Roadblock to trade pact with USA

PANAMA. Questions about Panama’s status as an alleged tax haven continue to raise hurdles for US approval of a free trade deal between the two countries.

Lobbying by US groups against the Free Trade Agreement (FTA) continue, as a recent report states the trade deal would undermine US efforts to stop offshore tax-haven abuse and regulate risky financial conduct.

Public Citizen, a Washington-based advocacy group, claims President Obama’s ability to deliver on his campaign commitments to close tax loopholes that promote offshoring and re-regulate the financial sector would be dealt a sharp blow if the FTA is ratified.

The new report argues the trade deal would leave tax shelters for the bailed-out American International Group (AIG) and Mexican and Colombian narco-traffickers intact while removing existing US tools to combat tax evasion and other financial crimes.

“Members of Congress wouldn’t vote to let AIG not pay its taxes or to give Mexican drug lords a safe place to hide their proceeds from selling drugs to our kids, but that’s in essence what the Panama FTA does,” said Lori Wallach, director of Public Citizen’s Global Trade Watch division.

“The Obama administration has discarded or altered many leftover Bush initiatives, so why would it push a Bush trade pact that directly conflicts with its priority campaign goals of closing tax loopholes and regulating finance?”

According to Public Citizen, the Panama deal, signed in 2006 by the Bush administration, is modeled on the controversial North American Free Trade Agreement (NAFTA) between the US, Canada and Mexico.

They claim the deal includes a private “investor-state” enforcement system, which would give new powers to hundreds of thousands of private investors from around the world that are registered and have operations in Panama.

This includes the right to challenge US anti-tax haven policies and financial service regulations in foreign tribunals to demand taxpayer-funded compensation.

The organization is asking the US government to renegotiate the pact in order to remedy the problems outlined above. Their requests seem far-fetched, as some--for example, to set required minimum financial regulatory standards--would likely be seen by Panamanians as US meddling in the country’s internal affairs.

However, Congress seems to be listening.

Some Democrats in the US Congress say they won’t support the pact unless Panama agrees to clamp down on tax evaders.

“A tax information exchange agreement is the least of what we should get before the free-trade agreement,” Senator Carl Levin of Michigan told Bloomberg. “Panama said it would provide that agreement seven years ago, but hasn’t yet done so.”

Legislation proposed by Levin lists Panama as one of 34 “offshore secrecy jurisdictions,” and authorizes sanctions against it if it doesn’t provide information to the US on citizens hiding income in its banks.

Panama’s Commerce Minister Gisela Porras has said the country isn’t a tax haven. In a March 25 letter to the Organization for Economic Cooperation and Development, Porras said Panama won’t “automatically exchange” tax information with authorities unless there is a “specific and justifiable” reason.

Yet Porras and other members of Martin Torrijos’ administration seem unwilling to leave government with ratification still pending.

In the last few months, lobbying efforts in Washington have doubled, and are expected to continue until the new administration is inaugurated on July 1.

Faced with this panorama, the Panamanian private sector worries the government will concede to US requests for a quick ratification.

Rumors have it that the government has started offering some degree of financial disclosure.

Lawyer Eduardo Morgan Jr warned earlier this month to La Estrella that “handing out Panama’s fiscal information to any country gravely affects the local financial sector. And the financial sector is more important than any commercial agreement,” he said.