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August 31, 2007

Indispensable reading: Why We're Signing a Panama FTA

In case you wondered why the Bush administration would go through all the trouble to sign a trade pact with Panama (where, as we've been reporting, major FTA-related labor disputes are underway), you MUST read Peter Riggs' latest piece for Tax Justice USA. Here's a sneak peak:

The proposed bilateral trade agreement with Panama has skated through without much attention at all. But the agreement with Panama is highly significant. The problem is, the trade agreement with Panama isn't really about trade. It's about foreign investor rights, money laundering, and tax dodging. And the United States should in no way reward this notorious offshore tax haven with a "gold star" Free Trade Agreement...

Panama has two major areas of "economic comparative advantage" in the region. One, obviously, is the Canal. But the other is much more insidious-and major U.S. corporations are hoping that no one draws any attention to it.

Panama's other economic comparative advantages are in the area of tax and banking secrecy, and the ease with which U.S. companies can create subsidiaries in Panama for purposes of dodging taxes.

Panama is already home to a lot of U.S. corporate subsidiaries. How many? Tens of thousands of U.S. corporations have hung out a shingle-or should we say, set up an email box-in that country.

Panama boasts a total of 400,000 registered corporations-second only to Hong Kong as a home to corporations and corporate subsidiaries. Subsidiaries whose sole purpose, in many cases, is to help transnational companies avoid taxes...

A final consideration is this-with the text of the Free Trade Agreement as it now stands, Panamanian investors would get new rights in the United States, with no new disclosure responsibilities at home. We have a situation where it is very, very easy to set up a business subsidiary in Panama. Panama's "corporate" specialists advertise the country has having the most favorable and flexible incorporation laws in the world, in addition to some of the strictest banking secrecy laws available.

So the FTA will just encourage more U.S. businesses to pursue a strategy for tax purposes, designed solely to evade taxes in the United States. But then the text of the Panama agreement allows corporations and investors with a "substantial business presence" in Panama-that is, registered subsidiaries of multinational corporations-to use provisions found in Chapter 10 of the agreement to bring a claim against U.S. laws using an international investor tribunal. Panamanian-registered corporations would be able to bypass the U.S. courts system altogether in the case of an investment dispute involving the United States.

That's right, Panamanian corporations-as well as Panamanian subsidiaries of U.S. corporations-would be able to bypass the U.S. legal system, and take their claims to an international investor tribunal. Historically, these tribunals have proven much more sympathetic to corporate interests than they have to public-interest regulation.

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