Fate of trade pact in Panama’s hands (No, It's Not)

By Jay Heflin - thehill.com - A free trade agreement with Panama won’t happen until the nation’s leaders raise tax and labor standards, Democrats and watchdogs say. The tough talk comes even as President Barack Obama reiterated his support this week for the trade agreement. The Central American nation is a noted tax haven and it has failed to follow through on its promise to clean up its tax act. In 2002, Panama said it would abide by tax rules championed by the international watchdog Organisation for Economic Co-Operation and Development (OECD), but has yet to make good on that promise. “They’re one of the only countries on the OECD watch list that has not implemented one of the eleven international standards,” said Lori Wallach, Director of Public Citizen's Global Trade Watch division, a group opposed the Panama free trade agreement as it is currently written. Fixing its lackluster tax code must happen before the U.S. would even consider enacting the pact, according to several sources. “Until Panama has agreed to be part of a tax agreement and until it changes its laws to implement that tax agreement, it is 100 percent wrong to have a Panama FTA,” Rep. Lloyd Doggett (D-Texas), a senior member on the tax-writing Ways and Means committee, told The Hill. (more)

In remarks before the Export-Import Bank’s Annual Conference, Obama urged completion of pending free trade agreement with Colombia, South Korea and Panama. With human rights violations still a huge concern with Colombia and economic issues plaguing the South Korea deal, the Panamanian pact seemed the most likely to succeed and become law.

But even groups that advocate for passage of the pact say Panama has resisted Treasury’s demand to abide by international tax rules, which require greater disclosure on owners of Panamanian bank accounts.

Panama must also align its labor laws with International Labor Organization standards for allowing companies with fewer than 40 employees to unionize. In addition, it must permit collective bargaining and the right to strike in start-up companies less than two years old. It is unclear if these issues have been resolved and both require Panama to act, not the U.S.

“The administration has been real clear, up front, before we – the administration – are going to start wrangling with Congress about what needs to be done with the agreement, you guys [Panama] need to clean up these outstanding issues,” Wallach said, adding, “At this point, it is largely out of the administration’s hands.”

Pro-trade Republicans see it differently.

Senate Finance Committee ranking Republican Chuck Grassley (Iowa) argued enactment of the free trade agreements would help to reverse the current economic downturn and called on Obama to back his words up with action.

“The White House says it’ll bring those agreements forward ‘at an appropriate time,’” Grassley said in prepared remarks. “It would be hard to think of a more appropriate time than right now.”

A senior Republican on the Ways and Means Committee trade subcommittee noted Obama’s speech promoted job creation and the pending free trade agreements. He argued that one would benefit from the other.

“The president has admitted these agreements could create over 250,000 American jobs, yet Democrats in Congress refuse to work on, let alone pass a new trade agreement,” said Rep. Kevin Brady (R-Texas) in prepared remarks.

Editor's Comment: When I saw this article on thehill.com I felt compelled to post the following comments to their website;

The thrust of this article reflects the wrong-headed view of the Democrats currently in control of the US congress.The Panama-US free trade agreement was negotiated over a period of seven years by the Executive Branches of both the United States and Panama. Once those negotiations were completed and the agreement was signed, the lawmaking body in Panama, the National Assembly, ratified the agreement almost immediately. The treaty has been languishing in the US Congress ever since.

This article tries put the ball in Panama's court. Nothing could be further from the truth. The ball is sitting squarely in the lap of the US Congress. If the US Congress wants to ratify the treaty, then go ahead and vote. If they don't then they won't. The fact of the matter is Democrats are generally anti-free trade overall, and they are just looking for excuses to not pass any of these agreements.

It's unrealistic to think Panama will continue to chase its tail, attempting to appease every Democratic lawmaker in Washington. It's not going to happen. The treaty has been written, negotiated, signed, and ratified by Panama. If the US wants to ratify the treaty as negotiated and signed by the Executive Branch of the US government, they can do so. But, they certainly don't have to.

With regards the the tax issue, Panama has been negotiating and signing bilateral tax agreements with several nations around the world in recent months, with more coming soon. Most of the countries in the world have a different view on tax policy compared to the US. Panama taxes geographically - if business activity occurs in Panama then Panama can taxes that activity. The US, on the other hand, thinks they have the right to impose taxes on US taxpayers and corporations globally, on "worldwide income." Almost every other country in the world disagrees with the United States on that approach to taxation. Panama is negotiating agreements with other like-minded nations to avoid "dual taxation" to make sure income is not taxed twice. Panama also has no problems when it comes to combating things like money laundering from drug trafficking cartels. However if a rich investor (from any country) wants to move his capital to Panama and invest it here, then it behooves Panama as a nation to encourage that kind of capital movement. The investors create complex structures of corporations, foundations, and bearer-share companies to avoid having to pay massive US capital gains taxes. Why do US taxpayers go to all of the trouble? Because the tax burden in the US is too high. If the US changed their tax policies to lower the tax burdens on its citizens, then maybe less people would move their capital outside of the US to Panama or any other "offshore" address.

With regards to the issues in this article regarding labor unions - again the Democrats in the US congress are generally opposed to any and all free trade agreements. The language in this article is simply a reflection of Democrats playing for the votes of their constituents who think all free trade agreements (like this one with Panama) are the means through which US jobs are exported overseas. Of course, they are completely wrong about that. The people who most want to see this Free Trade Agreement come to fruition are US farmers who would have yet another market opened to their products, markets which are currently closed. Of course it's ironic to think the products that will be shipped to Panama in Central America were most likely planted and harvested by migrant Mexican farm workers, mostly because US (union) workers would never stoop to doing that kind of labor for those kinds of wages. I guess it's better being unemployed in a crashing economy? Thank a union for much of that.

The bottom line is this - if the US Congress, currently controlled by Democrats, can't ratify this treaty, no problem. This treaty has been in the works for almost a decade, and it is Panama's strategic view the country can wait until November 2010. Maybe a Republican controlled congress will be more likely to ratify the agreement, as written.

Don Winner

Owner and Editor

don@panama-guide.com

www.panama-guide.com