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.