in Bahrain is straightforward. The Government of Bahrain (GOB) actively seeks to increase foreign direct investment in Bahrain.

An American company may wish to consider registering as a fully U.S.-owned company under the FTA to avoid profit-sharing and potential disputes with a local partner. An on-the-ground presence in Bahrain is an advantage.

A carefully selected local partner can advise U.S. firms on advertising, promotion, and pricing. Due to the difference in culture and conditions, techniques and phraseology that are effective in the U.S. may not be effective in Bahrain.

Personal relationships can significantly increase a company's business prospects. Maintaining business relationships with regular communication and face-to-face contact is also important. U.S. suppliers should stress U.S. origin, competitive prices, high quality, customer service, customer satisfaction, and new-to-market status if applicable.

The Bahrain Economic Development Board provides a one-stop-shop for setting up a business in Bahrain. For information, visit: http://www.bahrainedb.com.

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Canada

Market Overview

U.S. companies looking to explore new markets to expand their international portfolios need to consider the tremendous business opportunities offered in Canada. A solid and integrated supply chain mainly in the automotive and aerospace sectors already make up roughly 30 percent of the $600 billion in bilateral trade recorded in 2011. New developments in shipbuilding, air-defense, safety and security, mining, and renewable energy, will create virtually limitless business opportunities.

In this revised edition of the Country Commercial Guide, you will obtain information about what you need to know and how to be prepared to maneuver in this vast ocean of export opportunities. Nevertheless, the business landscape is constantly changing and the U.S. and Canadian Governments, through the Beyond the Border Initiative, are committed to safely increasing the flow of people and goods across the border while maintaining the security and integrity at the border.

Governments are working to reduce outdated and unnecessary regulations through the U.S.-Canada Regulatory Cooperation Council and enhanced IPR protection to support increased trade and investment.

Canada continues to hold a historic record as the United States’ largest export market, accounting for 20 percent of total U.S. trade. Total stock of Canadian foreign direct investment in the United States also ranked among the top four in the world.

Market Challenges

Though Canada remains the most accessible market in the world, doing business in Canada is not the same as doing business in the United States. Canadian Customs documentation, bilingual labeling, packaging requirements, ITAR (International Traffic in Arms Regulations), and Canadian federal and provincial sales tax accounting can be surprisingly challenging.

Canadian federal, provincial, and municipal procurement procedures, while open in principle to U.S. bidders, can vary from procedures followed in the United States. Bidders must be registered in Canada in order to bid, and bidders must fulfill all the requirements in order to qualify to bid (specified requirements are non-negotiable). In some cases, security clearances are required for personnel prior to submitting a bid, and in a number of projects, there may be requirements for off-sets (known as Industrial Regional Benefits or IRBs).

Market Opportunities

Four trends are driving expanding market opportunities for U.S. firms in several key sectors.

By removing additional barriers to trade, the border and regulatory cooperation initiatives will make United States and Canadian supply chains more efficient and more integrated. This will provide enhanced opportunities for U.S. firms seeking to enter the Canadian aerospace and automotive sector supply chains.

The continuing strength of the Canadian dollar will mean continued expansion in Canadian travel and tourism to the United States, including an expanding medical tourism component.

Continued high global prices for energy and other natural resources will drive increased development of Canadian energy and mining resources. These developments offer substantial opportunities for U.S. renewable energy, mining, oil and gas, and environmental-related sectors.

Market Entry Strategies

For many companies (particularly in the manufacturing and construction sectors), frequent visits and establishing a local presence will be crucial to long-term market success. For many U.S. companies, joining in a U.S. delegation to a Canadian trade show can be the best first step.

For U.S. companies with limited budgets and marketing staff, we recommend:

  • a pilot program called Client Finder which uses advanced database tools to help identify potential Canadian clients and partners, and
  • working with the Commercial Service to seek potential sales to Canadian government entities.

U.S. companies new to the Canadian market should contact a CS Canada Commercial Service Officer to obtain information about resources and value added assistance.

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Chile

Market Overview

As the United States - Chile Free Trade Agreement (FTA) concludes its eighth year, trade in products and services continueto be a resounding success. As of January 1, 2004, duties were reduced to zero on 90% of U.S. exports to Chile with all remaining tariffs to be phased out by 2015.

In 2011, bilateral trade between the United States and Chile reached US$ 24.8 billion, an over 300% increase over bilateral trade levels before the U.S.-Chile FTA was implemented. U.S. exports to Chile in 2011 reached a record US$ 15.8 billion while imports from Chile reached US$ 9 billion.

In 2010, the United States and Chile concluded the negotiations of a bilateral tax treaty that has not yet been ratified in either Congress.

The United States remains the single largest cumulative direct investor in Chile,

representing 24% of all net foreign direct investment from 1974 to 2011. Spain

follows closely with 20.8%, and Canada is third at 18.5%. However, Canada has

led all nations in investment from 2009 to 2011.

Macroeconomic stability and growing integration with international capital markets has earned Chile an A+ credit rating, the highest in Latin America. Chile remains one of the most stable and prosperous developing nations and consistently ranks high on international indices relating to economic freedom, transparency, and competitiveness. It also fares very well in terms of democratic development, gross domestic product per capita, freedom of the press, and was the highest ranked country in Latin America in terms of competitiveness, according to the World Economic Forum’s Global Competitiveness Report 2009-2010.

Chile continues to pursue market-oriented strategies, expand global commercial ties, and actively participate in international issues and hemispheric free trade.

Chile is a member of the Rio Group, an associate member of Mercosur, a full member of APEC, and a founding member of UNASUR. In 2010, Chile became the 31st member of the OECD, only the second Latin American country to join after Mexico.

With Free Trade Agreements with Europe, China, India, and North America, Chile has given its nearly 17 million citizens unprecedented access to the world’s products and services. This offers a unique opportunity for U.S. exporters interested in expanding their businesses in arguably the most open and stable market in Latin America.

Market Challenges

Perhaps the greatest challenges to a U.S. firm seeking to export to Chile are the high degree of competition and the relative market size. Even though Chile is a relatively small market (pop. 17 million), its open trade and investment policy has attracted the attention of many foreign firms. At the same time, the small market size has led some companies to overlook Chile, leaving interesting niche markets and solid opportunities for U.S. exports.

Despite Chile’s openness to new products and technology, Chilean business people are astute but tend to be more conservative and cautious than the average U.S. business person. U.S. companies should consider this when entering the market and adjust sales expectations accordingly.

While the Chilean government is committed to trying to streamline certain processes such as the time it takes to open a business or close a banking account, U.S. companies will find that operating in Chile requires patience and a tolerance for delays associated with doing paperwork and obtaining approvals.

A key to competing is finding the right in-country partner. A good agent or distributor can use their business and/or social connections to open doors and overcome regulatory, as well as cultural and language barriers.

U.S. companies doing business in Chile should be aware that a relatively small number of individuals and families control a large percentage of Chilean businesses. The limited competition in many sectors provides greater opportunities for collusion among Chilean economic actors. Additionally, the many connections between businesses and individual businesspeople present challenges for those who wish to avoid conflicts of interest. U.S. businesspeople should communicate honestly and carefully, assuming that information will be shared with other parties.

Market Opportunities

Chile has generally recovered from the international financial and economic woes of

2008-2009 as well as the February 2010 earthquake that severely affected the economy in the southern part of the country. The housing market has rebounded, led by earthquake reconstruction projects and a housing boom in the Santiago Metro area.

Energy costs continue to be the highest in South America and Chile is searching for all available technology and capital to increase supply through new power plants and promote energy efficiency.

Chile is adept at leveraging private sector involvement in public works projects and infrastructure via the “concession system” and will continue to use this strategy during 2012. Chile has privatized much of its infrastructure and basic services, such as ports, highways, transportation, and water supply. In addition, there is significant private sector involvement in education, retirement/pensions, health care, and prisons. U.S. companies will find that much of what would be a government sale in another country is a sale to a private sector interest in Chile. While government purchasing remains an opportunity, doing business in Chile is largely a private sector experience.

Many U.S. companies consider Chile an excellent platform for doing business in the region. Peru, in particular, has received significant attention from Chile-based retail companies, mining companies, and agriculture interests. Chile is South America’s largest investor in Brazil.

It is estimated that the mining and energy sectors will draw the greatest amount of private investment during 2012.

Market Entry Strategy

Establishing a local subsidiary or branch office in Chile is recommended for a U.S. exporter expecting a large sales volume and/or requiring local service support or localized inventory. Any corporation legally constituted abroad may form, under its own name, an authorized branch (agencia) in Chile.

Another practical and more common market entry strategy, especially for new-to-market exporters, is to appoint an agent or representative with good access to relevant buyers and solid technical expertise.

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Columbia

Market Overview

The Republic of Colombia is the fourth largest economy in Latin America, after Brazil, Mexico, and Argentina, and has the third largest population with approximately 46 million inhabitants. It is the only country in South America with two seacoasts (Pacific and Caribbean), which provides tactical shipping advantages in today’s global market. Aided by major security improvements, steady economic growth, and moderate inflation, Colombia has become a free market economy with major commercial and investment ties to the United States, Europe, Asia, and Latin America. With the implementation of the U.S.-Colombia Free Trade Agreement on May 15, 2012, Colombia is the third largest market for U.S. exports in Latin America.

Nevertheless, in the eyes of many U.S. exporters, Colombia still more suffers from the perceptions of the past than the realities of the present. The reality is that the past 10 years have brought extraordinary change to the country in terms of economic development due to improvements in the security situation. Strong political stability, a growing middle class (35.3% of the population), and improved security has created an economic boom in Colombia that, coupled with the government’s conservative fiscal policies, lessened the impact of the global economic crisis. Key economic indicators demonstrating the positive long-term effect of Colombia’s political and economic policies include: GDP growth of 5.5 percent in 2011 and 4 percent in 2012; foreign direct investment of USD 15.8 billion in 2012, a record for Colombia, which is an increase over the previous record of USD 14.8 billion in 2011, and inflation of 4 percent in 2012 and 4.3 percent in 2011. These are all signs of a strong and growing economy.

Due to Colombia’s close ties to the United States and Colombians’ appreciation for the quality and reliability of U.S products, consumers in Colombia often favor U.S. products and services over those of our foreign competitors. The United States is Colombia’s largest trading partner and Colombia is the 22nd largest market for U.S. exports in 2012. U.S. exports to Colombia in 2012 topped USD 16 billion, an increase of more than 14 percent over 2011.

Colombia is unique in that there are five bona fide commercial hubs in the country: Bogota, Medellin, Barranquilla, Cali, and Cartagena. As opposed to the majority of Latin American countries that have one or two major cities, Colombia offers U.S exporters access through multiple commercial hubs, each of which has its own American Chamber of Commerce. While these cities, and many other secondary cities, offer unique market opportunities, they are close enough via air routes that is common to have one partner (agent, distributer, or representative) to cover the whole country.

Regarding foreign direct investment by U.S. companies, coal mining and oil and gas exploration/production are the principal areas of U.S. investment, followed by the consumer goods, high-tech and tourism/franchising sectors. A sample of the major U.S. companies in Colombia include: 3M , Citibank, ChevronTexaco, Chicago Bridge and Iron , Drummond, ExxonMobil, Goodyear, General Electric, General Motors, Johnson and Johnson, Kimberly Clark, Kraft, Microsoft, Marriott, Marriott International, Occidental Petroleum, Sonesta Collection Hotels and Unisys.

2013 will bring greater investment in infrastructure projects ranging from roads (USD 26 billion allocated over the next 4 years), airport modernizations, port construction, and railway projects. New FDI will begin to be reflected in major hotel (Hilton and Hyatt) and infrastructure (highway, mass transportation, ports and airport) projects.

The Colombian government has implemented bilateral or multilateral trade agreements with most countries in North and South America, including the United States and Canada. The European Union ratified a Free Trade Agreement with Colombian in December 2012, but must be passed by each member country before being implemented. Colombia has an ambitious trade agenda and has initiated FTA negotiations with South Korea, Panama, Japan, and Turkey.

Regarding the U.S.-Colombia FTA, on May 15, 2012, the agreement went into force, immediately eliminating import tariffs on 80 percent of U.S. exports of consumer and industrial products to Colombia, with remaining tariffs phased out over one to ten years. Other provisions include strong protection for U.S. investors (legal stability), expanded access to service markets, greater intellectual property rights protection, market access for remanufactured goods, increased transparency and improved dispute settlement mechanisms (arbitration).

Market Challenges

As with any market, there are numerous challenges to doing business in Colombia (some of which were eliminated with implementation of the Free Trade Agreement):

  • While working to improve the issue, Colombia has struggled with the requirements of the existing government procurement framework, which calls for open bidding in public tenders. As such there can be a lack of transparency, fairness, and truly competitive bidding conditions in many tenders.
  • Only firms licensed under Colombian law may provide legal services. Foreign law firms can operate in Colombia by forming a joint venture with a Colombian law firm and operating under the licenses of the Colombian lawyers in the firm.
  • Economic needs tests are required when foreign providers of professional services operate temporarily; and residency requirements restrict transborder trade of certain professional services, such as accounting, bookkeeping, auditing, architecture, engineering, urban planning, and medical and dental services.
  • A commercial presence is required to provide information processing services or to bid on Colombian government contracts.
  • Telecommunications barriers to entry include cross subsidies, the requirement for a commercial presence in Colombia, and an economic needs tests.
  • For firms with more than ten employees, no more than 10 percent of the general workforce and 20 percent of specialists may be foreign nationals.
  • International banking institutions are required to maintain a commercial presence in Colombia through subsidiary offices.
  • Insurance companies are restricted from offering policies to underwrite risk on government sponsored infrastructure projects due to Colombian regulations that do not recognize insurance policies as equivalent to bank guarantees.
  • Colombia has been on the Special 301 “Watch List” every year since 1991, reflecting on-going challenges in the enforcement of intellectual property rights.
  • Customs duties have been consolidated into four tariff levels: 0 to 5 percent on capital goods, industrial goods and raw materials not produced in Colombia, 10 percent on manufactured goods with some exemptions, and 15 to 20 percent on consumer and “sensitive” goods. Exceptions include automobiles, which are subject to a 35 percent duty (except Sports Utility Vehicles). A group of agricultural products is protected by a price band mechanism that offers variable duties as high as 100 percent, but will eventually decrease to zero over the next xx to 19 years.

Market Opportunities

Despite these market challenges, Colombia provides significant opportunities for U.S. exporters:

  • Colombia's extensive planned infrastructure projects will require: project financing, public works subcontracting, logistics, construction equipment for public roads and airports; water treatment, water supply, electric power generation, oil and gas exploration and pollution control equipment, air navigational and port security aids, railway construction, transportation equipment, security and defense items and services, and mass transit systems.
  • Awarded to the OPAIN company in 2006, Bogota’s El Dorado International Airport still requires massive upgrades. The Medellin/Rio Negro airport upgrade is underway and the Northeast airports concession has been awarded. All concessionaires are seeking equipment to modernize their facilities.
  • The United States Trade and Development Agency (USTDA) and EXIM Bank support U.S. companies as they craft solutions to development challenges and make inroads in key sectors such as oil and gas, petrochemicals, renewable energy, telecommunications, and ports. USTDA grants have resulted in big U.S. company wins at the country’s two newest refineries. EXIM’s preliminary commitment of USD 1 billion to Colombia’s major oil company Ecopetrol and USD 2.8 billion to the Reficar refinery project will provide a myriad of export opportunities for U.S. exporters of oil and gas equipment and services. USTDA grants for customs security and operational enhancements at the ports in Cartagena, Buenaventura, and Puerto Salgar should also increase prospects for U.S. exporters.
  • Significant U.S. export opportunities not already mentioned include: cotton, wheat, corn soy products, automotive parts and accessories, tourism, computer hardware and software services, IT equipment and services, plastics materials and resins, electrical power systems, safety and security equipment, food and beverage processing and packaging equipment and medical equipment.

Market Entry Strategies

Market entry strategies are as follows:

  • Secure an agent, representative, or distributor in Colombia, which requires a contract that meets the provisions of the Colombian Commercial Code.
  • Focus on formality, personal relationships, and trust when negotiating agreements and contracts.
  • Communicate with the U.S. Commercial Service and the Economic sections of the U.S. Embassy in Bogotá regarding specific concerns.
  • Offer excellent after-sales service arrangements and maintain the sales relationship. Warranties or guarantees on imports are critical for supporting after sales service in Colombia.
  • Provide high quality products and/or services, affordable financing and competitive pricing.
  • Support your local partner’s marketing efforts with advertising campaigns or by participating in trade shows. Do not be hands off; visit often.
  • Spanish-language sales collateral and service manuals are essential, and may be required in certain sectors, like medical products. U.S.-based staff with a strong knowledge of Spanish is certainly helpful.

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Costa Rica

Market Overview

  • The United States is Costa Rica’s main trading partner, accounting for about 40% of Costa Rica’s total imports. According to U.S. Census Bureau trade data, the U.S. had a US$4.0 billion trade deficit with Costa Rica in 2011, as compared with a deficit of US$3.5 billion in 2010, a deficit of US$897 million in 2009, and surpluses of US$1.7 billion in 2008, US$639 million in 2007, US$288 million in 2006, and US$183 million in 2005.
  • Foreign direct investment in Costa Rica climbed steadily from the year 2000 ($408 million) to 2008 (over $2 billion), falling back over the last three years to 2006 levels of roughly $1.5 billion. New foreign direct investment in Costa Rica from all countries was US$1.56 billion in 2011, US$1.46 billion in 2010, US$ 1.35 billion in 2009, US$2.08 billion in 2008, US$1.9 billion in 2007, US$1.5 billion in 2006, and US$861 million in 2005. About 70 percent of that investment has come from the United States. Del Monte, Dole, and Chiquita have a large presence in the banana and pineapple industries.
  • In recent years, Costa Rica has successfully attracted important investments by such companies as Intel Corporation, which employs 3,200 people at its major fabrication plant; Procter & Gamble, which employs about 1,200 in its administrative center for the Western Hemisphere; Hewlett-Packard (6,500), Boston Scientific, Allergan, Hospira, Baxter Healthcare and others from the healthcare products industry. According to the US Census Bureau, 2011 data show that two-way trade between the U.S. and Costa Rica exceeded $16.2 billion during that timeframe.
  • After experiencing positive growth for several years, the Costa Rican economy shrank slightly in 2009 (-2.5%) due to the global economic crisis. The services sector (around 68% of GDP) was the most affected, with tourism falling by 8%. The economy experienced a rebound in 2010 with a 3.6% GDP growth rate, and a growth rate in 2011 of 3.8%. Costa Rica enjoys the region’s highest standard of living, with a per capita income of about US$7,843, and an unemployment rate of 7.37%. Consumer price inflation is high but relatively constant at about a 10% annual rate over the last decade.
  • According to the latest National Population Census of 2010, the percentage of population living in poverty in 2010 was estimated at 18.3 percent in the urban areas and 26.3 percent in the rural areas, with 4.2 percent in extreme poverty in the urban areas and 9.0 percent in extreme poverty in the rural areas. Inflation reached 13.9% at the end of 2008, dropped during 2009 to 4.0% by year’s end, and reached 5.8 percent by the end of 2010. Inflation rate was 4.74% during 2011. During 2010, the unemployment rate reached 7.3%, an increase from the 2009 year-end figure of 7.0%. The Government of Costa Rica has been running budget deficits in 2009-2011 but is currently capable of borrowing the necessary funds to do so.
  • While Costa Rica’s close trading and investment relationship with the United States has long benefited both nations, the recession that affected the U.S. in 2008-2009, began to be felt in Costa Rica after some lag time and diminished the level of bilateral trade and investment activity.
  • By the end of 2009. However, Costa Rica’s economic activity experienced an upturn which continued in 2010 and 2011. Total bilateral trade activity (export plus imports), in fact, rose by over 57% from 2009 ($10.3 billion) to 2011 ($16.2 billion).
  • During 2010, foreign investment activity in Costa Rica increased by 12 percent and in 2011 by 8 percent. Growth is expected to continue during 2012.
  •  U.S. tourism to Costa Rica, which drives both local employment and U.S. exports (building and supplying the tourist resorts), fell off substantially in 2008, affecting the construction industry whose activity had already dropped off significantly in the coastal areas. By the end of 2010, though, both the construction industry and the tourist visits began to show an incipient recovery.
  •  An important factor in this picture is the Central America-Dominican Republic-United States Free Trade Agreement (CAFTA-DR), which entered into force on January 1, 2009, and has brought new interest and opportunity in trade and helped to buoy the local economy and demand for U.S. exports.
  • As of June 2011, Costa Rica ranked 121 out of 183 countries in the 2011 World Bank's Ease of Doing Business Index. This has hampered the flow of investment and resources badly needed to repair and rebuild the country's public infrastructure, an infrastructure which has deteriorated over the years from a lack of maintenance and new investment.
  • Most parts of the country are accessible through an extensive road system of more than 30,000 kilometers (18,750 miles), although much of the system has fallen into disrepair. Contamination in rivers, beaches, and aquifers is a matter of rising concern, given that the great majority of wastewater is discharged directly into river systems, untreated. Although Costa Rica has made significant progress in the past decade in expanding access to water supplies and sanitation, just 3.5% of the country's sewage is managed in sewage treatment facilities, with the country’s Water and Sewage Institute (AyA) estimating that perhaps only 50% of septic systems function.
  • Although the overall investment picture, to date, has been relatively bright, the Costa Rican government really had not until recently enjoyed great success with many of its concession schemes for its public works projects, including the Juan Santamaria Airport in San Jose, which in July 2009 transferred its management to a new entity. That new entity has made great strides in restoring efficient operation to the airport and has concurrently become visible evidence to the public of how a concession can operate successfully.
  • Infrastructure, in an overall sense (e.g., roads and bridges, water/wastewater, electricity generation, airports and ports) is in substantial need of improvement. This represents both challenges and opportunities. In many instances, deteriorated infrastructure will need to be improved if Costa Rica is to remain competitive in the regional and world economy.
  • Enforcement of intellectual property laws has been lacking in many cases, due to insufficient resources and training, and weaknesses in the country’s criminal code. This is expected to improve as CAFTA-based commitments take hold. The legal process in general is often sluggish, making binding arbitration an attractive option.
  • Costa Rica recognized the People’s Republic of China in 2007 and was visited by the President of China with great fanfare in 2008. Costa Rica subsequently signed a free trade agreement with China in February 2010. The intensified relationship between these two countries implies potentially growing competition for U.S. exports from products originating in China. Costa Rica is also part of the Central American effort to negotiate a Free Trade Agreement with the European Union.

Market Opportunities

  • The National Export Initiative (NEI) introduced by President Obama in January 2010 in his State of the Union message, provided a goal around which the US Embassy in Costa Rica and its various sections have come together to support American business and to achieve a doubling of US exports by 2015.
  • CAFTA-DR’s entry into force on January 1, 2009, represented a major step forward in the trade and investment relationship between Costa Rica and the United States, opening opportunities in the wireless telecommunications, Internet, and insurance markets that previously had not existed.
  • Costa Rica’s accession to the agreement has meant that more than 80 percent of all non-agricultural goods and more than 50 percent of agricultural products became duty-free immediately, on January 1, 2009, and the remaining duties are being eliminated on an agreed-upon schedule that is underway.
  • Furthermore, CAFTA-DR’s entry into force eliminated Costa Rica’s dealer protection regimes, allowed non-discriminatory treatment for U.S. firms in government procurement bids, and provided stronger protection for investors.
  • Market prospects are excellent in the following sectors: building products, hotel and restaurant equipment, and medical and dental equipment. Prospects are also good in auto parts and service equipment, drugs and pharmaceuticals, construction equipment and travel and tourism, as well as in the emerging telecommunications and insurance sectors.

Market Entry Strategy

  • U.S. products enjoy an excellent reputation for quality and price-competitiveness. This inherent value will only be improved as CAFTA-DR continues its implementation and landed prices of U.S. exported goods drop. If and as this lower cost of goods is passed along through the distribution chain, it should drive an acceleration of trade and greater market share for U.S. products.
  • Proximity to the Costa Rican market is also a major advantage for U.S. exporters who wish to visit or communicate with potential customers. The proximity facilitates close contacts and strong relationships with clients, both before and after the sale. The same holds true for agents and distributors, who typically represent U.S. exporters in the national market.
  • With Costa Rica’s accession to the CAFTA-DR Free Trade Agreement, it is important to remember that the free trade regime is region-wide, i.e., for the countries of Honduras, Guatemala, Nicaragua, El Salvador, and the Dominican Republic, as well as for the United States and Costa Rica. This presents the opportunity to consider these markets from a regional perspective and to design a regional marketing approach, given the lowered barriers and relative proximity, particularly for those signatories in Central America. In 2011, U.S. exports to the CAFTA-DR countries were up an estimated 26 percent from 2010 to $30.3 billion, making the region the 12th largest U.S. export market worldwide and the third largest in Latin America, following Mexico and Brazil. 
  • The U.S. Commercial Service Costa Rica advises U.S. companies to consult with local market research companies and law firms to conduct the necessary due diligence before entering into contracts with local firms. These partners can be instrumental in helping to penetrate and expand the market for a company’s exports.

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Dominican Republic

Market Overview

With a population of 10 million consumers and a GDP of $98.7 billion, the Dominican Republic (DR) is the ninth largest economy in Latin America and the second largest in the Caribbean region. A middle income country, with a GDP per capita of around $9,600, the economy is based on tourism, agriculture and service industries. The DR weathered the recent global economic crisis quite well. Growth in GDP of 4.5 percent in 2011, which had been fueled by increased indebtedness, declined to 4.0 percent in 2012, in part a result of fiscal adjustments. In the same period, the inflation rate declined markedly from the 7.76 percent of 2011 to a manageable 3.7 percent.

The United States represents, by far, the DR’s largest trading partner. Fully 43.6 percent of imports into the DR are of U.S. origin, while the U.S. is the destination of 48.8 percent of the DR’s exports. The U.S.’s share of the consumer goods imported into the DR is estimated at around 70 percent of the total. There is extremely high receptivity to U.S. goods and services and U.S. product standards are generally accepted.

Bi-lateral trade between the United States and the DR amounted to US$ 11.46 billion in 2012, which comprised U.S. exports to the DR of US$ 7.10 billion and imports from the DR of US$ 4.37 billion – a positive trade balance for the U.S. of US$ 2.73. Since the implementation of the Central American and DR Free Trade Agreement (CAFTA-DR) signed in March 2007, bi-lateral trade has grown at a robust pace. By 2012, U.S. exports to the DR had grown by 33 percent over the pre-CAFTA days of 2006. Under CAFTA-DR, duties on imports of U.S. products have been eliminated on approximately 80 percent to goods, with the remainder scheduled for gradual elimination in the coming 5 years.

The strength of the trade relationship stems from close geographic proximity and the historic cultural and personal ties that many Dominicans have with the United States. This is reinforced by a Dominican diaspora in the U.S. of approximately one million persons, clustered primarily in the northeastern states and Florida, whose remittance payments help support the home-country economy. Dominican businesspersons are frequent visitors to United States and are very familiar with U.S. business practices. In addition, Americans comprised the majority of the five million tourists who flocked to the DR’s hotels and resorts in 2012, a figure that the recently-elected government of the Dominican Republic (GovDR) has vowed to double within 10 years.

Market Opportunities

The government of President Danilo Medina was elected in May 2012 after an expensive political campaign, which left the country with increased public debt. Although the administration is of the same PLD party as the previous president, many senior officials were replaced or reassigned and the Medina administration announced a series of reforms aimed at placing the country on a more sound economic footing. Fiscal reforms include raising tax revenues within three years by; increasing the value-added sales tax (ITBIS) from 16 to 18 percent, a campaign to reduce tax evasion, improving the efficiency and transparency of tax collection and by eliminating or reducing certain tax breaks. In addition, the government’s Austerity Plan, announced in August 2012, aims to set the course for more efficient use of public spending.

The DR’s per capital GDP of $9,600, on a purchasing power parity basis, masks a very uneven distribution of wealth heavily in favor of the upper classes. Around 43 percent of the population lives below the poverty line. Under previous governments, public spending had been disproportionately funneled into public works and the electricity sector at the expense of other social programs such as education and healthcare. The DR’s poor performance in global rankings, in terms of both the quality of its public education and the time spent in school, has prompted the education reforms of the Medina administration, which has committed to investing the equivalent of 4% of GDP annually in the education sector.

The electricity sector, which relies heavily on imports of oil and gas, continues to be negatively impacted by the high global prices of hydrocarbons, although this is mitigated by preferentially-priced purchases of oil from Venezuela. Compounding the problem is the inability, for whatever reason, of the three state-owned electric power distribution companies to collect payment on around 40 percent of electricity it supplies – either through technical losses (estimated at 15 percent of losses) or non-payment of bills and/or theft by individuals from power lines (25 percent). The accumulation of debts owed to the power generators results in lack of working capital, disruptions in fuel supplies and frequent blackouts across the country. The new government has borrowed to make partial payments to the generators while it urgently seeks more long-term solutions to problems of the sector.

Lack of transparency and corruption continue to earn the DR relatively low scores in international comparison tables. The country ranked in 113th place (out of 185 countries) in the World Bank’s “Ease of Doing Business” Index and in Transparency

International’s Corruption Perception Index, the DR ranked in 118th place (of 176 countries). Procurement by government agencies and parastatal organizations are often conducted by private direct negotiation with preferred suppliers, a lack of transparency which discourages competition and facilitates corrupt practices. However, the situation has improved since the implementation in 2007 of CAFTA-DR, which includes requirements for the procurement by government organisms of goods and services by public tender.

There is a lack of institutional continuity across changes in government administrations. The wholesale turnover in government personnel that typically occurs with changes in administrations can result in loss of records, which in turn can result in payment disputes and rejection of bills for goods and services purchased by preceding administrations.

Market Opportunities

Consumer attitudes and many brand preferences are similar to those in the U.S. Most of the major U.S. franchises are present in the country. U.S. television shows and other media are widely available and popular. Dominicans travel frequently to the U.S. for business, vacation, medical treatment, study or to visit family. Their buying patterns and tastes are similar to those in the U.S. Express delivery of consumer goods ordered online in the U.S. is extremely popular and customs procedures are minimal for items below $200 in value.

As a signatory of the CAFTA-DR free trade agreement, the DR stands to benefit from the issuance of licenses to import U.S. shale gas in liquefied (LNG) or compressed form. Access to this energy supply is expected to help alleviate part of the country’s energy problems. The planned transition to a greater use of natural gas in power generation will lead to the construction or conversion of power generating facilities and create opportunities for U.S. operators and suppliers.

According to some optimistic projections, the DR’s access to relatively inexpensive U.S. natural gas has the potential to trigger a renaissance of offshore/near-shore manufacturing in the DR’s numerous free trade zones and allow the country to compete more effectively against products from China and the Far East.

The DR government’s efforts to encourage the generation of clean and renewable energy includes generous tax incentives for investors in the sector, but stop short of commitments to purchase the electricity produced. While the new fiscal reforms plan to reduce these incentives somewhat, the medium- to long-term prospects for renewable energy products and services are very promising.

In all industry sectors, CAFTA-DR gives significant advantages to U.S. exporters over foreign competitors. Best prospects for U.S. exports include the following industry sectors: building products; automobiles and automobile parts and services; air conditioning and refrigeration equipment; medical equipment; hotel and restaurant equipment; printing and graphic art equipment and supplies; computers and peripherals; telecommunication equipment; renewable energy; and travel and tourism services.

Market Entry Strategies

The DR has few market access issues. A common market entry option is to appoint an agent or distributor in the DR, while licensing agreements and franchises can also be successful. Because of the DR’s proximity to the U.S. and low air travel costs, the optimal market entry method is through a coordinated strategy that includes personally visiting potential partners or distributors in the DR. Forging relationships is key to finding a good partner. U.S. exporters should also be prepared to provide all promotional materials in the Spanish language. Good after-sales service is a pre-requisite of doing business successfully in the country.

The Commercial Service of the U.S. Embassy in Santo Domingo offers a range of business matchmaking services in order to help U.S. exporters connect with suitable and qualified representatives, distributors and partners in the DR. Of these, the Gold Key matchmaking service is probably the most effective.

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El Salvador

Market Overview

The bilateral commercial relationship between the United States and El Salvador is strong in both trade and investment. El Salvador uses the U.S. dollar as its official currency. The United States is El Salvador’s number one investor and leading trade partner. The majority of El Salvador’s imports come from the United States, and nearly 50% of El Salvador’s exports go to the U.S.

El Salvador is a member of the World Trade Organization (WTO), and has free trade agreements with the United States, Central America, Chile, Mexico, Panama, Colombia, Dominican Republic, and Taiwan. Recently it signed a free trade agreement with the European Union.

The U.S.-Central American-Dominican Republic Free Trade Agreement (CAFTA-DR) entered its 8th year of implementation in El Salvador on March 1st, 2014. Like the rest of Central America, El Salvador offers an open market for U.S. goods and services. Tariffs are relatively low, and were reduced further with the implementation of CAFTA-DR. El Salvador’s Value Added Tax is a 13% rate.

Market Opportunities

El Salvador is a steady and growing market for U.S. goods and services. U.S. companies can take advantage of the CAFTA-DR free trade agreement to increase exports not only to El Salvador but to the rest of Central America.

Among the top sectors for U.S. exporters in the Salvadoran market are: Automotive Parts and Service Equipments, Dental Equipment, Travel and Tourism, and Food Processing and Packaging Equipment.

The Salvadoran government is also developing several major infrastructure projects such as: La Union Port; Renewable Energy Generation; Regional Telecommunications Interconnection; Regional Highway Interconnections; and Regional Electric Grid Interconnection.

Market Challenges

U.S. Commercial Service El Salvador encourages U.S. companies interested in the Salvadoran Market to be aware of certain challenges, and is ready to provide assistance to U.S. companies on how to address them. For more detail on market challenges, please see our: Country Commercial Guide 2013.

Market Entry Strategy

  • The use of agents and distributors is the most common way to export U.S. products and services.
  • One agent is usually sufficient as commercial activity is concentrated in the capital San Salvador and the size of the country does not justify regional agents.
  • Agent or representative agreements should be non-exclusive. An exclusive territorial contract is recommended only when the business relationship has proven to be stable, professional, and profitable for both parties. An exclusive agent is entitled to compensation for damages upon termination of the relationship. A local lawyer should be consulted. 
  • U.S. companies should visit potential partners or agents prior entering into a relationship.
  • U.S. firms should check the bona fides of potential partners as soon as a business relationship begins to develop.
  • U.S. companies should receive legal advice from a local attorney on laws, regulations, taxation, labor, residence permits, and other related issues.

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Guatemala

Market Overview

Guatemala is the northernmost country in Central America, with Mexico to the north and west, Belize and the Atlantic Ocean to the east, Honduras and El Salvador to the southeast and the Pacific Ocean to the south. Famed for its volcanoes, textiles, Mayan ruins, and temperate climate in the highlands, Guatemala is at the center of a large regional market for U.S. goods and services.

The United States is Guatemala’s main trading partner whereas Guatemala ranks as the 40th largest export market for U.S. exports. Principal U.S. exports to Guatemala in 2012: oil (33%); machinery (9%); cereals (6%); electrical machinery (95%); cereals ( 5%) and plastics (4%).

Guatemalan GDP reached an estimated USD 50.3 billion in 2012 and exports from the United States to Guatemala were estimated at USD 5.9 billion, up about 24 percent from 2011. Export growth is expected to continue in 2013 and beyond. U.S. products and services enjoy strong name recognition in Guatemala, and U.S. firms have a good reputation in the Guatemalan marketplace. It is estimated that approximately 175 U.S. firms have a presence in the market. As a result, more than one third of all Guatemalan imports come from the United States.

Guatemala can also offer opportunities for foreign investment. Despite some persistent challenges foreign investment increased 17.64% in 2012, reaching USD 1.2 billion, while in 2011 foreign investment in Guatemala reached USD 1.0 billion. Guatemala’s world ranking in “Doing Business” was 93 of 185 in 2013 (98 in 2012). (Editor’s note: data on foreign investment cited above is more recent than that cited in Chapter 6, which was finalized earlier in 2013.)

With a population of around 14 million, Guatemala is the largest country in Central America and accounts for more than one third of the region’s GDP. The capital, Guatemala City, has a population of almost 3 million and features first-class hotels and restaurants. La Aurora International Airport, which serves Guatemala City, is located just minutes from the major business and financial areas.

Market Challenges

Otto Perez of the Patriot Party (PP) came into office on January 14, 2012. The President made a commitment to restructure the Government and to continue programs initiated by prior governments to promote foreign investment, enhance competitiveness, and expand investment in the export and tourist sectors.

Perez’s administration has continued to maintain good relations with the United States while diversifying exports to Asia and Europe and the rest of Central America. The United States and Guatemala are both committed to strengthening democratic institutions, promoting trade, and improving the rule of law.

At this time, Perez faces many challenges, among them the need to address the perception that public security has decreased in the last year. Violent crime and a weak judicial system remain serious challenges; corruption in the Government, workers’ rights, intellectual property protection, food security, education, social and political issues that threaten the mining industry, a decline in tax revenue, and the overuse of emergency procurement purchases in all the institutions continue to be other key challenges for the government.

On January 11, 2008, Guatemala and the United Nations established the joint International Commission against Impunity in Guatemala (CICIG). CICIG is charged with helping Guatemala to investigate and prosecute organized crime.

Most hurdles to exporting to, and investing in, Guatemala are bureaucratic in nature. Issues related to the Certificate of Origin continuously represent an obstacle for Guatemalan importers to access preferential tariffs. It is highly encouraged that they complete such documents in a thorough manner. The local currency, the Quetzal, has remained fairly steady at approximately 7.85 - 8.0 Quetzals to the U.S. dollar throughout 2012. U.S. dollars are freely available within the Guatemalan banking system. In October 2010, monetary authorities approved a regulation to establish limits for cash transactions of foreign currency. The regulation, which is aimed at reducing the risks of money laundering and terrorism financing, establishes that monthly deposits over USD 3,000 should be subject to additional requirements, including a sworn statement by the depositor stating that the money comes from legitimate activities. There are no legal constraints on the quantity of remittances or any other capital flows, and there have been no reports of unusual delays in the remittance of investment returns.

Market Opportunities

The signing of the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) by the United States and Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua on August 5, 2004, represented a giant step toward greater economic integration between the U.S. and these Central American and Caribbean nations.

Under CAFTA-DR, about 92 percent of U.S. industrial and consumer goods enter Guatemala duty-free, with the remaining tariffs scheduled to be phased out by 2015. Nearly all textile and apparel goods that meet the agreement’s rules of origin are now traded duty-free and quota-free. The agreement’s tariff treatment for textile and apparel goods is retroactive to January 1, 2004.

Also under CAFTA-DR, about 89 percent of U.S. agricultural exports now enter Guatemala duty-free. Guatemala will eliminate its remaining tariffs on nearly all agricultural products by 2020 (2023 for rice and chicken leg quarters and 2025 for dairy products). For the most sensitive products, tariff rate quotas will permit some immediate duty-free access for specified quantities during the tariff phase-out period, with the duty-free amount expanding during that period. Guatemala will liberalize trade in white corn through expansion of a Tariff Rate Quota, rather than by tariff reductions.

CAFTA-DR is the third largest Latin American market for U.S. goods, surpassed only by Mexico and Brazil. Along with reduced trade barriers, CAFTA-DR loosened restrictions that have historically locked U.S. firms into exclusive, often inefficient, distribution arrangements. CAFTA-DR member countries have further promised increased transparency in customs dealings, anti-corruption measures in government contracting and procurement, and strong legal protections for U.S. investors. In August 2009, the Guatemalan Congress approved reforms to the Government Procurement Law, which simplified bidding procedures, eliminated the fee previously charged to receive bidding documents, and provided an additional opportunity for suppliers to raise objections over the bidding process. Despite these reforms, large government procurements are often subject to appeals and injunctions based on claims of faults in the bidding process (e.g., documentation issues and lack of transparency). During 2012, several U.S. companies continued to voice their concern regarding the unfair and non-transparent tendering process by the Guatemalan government as a barrier to trade.

In July 2010, the Guatemalan Congress approved an insurance law that strengthens supervision of the insurance sector and allows foreign insurance companies to open branches in Guatemala. This law requires foreign insurance companies to fully capitalize in Guatemala. This law implements Guatemala’s CAFTA-DR commitment to allow U.S. insurance companies to establish branches by July 2010. Under the CAFTA-DR, U.S. insurance companies may also establish wholly owned subsidiaries and joint ventures.

Regionalization has quickly become a fact of life for doing business in Central America. Factories and distribution facilities have been and continue to be designed to serve a regional market. Furthermore, rarely does a U.S. businessperson visit just one Central American country. New investors weigh the advantages that each country offers as they look to decide where to establish new plants. Regional managers are becoming the norm, with responsibilities for multiple countries within the Central American marketplace. Trade between the countries of Central America has also increased dramatically over recent years, a trend that was accelerated with CAFTA-DR implementation.

The Guatemalan market is competitive. Guatemalan businesspeople are price-sensitive and expect good after-sales service and support. They are accustomed to doing business with U.S. firms and many Guatemalans travel regularly to the United States and speak English.

The Guatemalan economy expanded rapidly over several years, until the global recession in 2009. According to Banguat, in 2012 real GDP grew by 3.1 percent and inflation was estimated at 3.45 percent. Remittances, almost entirely from the U.S., are an important source of foreign income. In 2012, Guatemalans living in the United States sent an estimated USD4.78 billion in remittances, an 9.22 percent increase over the previous year, which accounted for approximately 9.5 percent of GDP in 2012.

During 2012, exports of traditional agricultural products (sugar, bananas, cardamom, and coffee) performed well, in addition to non-traditional agricultural exports, such as prepared food, vegetables, and fruits. The non-traditional sector, in particular, has provided more jobs and increased income for tens of thousands of people over the past ten years.

Guatemala welcomes foreign investment and generally accords foreign investors national treatment. There are few legal or regulatory restrictions placed on foreign investors. However, the country needs to overcome several of the challenges aforementioned in order to make Guatemala a truly business and investment friendly market.

Market Entry Strategy

If the government continues to work toward economic reform, including incorporating more of its citizenry in the economy, maintaining free trade and liberal markets, as well as providing personal and investment security, U.S. companies can expect a growing market in Guatemala. The reality in Central America and in Guatemala today is that there are challenges: corruption, weak judicial institutions, security issues, poverty, and low education levels top the list. However, there is also relative stability, real market opportunities and substantial U.S. exports in a dynamic market that is close to the U.S. and growing. Regional integration and CAFTA-DR will spur investment, growth, trade, and increased market opportunities for U.S. firms.

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Honduras

Market Overview

  • Bilateral Trade: The United States is Honduras’ largest trade and economic partner. U.S. exports to Honduras were $5.7 billion in 2012 and are on pace to double by 2014 as targeted in the National Export Initiative. The entry into force of the Dominican Republic-Central America-United States Free Trade Agreement

(CAFTA-DR) in 2006 boosted U.S. export opportunities and diversified the composition of bilateral trade. CAFTA-DR also put in place important disciplines related to investment, customs administration and trade facilitation, technical barriers to trade, government procurement, intellectual property rights, transparency, and labor and environmental protection. About 80 percent of U.S. goods now enter the region duty-free, with tariffs on the remaining 20 percent to be phased out by 2016.

  • Key Economic Indicators: Honduras, with an estimated per capita GDP of $2,192 in 2012, is one of the poorest countries in the Western Hemisphere. Over 66 percent of the population lives in poverty. Moderate economic growth returned in 2010-2012 after a sharp decline in 2009 that had occurred due to the effects of the global economic downturn and Honduras’ domestic political crisis. GDP increased by 3.3 percent in 2012 and the rate of inflation was 5.7 percent. The Honduran currency, the lempira, has floated since 2011; it depreciated by 4.8 percent against the U.S. dollar in 2012. Foreign direct investment and domestic investment declined in 2009 but has recovered. The stock of U.S. foreign direct investment in Honduras was $930 million in 2011, concentrated in the manufacturing sector. More than 150 American companies are currently operating in Honduras.
  • Political Climate: Honduras is scheduled to hold national elections in November

2013. The current President, Porfirio Lobo, is limited to one four-year term and cannot run for reelection. Voters will select a new president and all 128 members (diputados) of a unicameral Congress, which will take office in January 2014.

Market Challenges

  • Lengthy Due Process and Inefficient Institutions – While open to foreign investment, with limited restrictions and performance requirements, some U.S. investors have experienced long waiting periods for environmental permits and other regulatory and legislative approvals. Honduras’ business climate is hampered by a weak judicial system, low education levels and poor transportation and other infrastructure. The World Bank ranked Honduras 125th of 185 countries in its 2013 Doing Business report.
  • Corruption – U.S. firms and citizens have found corruption to be a constraint to successful commercial activities in Honduras. Honduras’ judicial system is perceived to be subject to outside influence, and the resolution of investment and business disputes involving foreigners is largely nontransparent. In its 2012 Corruptions Perceptions Index, Transparency International ranked Honduras 133 out of 176 countries (with #1 indicating the least corrupt).
  • Security – Personal security is a major concern in Honduras. The murder rate is the highest in the world, though Americans have not been targeted because of their nationality. Theft, pick pocketing, and armed robberies occur frequently in urban areas.

Market Opportunities

  • Location – Honduras is located in the center of Latin America. It is only a 2-hour flight from several U.S. gateway cities, and 48 to 72 hours away by sea. Honduras also serves as a distribution platform for the rest of Central America due to some of the lowest logistical costs in the region. Puerto Cortés, the largest deep-water port in the region, is the first port in Latin America to qualify under both the Megaports and Container Security Initiatives (CSI).
  • Primary Export Sectors -- Leading U.S. exports to Honduras in 2012 included petroleum products, textiles and fabrics, cotton yarn, electrical equipment, chemicals, manmade staple fibers, computer and electronic products, machinery, food products and cereals (corn, wheat, rice). CAFTA-DR’s rules of origin promote the use of U.S. fiber, yarn, and fabric.
  • Best Prospect Sectors: The most promising growth sectors for U.S. business are automotive parts; electrical power systems/renewable energy equipment; food processing and packaging equipment; processed foods; franchising; safety and security equipment; and travel and tourism services.

Market Entry Strategy

  • Two Regions – For marketing purposes, Honduras can be divided into two regions: the Northern Coast, including the country’s commercial and industrial capital city of San Pedro Sula; and the Central region, where the political capital and largest city of Tegucigalpa, is located. Both are major distribution centers for imported goods. A single distributor or representative is usually sufficient to cover all of Honduras.
  • Starting a Business – According to the 2013 World Bank Doing Business Index, the time required for establishing an enterprise in Honduras is an average of 14 days, significantly less than the average of 53 days in the Latin America and

Caribbean. Appointing a local agent, representative, or legal advisor is strongly recommended to help with import procedures, sales promotion and after-sales service. Independent intermediaries are especially important for smaller companies, as their knowledge of the market and of the relevant business customs and practices adds to the strength of the U.S. manufacturer/exporter.

U.S. companies are advised to evaluate local prospects in terms of the services and benefits provided, considering factors such as location, financial strength, quality of the sales force, warehousing facilities, reputation in the market, outlay on advertising, product compatibility and overall experience. Prior to entering into a commercial relationship, U.S. companies should visit potential partners or agents in Honduras.

  • Price and Credit - Price is among the most important selling factors in

Honduras. In many cases, Honduran business people buy directly from the source if they feel that the cost-savings are sufficiently advantageous. The local banking system is traditionally conservative and generally extends only limited amounts of credit, though looser monetary policies and increased competition from regional and international banks have led to some expansions of consumer credit. U.S. exporters that offer attractive financing terms on sales to Honduran traders have the best chance of gaining market share.

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Israel

Market Overview

The U.S. is Israel's largest single country trade partner. Since signing a Free Trade

Agreement in 1985, Israel–US trade has grown eight-fold. Since 1995 nearly all trade tariffs between the U.S. and Israel have been eliminated.

  • In 2012, GDP growth decreased to 2.9%, from 4.6% in 2011 and 5.7% in 2010.
  • Israel’s GDP in 2012 was $246.8 billion.
  • In 2012, Per Capita GDP increased slightly to $32,200 compared to $32,200 in 2011. In 2010 it was $31,200.
  • Israel’s 2012 inflation rate remained at 2.1%, as in 2011. In 2010, the inflation rate was 2.7%.
  • Israel’s 2012 unemployment rate increased to 6.3%, compared to 5.6% in 2011 and 6.7% in 2010.
  • Exports of U.S. goods (not including diamonds) to Israel in 2012 were $8.92 billion. In 2011: $8.02 billion. In 2010, exports of U.S. goods to Israel totaled $6.8 billion.
  • U.S. imports from Israel (not including diamonds) in 2012 were $13.9. In 2011: $13.8 billion. U.S. imports from Israel in 2010 totaled $13.2 billion.

Market Challenges

  • Israel is a mature market in many sectors and U.S. companies will face significant local and international competition.
  • Agriculture trade regulations, IPR protection weaknesses, certain technical standards and regulatory uncertainties in the natural gas sector are non-tariff barriers. US Export Control regulations for re-exports are perceived as a challenge by Israeli manufacturers.
  • The political and security environment is tense because of the geopolitical neighborhood.
  • The business environment and style will seem familiar to Americans, though dress may seem more informal and personal relationships sometimes play a greater role.

Market Opportunities

  • Hi-tech and defense dominate Israel's trade numbers, and Israel remains a global center for hi-tech design and R&D. Hi-tech continues to provide opportunities for U.S.-Israel commercial partnerships, specifically in ICT technologies, safety and security equipment and services, renewable energy technologies, defense equipment, medical technologies and biotechnology products. Power generation and education/training also represent good opportunities.
  • U.S.-Israeli commercial linkages often consist of U.S. firms providing electronic inputs which Israeli firms integrate into final products destined for re-export.
  • Road technology and infrastructure projects could offer millions of dollars' worth of export opportunities for U.S. firms over the next five years, especially since Israel adopted U.S. standards in intelligent transportation systems.

Market Entry Strategy

Distribution methods vary by type of product.

  • Commissioned Agents: used mainly for industrial equipment, raw materials and commodities.
  • Non-Stocking Agents: used mainly by manufacturers.
  • Stocking Agents: used mainly for high volume items.
  • Importers/distributors: used often for consumer goods
  • Franchising: since its introduction to Israel in the mid-1980s, franchises have increased in popularity.

Direct marketing is fairly common.

  • Door-to-door salesmanship is uncommon in Israel and is considered a nuisance.
  • Cable and satellite TV offer shopping channels.
  • Direct marketing is common through mail order booklets that are distributed monthly by credit card companies and through the Internet. An “opt-in” spam law was introduced to Israel in late 2008. Companies can only send individuals spam if the individual agrees in advance. Political and charity mailings are exempt.
  • Telephone marketing is increasingly common, but with mixed results.
  • Internet use in Israel is widespread and represents a good marketing avenue.

The Government of Israel encourages both joint ventures and licensing.

  • Joint ventures are the most popular method of cooperation for Israeli firms, especially in technology-related industries.
  • Israeli businesses prefer obtaining five-year licensing agreements with automatically renewable clauses that extend the agreement for another five years.
  • A Commercial Agents Law became effective in 2012. The law specifies advance notice of termination of a relationship related to the duration of the supplier/agent contract and monetary compensation of the agent for the loss of potential profits.
  • Manufacturing under licensing agreements is common in Israel.
  • Israeli businesses prefer licensing agreements in which the licensor takes equity with the licensee.
  • The norm for royalties is 4-5% of turnover. Higher rates are common for luxury articles, author's fees and specialized machinery.
  • A 10-15% withholding tax on royalties and fees is often deducted at the source.
  • Licensees may repatriate royalties through an authorized bank, and are entitled to claim an income tax deduction on royalties and fee payments.
  • U.S. companies should seek advice from a respected law firm and accounting firm when figuring tax liabilities.
  • The United States and Israel have signed a tax treaty to avoid double taxation.

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Jordan

Market Overview

Jordan is strategically positioned at the crossroads of the Middle East-North Africa (MENA) region, centrally located between Europe, Asia, and Africa. The Hashemite Kingdom of Jordan is only one of two Arab countries to have signed a peace agreement with Israel, and in 2001, it became the first Arab country to sign a Free Trade Agreement with the United States. The U.S.-Jordan Free Trade Agreement (FTA), which came into full effect in 2010, continues to create advantages for U.S. exporters, who are able to sell high-quality products at more attractive prices, as tariff barriers on the majority of goods traded between the United States and Jordan have been eliminated. Because of the FTA, bilateral trade has surged ten-fold over the past 13 years.

With a moderate climate and historical sites such as the Dead Sea, Petra, and Wadi Rum, Jordan remains a prominent tourist destination in the Middle East, despite a recent decline in tourism arrivals due to regional unrest associated with the Arab Spring. The development of Jordan’s sole port city of Aqaba holds significant promise for tourism-related infrastructure projects, including hotel construction and management, as well as convention center, cruise ship terminal, and commercial opportunities. The port expansion also affords opportunities in infrastructure development.

Regionally, Jordan remains a haven of stability for business interests and serves as a business hub in the region. Jordan has strong, cooperative relations with its neighbors and the wider international business community. Imports into Jordan include: mineral fuels and crude oil, industrial machinery, transportation equipment, food and agricultural products, textiles, manufactured goods such as rubber products, paper and cardboard, yarns, chemicals, clothing and footwear. The largest exporters to Jordan include: the European Union (20% of total imports), Saudi Arabia (20%), China (11%), United States (6%), followed by Egypt, South Korea, Japan, and Turkey.

The following sectors offer the best opportunities for U.S. firms in the Jordanian market:

  • Energy/Power, including Renewable Energy
  • Clean Tech
  • Healthcare, including Medical Devices
  • Medical Tourism
  • Information Communication Technology
  • Safety & Security
  • Franchising
  • Environment Technologies/Water

Market Challenges

The global economic slump and a decline in sectors such as travel and tourism, construction, and defense have depressed the Gross Domestic Product (GDP) growth rate in Jordan. Jordan imports 96 percent of its energy from neighboring countries such as Egypt and Saudi Arabia. Insufficient supplies of water, oil, and natural gas make Jordan heavily dependent on foreign assistance. Of serious concern is the fact that Jordan ranks sixth in terms of water poverty after other Arab countries.

Underemployment and high rates of poverty remain critical issues in Jordan. Jordan’s budget deficit resonates across all sectors, impacting defense, security, and information communications technology (ICT) and is a major deterrent to economic growth. King Abdullah has championed government efforts to implement significant economic and political reforms, but results are still years away. The middle-class has taken the economic hit harder than any other group in Jordan and this has resulted in lower home ownership and standards of living. The population growth rate continues to climb with 70 percent of the population under 30 and 36 percent under 15 years of age.

Market Opportunities

Jordan market opportunities can be summarized as follows:

Jordan is beginning to invest heavily in alternative and renewable energy, including wind and solar. The renewable energy market for equipment and services is around $40 million and the U.S. share is five percent.

The energy sector, particularly power generation, municipal gas systems, and oil shale development, are key sectors of growth.

ICT sector is the fastest growing sector in Jordan’s economy with a 25 percent growth rate. The sector accounts for more than 84,000 jobs, contributing 14 percent of the GDP. There are 400 companies in telecom, IT, online and mobile content, business outsourcing, and games development.

The telecommunications sector is liberalized; however, with a 30% internet penetration rate, there is room for growth, as the government hopes to increase that rate to 50% over the coming years. Jordan has more than 6.6 million mobile phone subscriptions, which represents a 108% penetration rate.

Opportunities abound in e-health, with current pilot programs in three hospitals and a model based on electronic health solutions. Medical tourism is beginning to draw large numbers of patients to Jordan as a growing medical destination.

Market Entry Strategy

The Jordanian market is best entered by working closely with a local agent, distributor or partner. U.S. companies looking at Jordan should be aware of the following:

Complete and direct foreign investment is possible in most, but not all sectors.

Jordanian firms, across multiple sectors, regard U.S. products highly for their quality and advanced technology.

U.S. consumer products and brands in the market are well-regarded, and there is still much room for the introduction of new U.S. products, services and franchises, particularly to the 20 to 35 year old segment of the population.

The perception of distance and delivery time, and lack of familiarity with U.S. products, also triggers the need for strong representation by local agents.

U.S. firms considering the Jordanian market should focus on understanding the specificity of this market, as well as the potential for using Jordan as a regional hub for certain types of products or services. Working closely with Jordanian agents, distributors or partners is essential to ensure a competitive position and successful market entry.

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Mexico

Market Overview

  • The North American Free Trade Agreement (NAFTA), which was enacted in

1994 and created a free trade zone for Mexico, Canada, and the United States, is the most important feature in the U.S.-Mexico bilateral commercial relationship.

  • Mexico is the United States’ 3rd largest trade partner and 2nd largest export market for U.S. products.
  • U.S-Mexico bilateral trade increased from $88 billion in 1993, the year prior to the implementation of NAFTA, to $494 billion in 2012, an increase of 461 percent.
  • Negotiations are now underway for the Trans-Pacific Partnership (TPP), with U.S. and Mexican participation. The U.S. and Mexico seek to boost U.S. and Mexican economic growth by increasing exports in a region that includes some of the world’s most robust economies and that represents more than 40 percent of global trade. The TPP presents an opportunity to go beyond NAFTA and is anticipated to be finalized by 2014.
  • In May 2013, President Obama visited Mexico at which time he and Mexican President Enrique Peña Nieto announced a new High Level Economic Dialogue (HLED). The HLED will help to further identify barriers to trade between our two countries, to reduce such barriers, and improve opportunities for both U.S. and

Mexican companies in our two markets.

  • Mexico is the most populated Spanish speaking country in the world and has 115 million people with 78% living in urban areas. 10% of the population is considered wealthy and about 45% in poverty earning less than USD $10 per day. The remaining 45% of the population is considered middle class. Mexico has a very young population with a median age of 27. It offers a large market with a GDP of approximately USD $1.16 trillion. Per capita income is USD $15,100.
  • With a shared Western and Hispanic culture U.S. producers find it easier to market and sell their services and products in Mexico.
  • There is a large installed base of manufacturing in a wide range of sectors.
  • Mexico is a stable democracy.
  • Mexico’s economy continues to grow with 4% growth in GDP in each of the past two years. Growth is expected to be lower in 2013.
  • Labor, education, and telecom reforms as well as proposed energy and fiscal reforms have people optimistic that the country will increase its competitiveness.

Market Challenges

  • Mexico’s size and diversity are often under-appreciated by U.S. exporters. It can be difficult to find a single distributor or agent to cover this vast market.
  • The Mexican legal system differs in many significant ways from the U.S. system.

U.S. firms should consult with competent legal counsel before entering into any business agreements with Mexican partners.

  • The banking system in Mexico has shown signs of growth after years of stagnation, but interest rates remain relatively high. In particular, small and medium-sized enterprises (SMEs) find it difficult to obtain financing at reasonable rates despite Mexican Government efforts to increase capital for SMEs. U.S. companies need to conduct thorough due diligence before entering into business with a Mexican firm, and should be conservative in extending credit and alert to payment delays. As one element in a prudent due diligence process, the U.S.

Commercial Service offices in Mexico can conduct background checks on potential Mexican partners. U.S. companies should assist Mexican buyers explore financing options, including Export-Import Bank programs.

  • Mexican customs regulations, product standards and labor laws may present pitfalls for U.S. companies. U.S. Embassy commercial, agricultural and labor attachés are available to counsel firms with respect to regulations that affect their particular export product or business interest.
  • Continued violence among transnational criminal organizations has created insecurity in some parts of Mexico, particularly in some border areas. Prior to traveling to Mexico it is strongly recommended to review the Department of

State’s travel guidance related to Mexico:

Market Opportunities

  • Abundant market opportunities for U.S. firms exist in Mexico; trade totals almost $1.4 billion a day between the two countries.
  • Mexico inaugurated a new President in December 2012. A national infrastructure plan has been unveiled. Sales opportunities to the Mexican federal government will likely increase in the next few years.
  • Mexico’s geographic proximity to the United States has propelled the maquiladora industry near the U.S.-Mexico border and currently gives U.S. businesses an alternative to Asia-based manufacturing and opportunities to sell into the supply chain.
  • Some of Mexico’s most promising sectors include: agribusiness; auto parts & services; education services; energy; environmental; franchising; housing & construction; packaging equipment; plastics and resins; security & safety equipment and services; technology sectors; transportation infrastructure equipment and services; travel & tourism services and the agricultural sector.
  • A complete list of the top prospects in Mexico is provided in Chapter Four.

However, given the size of the Mexican market, there are numerous other promising prospects, including food processing equipment, architectural and engineering services and more. If an industry is not explicitly mentioned as a “best prospect,” it does not necessarily mean that there are not ample opportunities in the Mexican market.

Market Entry Strategy

  • To do business in Mexico it is key to develop and maintain close relationships with clients and partners. Mexicans prefer direct communication such as telephone calls or face-to-face meetings. However, e-mail is widely used.
  • Mexican companies are extremely price conscious, seek financing options, tend to desire exclusive agreements, and value outstanding service and flexibility.
  • U.S. firms wishing to export to Mexico will find a variety of market entry strategies. Many factors help determine the best strategy, such as the product/service, logistics & customs, distribution, marketing, direct or indirect sales, exporting experience, and language proficiency, among others.
  • The U.S. Commercial Service can assess market potential of products and service, provide advice on export strategies, and facilitate business agreements with potential clients and/or partners through our three offices in Mexico: Mexico City, Guadalajara, and Monterrey.

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Morocco

Market Overview

The U.S.-Moroccan Free Trade Agreement (FTA), which went into effect in 2006, is one of the most comprehensive free trade agreements that the U.S. has ever negotiated. Morocco is the second Arab and first African nation to have an FTA with the U.S. The FTA provides U.S. exporters increased access to the Moroccan market by eliminating tariffs on 95% of currently traded consumer and industrial goods and levels the playing field with European competition. It provides enhanced protection for U.S. intellectual property, including trademarks and digital copyrights, expanded protection for patents and product approval information and tough penalties for piracy and counterfeiting.

Morocco is steadily progressing toward greater internal modernization and globalization, with the creation of the country’s first commercial courts, streamlined customs services and 16 Regional Investment Centers dedicated solely to facilitating new business ventures. In 2003, the Moroccan government passed a comprehensive labor code that protects both employers and employees.

Strategically located along the Strait of Gibraltar just a seven-hour flight from JFK and three hours from Paris, Morocco is seen more and more as a regional hub in North Africa for shipping logistics, assembly, production and sales. The moderate

Mediterranean climate on 2,750 miles of coastline and its developing infrastructure make Morocco an attractive location for both business and leisure. Morocco’s Association Agreement and Advanced Status with the European Union (EU) and the FTA with the U.S. have spurred development of manufacturing. Morocco relies on these key trade agreements to stimulate economic growth and to foster the job creation necessary to facilitate social and educational reform.

In the agricultural sector, Morocco is heading toward a good 2010-1 harvest. The record rain registered during the fall and early winter should lead to good yields in 2011. Morocco relies on imports to fulfill local demand for wheat. Morocco is the size of California, but only 20% of the land is arable. There is substantial potential for expanded U.S. agricultural products and irrigation technology exports to Morocco.

The U.S. Trade and Development Agency (USTDA) continues to make significant contributions to infrastructure development in Morocco. In 2010 USTDA funded two

Reverse Trade Missions to the U.S. in the sectors of renewable energy and ports development. It has also funded a technical assistance for the Agency for Renewable Energy and Energy Efficiency (ADEREE) for the development of 5MW PV solar plant.

As for 2011, USTDA has recently identified projects in several sectors including clean energy, water resources, ports management, and multimodal transports.

In 2007, Morocco and the Millennium Challenge Corporation (MCC) signed a five-year, $697.5 million Millennium Challenge Account Compact to reduce poverty and increase economic growth. The program seeks to stimulate economic growth by improving productivity and increasing employment in high-potential sectors including fruit tree productivity, small-scale fisheries, and handicrafts. Small business creation and growth will also be supported by investments in financial services and enterprise support. The Compact components include:

  • Fruit Tree Productivity Project ($300.90 million)
  • Small-Scale Fisheries Project ($116.17 million)
  • Artisan and Fes Medina Project ($111.87 million)
  • Financial Services Project ($46.20 million)
  • Enterprise Support Project ($33.85 million)

Market Challenges

U.S. exporters face strong competition from European trading partners, particularly

France. France and Morocco share a common language and have strong historical ties.

European firms in general are familiar with all aspects of Moroccan business culture, financing, regulations and standards. French businessmen also visit Morocco quite often for leisure.

The greatest barriers to trade in Morocco are irregularities and lack of transparency in government procurement procedures, corruption and counterfeit goods. Although the government is diligently working to improve the business environment, foreign corporations still complain about these challenges. The FTA addressed most of these issues and the Moroccan government is striving to make reforms.

The legal and banking systems in Morocco differ in many significant ways from the U.S. systems. The legal system is based on a combination of Spanish, French and Islamic law, making it sometimes complicated for U.S. companies. International and domestic arbitration are accepted and are often used in business contracts. Since the mid 1990s

Morocco has made significant reforms to the banking system, focused on structures and programs to attract inbound investment and to facilitate financing of projects and purchases.

Market Opportunities

U.S. exporters can benefit from the opportunities opening up through the FTA and take advantage of Morocco’s position as a gateway to Europe, Africa and the Middle East.

The U.S. Commercial Service has identified the following sectors as best prospects for U.S. firms. (See Chapter 4)

  • Water Management
  • Building and Construction
  • Renewable Energy
  • Safety and security equipment

The following agricultural products are the Foreign Agriculture Service’s best prospects.

(See Chapter 4)

  • Wheat, including durum
  • Corn, sorghum, and corn products
  • Feed grains and non-grain feed ingredients (in drought years)
  • Crude vegetable oil
  • Oilseeds and products (soybean meal)

Market Entry Strategy

In Morocco, business is based on trust and mutual respect built over time. U.S. exporters will need to travel to Morocco frequently to develop and strengthen relationships in order to do business successfully. U.S. exporters also need to be patient; all procedures take significantly more time to accomplish than U.S. firms may be used to. Moroccans appreciate close working relationships; so working with a locally based agent or distributor will provide U.S. firms with essential knowledge of key contacts, local customs rules and regulations, and niche opportunities. However, market-entry strategies often vary by sector and region. The staff of the U.S. Commercial Service in Morocco is available to provide individualized counseling to determine the best market entry strategy for a given U.S. company/product. U.S. firms are encouraged to contact the U.S. Export Assistance Center for an initial orientation and explanation of export assistance business services.

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Nicaragua

Market Overview

Nicaragua's gross domestic product (GDP) increased by an estimated 4.0% in 2011, due largely to a rapid increase in prices for Nicaraguan exports and increased consumer spending at home. Inflation in 2011 was 7.95%. The Central Bank of Nicaragua forecasts GDP growth of 3.5 to 4% in 2012 with inflation of 8 to 9%.

On April 1, 2006, the United States - Central America - Dominican Republic Free Trade Agreement (CAFTA-DR) entered into force for the United States and Nicaragua. 80% of U.S. exports of consumer and industrial goods now enter Nicaragua duty-free, with remaining tariffs to be phased out by 2016. Tariffs on most U.S. agricultural products will be phased out within 15 years, with all tariffs eliminated in 20 years. With CAFTA-DR, Nicaragua also offers substantial market access for U.S. firms across the entire services spectrum, including telecommunications, express delivery, computer and related services, tourism, energy, transport, construction and engineering, financial services, insurance, audio/visual and entertainment, and professional services. The agreement features key protections for U.S. investments and intellectual property. It also includes commitments on environmental standards, labor rights, government procurement, and corruption.

The United States is Nicaragua's largest trading partner, the source of roughly a quarter of Nicaragua's imports and the destination for approximately two-thirds of its exports (including free zone exports). U.S. exports to Nicaragua totaled $1.1 billion in 2011, including cereals, donated goods, mechanical machinery, textiles and apparel, oils and fats, medical and dental equipment, electrical machinery, vehicles, and plastics. Nicaraguan exports to the United States were $2.6 billion in 2011, including textiles and apparel, automobile wiring harnesses, coffee, meat, fish, tobacco, gold, fruits, vegetables, and sugar. Other important trading partners for Nicaragua are Venezuela, El Salvador, Costa Rica, Mexico, and the European Union.

The Nicaraguan Government estimates that foreign investment inflows were $880.6 million in 2011, up from $508 million in 2010. There are more than 125 wholly- or partly- U.S-owned subsidiaries of U.S. companies currently operating in Nicaragua. The largest of these investments are in textiles and apparel, energy, financial services, light manufacturing, tourism, fisheries, and shrimp farming. Other major investors include Venezuelan, Mexican, Canadian, and other Central American firms.

Market Challenges

Poor infrastructure increases costs for many businesses. Because oil is the fuel used by most power plants, electricity service in Nicaragua is the most expensive in Central America. With the exception of a few major intercity links, roads are poorly maintained and sometimes impassable. Seaport infrastructure is limited, and costs are high.

The Nicaraguan economy is small and purchasing power is limited for many consumers. Of the total population of 5.89 million, 46% live below the poverty line. Family remittances, $911.6 million in 2011 significantly, augment incomes for many Nicaraguans, as do transfers provided by the Sandinista National Liberation Front (FSLN) with Venezuelan funding.

Several factors contribute to an uncertain policy environment for foreign investors. Harsh rhetoric by the Government of Nicaragua against the United States, capitalism, and free trade has had a negative effect on foreign investor perceptions of risk. Government officials frequently deride neoliberal policies and the "tyranny of capitalism" and criticize foreign investors for paying "slave wages."

Nicaragua's political situation impedes the development of institutions and policies that would strengthen the private sector in the face of global competition. The World Economic Forum's Global Competitive Index for 2011-12 ranked Nicaragua 115th of 142 countries.

The legal environment is among the weakest in Latin America. Property rights, including intellectual property rights, are especially difficult to defend. Nicaraguans commonly believe that the judicial system is controlled by political interests and is corrupt. Investors regularly complain that regulatory authorities are arbitrary, negligent, slow to apply existing laws and often favor one competitor over another. Lack of a reliable means to quickly resolve disputes with administrative authorities or business associates has resulted in disputes becoming intractable.

The Nicaraguan Customs Authority regularly subjects shipments of commercial and even donated goods to bureaucratic delays and arbitrary valuation. Importers and exporters alike accuse the Nicaraguan Customs Authority of regularly assessing exorbitant fines for minor administrative discrepancies. In some cases, shipments are illegally held for days, weeks, or months, with no justification provided by customs agents.

Business associations, religious organizations, and civil society question the manner in which the Supreme Court overturned a constitutional prohibition against reelection to allow President Ortega to compete, and be reelected, in the November 2011 elections. The 2011 presidential elections were not conducted in a transparent and impartial manner, and the electoral process was marred by significant irregularities, as reflected in public statements by international observers and Nicaraguan civil society groups. These elections mark a setback to democracy in Nicaragua that undermines the ability of Nicaraguans to hold their government accountable. The voting results, in which over 100,000 more votes were cast for the National Assembly than for the presidency, cast doubt on the outcomes.

Furthermore, as of the end of 2011, the Supreme Electoral Council (CSE) has yet to publish results by voting table as required by Nicaraguan law. Opposition parties have rejected the 3 results of the election and one independent domestic election group says that roughly 150,000 votes were manipulated in the election. President Ortega has trumpeted the concept of a mixed economy, in which economic power is divided between the state and private sector. He has used funds provided by Venezuela through the Bolivarian Alliance for the Americas (ALBA) to increase the role of the state in the economy.

Market Opportunities

CAFTA-DR has provided new market opportunities for U.S. exports to Nicaragua. The treaty has also provided new opportunities for Nicaraguan exports to the United States, especially for meat, dairy, seafood, agricultural produce and processed foods. Nicaragua offers business opportunities in the tourism sector that are enhanced by attractive tax incentives. Nicaragua's emerging tourism industry allows for opportunities to those entrepreneurs who fully accept the risk of investing in Nicaragua, especially with regard to disputes over land title and lack of supportive infrastructure.

Market opportunities exist in the following sectors: renewable energy; vehicles, auto parts, and equipment; consumer goods; computer equipment and peripherals; telecommunication equipment and services; medical, optical and dental equipment; plastics; agricultural inputs; food processing and refrigeration equipment; construction and hardware equipment; wheat; yellow corn; soybean oil; soybean meal; and rice.

Market Entry Strategy

The use of agents and distributors is the most common way to export U.S products and services. The Nicaraguan retail market is relatively small, but identifying one representative for the Pacific and central regions and another for the Atlantic coast is often required to ensure nationwide coverage.

A local lawyer should be consulted to determine the pros and cons of various agency or representation agreements. U.S. companies should visit potential partners or agents prior to entering into a relationship. U.S. firms should check the bona fides of potential partners before establishing a formal business relationship.

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Oman

Market Overview

The United States and the Sultanate of Oman share a strong bilateral relationship based on a joint commitment to the security, stability, and prosperity of the region. Oman is a regional actor as a member of the Arab League as well as the Gulf Cooperation Council (GCC), which includes Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, and Bahrain. The government of Oman is a monarchy with a population of approximately 3.8 million (including about 1.8 million foreign workers), ruled by Sultan Qaboos bin Said Al Said since 1970. During his more than forty years as Oman’s leader, Sultan Qaboos has transformed a nation of subsistence farmers and fishermen with a total of six kilometers of paved road into a thriving state with modern infrastructure and continuing economic and social investment.

Oman is a middle-income country with an economy based primarily on limited overall hydrocarbon resources, notwithstanding a few significant recent gas finds. Oil and gas accounted for about 80% of the government's revenue in 2012. High oil prices in recent years have bolstered Oman’s budget, trade surpluses, and foreign reserves. Increased subsidies and expenditures in 2011 and 2012 associated with the “Arab Spring” and job creation initiatives offset income from increased oil revenues, although high oil prices helped Oman maintain a budget surplus. Oman enjoyed 5% GDP growth in 2012, due in large part to an average oil price around $100 per barrel. The financial system is well capitalized with a very low number of non-performing loans. Oman has a stable A1 credit rating as well as very low external debt; at 3-4% of GDP it is one of the lowest in the world. According to the Public Authority for Investment Promotion and Export Development (PAIPED), new FDI in Oman jumped to RO 5bn, about $16 bn, in 2010, from just RO 980m ($2.5 billion) in 2003.

Oman acceded to the World Trade Organization in 2000, is a member of the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS), and entered into a Free Trade Agreement (FTA) with the United States in 2009. The lack of market competition due to the prevalence of family-owned and parastatal oligarchies has resulted in inflated price levels for its mainly imported food and consumer products. Reliance on a large state-owned energy sector leaves the economy vulnerable to market prices for energy products.

U.S. exports to Oman totaled $1.7 billion in 2012 and U.S. imports from Oman totaled $1.3 billion. Both Oman and the United States seek an expanded trade relationship and are working to leverage their Free Trade Agreement (FTA) to that effect. The U.S.-Oman FTA removed most customs duties; the remainder will be phased out over the next few years.

Due to its limited energy reserves, Oman is diversifying its economy beyond oil and gas production. The government is working to diversify the Omani economy by encouraging foreign investment, implementing a robust strategy for small and medium enterprise development, conceiving anti-trust regulations, boosting industrialization, building modern infrastructure, and expanding privatization. Oman actively seeks foreign investment, especially in the industrial, food processing, logistics, information technology, tourism, healthcare, fisheries, and higher education sectors. The Government of Oman (GoO) has set a goal of 81% of GDP by 2020 for the non-oil sector, with the private sector representing 91% of the economy by that year. The government views expanding Oman’s infrastructure as vital for economic growth and continues to allocate a substantial portion of its budget toward investments in ports, rail, airports, highways and petroleum facilities. The government has also sharply increased spending in the education and health sectors in recent years. According to Middle East Economic Digest (MEED), project spending has averaged $7bn per year in the last decade, and is set to continue, mostly focused on airports, a new rail system, highways, power and water plants, and tourism construction.

In 2012, the Central Bank of Oman (CBO) introduced a number of regulations, such as reducing the interest rate ceiling on personal loans to 7% (from 8%) and placing a cap on the debt-to-burden ratio paid by the borrower at 50% of one's monthly salary for personal loans and at 60% for housing. The tenure for loans was capped at a maximum of ten years for personal loans and 25 years for housing. All of these measures were aimed at reducing the debt burden of consumers after a five-fold increase in personal indebtedness in the last decade. Banks complained of slower credit growth as a result. In 2013, the CBO issued regulations instructing banks to target 5% of their lending portfolios to SMEs. (Banks traditionally lent only about 2% of total credit to SME’s due to the relatively high risk, and required start-ups to demonstrate 200% collateral.)

The Sultanate's nominal gross domestic product (GDP) at current prices soared 11.6 % to OMR 30 billion ($78bn) in 2012 from OMR 26.9 billion ($70bn) the previous year, according to data released by the National Centre for Statistics and Information on May 14, 2013. A surge in oil prices and heavy government spending aided robust economic growth. In 2012, oil activities grew by 20.9 per cent due to a 6.5 per cent surge in Oman's crude oil price. Crude production rose by 4.6 per cent to hit 297.7 million barrels over the year. GDP for non-oil activities grew by 12 per cent in 2012 to reach OMR15,936 ($41,500) million from OMR14,227 ($37,049) million in 2011.

Market Challenges

A number of constraints affect trade and investment in Oman. The country has a relatively small population and there is no high-value consumer market beyond the capital area. This situation is exacerbated by intense competition from nearby global trading hub Dubai and industries in Saudi Arabia. In addition, other countries in the GCC typically offer higher industrial subsidies and lower quotas for hiring nationals.

While Oman is an attractive market for a number of products and services, at times it can present challenges for American firms to do business. Bureaucratic obstacles exist, including clearances for visas and permits for foreign workers, lengthy business registration requirements for consultancies, and a prohibition on real property rights for foreigners outside of Integrated Tourism Complexes. (Land ownership is not covered by the FTA.) The divide between the government and the private sector is not well-defined in Oman, leading to potential conflicts of interest. Of note are the oligarchic, closely-held businesses with familial ties to government officials. Government decision-making is often opaque. Firms that have been successful in Oman usually have previous experience in the Middle East or a full-time in-country representative or office.

Of particular concern for many international firms in Oman is the “Omanization” process, wherein the government sets quotas for Omani employment on a sectoral basis. Although the FTA provides for limited exceptions for specialized upper management, U.S. companies are responsible for complying with most Omanization requirements. Many companies, both Omani and international, have noted that some of the quotas are difficult to satisfy. Further, obtaining labor clearances for new foreign workers can be a challenge. Despite considerable government efforts to replace expatriate workers with Omanis, Oman still heavily depends on South Asian and other foreign labor. The total number of expatriates in Oman with valid labor cards as of December 2012 was 1,316,182; approximately one-third of the population. Around 80% of expatriate workers have only secondary education or lower, and the majority work in low-skill construction and manufacturing jobs. The Omanization drive intensified in 2011 as a result of “Arab Spring” demonstrations demanding more opportunities for Omanis. The government estimates needing up to 50,000 new jobs per year to absorb new labor force entrants.

Companies are encouraged to exceed their Omanization quotas, turn over management jobs to Omanis, and create training programs for new hires, which can be costly. The Petroleum Society of Oman (OPAL), comprising most oil and gas companies as members, is in the process of codifying these “In Country Value” requirements into tender-weighting criteria for the petroleum sector.

The following outstanding issues are of most concern to U.S. companies:

  • Duties continuing to be charged on American goods transshipped by road via Dubai despite the agreement in the FTA
  • Authenticated certificates of origin/shipping documents are at times still requested by Omani authorities despite not being required under the FTA
  • Company registration can be slow, especially for consulting firms.
  • Scarcity of natural gas feedstock for new projects, and lack of transparent criteria for gas allocations

Market Opportunities

Oman offers stability, security, a predictable investment climate; respect for free markets, property rights, and rule of law; access to capital, good health care and schools, easy access to global markets through a modern infrastructure network, and a commitment to intellectual property rights enforcement.

Although oil and gas production will remain the backbone of Oman’s economy for years to come, the non-oil sector of the economy is making great strides. Growth areas include: infrastructure design and engineering; water and power projects; medical equipment, services and supplies; higher education consulting and tuition; information technology; and aquaculture. The Ministry of Finance announced that, as part of the 2011-16 Eighth Five Year Plan, RO13bn ($33.8bn) would be spent on infrastructure, e.g., ports, highways, rail and airports, with RO8bn (S20.8bn) focused on financing oil and gas projects, to achieve 15-17% growth in the sector and RO3.4bn ($8.84bn) for the electricity sector in order to keep pace with 7-10% annual demand growth fueled by tourism and industry. RO700m ($1.8bn) has been allocated to the tourism sector, which is aiming for 11% growth, with a focus on meetings, industry conventions, and exhibitions (MICE); RO 500m ($1.3bn) is directed toward resorts and conference centers while RO 200m ($520m) is earmarked for infrastructure.

Under the “national treatment” provisions of the U.S.-Oman Free Trade Agreement. American companies may register as an Omani firm, with 100% American ownership, and no requirement for local ownership or partners. Other nationalities (outside the GCC) are bound by the Foreign Investment Law which limits foreign shareholding to 65% of any company.

In summary, advantages of investing in Oman include:

  • Strong macroeconomic situation
  • Business friendly environment
  • Stable, secure nation in a volatile yet strategic region
  • Considerable investment in first world infrastructure
  • Educated and largely bilingual workforce
  • Strategic geographic location outside the Strait of Hormuz and at the crossroads of the Middle East, Africa, and Asia

Market Entry Strategy

  • An American company may wish to consider registering as a fully U.S.-owned company under the FTA to avoid profit-sharing and potential disputes with a local partner. The simplest form is an LLC, though there is a two shareholder minimum (a 99/1% breakdown is accepted, and a family member may serve as the partner).
  • An on-the-ground presence in Oman is an advantage.
  • Personal relationships are key to finding and retaining a good local partner.
  • Agents are commonly used, but not required.
  • Agreements generally require significant lead time and follow-up before finalization.
  • Omanis appreciate flexibility in contract negotiations; any concessions they make should be met with a concession on the American company’s side, regardless of that company’s size.
  • Government contracts often take many months –in some cases years – before they are awarded.
  • Importers must be registered with the Ministry of Commerce and Industry and be members of the Oman Chamber of Commerce and Industry.
  • Importers/distributors are most commonly used in the retail food business.
  • The U.S. Embassy Commercial Section can provide counseling, referrals, matchmaking, due diligence and advocacy services.

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Panama

Market Overview

Panama has historically served as the crossroads of trade for the Americas. Its strategic location as a bridge between two oceans and the meeting of two continents has made Panama not only a maritime and air transport hub, but also an international trading, banking, and services center. Panama’s global and regional prominence is being enhanced by trade liberalization and privatization and it is participating actively in the hemispheric movement toward free trade agreements. Panama's dollar-based economy offers low inflation in comparison with neighboring countries and zero foreign exchange risk. Its government is stable and democratic and actively seeks foreign investment in all sectors, especially services, tourism and retirement properties.

Due to the country's historic evolution, which focused resources overwhelmingly on services and transactions, the assembly and manufacturing sectors – largely comprised of production of items such as processed foods, chemical products, construction materials and a small and declining clothing sector - remain severely underdeveloped. Panama’s economy is characterized by great income disparities, with social and economic inequalities marked by a high percentage of the population living at or near the poverty level with significant underemployment and limited education and other social benefits.

In 2010 the three major credit rating agencies – Standard & Poor’s, Moody’s, and Fitch - all raised their credit ratings for Panama to investment grade, granting the Government of Panama international recognition for recent tax reforms and its record of steady GDP growth while keeping its deficits under control. The investment-grade rating both lowers the cost of borrowing for the Government of Panama and sends a positive signal to foreign investors.

Panama's economy is based primarily on a well-developed services sector, accounting for about 75% of GDP. Services include the Panama Canal, banking, the Colon Free Zone, insurance, container ports, and flagship registry. The country is currently engaged in a $5.25 billion expansion of the Panama Canal that, when finished, would allow significantly larger vessels to transit and might alter shipping routes to and from multiple U.S. ports. This project, in conjunction with the expansion of the capacities of its ports on both the Atlantic and Pacific coasts and ongoing investment in regional fueling operations, will solidify Panama’s global logistical advantage in the Western Hemisphere.

This logistical platform has aided the success of the Colon Free Zone (CFZ), the second largest in the world after Hong Kong, which has become a vital trading and transshipment center serving the region and the world. CFZ imports – a broad array of luxury goods, electronic products, clothing, and other consumer products - arrive from all over the world to be resold, repackaged, and reshipped, primarily to regional markets. Because of this product mix, U.S. brand market share is significant, even if most of those products are made in Asia.

The U.S. is Panama's most important trading partner, with about 30% of the import market, and U.S. products enjoy a high degree of acceptance in Panama. In 2012, U.S. exports to Panama jumped 20% to $9.9 billion – in no small part due to the fact that Panama’s economy grew 10.6% in 2012. However, international competition for sales is strong across sectors including telecommunications equipment, automobiles, heavy construction equipment, consumer electronics, computers, apparel, gifts, and novelty products.

The Trade Promotion Agreement (TPA) between the U.S. and Panama that went into effect in October 2012 will continue to offer U.S.-made goods a competitive advantage. For 87% of U.S.-made goods, tariffs dropped to 0% immediately. However, Panama’s average tariff on goods is only 7% and in several key sectors – sales of consumables to the Government for the Canal expansion and other infrastructure projects, automobiles, and goods for use in hotels – duties are either 0% or are waived.

Panama also has full free trade agreements (FTAs) with El Salvador, Taiwan, Singapore, Chile, Costa Rica, Honduras, Guatemala, Peru, Nicaragua, and Canada, as well as partial trade agreements with Colombia, Mexico, Dominican Republic and Cuba. It is engaged in active negotiations for full FTAs with Colombia and the EFTA countries and has completed negotiations with the European Union. Panama has also expressed interest in negotiating a full FTA with Mexico and in joining the Pacific Alliance, whose members Chile, Colombia, Mexico, and Peru are seeking further economic integration.

Market Challenges

Panama’s inflexible labor laws are a source of concern for prospective investors. Firing practices are excessively regulated, reducing labor mobility and inhibiting hiring. While inexpensive in global terms, Panama's minimum wage is relatively high in a Central American context. In addition, competent technical employees fluent in English may be hard to find. These labor issues, coupled with relatively high costs for electricity, result in higher than average unit production costs in Panama.

Instances of questionable government practices continue to affect U.S. investors in Panama. These include bidding procedures, contract obligations, and a slow and imperfect judicial system. The current administration has announced an ambitious agenda of fiscal reform, anticorruption and transparency improvements, and reform of the Social Security system. With the exception of fiscal reform, however, there has been little to no progress on these fronts. Continued improvements in the areas of educational and judicial reform will be critical for Panama to improve its business competitiveness standing in the region.

International indices generally rate Panama as one of the best countries in Latin America for business and investment. At the same time, however, U.S. investors have voiced concerns about corruption and inconsistent treatment.

Market Opportunities

Panama has no restrictions on the outflow of capital or outward direct investment. Its accession to the World Trade Organization in mid-1997 opened up trade and lowered tariffs across the board, giving Panama the lowest average tariff rate in Latin America. Panama’s recognition of the U.S. sanitary and phytosanitary system and the creation of a new Food Safety Authority have essentially eliminated the previous slow and arbitrary procedures for issuing permits for U.S. food products.

Consumer attitudes and many brand preferences are similar to the U.S. U.S. television, radio and magazines are all available and popular in Panama. Upper-income Panamanians frequently travel to the U.S. for vacation, medical treatment, study and business. Their buying patterns and tastes are similar to those of U.S. consumers.

U.S. goods and services enjoy a reputation for high quality and are highly competitive. Panama has in recent years established itself as a regional competitor to Miami for consumer retail, which may result in a larger market than its domestic population would indicate. The country boasts the highest per capita GDP in the region. However, income distribution is highly skewed toward a relatively small, consumer goods-oriented, economically powerful class. This class enjoys a very high level of disposable income. They prefer high quality trend-setting goods where price is a secondary determinant in the purchasing decision.

Market Entry Strategy

Due to its open economy, Panama has few market access problems. One of the more common market entry options is to appoint an agent or distributor. Another option is to find a local partner who can provide market knowledge and contacts. Other businesses have been successful via licenses or franchises.

The U.S. Commercial Service offers U.S. companies market entry assistance through a variety of services, any of which can be tailored to suit your needs. We also will work to defend your business interests in Panama if the need arises. We measure ourselves on our ability to help you do more business in Panama.

Given the ease of air travel between the U.S. and Panama, our Gold Key Service (GKS) is our most popular offering. This service connects you with qualified representatives, distributors, partners, or customers. The U.S. Embassy will conduct background checks, set up the meetings, and provide translation and driving services as part of the package.

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Peru

Market Overview

Peru has been one of the fastest growing Latin American economies for the past ten years. Since 2002 the Peruvian economy has grown by an average of 6.4% per year, a trend expected to continue with a projected GDP growth of 6.3% in 2013. Consumption and private investment are the main driving forces of this growth. Projections for 2013 are that investment will grow 8.3% to a value of US$33.5 billion. The Ministry of Economy and Finance (MEF) set a target of 30% growth in public investment. As the economy has grown, poverty in Peru has steadily decreased. In its November 2012 Peru Handbook, HSBC states that Peru is “the third-fastest growing consumer market globally, and set to be a bigger economy than Chile, Colombia, or even South Africa in the long term”.

The steady economic growth began with the pro-market policies enacted by President Fujimori in the 1990s. All subsequent governments have continued these policies, including the current administration inaugurated in July 2011 for a five-year term.

President Ollanta Humala has pledged to encourage private and public investment in infrastructure projects in transportation, telecommunications, energy, sanitation, airports, and ports. Congruent with his other campaign goals to reduce poverty and narrow the nation’s socioeconomic gap, President Humala has increased social spending and raised taxes on mining companies.

Peru’s currency, the “Nuevo Sol” (Sol), has been the least volatile of all Latin American currencies in the past few years and was the least impacted by the downturn of the U.S. dollar. Since the mid-1990’s, the Sol's exchange rate with the U.S. dollar has fluctuated between 1.25 and 3.55 to US$1. The exchange rate, as of December 2012, was 2.55 Soles per US$1.

The Peruvian Government has encouraged integration with the global economy by signing a number of free trade agreements, including the United States-Peru Trade

Promotion Agreement (PTPA), which entered into force in 2009. In 2012, the U.S. was the second largest destination for Peruvian exports, receiving 13.4%, and the main supplier of goods to Peru with an 18.9% market share. Peru has preferential trade agreements with 49 countries and unions including the U.S., Argentina, Brazil, Uruguay, Paraguay, Bolivia, Colombia, Ecuador, Canada, Chile, China, Mexico, Japan, Singapore, South Korea, Norway, Iceland, Liechtenstein, Switzerland, Thailand, and Panama.

In its Doing Business 2013 publication, the World Bank ranked Peru 43rd among 183 countries surveyed in terms of ease of doing business. The report rates the ease of processes like starting a business, dealing with construction permits, registering 3 property, and obtaining credit.

Market Challenges

Although Peru’s Constitution guarantees economic freedom under Article 63, the

Peruvian government has occasionally passed measures that contravene free market principles. For example, Peru has implemented two sets of rules for importing pesticides, one for “regular” importers which is extremely restrictive and requires a full dossier with technical information, and another for farmers which is rather loose and only requires a written affidavit.

Dispute settlement generally remains problematic in Peru. In 2004, the Peruvian

Government established commercial courts to rule on investment disputes. With their specialized judges, these courts have reduced the amount of time to resolve a case from an average of two years to just two months. The appeals process resolves most of these cases. However, with the exception of the commercial courts, the judicial system is often extremely slow to hear cases and to issue decisions. A large backlog of cases further complicates decision-making.

Court rulings and the degree of enforcement are often inconsistent and highly unpredictable. Allegations of political corruption and outside interference in the judicial system are common. Frequent use of appellate processes as a delay tactic leads to the belief among foreign investors that contracts can be difficult to enforce in Peru.

While the legal framework for protection of intellectual property (IP) in Peru has improved over the past decade, enforcement mechanisms remain weak. Despite PTPA implementation and recent changes in laws which created stricter penalties for some types of IP theft, the judicial branch has failed to impose sentences that adequately deter future IP theft.

Taxes also present some difficulties. As one of the keystone features of the PTPA, approximately 80% of U.S. industrial and consumer goods enter Peru duty-free.

However, a value added tax of 18% applied to virtually all goods sold in the country results in relatively higher prices for many goods in comparison to those prevailing in the United States.

Both domestic and foreign firms continue to identify cumbersome bureaucratic procedures as impediments to doing business in Peru. In addition, customs procedures tend to emphasize strict enforcement and revenue generation over trade facilitation, making it important to ensure that customs and shipping documentation are fully and accurately completed. Firms operating in Peru also note difficulties in securing legal solutions to commercial disputes.

Market Opportunities

The best prospects for U.S. exports of non-agricultural products to Peru include the following sectors:

  • Mining Industry Equipment
  • Construction Equipment
  • Telecommunications Equipment
  • Plastic Materials and Resins 4
  • Pumps, Valves, Compressors
  • Oil and Gas Field Machinery
  • Industrial Chemicals
  • Computers and Peripherals

The best prospects for U.S. agricultural products include:

  • Hard Wheat
  • Cotton
  • Beef and Offal
  • Dairy Products (whey, cheese)

Market Entry Strategy

U.S. companies often find it advisable to appoint local representatives to investigate market opportunities and establish sales networks. Retention of local legal counsel is often required to successfully navigate Peru’s informal business practices and bureaucracy. U.S. exporters are encouraged to contact the Foreign Commercial Service (U.S. Department of Commerce) at the U.S. Embassy in Lima to obtain a market briefing and assistance in arranging appointments during a business trip to Peru, and to locate an agent, distributor, or partners in the region (such as the Gold Key Service).

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Singapore

Market Overview

  • Singapore’s real GDP grew 4.9% in 2011 but the government expects growth to slow to 1% to 3% in 2012. Foreign investments, combined with investments through Singapore government-linked corporations (GLCs), underpin Singapore’s open, heavily trade-dependent economy. The World Bank Report “Doing Business 2011” cited Singapore as the world’s easiest place to do business. The World Economic Forum Global Competitiveness Report 2011 – 2012 ranks Singapore as the world’s second most competitive country and having the best protection of intellectual property.
  • In 2011, Singapore was the 11th largest export market and 15th largest trading partner of the United States. The U.S. is the number two supplier of Singapore’s total imports just behind Malaysia. Singapore’s other top import sources include China, Japan, Taiwan, Indonesia, South Korea, Saudi Arabia, India and United Arab Emirates. The U.S. and Singapore signed a Free Trade Agreement (FTA) in May 2003 that went into effect January 1, 2004. During the first eight years of the U.S.-Singapore FTA, two-way trade increased 59.1% and U.S. exports by 89.4%.

Market Challenges

  • Singapore offers excellent opportunities for U.S. companies to sell their products and services as the country is virtually a free port. However, doing business in Singapore is not without some challenges. The open economy attracts suppliers from throughout the world providing tough competition and reducing margins. Singapore is also seeing increased business costs, mostly in rentals and a tightening labor market. In response to the concerns voiced by the indigenous population, the government has made a decision to tighten the inflow of foreign workers and has accepted the policy will result in slower growth for the country.
  • Despite its liberal trading regime, foreign companies face barriers in certain service sectors such as pay TV, basic telecommunications, audiovisual and media services, legal services, banking and education.

Market Opportunities

  • Singapore is a major trading hub, importing and exporting all kinds of products from consumer goods to high technology and industrial goods for re-export to third countries. U.S. companies will find attractive market opportunities in the following best prospects sectors: electronics, oil and gas equipment, aircraft and parts, pollution control equipment, medical devices, laboratory and scientific instruments, computer hardware and software, telecommunication equipment, university education services and franchises.
  • The Singapore government and private industry are expected to invest in several major projects including:

− $600 million to carry out 20 drainage improvement projects over five years to achieve a higher level of flood protection;

− Construction of US$1 billion LNG terminal that will start operations in mid 2013;

− Construction of a US$530 million underground oil storage facility;

− Construction of several public hospitals and medical centers scheduled to be ready by 2014, 2015 and 2018;

− Private medical groups will spend more than $270 million to build, expand and upgrade their healthcare facilities;

− Construction of new Mass Rapid Transit rail lines costing over US$30 billion that will increase Singapore’s subway network to 278km in 2020.

Market Entry Strategy

  • Many American exporters use agents or distributors to serve the Singapore market and other markets in Southeast Asia. Finding prospective partners presents no problem.
  • Singapore firms are aggressive when it comes to representing new products and usually respond enthusiastically to new opportunities. In addition, most Singaporean companies are open to joint venture proposals, and many are interested in manufacturing under license.
  • Price, quality and service are the main selling factors in Singapore. Prospective exporters to Singapore should be aware that competition is strong and that buyers expect good after-sales service. Selling techniques vary according to the industry and product, but are comparable to the techniques used in any other sophisticated market. It is also important for U.S. firms to visit their representatives and maintain a good relationship with them.

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South Korea

Market Overview

The long-anticipated Korea-U.S. Free Trade Agreement (KORUS) went into force on

March 15, 2012, becoming our nation’s largest FTA since NAFTA. The Agreement is expected to increase U.S. exports to Korea by approximately USD 10-12 billion. In 2011, more than 20,000 SMEs exported $13.9 billion in goods to South Korea, a 22% increase from known SME exports in 2010.

Total 2011 U.S.-Korea trade exceeded USD 100 billion for the first time ever, also surpassing that mark in 2012. Total U.S. exports in 2012 exceeded USD 42.3 billion.

Korea is the United States’ eighth largest export market. The U.S. is the third largest exporter to Korea, with an 8.3 percent market share of Korea’s total imports. Key competitors include China with 15.5 percent, Japan with 12.4 percent, and the EU’s 27 nations with 9.7 percent. With the EU having already implemented its FTA with Korea, U.S. firms will now be on more equal footing with the benefit of KORUS implementation. (China’s trade reflects significant re-export activity.)

Korea’s projected 2013 GDP growth forecast is 2.8%, according to the International Monetary Fund. Its commercial banks maintain strong reserves in the case of a possible global slowdown or difficulties in the Euro Zone.

Korea will continue to focus its development on key economic growth sectors. Patents, trademarks and industrial designs issued by the Korea Intellectual Property Office (KIPO) reached 400,815 in 2012. The increasing trend in local patent and trademark filings reflects the move toward more technology-intensive and capital-intensive industries and services.

Market Challenges

Unique industry standards, less than transparent regulations, pressures to reduce prices and ‘contract negotiations’ continue to affect U.S. business in Korea. However, firms which are innovative, patient, and exhibit a commitment to the Korean market generally continue to find business to be rewarding and Koreans to be loyal customers. With the implementation of KORUS now in process, Korea’s attractiveness as a market will continue to improve. U.S. products will become increasingly cost-competitive and bilateral trade should increase. EU products have had reduced or zero-tariff access to this market since mid-2011.

U.S. SMEs must remain flexible and ready to work with their Korean business counterparts as it pertains to amending contract terms or renegotiating price, quantity, and delivery terms, following a business deal or bilateral contractual agreement. In Korea, the principal of ‘consideration’, as is the case in English law, is not present. A request to amend an offer or to restart negotiations with a counteroffer likely will not include any payment for consideration on the Korean side. Koreans feel that the signing of a contract is only the beginning of a business relationship.

Market Opportunities

The Korean USD 1 trillion economy is heavily-weighted toward international trade.

Trade accounts for 90 percent of its GDP. As Korea continues to move toward more technology-intensive industries, U.S. companies will find market opportunities in leading industries such as life sciences (medical devices, pharmaceuticals, and biotechnology), industrial chemicals, IT, nanotechnology, aerospace/defense, energy, environmental technology, and transportation. U.S. companies are already partnering with local Korean industries to expand market opportunities from Korea to third-country markets, including ASEAN, the Middle East, and other markets in the Asia-Pacific region. Given Korea’s strong shipping and air cargo infrastructure, this is not only a market for U.S. goods and services, but also a hub for eventual expansion into other markets.

Market Entry Strategy

  • A local presence is essential for success. Retain a manufacturer’s representative, distributor, or name a registered trading company as an agent or establish a branch sales office.
  • Establishing and maintaining a strong business relationship is essential. Companies should visit Korea frequently to cultivate contacts and to better understand business conditions.

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