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  • Eyes on Trade is a blog by the staff of Public Citizen's Global Trade Watch (GTW) division. GTW aims to promote democracy by challenging corporate globalization, arguing that the current globalization model is neither a random inevitability nor "free trade." Eyes on Trade is a space for interested parties to share information about globalization and trade issues, and in particular for us to share our watchdogging insights with you! GTW director Lori Wallach's initial post explains it all.

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May 29, 2009

Fixes Schmixes!

Panamanian union leaders are pushing back on proposals by the outgoing president to fast track labor law changes to pave way for the pending Panama FTA.Panama Worker

La Estrella reports: (Spanish only):

Mariano Mena, a leader of CONATO [the largest Panamanian union federation], stated that although the changes proposed by the Obama administration are good, he worries that this opening be used as a smokescreen include [other] alterations that are damaging to the Panamanian worker. "This is the perfect pretext that had previously been lacking to initiate [anti-worker] labor reforms", he added.

Looks like the Mena and CONATO are learning from the experiences their Peruvian counterparts, who saw labor law 'improvements' and 'fixes' under the Peru FTA translate into rollback of hard-won rights and protections, a net-negative for Peruvian workers.

Workers won't get fooled again!

(FYI - Above photo above is NOT of Mariano Mena, but IS used courtesy of Flickr user Steven(Esteban) J Golliday under a Creative Commons license)

New Jersey Takes a Closer Look at Trade Agreements

The Bergen County Record reported today that the New Jersey Assembly voted to keep a closer eye on both on how international trade agreements affect New Jersey and the process by which New Jersey commits to comply with their terms.

The Assembly approved the bill, the Jobs Trade and Democracy Act last week, 61-12. It would require the Legislature to approve of any measure that would "bind" the state to a trade agreement, and would designate four legislative "liaisons" to work on trade with the governor's office and the federal government.

The proposal would also establish a Citizens' Commission on Jobs, Trade and Democracy to "monitor trade negotiations and disputes, assess the social, environmental and economic impacts of trade agreements."

States like Maryland, Rhode Island, Hawaii, Minnesota that have passed similar legislation and Maine, California, New York, Iowa and Nevada that have introduced similar legislation this year are doing their best to improve what is a terribly flawed federal-state consultation process on trade policy.

The bill would also set up a Citizens Commission on Trade similar to those already operating in Maine, Vermont and New Hampshire (and not too far off from the kind of committees on trade operating in Washington and Utah). These commissions monitor the impact of trade policy on their states, with particular attention to how pending trade deals can affect state law.

While critics cited in the article argue that this legislation creates unnecessary bureaucracy, increasing numbers of state legislatures are becoming more vigilant about the affects of trade agreements on their local economies and state laws and are calling for a greater role in the trade policymaking process.

The article closes with a quote from National Conference of State Legislatures' trade specialist Doug Farquahar.

“It's brought more attention to the issue" of how states are affected by trade laws, said Farquahar. "And so it just puts a lot more pressure on the United States Trade Office."

May 22, 2009

"I Will Absolutely Fight to the Death" Against the Panama FTA

Pop quiz: who said that? Was it a Panamanian worker with nothing to lose?

Nope. It was the chair of one of the most powerful committees in Congress. Yesterday, 55 House members sent a letter to Speaker Nancy Pelosi with strong language against the Panama FTA:

We believe the Panama Free Trade Agreement (FTA) is not a new model on trade and does not represent the kind of change the American people are seeking. After eight years of a failed Bush free trade agenda, the current demise of our economy, and an ensuing massive increase in unemployment, it is difficult to justify to our constituents the passage of another badly flawed trade agreement. We fear passage of this agreement will set us back down the misguided course of past trade deals.

The letter was released in a press conference held yesterday with 13 of the members. It's a diverse group that includes nine freshman members and committee chairs Louise Slaughter (D-N.Y.) and John Conyers (D-Mich.). All of these members are committed to not letting more Bush-negotiated NAFTA expansions pass, and they're not mincing any words. As quoted in CongressDaily, Slaughter said, "I will absolutely fight to the death to not get that bill [the Panama FTA] up here."

Also yesterday, a story emerged from Bloomberg that Obama may be backing off the Panama FTA until he can "offer a new 'framework' for trade." That's consistent with the fair-trade campaign promises he made on the campaign trail last year. Memo to President Obama: the framework already exists. It's called the TRADE Act!

It's not linkable, unfortunately, but today's CongressDaily addressed these developments with the headline, "Panama Agreement Hits Multiple Snags On A Brutal Day":

The odds got longer for a stalled trade accord with Panama on Thursday. Union opposition hardened, a bloc of 55 mostly Democratic House members as well as a key GOP senator came out against the deal, and the Obama administration signaled it might want to re-evaluate the agreement's role in a larger economic strategy.

After the jump, check out the full text of the release that accompanied the letter to Pelosi.

Continue reading ""I Will Absolutely Fight to the Death" Against the Panama FTA" »

May 21, 2009

John Kerry, presente!

We posted yesterday on some of the strong statements made by Rep. Lloyd Doggett (D-Texas) and Sen. Carl Levin (D-Mich.) on the Panama FTA. Before that, we noted the strong opposition of Chairwoman Louise Slaughter of the Rules Committee, and of up-and-coming members of Congress like Rep. Bruce Braley (D-Iowa), who has not organized against a NAFTA-style FTA in the past.

Today, Sen. John Kerry (D-Mass.) followed this up with a great op-ed in today's Politico:

In Panama’s case, we have an opportunity to use the prospect of opening our vast markets as leverage to win the long-sought commitment from the Panamanian government to sign and implement a tax information exchange agreement with the United States and to bring its banking laws into compliance with international standards.

Few, if any, countries offer a higher level of secrecy than Panama. There is no requirement to disclose the beneficial owners of any corporation or trust. Despite seven years of negotiations, Panama refuses to sign a treaty with the U.S. that would require it to share tax information with American authorities. Small wonder that more than 40,000 new offshore corporations were registered in Panama from 2007 until October 2008, according to the State Department, bringing the total to more than 350,000.

...I believe in trade. But as we debate this agreement, its trade merits must be weighed against the necessity of persuading countries that cater to tax evaders, terrorists and drug lords to change the way they do business. This is an essential step in protecting our treasury and our homeland.

Also, six environmental groups sent a letter to Congress today expressing their "strong opposition" to the Panama FTA. Finally, as I write, the Senate Finance Committee is meeting now on the Panama FTA. Tune in to hear it live! Last thing I heard, Sen. Bob Menendez (D-N.J.) was really grilling USTR about how the FTA would not solve the tax-haven problem.

May 20, 2009

Stop Tax Haven Abuse Act Authors Speak Out Against Panama FTA

Rep. Lloyd Doggett (D-Texas) and Sen. Carl Levin (D-Mich.) released a letter to President Obama today saying that they would not support the Panama FTA unless steps are taken to reform the bank and tax secrecy laws that have made Panama one of the leading offshore tax havens in the world. This is an issue that we've been hammering on for some time, as highlighted today by this quote in CongressDaily:

What impact the tax haven issue has on Panama remains to be seen. If critics like Public Citizen's Lori Wallach have their way, that and other issues will be at the forefront of the trade debate for years to come. She called it "ridiculous" to try to separate governance issues in trade partner countries from the agreements themselves.

"When you think about the rights and powers and connections that those agreements establish, it's like getting married to somebody who you don't know, if they're a murderer and an alcoholic," Wallach said. "So particularly when it's something like a country that repeatedly violates the rule of law ... you don't want to have those kind of tight, tight connections that are affecting your domestic and regulatory legal systems."

Read the full text of the Doggett/Levin letter after the jump.

Continue reading "Stop Tax Haven Abuse Act Authors Speak Out Against Panama FTA" »

May 18, 2009

Food safety nightmare

Last week, I participated in the White House civil society listening session on the new Food Safety Working Group. I made the point that we need to hold imports to the same standards and regulations we hold domestic products and producers, that the agencies need the funding and authority to do so, and that our trade agreements need to be renegotiated to favor non-discriminatory, food-safety regulations. Aspects of these principles are in language supported by Reps. John Dingell (D-Mich.) and Rosa DeLauro (D-Conn.), as well as in the Brown-Michaud TRADE Act.

In addition to other public and NGO consumer advocates, there was a heavy industry presence at this listening session. After reading this article in the New York Times, I seriously questioned whether we can expect any positive food-safety reforms to come from these people:

Increasingly, the corporations that supply Americans with processed foods are unable to guarantee the safety of their ingredients. In this case, ConAgra could not pinpoint which of the more than 25 ingredients in its pies was carrying salmonella. Other companies do not even know who is supplying their ingredients, let alone if those suppliers are screening the items for microbes and other potential dangers, interviews and documents show...

government efforts to impose tougher trace-back requirements for ingredients have met with resistance from food industry groups including the Grocery Manufacturers Association, which complained to the Food and Drug Administration: “This information is not reasonably needed and it is often not practical or possible to provide it.”


What? These companies are going on the record to admit that they have no idea where they get their ingredients from? Companies inability to even comply with transparency initiatives should be a national embarrassment. These companies should at a minimum have their corporate charters revoked for negligence. They certainly should not be helping to shape our food and trade policies.

And They STILL Want to Expand NAFTA to Colombia

This just came in from Witness for Peace, follow-up up to a story we relayed last December. The powerful 60-second video mostly speaks for itself:

Target for Telling the Truth from Witness For Peace on Vimeo.

Despite these sorts of atrocities, and the atrocities later committed to cover up the atrocities, recent reports have some in the U.S. government looking for cosmetic fixes to "resolve" human rights problems in Colombia so they can bring the FTA to a vote.

According to Reuters:

Colombia says it has made great progress over the past decade reducing all forms of violence in a country once on the verge of collapse from a decades-old civil war...

Obama, who also opposed the [Colombia FTA] last year, recently asked [USTR] Kirk to work with Congress and Colombia on a plan to address the anti-labor violence.

"Ours teams will be meeting shortly to discuss and crystallize those issues that need to be resolved," Kirk said.

How can you negotiate with a government that is at least complicit in violence against civilians on the one hand, and then tries to take credit for reductions in violence on the other?!?! You can't call it a good faith negotiation, that's for sure.

The Colombia FTA will only give more incentives for violence by tilting the scales even more in favor of the powerful interests that already exploit and displace working Colombians and use the climate of fear, violence and lawlessness to do so. We could expect to see MORE of the sort of tragedy that befell Martha.

May 15, 2009

Climate Policy's Unwelcome House Guest

One of the aspects of climate-change policy rarely discussed outside of very specialized circles is the compatibility of carbon reduction schemes with WTO rules. Indeed, even many in the environmental community don't know about the potential conflicts, and those that do wish like heck that the issue would just go away.

But corporations and pro-corporate think-tanks are paying attention to this issue, and a lot of what they are advocating would take us farther away from a just and sustainable international economic and climate architecture.

Take a recent book by Gary Hufbauer, Steve Charnovitz and Jisun Kim entitled "Global Warming and the World Trading System." In the book, they provide one of the most thorough outlines I've seen yet regarding the potential WTO constraints on climate-change policies, in particular those being debated in Congress and in the lead-up to the Copenhagen summit on climate this December 2009.

They offer up a number of ways of reconciling trade and climate constraints, including

  1. Simply letting WTO members challenge each others' climate measures in the WTO dispute settlement body. The advantage to this approach is that it would help build up "case law" that could settle "once and for all" the question of how restrictive the WTO is with regards to environmental measures. The disadvantage, in the authors' view, is that this "could inspire greater criticism of the already-fragile WTO system" if the panels privilege commerce over climate; "could open the door to widespread opportunistic protectionism and rent-seeking behavior" if the panels privilege climate over commerce; and even a middle ground of balancing the two objectives would not be desirable because those "with a different sense of balance will challenge the outcome as illegitimate." (page 96).
  2. A never-before used Permanent Group of Experts contemplated under the WTO's subsidy agreement could give an opinion as to whether certain climate measures might be considered a subsidy under WTO rules. The disadvantage of this approach is that the opinion would be advisory and perhaps also confidential.
  3. Another option is to renegotiate the WTO, but this would require unanimity among the member countries. (An option they don't consider is for the U.S. to pull out of the WTO.)
  4. WTO members could negotiate a waiver from WTO requirements, with the disadvantage being that a three-quarters majority vote would be necessary.
  5. WTO members could negotiate an optional "code" that certain members could join to allow deviations from WTO requirements on climate reduction policies. While all WTO members would have to approve this code, the authors consider it likely that this approval would be granted, because not all countries would be required to comply with the code's rules. This is the approach favored by the authors.
  6. Nations could ignore the WTO, and simply create a multilateral environmental agreement (MEA) at Copenhagen that conflicts with WTO rules. Obviously, the disadvantage to this approach is that a country that signed onto the MEA would not be immune from a WTO challenge from a country not party to the MEA.
  7. Countries could negotiate a WTO round that would drop tariffs further on products reclassified by their carbon intensity. This is not mutually exclusive from the alternatives outlined above, and in fact a modest version of this is being advocated by the Obama administration, like the Bush administration before it. This is encountering opposition from many development groups that believe that it would deprive developing nations of infant industry protection for green industries.
  8. A final option contemplated in the book is a WTO sectoral agreement on climate-intensive industries, like steel. This model has been used in the past to provide tariff protection for sectors like textiles, one reason the authors seem to dislike this option. Moreover, it would have to be approved by all WTO members.

The problem I see with their idea for a code, and I've just read the book and may not be understanding it correctly, is that it would not be binding on non-code countries. So, what's to keep a non-code country from launching a WTO dispute against a code country? In other words, if the U.S. were in the Code, along with Europe, but China were not, and a U.S. cap-and-trade / green jobs program hurt Chinese "dirtier" steel to the benefit of U.S. "greener" steel, what would insulate the U.S. from a WTO challenge from China? (Given what Paul Krugman reports on Chinese official attitudes on climate in his column today, such an outcome would not seem unlikely.)

We've argued, on the other hand, that the better option is to shrink or sink the WTO. It already has little popular support, as Hufbauer et. al's point 1 shows: anything short of a gutting of the WTO will fuel anger at the institution. The WTO moreover is serving as an obstacle rather than an enabler of finding climate solutions, which inevitably will require messy domestic and international political compromises, as we are seeing currently in the debate around the Waxman-Markey climate bill. The climate emergency means, at a minimum, that the WTO must be kicked to the side, and then renegotiated to be compatible with the climate regime that results from the real give and take between and within nations. After all, even if you like the World Trade Organization, what good is it if there's no world left?

May 14, 2009

Corporates Out of Step in Today's Hearing on Investment, Panama, etc.

The House Ways & Means Trade Subcommittee had a hearing on investor protections in U.S. trade and investment agreements. I gave testimony for the record, which you can read here.

As we detail in our recent book, "The Rise and Fall of Fast Track Trade Authority," investment rules in trade deals are a classic non-tariff, non-trade provision. We wrote:

Largely flying under the radar, the 1984 act dramatically expanded the subject matter and the types of agreements that the president was authorized to negotiate. Title III of the act authorized the president to collect information on (and enter into agreements related to the elimination of) "barriers to international trade in services" and "the trade distortive effects of certain investment-related measures." Service and investment barriers were defined as denial of "national treatment and restrictions on the establishment" of service operations and investments; "foreign industrial policies;" "export performance requirements;" and "direct or indirect restrictions on the transfer of information into, or out of" a given country.

The 1988 Fast Track went even further, specifying that:

The principal negotiating objectives of the United States regarding foreign direct investment are --

(i) to reduce or to eliminate artificial or trade-distorting barriers to foreign direct investment, to expand the principle of national treatment, and to reduce unreasonable barriers to establishment; and

(ii) to develop internationally agreed rules, including dispute settlement procedures, which --

(I) will help ensure a free flow of foreign direct investment, and

(II) will reduce or eliminate the trade distortive effects of certain trade-related investment measures.

This delegation of Fast Track produced NAFTA. And despite efforts in the 2002 Fast Track and the May 2007 deal to change the investment provisions in the "cookie cutter" trade template, U.S. trade agreements' investment provisions (such as those in CAFTA and now in the U.S.-Panama FTA) have delved ever more deeply into regulatory policy space. And indeed, in today's hearing, Thea Lee of the AFL-CIO in particular pointed out that the [preambular] language added as a part of the May 2007 deal is non-binding in nature.

One of the richest debates at today's hearing was the nature of the changes made to investment provisions of trade deals since 2002, in particular with respect to so-called exceptions (i.e. protections for governments from having to cough up cash or change laws in response to successful trade-pact challenges by foreign investors and governments) for prudential/ financial and tax measures. You don't often get that kind of substantive debate in a congressional hearing, and perhaps it was too substantive for some, judging by the small attendance by the end of the hearing. As it happens, these so-called exceptions are a subject of our latest report on Panama's tax-haven practices and the U.S. FTA.

Continue reading "Corporates Out of Step in Today's Hearing on Investment, Panama, etc." »

May 13, 2009

It's So Easy to Set Up A Tax Haven in Panama, Even An Intern Could Do It!

We recently told you how some of the bailed-out banks and insurance firms are pushing Congress to pass Bush's leftover NAFTA expansion with Panama – where some of them have tax shelter subsidiary corporations. As I was researching Panama's tax haven status for our recent report, I wondered just how easy it was to set up a corporation in Panama to dodge taxes. In fact, it seemed so simple, I asked Global Trade Watch's star intern Jessica to give it a try. Jessica, a college sophomore, sprung into action last week seeking to answer one question: How easy is it to set up a tax-dodging corporation in Panama?

Check out this hilarious video to see how she does. Then pass the video to your friends and family.


Decades ago, Panama explicitly crafted a "comparative advantage" in tax-evasion and money-laundering services for entities such as the bailed-out American International Group (AIG) and Mexican and Colombian narcotraffickers. Frighteningly, specific rules in the proposed U.S.-Panama Free Trade Agreement would remove key policy tools used to combat financial crimes – and would conflict with U.S. government efforts to combat the global economic crisis by re-regulating finance.

It seems pretty crazy that last week, President Obama announced a major campaign to crack down on tax havens and tax cheating that promotes offshoring of U.S. jobs... while his trade representative is talking up the very tax-dodging corporations' demand to pass Bush's NAFTA with Panama.

Please watch the video, pass it around to your friends and family, and tell your member of Congress to say "no" to Bush's NAFTA expansion to Panama.

May 12, 2009

Banking Secrecy Here to Stay?

MartinelliSo says the 46th President elect of the Republic of Panama.

On May 3rd, 2009 Panamanian voters elected in a landslide conservative Ricardo Martinelli, the owner of the country's leading supermarket chain - entirely non- anti-union too, our labor allies on the ground inform us. He routed the second place contender and won by 25% of the popular vote.

According to Inside U.S. Trade (subscription only) the incoming Panamanian President will refuse to sign thorough Tax Information Exchange Agreement (TIEA) with the U.S. to crack down on tax haven abuse and money laundering:

Martinelli, who is pro-business, views the FTA as a “top priority” De Lima [his spokesperson] said, but he is opposed to changes to Panama’s tax regime or labor laws that will hurt local business interests.

Banco General“We don’t want them to rush into an agreement that will hurt our economy,” De Lima said, referring to the Torrijos government. “They have to take into account the best interests of Panamanian business. They have not consulted with anyone.”

 ...DeLima said he understands that the U.S. wants Panama to complete a Tax Information Exchange Agreement (TIEA) with the U.S. and Martinelli is willing to allow some limited sharing of tax information based on an 2002 tentative agreement with the U.S. Since that time, however, the U.S. has demanded automatic disclosure of tax information and this is not acceptable to Martinelli.

So, let me get this straight. We had a lax tax agreement queued up in 2002, which the Panamanian government has forgotten existed. So, the U.S. government wants a TIEA to actually solve the problem, but the only Panamanians who will sign it are irrelevant, having suffered an embarrassing political rout (not unrelated to their links to Colombian money-launderer DMG). Some voices within the Obama administration and Congress tell us they're about to solve all the problems with Panamanian labor law and tax-haven abuse, even though the incoming government is anti-union and is raising Cain about the possibility of meaningful reforms on those fronts.

And they want us to believe that this combo is a recipe for actual enforcement of labor law and and tax reforms in Panama!?!? Have they already forgotten how (as reported in subscription-only Inside U.S. Trade on January 23, 2009):

In a Jan. 15 letter to Schwab, Rangel and Levin wrote that Peru has failed to put in place the laws and regulations necessary to meet those obligations. “This includes the obligation under Article 17.2.1 of the Agreement to adopt in law and practice the fundamental labor rights, including freedom of association and the right to collective bargaining,” the letter said. [emphasis mine]

At least the Obama White House still has time to stop this madness before its too late. The Who has a  great tune that seems an appropriate fair-trade anthem today:

May 11, 2009

Louise Slaughter, Presente!

The Conference Board of Canada just released a report that looks at the impact of the fair-trade sweep in the last two U.S. elections.

It takes the anti-democratic analytical perspective that things said during campaigns don't matter. So we have the inevitable comparison that only Nixon could "open" China, and only Obama could "save free trade," apparently because he campaigned against NAFTA-style policy.

While it's a well-worn trope that Democratic Party candidates lie to their base in the primaries to win their support, the important difference this time was the specificity of Obama's critique of NAFTA, some of which you can read about here. To be certain, we have no idea what his eventual policies will be, but we do know that this is not your father's Democratic primary in terms of the specificity of the commitments. It is a new day in regards to the trade-policy orientation of the president.

As for the congressional politics, the notion that the legislative branch will just roll over on its commitments seems incorrect as well. All you have to do is look at today's Roll Call story for evidence of Congress' collective backbone, and that they won't take the Panama FTA lying down:

“I’m getting really pis*ed off,” said House Rules Chairwoman Louise Slaughter (D), who represents a region of New York that has suffered under the North American Free Trade Agreement. “Obama’s got to get a he*l of a lot of stuff up through here, and to start out by bumming out about half of us doesn’t strike me as a wise move.”

Rep. Mike Michaud (D-Maine), co- chairman of the House Trade Working Group, singled out House Majority Leader Steny Hoyer (D-Md.) in his criticism of his party leaders’ desire to advance the Panama deal. The working group includes several prominent Members, including six committee chairmen and 17 subcommittee chairmen.

“As a Democratic leader, I don’t think it’s helpful to vulnerable Members to ask them to support a Bush-negotiated trade deal,” Michaud said. “As a Democratic leader, [Hoyer] should not be encouraging the White House to move forward on this.”...

During a meeting last month with representatives from the Office of the U.S. Trade Representative, Slaughter spoke on behalf of about 20 Members in voicing concerns with the Panama deal. The USTR attendees seemed “receptive,” she said, but have not contacted her since the meeting.

“I carried on awful,” Slaughter said of the hourlong meeting. “We’re not just going to take all of this stuff lying down anymore.”...

Rep. Marcy Kaptur (D-Ohio), one of the Members who attended the USTR meeting, said Slaughter repeatedly reminded USTR officials that she chairs the powerful Rules Committee.

“She made it very clear that she didn’t intend to move any of those bills,” Kaptur said. “I hope it gets someone’s attention over at the White House.”

The author of the report's obliviousness to a changed landscape within the Democratic Party shows through in the citation of the U.S.-Peru Free Trade Agreement, which the Conference Board notes passed, but doesn't mention that a majority of the majority Democrats opposed.

The Conference Board report is off in a number of other regards. First, it says that Obama will ask for Fast Track (i.e. Trade Promotion Authority). I have not seen that anywhere, and I don't think it is correct. He may ask for some form of delegated authority, but it is unlikely to be Fast Track. In fact, the quote that the Conference Board cites indicates that Obama is looking to change the form of delegated authority by establishing new checks and balances on the process. As the campaign commitments cited above note, Obama has said he will "replace Fast Track." (Our recent book - "The Rise and Fall of Fast Track Trade Authority" - offers a variety of alternative arrangements that could boost the legitimacy of trade deals.)

Finally, far too many Canadian sources are spreading misinformation about the Buy America/n provisions in the stimulus bill. As we've explained many times, the stimulus bill is ONLY an improvement for Canada. For the Buy America provisions related to federal grants to states for transit projects,  U.S. products have always been given a 25 percent price preference over products from Canada (and other trade-pact partner countries). For the Buy American provisions related to federal procurement, U.S. products (specifically iron, steel, and manufactured products for stimulus-funded projects) received a 6 percent preference, and now they receive a 25 percent preference. But... wait for it... so. does. Canada., and all of our other trade-pact partners. Pre-stimulus rules were more generous to Canada than Canada is to us under its WTO-NAFTA commitments, and the post-stimulus rules are more generous than the pre-stimulus rules.

So, friends to the north, don't hate, appreciate! (And don't worry, we know that our friends in labor and the environmental community are already far ahead of their government and elites on this question.)

Putting the cart before the horse on Panama - Guest Post by Peter Riggs

[Editorial note: This post is written by guest blogger Peter Riggs. The views expressed herein are solely those of the individual contributor and do not necessarily reflect those of Public Citizen.]

Naaah, no way. We’re not that stupid, right?

Inside U.S. Trade this week quoted a member of Congress as saying that Panama couldn’t possibly agree to completion of a Tax Information Exchange Agreement (TIEA) prior to the passage of a Free Trade Agreement with the United States.

Adam Smith of Washington noted helpfully that the “final arrangement on tax issues will likely commit Panama to work towards taking additional steps to address allegations on tax havens in the future.”

‘Likely commit… to work towards taking additional steps….to address allegations”?!?

Are you kidding me? Panama is a tax haven. Tens of thousands of multinational corporations have set up mail-drop subsidiaries in Panama that allow for tax dodging. AIG did it. Some of the largest recipients of TARP bailout funds have done it. Heck, some of the Department of Homeland Security’s largest contractors have set up subsidiaries in Panama.

Once we sign an FTA with Panama, what kind of leverage will the United States have to push for a TIEA?
Congressman Adam Smith wasn’t alone in proposing free get-out-of-tax-burden passes. Other House members also suggested that asking the Panamanians to make routine disclosures of tax information with the United States—and to make a firm commitment prior to being rewarded with passage of an FTA with the United States—was a ‘non-starter.’

All this handwringing came a week after Panama’s Commerce Minister Gisela Porras said that Panama is making no plans to exchange tax information with the United States on a normalized basis—which is the whole point of a TIEA!

Fortunately, Carl Levin was able to remind us that Panama agreed seven years ago to talks on a TIEA. “A tax information exchange agreement is the least of what we should get before the free-trade agreement,” said the senior Senator from Michigan. Indeed, the conversation has now moved on - we know that now we need automatic TIEAs, not the weaker TIEAs that still allow Switzerland to protect tax evaders.

Panama has repeatedly dug in its heels on this issue. Government spokespersons, with refreshing honesty, have acknowledged that the country’s economic comparative advantage isn’t in bananas or coffee or semiconductors or call centers. It’s in banking secrecy. And why should Panama give up this comparative advantage, unless compelled to do so?—it’s worked quite well for them so far.

In the early part of this decade, Panama kept its head down after being labeled a “non-cooperative jurisdiction” by the G-7’s Financial Action Task Force. After a brief spin on the dance floor, flirting with the United States regarding a bilateral exchange of tax information—Panama told Washington to pound sand.

Panama figured there wouldn’t be any adverse consequences. They were right. On the contrary —Panama was rewarded with another negotiation—this time for an FTA.

Now that was an agreement they wanted. Badly. It would dramatically increase Panama’s attractiveness as a tax and regulatory haven. Hot dang! thought the multinationals. They could scarcely believe their good fortune.

A tax-haven jurisdiction where setting up a subsidiary can be done on-line in about twenty minutes, where they can stash profits, and from which they’d have the right to sue the United States government for regulatory actions taken by municipalities, states, or the federal government? Hot dang!

And so when earlier this year the G-20 thundered with a kind of biblical wrath against the scourge of tax havens, Panamanian leaders merely shrugged their shoulders.

So tell me again—why, if during the past seven years the United States has been unable to persuade the Panamanians to sign a TIEA, to acknowledge that the game is up, that tax-paying citizens are finally demanding that their governments close these egregious global loopholes—why is it we would sign an FTA and in so doing, lose any semblance of leverage in this debate with Panama?

Most of us can tell a cart from a horse, right? 

Which one goes first if you want to get anywhere? 

First, the automatic TIEA, similar to what we have with Canada. Then we can talk about fixing the agreement itself.

More on Tapper-USTR exchange

I was thinking over the weekend a little more about how the USTR responded to Jake Tapper’s excellent question on the Panama FTA, and thought a little more detail would be helpful in rebutting their claim. (A more extended and perhaps precise version of this can be found in our recent report. The page numbers I mention in the bullets below refer to the page numbers of the report to consult for more detail.) Here goes:

  1. The U.S.-Panama Free Trade Agreement (FTA) requires financial services and firms operating out of Panama to be treated the same as those from the U.S. and other third countries (Article 12.2-12.3) - even though Panama is specifically listed on all the major tax-haven watchdog lists. (Check pages 17-18 of the report.)
  2. The so-called exceptions that USTR references wouldn't apply to tax measures that treat a whole country differently based on its tax-haven practices. This is the approach of the Stop Tax Haven Abuses Act, which Obama co-sponsored in the Senate. In any case, a foreign trade tribunal would get to decide whether the U.S. use of the "exception" were legitimate, not U.S. courts or panels comprised of tax-haven experts. (Check pages 18-20 of the report.)
  3. U.S. measures that place limits or slow-down financial transfers in and out of Panama would violate the FTA (Article 10.8.1 and 12.1.2). Again, the U.S. could try to raise a so-called exception, whose legitimacy a foreign trade tribunal would get to decide. Even if the U.S. were allowed to invoke the exception, it would have to show that the financial restriction were "necessary" for the regulatory purposes - a term of art in trade law which means that "no less trade restrictive means exists to obtain the goal." Trade panels have overwhelmingly (90% of the time at the WTO) ruled that challenged regulations were not "necessary," so it is a nearly impossible bar to meet. (Check pages 20-23 of the report.)
  4. The Panama FTA's rules do not only deal with cases of discrimination against foreign firms, but also with non-discriminatory laws. For instance, the FTA's "Market Access" provisions contain certain absolute rights. The U.S. government would be compelled to allow its citizens to purchase financial services in Panama, thus locking in a permanent tax shelter if Panama doesn’t start taxing the multinationals that operate there. (Check pages 23-24 of the report.)
  5. The FTA’s Financial Services market-access rules set limits not only on how U.S.-Panama trade in services may (or may not) be regulated, but also sets limits on U.S. governmental regulation of foreign services operating within the United States. These rules would forbid the U.S. government from banning Panamanian banks or other financial services from establishing operations here, or acquiring existing firms, and also forbid limiting the size of such operations. (Check pages 23-24 of the report.)
  6. Panama-registered corporations would be able to directly challenge U.S. taxation and financial regulation measures as “indirect expropriations” in foreign tribunals. They could be awarded U.S. taxpayer-funded damages for measures that would not be considered expropriations under domestic U.S. law. Far from excluding such challenges, the FTA text actually specifically envisions them. In the case of measures that the U.S. claims are for “prudential reasons,” then a special binational panel would be convened to decide whether this is a “valid defense.” If the Panamanian representative on this panel thinks that the defense is not valid, or drags their feet for a few months, then the case proceeds to the so-called investor-state dispute resolution. (Check pages 24-28 of the report.)

As we’ve mentioned, it ain’t hard to fix this problem.

Continue reading "More on Tapper-USTR exchange" »

May 08, 2009

Is Indirectness a virtue on tax havens?

I've been taking a closer look at Obama's tax-haven plan, and I would make a general observation.

First, it is a classic "neo-liberal" regulation, and I don't necessarily mean that in the derogatory sense we usually use that term on this blog. Rather, it tries to indirectly solve a problem by interfering in markets as little as possible. So, rather than telling U.S. corporations what to do and how to do it, and then use the power of the state to punish those who disobey, the Obama proposal attempts to create incentives for private actors to voluntarily comply.

A few examples:

  • Rather than prohibit deferral by U.S. corporations of repatriation/taxation on their foreign-source income, the Obama plan creates an incentive to repatriate income by not allowing companies to deduct expenses supporting their overseas investments from their U.S. tax returns until they repatriate income.
  • Rather than require foreign financial institutions to share information with the U.S. government on U.S. corporations' foreign banking accounts, or prohibit U.S. corporations from doing banking with foreign banks that don't share information with the IRS, the Obama plan would require U.S. banks that service U.S. corporations that also utilize overseas banks that are not "qualified intermediaries" to withhold 20-30 percent of payments to these corporations until certain disclosures happen.

Some of these provisions are kind of clever in a Policy 201 kind of way. The problem is that their very indirectness would still allow substantial evasion of taxes and money laundering.

Continue reading "Is Indirectness a virtue on tax havens?" »

Video from Book Event

For those who missed yesterday's book launch of "The Rise and Fall of Fast Track Trade Authority", you can watch the video here, and check out pics on the New America Foundation website.

May 07, 2009

New Book: How to Build a New U.S. Trade Consensus

We just released a book on "The Rise and Fall of Fast Track Trade Authority." It is available online at http://www.FastTrackHistory.org/ and at Amazon.Com if you prefer a Kindle download.

The formal launch will be today at the New America Foundation at 12:15 pm here in DC. If you are interested in attending or watching the event on a live stream, please go to the New America Foundation website. I believe you can even ask questions live and online.

Here's our press release:

New Book: How to Build a New U.S. Trade ConsensusCover3

‘The Rise and Fall of Fast Track Trade Authority’ Provides Unprecedented Historical Review of Trade Authority Since Nation’s Founding and a Path Forward

WASHINGTON, D.C. – A new book released today by Public Citizen examines the colorful 220-year U.S. history of how the president and Congress have grappled with negotiating and implementing trade agreements given the constitutional separation of powers requirements. “The Rise and Fall of Fast Track Trade Authority” by Todd Tucker and Lori Wallach concludes that Fast Track (the most recent mechanism Congress used to delegate its trade powers to the president) is a historical anomaly and counterproductive to the creation of good trade pacts.

“We wrote this book because when we did the research necessary to give ourselves a clear picture of Fast Track and the delegation systems before it, we found distorted, partial and inaccurate information in existing journalistic and scholarly work,” said Tucker, research director of Public Citizen’s Global Trade Watch division and a co-author of the book. “Much like the conventional wisdom on financial and trade deregulation, the prevailing narrative was that Fast Track was inevitable and necessary for the creation of trade agreements. We show that this is false and that, on the contrary, Americans have frequently changed the way that the executive and legislative branches have shared trade-policy powers.”

The book will be released today at an event at the New America Foundation in Washington, D.C. It will be available in a variety of easily readable formats accessible at FastTrackHistory.org. The research and publication of this material was made possible by a grant from the Alfred P. Sloan Foundation.

The book explores how the process of designing U.S. trade agreements has changed from 1789 to the present, examining five different regimes of trade-policy formation, the most recent culminating with the expiration of Fast Track during President George W. Bush’s second term.

Under the U.S. Constitution, Congress is responsible for crafting trade policy. Yet, over the past few decades, presidents have increasingly grabbed that power through Fast Track, which allows the executive branch to pick negotiating partners, determine trade pacts’ contents and even sign the deals – all before Congress gets a vote.

The book also notes that the trade agreements facilitated by Fast Track delve deeply into non-tariff, non-trade areas of policy such as investment, procurement and intellectual property. The book provides an unprecedented documentation of the arguments that motivated both opponents and proponents of the expansion of executive power over trade agreements. It is the result of a three-year scholarly investigation into hundreds of primary and secondary sources, many referenced in the book for the first time.

The book notes that growing numbers of voters and policymakers – including President Barack Obama and U.S. Trade Representative Ron Kirk – have opposed Fast Track and called for a more democratic process for creating a national globalization strategy.

“We look forward to a future new mechanism that can reduce political tension about trade policy and secure prosperity for the greatest number of Americans, while preserving the vital tenets of American democracy in the era of globalization,” said Wallach, director of Public Citizen’s Global Trade Watch division and a co-author of the new book. “Now is the time to have the debate about a new trade model, and this new book provides an essential starting point.”

###

Public Citizen is a national, nonprofit public interest organization based in Washington, D.C. For more information, please visit www.citizen.org.


Advance Praise for “The Rise and Fall of Fast Track Trade Authority”:

U.S. Sen. Sherrod Brown, Democrat of Ohio and congressional trade-policy leader
“If you wonder why trade policy over the past several years has reflected such narrow interests, look no further than the imbalanced trade policymaking process that is Fast Track. There is no other legislative mechanism with such extraordinary powers. Read this informed and engaging account of Fast Track’s history and take action.”

U.S. Rep. Mike Michaud, Democrat of Maine and co-founder of House Trade Working Group
“Most people now in Congress weren’t elected when President Nixon designed Fast Track to grab Congress’ exclusive constitutional authority over U.S. trade policy. President Obama discussed the need to replace Fast Track with a process that ensures a greater role for Congress. This book provides the lessons of 233 years of American trade authority history to inform Congress’ efforts to create just such a new trade negotiating mechanism.”

Alfred E. Eckes, eminent research professor in Contemporary History at Ohio University, author of “Opening America’s Market: U.S. Foreign Trade Policy Since 1776,” and former Reagan-appointed chairman and commissioner, U.S. International Trade Commission
“Candidates for federal office should be required to read and address the critical issues raised in this stimulating book. Wallach and Tucker make a persuasive case that the fast-track trade negotiating process produces agreements weighted to the interests of corporate giants and harmful to democratic governance and public safety. Their argument that a more democratic trade policy process is both possible and desirable merits the attention of public officials and thoughtful citizens everywhere.”

About the authors:
Lori Wallach is the director and founder of Public Citizen’s Global Trade Watch division and co-author of “Whose Trade Organization? A Comprehensive Guide to the WTO,” published by The New Press in 2004. One of the most widely cited trade and globalization policy experts, Wallach has testified before Congress, federal agencies and foreign legislatures. She graduated from Wellesley College and Harvard Law School.

Todd Tucker is research director of Public Citizen's Global Trade Watch (GTW) division. He is author of dozens of reports on the WTO, NAFTA, and various other consumer and economic issues. A graduate of George Washington University, he received his masters in development economics from Cambridge University.

May 06, 2009

Pacific Rim Uses CAFTA to take on Mining Regs in El Salvador

Canadian mining company Pacific Rim Corp. has responded to grassroots efforts against its proposed mining project in El Salvador by filing a CAFTA investor suit against the Salvadoran government.  

Communities in northern El Salvador, worried about the environmental impacts of proposed mining projects, campaigned vigorously along with environmental, religious and human rights organizations to hault what would be El Salvador's first large-scale mine in 70 years. They were successful in convincing President Tony Saca to rethink issuing the permit for Pacific Rim's El Dorado mine.

The Miami Herald explains:

President Saca fears mining would cause cyanide contamination of water much in the way it did in the 1950s at the El Dorado mine, the same underground mine in the eastern region of Cabañas which Pacific Rim wants to reopen and expand.

''I won't give any mining exploitation permits because mining is definitively harmful,'' Saca said.

Saca's position has been echoed by his successor, president-elect Mauricio Funes, whose left-wing FMLN party ended 20 years of right-wing rule with their victory in the March elections. Funes will officially take power in June.El Sal protest

El Salvador is not alone in choosing to preserve natural resources over mining projects that do not bring long-term employment and whose profits will flow out of the country. And Pacific Rim is not alone in using NAFTA or CAFTA investor rights to challenge local decisions over mining. The United States is currently fending off a $50 million NAFTA investment suit over California's mining regulations.

Although Pacific Rim is a Canadian company that shouldn't even be eligible to utilize investor rights under CAFTA (an agreement between the United States and five Central American countries), they have found a way around this problem. Pacific Rim Mining Corp. will bring this investment suit through its Nevadan subsidiary, Pac Rim Cayman LLC! As with all NAFTA and CAFTA investor-state cases, the case will be decided outside of domestic courts by a panel of arbitrators.

And all this talk of a Panama FTA, which contains the same kind of investor rights found in NAFTA and CAFTA could makes matters much worse. Panama is home to an estimated 350,000 subsidiaries of foreign mulinational companies. Just as Canadian company Pacific Rim used its Nevadan subsidiary to file a CAFTA investor suit against El Salvador, so could any of the 350,000 parent companies use their Panamanian subsidiaries to take the United States government to task over environmental and other public interest regulations.

Jake Tapper asks about Panama FTA, WH (and we) respond

Check out ABC News' Jake Tapper's question from yesterday's press briefing:

TAPPER:  OK.  And then following up on the president's announcement yesterday about tax havens, the president's trade representative, Ron Kirk, has said that the administration is pushing for a trade agreement with Panama.  Panama is one of the tax havens that's been cited by various organizations that look at countries that have these tax havens. And as part of the trade agreement, according to Public Citizen, there would be a lift on the amount of money that can be wired from the U.S. to Panama.  Is the Obama administration going to be pushing for the elimination of Panama as a tax haven as part of this anti-tax haven effort?
   
GIBBS:  Let me check with USTR and folks here on what's in the trade agreement and some of the statements that have been made.  I don't have any of that with me, but I'll check on it.*

David Sirota provides some of the background to the question here. A few hours later, Tapper got an answer:

* UPDATE: Carol Guthrie, a spokeswoman for US Trade Representative Ron Kirk, tells ABC News that "Ambassador Kirk has been always been very clear that it will be necessary to address outstanding issues on labor and tax policies, and we continue to work on those tax issues.  Our refusal to tolerate tax havens is precisely why we’re working with the Panamanian government to address concerns regarding its international tax policies.  We can work to improve international tax practices and open markets for entrepreneurs and workers at the same time."

Guthrie adds that the free trade agreement "actually does specifically include exceptions that would allow us to restrict or limit capital transfers in various circumstances, including to protect against tax evasion and money laundering."

Our new report goes through these so-called exceptions. Here's what we found:

  • They do not provide a defense for policies that treat an entire country and all business activities related to it differently based on that country’s general tax-haven policies.
  • Foreign tribunals get to determine if the exceptions are allowed to defend a challenged policy.
  • If a policy is challenged, and even if the exceptions are allowed, these tribunals get to decide whether the policy is "necessary" to fight tax havens, regulate finance, etc. To put this into perspective, WTO panels have ruled that national policies did not meet the “necessary” test in nearly 90 percent of the cases where this defense was raised. Thus, the United States would bear the burden of showing that the specific “financial reporting or record keeping of transfer” rules were the least trade restrictive way to stop money laundering or tax evasion.
  • In sum, were the Panama FTA to go into effect, the U.S. government could lose its most effective tools for dealing with countries, such as Panama, that are widely recognized as tax havens and venues for money laundering. And, this is not a speculative concern. Already Panama has spoken out at the WTO about how various policies aimed at tax haven countries could violate WTO rules.

But perhaps most worrying is the so-called investor-state system in the Panama FTA. Not only Panamanian nationals and their firms would be empowered under the FTA to use this private enforcement system. Rather, it applies to the 350,000 foreign subsidiaries operating in Panama – including U.S. subsidiaries that have “substantial business activities” there. 

This is extremely problematic, because an array of financial service regulation and tax-haven elimination goals of Congress and the Obama administration fall within the limits on regulation and rights for foreign banks and investors included in the Panama FTA. Perhaps Panama’s government might hesitate to drag the United States before an international tribunal if we limited certain risky transactions or conditioned access to U.S. financial services on banking transparency in Panama. Although, given Panama’s main comparative advantage is its bad bank and tax practices (and it has already complained to the WTO about such measures), who can predict?

However, a private investor or institution would not have to make such diplomatic considerations, and under the FTA would be empowered to enforce the pact’s investor rights terms. The Panama FTA investor-state private enforcement system (like those in NAFTA and CAFTA) would empower Panama-based subsidiaries of U.S., Chinese, European and other multinationals to privately enforce this right of compensation by circumventing domestic courts and domestic law to bring cases based on FTA law directly against signatory governments in foreign tribunals. 

This “investor-state dispute settlement” system uniquely empowers foreign investors to privately enforce the terms of a public contract between governments (i.e. private enforcement of a government-government agreement).  Cases under this FTA provision are submitted to tribunals that operate in the United Nations (United Nations Commission on International Trade Law, i.e. UNCITRAL) or World Bank (International Center on Settlement of Investment Disputes, i.e. ICSID). These tribunals operate outside of the signatory countries’ court systems and enforce FTA (not domestic) property rights law. There is no limit placed on the awards that these foreign tribunals can order governments to pay foreign investors.

So, while it's refreshing to know that some in government are paying close attention to Panama's tax practices, the deeper problem, as we have pointed out, is that the FTA's rules actually take us in the wrong direction on tax, financial and investment matters.

And (FWIW), Panama's incoming administration had this to say (from Bloomberg's Eric Sabo, not linkable):

Panama’s President-elect Ricardo Martinelli will refuse to give in to pressure from the U.S. to change the country’s banking secrecy laws, economic adviser Frank de Lima said.

De Lima, who advised Martinelli during the presidential campaign, said Panama’s economy would be hurt by scrapping laws keeping account information secret from other governments.

May 05, 2009

Join Us Thursday for a Live Discussion of a Mind-Blowing, Life-Changing Book

Friends, Readers, and all a yinz.

It's been years in the making, and it's finally arrived: the release of our new book this Thursday! Here areCover3 the details:

What: Book Release Event for "The Rise and Fall of Fast Track Trade Authority,"
Who: Authors Lori Wallach and Todd Tucker will speak; moderated by Barry Lynn, Senior Fellow at New America Foundation.
When: Thursday, May 7, 2009, 12:15 pm.
Where: New America Foundation, 1899 L Street, NW, 4th Floor, Washington, DC 20036
Why: Because you want to know about a much-needed new direction for trade policy
How: All's you got to do is RSVP right here.

More about the book:

The Rise and Fall of Fast Track Trade Authority is the first complete history of U.S. trade authority's evolution since the nation's founding. It shows how the balance of power between Congress and the executive branch has shifted regarding trade authority over the years.

Authors Tucker and Wallach explore how this perennial constitutional issue has been shaped over time by people you've heard about - like Hamilton, Nixon, and George W. Bush - and lots of people you probably haven't heard about. Unsurprisingly, Fast Track comes out as an historical anomaly. But some other lessons are less expected and can help shape a new trade authority mechanism that can replace Fast Track in the future.

The central message? Like our trade policy itself, Fast Track was not a random inevitability: things can be and have been done differently, and moving forward we must learn from the past. The book includes a new trade pact negotiating and approval process  to replace Fast Track that is more appropriate for today's expansive, complex international commercial agreements.

Praise for The Rise and Fall of Fast Track Trade Authority

"If you wonder why trade policy over the past several years has reflected such narrow interests, look no further than the imbalanced trade policymaking process that is Fast Track. There is no other legislative mechanism with such extraordinary powers. Read this informed and engaging account of Fast Track's history and take action." - Senator Sherrod Brown, Democrat of Ohio and congressional trade-policy leader

"Most people now in Congress weren't elected when President Nixon designed Fast Track to grab Congress' exclusive constitutional authority over U.S. trade policy. President Obama discussed the need to replace Fast Track with a process that ensures a greater role for Congress. This book provides the lessons of 233 years of American trade authority history to inform Congress's efforts to create just such a new trade negotiating mechanism." -Representative Mike Michaud, Democrat of Maine and Co-chair of House Trade Working Group

HOPE TO SEE YOU THERE!

One Step Forward on Tax Havens, a Few Steps Back?

One of the hits from my middle-school years was Paula Abdul's "Opposites Attract," which features a rapping rat and the following chorus:

I take-2 steps forwardPa0006_89-2841tnt
I take-2 steps back
We come together
Cuz opposites attract

I recalled this wise and pithy Abdul lyric yesterday when the Obama administration made its announcement on international taxation reform. Arguably, the toothiest part of the proposal is the following:

Reforming Deferral Rules to Curb A Tax Advantage for Investing and Reinvesting Overseas: Currently, businesses that invest overseas can take immediate deductions on their U.S. tax returns for expenses supporting their overseas investments but nevertheless "defer" paying U.S. taxes on the profits they make from those investments. As a result, U.S. taxpayer dollars are used to provide a significant tax advantage to companies who invest overseas relative to those who invest and create jobs at home. The Obama Administration would reform the rules surrounding deferral so that – with the exception of research and experimentation expenses – companies cannot receive deductions on their U.S. tax returns supporting their offshore investments until they pay taxes on their offshore profits. This provision would take effect in 2011, raising $60.1 billion from 2011 to 2019.

That's the laudable step forward, but there's a few steps back, or at least sideways.

As tax guru Richard Murphy argues, the latest Obama announcement is not an end to deferral and it's a far cry from the Stop Tax Havens Abuse Act, which Obama co-sponsored as a senator. That legislation would have actually imposed sanctions on countries and financial institutions that do not cooperate with the fight against tax evasion. That's the policy problem, but, again, as Murphy notes, there's a political problem as well. Namely, big corporations are going to fight any change to the gravy train they're currently riding. If you don't fight for an end to deferral now, it will be harder to accomplish later on. So why not finish the job, if you know you're going to face such a massive pushback?

And, as we've pointed out, there's still an additional problem, which is that certain parts of Team Obama seem to be eager to push Bush's NAFTA-style trade deal with Panama, one of the world's top tax-haven countries. Not only does the FTA not require an end to these banking secrecy practices, but it would actually empower tax evaders with rights to challenge U.S. anti-tax haven initiatives in foreign tribunals for taxpayer-funded compensation.

So, on the one hand, Obama and Geithner deserve some props for doing anything that would risk so much corporate anger. On the other hand, the administration needs to ensure that the policies that corporations like AIG and Citigroup are pushing it to push on the one hand (i.e. corporate trade deals) do not actually undermine the core aspects of the administration's post 100 days agenda (i.e. tax haven crackdown.) Abdulian harmony can be easily ensured by renegotiating the Panama trade deal to remove the harmful investment provisions, so that trade can be expanded in a fair way.

(Confused about Panama, the trade deal, or tax havens? Check out our latest report for the full scoop.)

May 04, 2009

Live-Blogging the Obama Tax-Haven Announcements

Check back at 11:05 am... will be reacting to the Obama administration's latest announcements on tax-haven crackdowns...


11:36am - okay, started off late

Geithner is speaking. He is being careful to say that only a few companies and individuals evade taxes through loopholes...

He is talking about reforming deferral, rather than eliminating...

Budget will add 800+ IRS employees to track these problems

Geithner mentions the G-20 statement, and how Switzerland subseq. agreed to change

They're sticking by the $210 billion over the next decade number, rather than Sen. Levin's $1 trillion figure.

Mentions how long Obama has campaigned on this...

11:39 am - Obama is speaking. "Nobody like paying taxes, but most American comply, because they know it's a cost of citizenship." some "are shirking their obligations, tax code was written by well-connected lobbyists."

He hits again that "small number" of individuals evade taxes.

"One of the strengths of our economy is the global reach of our companies... but the way that happens is not by making sure " that they're not avoiding taxes.

Corporations paying effective tax rate of 2.3%.

"These problems have been highlgihted by Rangel, Levin, Doggett, Baucus."

Cracking down on "illegal overseas tax evasion."

"For years, we've talked" about cracking down on these loopholes... for years, we've talked about cracking down on offshore tax havens..."

mentions Cayman Islands building with all the po boxes...

Closing loophole on corporations telling national tax authorities in various countries that they are paying taxes elswhere (i.e. FTC problem, I think)

IRS "needs more support." A new requirement will call on foriegn banks to file 1099's with U.S. Treasury... if they do not provide, will assume that they are helping U.S. taxpayers evade taxes.

11:45 am - returns to theme of middle class tax credits.

11:46 am - Okay, it's over. No questions.

May 01, 2009

Bailed Out Banks Among Top Panama FTA Pushers

According to the U.S. State Department, Panama has over 350,000 foreign-registered companies (i.e. mostly subsidiaries of foreign multinationals),  all of which face low to no taxes and regulation. This high rate of foreign incorporation – the country is reportedly second only to Hong Kong – makes the country a magnet for tax evasion.

In fact, many of the top 30 recipients of TARP money have subsidiaries in Panama. Because Panama PanamaCartoon-350 does not charge taxes on “offshore” subsidiaries, the TARP and other bailout fund recipients may be able to avoid paying significant amounts of U.S. taxes by essentially permanently deferring repatriation of their income in Panama. According to Securities and Exchange Commission (SEC) filings, Citigroup Inc. has a whopping 17 Panamanian subsidiaries, while American International Group, Morgan Stanley and American Express each have one.    

Many of the top 100 federal contractors also have Panamanian subsidiaries: BearingPoint, Caterpillar, Dell, EDS, Fluor, General Mills, International Shipholding, Johnson & Johnson, Kraft Foods, Mantech International, McDermott International [a U.S. corporation which reincorporated as a Panamanian firm], Merck, PepsiCo, and Proctor & Gamble. Others top U.S. corporations with subsidiaries in Panama include Altria, Cisco, Ingram, News Corporation, Pfizer, and Sunoco.

How does any of this relate to the Bush-negotiated, NAFTA-style trade deal with Panama? Well, the FTA does not directly or indirectly remedy Panama’s problems with tax evasion and money laundering. There are no special requirements that take into consideration, much less try to counter, Panama’s banking secrecy rules, lax financial service regulations or designation as a venue for money laundering and tax evasion.

In today's Inside U.S. Trade, key trade and tax-transparency leaders had this to day:

Among the Democrats demanding a [U.S.-Panama tax information exchange agreement] TIEA as a precondition of the FTA is Rep. Lloyd Doggett (D-TX).

“[I]t is not only essential that they get an agreement signed, but that they change their laws,” he said. “Given their status as a tax abuser, I want to be sure that [Panamanian] laws have been changed, not just that the agreement is signed,” he said.

Doggett said that at a time when President Obama has called for action against companies that use tax havens and Treasury Secretary Tim Geithner has endorsed his legislation to help address the problem of tax havens, it would be a “real mistake” to reward “one of the most abusive tax havens.”

Doggett’s bill has a companion measure in the Senate sponsored by Sen. Carl Levin (D-MI), who is also opposing action on the Panama FTA before a TIEA is negotiated.

“A U.S.-Panama tax information exchange agreement is the least of what we should get before the free-trade agreement,” Sen. Levin said in a statement forwarded by his press office this week.

In fact, if the Panama FTA were adopted, it would make these matters of bipartisan concern worse. For instance, TARP recipients’ Panama-registered subsidiaries would be newly empowered to demand U.S. taxpayer-dollar damages for U.S. financial service regulations or limits on transfers (related to Panama’s status as a tax-haven country) that they could claim undermined its future expected profits and were thus ”tantamount” to (“indirect”) “expropriations.” These cases would be heard by UN or World Bank tribunals, and could be brought to attack domestic regulatory measures that would not be considered expropriations under the U.S. Constitution as interpreted by the U.S. Supreme Court. The effect of these excessive Panama FTA investor rights could be a watering down or chilling of much needed tax and financial-sector re-regulatory efforts.

So, perhaps unsurprisingly, the financial firms that created our current economic crisis are pushing hard for these benefits... even just days before AIG was bailed out.

Luckily, our new report details the easy fixes that could make the Panama FTA less objectionable:

  1. Eliminate the FTA provisions that ban limits on transfers, which would remove from the U.S. the key policy tool for acting against banking secrecy, tax haven policies and money laundering;
  2. Remove the investor-state enforcement system, which would allow hundreds of thousands of private investors from around the world that are registered and have operations in Panama to challenge U.S. anti-tax haven policies for cash compensation;
  3. Remove the FTA’s restrictions on financial regulations, including those that forbid limits on financial service firms’ size or establishment of firewalls between different financial service businesses, and add to the FTA’s financial services text a set of required minimum financial regulatory standards that signatories to the agreement would agree to adopt in domestic law and enforce and that could be based on the re-regulation proposals now being formulated in multilateral and domestic forums; and
  4. Require that the FTA be terminated if Panama fails to maintain high transparency standards, which should be passed before the FTA goes into effect.

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