Panama's “Blackmail” and “Threats” Against the US: Can Panama be Trusted?

By signing a weak Tax Information Exchange Agreement (TIEA) with the U.S. last month, Panama has tried to portray itself as finally coming out of the tax haven shadows so that Congress will approve the Panama FTA. Despite the signing of the TIEA, there still remains the question of whether Panama will faithfully implement the TIEA over the next year. Accumulating evidence suggests we can't trust the government of Panama to end its status as one of the largest tax havens in the world.

This Sunday, the New York Times reported on how the Panamanian President, immediately after being elected in July 2009, attempt to coerce the U.S. Drug Enforcement Administration (DEA) into using its wiretapping technology to wiretap his political opponents:

The United States, according to the cables, worried that [Panamanian President Ricardo] Martinelli, a supermarket magnate, “made no distinction between legitimate security targets and political enemies,” refused, igniting tensions that went on for months.

Mr. Martinelli, who the cables said possessed a “penchant for bullying and blackmail,” retaliated by proposing a law that would have ended the D.E.A.’s work with specially vetted police units. Then he tried to subvert the drug agency’s control over the program by assigning nonvetted officers to the counternarcotics unit.

And when the United States pushed back against those attempts — moving the Matador system into the offices of the politically independent attorney general — Mr. Martinelli threatened to expel the drug agency from the country altogether, saying other countries, like Israel, would be happy to comply with his intelligence requests.

The New York Times' reporting is based on several secret diplomatic cables recently released by Wikileaks. One cable dated August 2009 offered a frank assessment of President Martinelli's attitude toward following the law:

Martinelli's seeming fixation with wiretaps and his comments to [the U.S.] Ambassador during an August 12 meeting demonstrate that he may be willing to set aside the rule of law in order to achieve his political and developmental goals....He chided the Ambassador for being "too legal" in her approach to the issue of wiretaps.

On other matters of law such as drug trafficking itself, the diplomatic cables paint a dark view of the Panamanian government, noting that each month President Martinelli's cousin helps smuggle millions of dollars of drug money through Panama's main airport. Since President Martinelli apparently can't be bothered to follow the laws of his own country, how can his government be trusted to follow an international agreement and help the U.S. government ferret out tax dodgers?

Bombshell Australian Report Finds FTAs "Oversold"

Yesterday, the Australian Government's Productivity Commission released a 400-page report examining the effects of Australia's "Free Trade" Agreements (FTAs). The Productivity Commission is the Australian Government’s independent research and advisory body on economic and social issues. The Age reports:

The Productivity Commission has told the government there is little evidence to suggest Australia's six free-trade agreements have produced ''substantial commercial benefits''....

Copyright provisions inserted in the US-Australia Free Trade Agreement could eventually cost Australia as much as $88 million per year....

The report also rails against investor-state lawsuit provisions like NAFTA's Chapter 11 that allow foreign corporations to sue sovereign governments for taxpayer compensation when governments take necessary action to protect the health and safety of their citizens: "There does not appear to be an underlying economic problem that necessitates the inclusion of ISDS [Investor-State Dispute Settlement] provisions within agreements.....Experience in other countries demonstrates that there are considerable policy and financial risks arising from ISDS provisions." The report goes on to note that millions of dollars of taxpayer funds has been paid out to multinational corporations due to corporate lawsuits filed under NAFTA's investor-state dispute settlement provisions. 

The report recommends that the Australian government "seek to avoid the inclusion of investor-state dispute settlement provisions in [FTAs] that grant foreign investors in Australia substantive or procedural rights greater than those enjoyed by Australian investors."  Australia excluded investor-state lawsuit provisions from the U.S.-Australia FTA due to justified fears that foreign corporations would demand compensation if environmental or public interest laws reduced their "expected profits."  The Australian trade negotiators would be wise to heed the well-reasoned recommendations of the Productivity Commission and ensure that investor-state lawsuit provisions are excluded from the proposed Trans-Pacific Partnership.
 
The report notes that the totality of evidence on FTAs "suggest that the economic value of Australia’s [FTAs] has been oversold." That sounds familiar. Oh, that's right, Public Citizen found that the same was true for U.S. FTAs in our September report, "Lies, Damn Lies, and Export Statistics: How Corporate Lobbyists Distort the Record of Flawed Trade Deals," in which we revealed that U.S. exports to FTA partners have grown at half the pace of U.S. exports to the rest of the world. There seems to be a consensus developing here.

Labor Unions Announce Opposition to Korea Trade Deal

In the latest development regarding the Korea trade deal, four major labor unions announced their opposition to President Obama's supposed revised trade agreement with South Korea.

AFL-CIO's President Richard Trumka stated:

"[T]he labor movement has consistently and for many years argued that the investment and government procurement provisions in the Korea deal will encourage offshoring. And despite the progress made in improving the labor chapter in 2007, it is clear that in both the United States and South Korea, workers continue to face repeated challenges to their exercise of fundamental human rights on the job - especially freedom of association and the right to organize and bargain collectively… So long as these agreements fall short of protecting the broad interests of American workers and their counterparts around the world in these uncertain economic times, we will oppose them."

The United Steelworkers of America (USW), Commercial Workers of America (CWA), and the International Association of Machinists and Aerospace Workers (IAM) all beg to differ as well. Each union released a statement opposing the passage of the Korea FTA.

The Steelworkers admonished the deal for lacking improvements in all the key areas, noting particularly what we’ve said before: the Korea FTA will increase our trade deficit. The union pointed to our recent study on American exports to FTA and non-FTA countries:

“the provisions that have been agreed to fall far short of the proposals the USW identified as the minimum approach necessary to secure the union’s support… At any time, but certainly at this time, as our nation's economy and our workers continue to wrestle with economic problems, we must not risk our future for ideological goals. As a recent study shows, the rate of U.S. exports to current FTA partners lags behind that of countries where we have no FTA in place. Promises made by previous Administrations as to the enormous benefits of free trade agreements have simply not come to pass for American workers. Indeed, our trade deficit continues to sap our nation's economic strength and the existing FTAs have not provided the benefits that were promised…. [the recent changes] remain insufficient and are damaging to manufacturing sectors where our members work. There are many other provisions in the proposed FTA that the USW and others in organized labor specifically identified as needing improvement, but these concerns were not addressed in these talks… [the FTA] does not merit USW support, and we will oppose its passage.”

Along with the USW’s resistance to the Korea trade deal, both the CWA and the Machinists union highlighted the importance of replacing our current trade policy. IAM’s president Tom Buffenbarger put it eloquently: “This Bush-era agreement fails to even remotely satisfy the concerns of recession ravaged U.S. workers. The last thing the U.S. economy needs is another flawed trade agreement built on the disastrous framework of NAFTA.”

The Machinists statement also said:

“The current deal falls woefully short of addressing fundamental objections that have been repeatedly raised by the IAM. Among other things, the labor chapter fails to make any improvements on the inadequate Bush labor standards which were implemented in the Peru agreement over three years ago. It also preserves objectionable language regarding the investor to state dispute mechanism and contains troubling language concerning government procurement that could result in even more offshoring of U.S. jobs…

Not surprisingly, the same corporations that shipped thousands of U.S. jobs to other countries are now spinning Alice-in Wonderland tales about how this agreement will create jobs here at home. Given our past experience with NAFTA and other trade agreements and the current state of the U.S. economy, the nation can hardly afford to fall for this ruse again.

The IAM, which led the peaceful WTO protests in Seattle over ten years ago, is no stranger to fighting for fair trade. The IAM will never back away from our commitment to ensure that all trade agreements work for U.S. workers, our communities and for workers all over the world.

The American public understands the terrible toll our failed trade policies have taken on our economy. Now it is up to Congress to reject this NAFTA-styled trade agreement. We congratulate those in Congress who have already spoken out against this agreement and we encourage others to work with them to defeat implementing legislation.”

The Communications Workers, for their part, said:

“This agreement gives investment and legal protections to large multi-national corporations which shift jobs offshore in search of the lowest labor and environmental costs and highest profits. With no counter balance, multi-national corporations whipsaw workers and nations to prevent and eliminate bargaining rights. KORUS, as negotiated, does not create an economic and collective bargaining rights framework to support the aspirations of US and Korean workers.

Our current economic climate simply cannot support a trade agreement that does not address U.S. workers’ rights and will cost more U.S. jobs. Further, the Korean union movement strongly opposes the agreement. So long as KORUS falls short of protecting the broad interests of American and Korean workers in these uncertain economic times, we will oppose it.”

Additionally, Chairman George Miller (D-Calif.) of the House Education and Labor Committee said that the Korea FTA was not “worthy of support” and “we simply cannot afford another NAFTA-style agreement.” He went on:

“the rights granted foreign investors are far too broad and allow foreign corporations to skirt the rule of American law, such as for health and environmental protections, and American courts by using private arbitration panels to demand compensation from US taxpayers for upholding our own labor standards and other essential regulations. I am also concerned that the treaty limits regulation of financial services and does not preserve our ability to follow Buy American policies that support American manufacturing jobs.

The growing labor opposition will hopefully serve as a wake up call for Obama. 

U.S. Workers Don't Care if Korea Buys Tomorrow the U.S. Exports Germany Bought Today

Over at the White House blog, U.S. Trade Representative Ron Kirk continues his tendency to play loose with the facts of the U.S. International Trade Commission (USITC) study. He says:

The tariff cuts alone in the U.S. - Korea trade agreement will increase exports of American goods and services by $10 to $11 billion.  We expect this agreement to create 70,000-plus jobs for American workers in a wide range of economic sectors from autos and manufacturing to agriculture.

In reality, the USITC study that the administration has been citing predicts that U.S. exports in the sectors analyzed will increase by $4.8-5.3 billion, but imports will increase by $5.1-5.7 billion due to the Korea FTA. This leads to a net increase in the deficit of between $308 million and $416 million.  The “$10 to $11 billion” figure that Kirk is citing refers to the increase in exports to only Korea, but does not account for declines in U.S. exports to other countries that the FTA will induce. Because of the way that bilateral trade agreements affect global trade flows, about 50% of the increase in exports to Korea are merely U.S. exports to third countries shifting to Korea. In other words, 50% of the “$10 to $11 billion” does not represent new exports, only exports that have changed destination.

Put differently, U.S. workers don't care if Korea buys tomorrow the U.S-made products Germany bought today. This creates no new jobs, although it may increase carbon emissions with the longer shipping times. Couple this with the fact that the USITC shows that U.S. workers’ net exports will be lower after the deal is implemented, and U.S. workers have every reason to oppose this deal.

Furthermore, as much as Ron Kirk hopes that the agreement will create jobs in the auto sector, the government's own projections suggests that jobs will be lost in the auto sector. The study predicts that the auto deficit will increase by $531-708 million ( See our memo on the topic here). Although the USITC model does not allow the total number of jobs in the U.S. economy to change, it predicts that a substantial number of jobs in the auto sector will shift away from autos to other sectors of the economy (see Table 2.4 on page 2-15 in the USITC report). Thus, contrary to Kirk's expectations, U.S. auto workers will be losers in this Korea FTA.

Video: Korea Trade Deal Reality Check

While President Obama and corporate lobbyists attempt to sell the Korea trade deal, South Korean farmers and a mass of labor and environmental organizations in the United States are strongly and clearly opposed. Protesters depicted in the video below urged the South Korean government to abolish the trade deal “fearing it would harm both agricultural producers and cattle farmers.”

Public outrage about the deal in the United States is no surprise as a September 2010 NBC/WSJ poll found that 69% of Americans believe free trade agreements with other countries have cost jobs in the United States. View a compilation of statements in opposition to the Korea trade deal here.

In another protest in Seoul on Sunday, Lee Chun-seok, spokesman for the main opposition Democratic Party, accused the government of making "massive concessions against our national interests," his party said. "We cannot find the principle of reciprocity anywhere in the agreement."

It is clear that President Obama did not take stock of American citizens’ opinions nor South Koreans’ welfare when reaching a decision to push the Korea trade deal. Now it is up to the 112th Congress to decide whether to settle for the deeply flawed pact or reject another NAFTA-style deal with no realistic promise of benefitting Americans or South Koreans.

Administration's Korea FTA Numbers Need a Factcheck

Obama's Friday announcement of the tiny changes to the Korea FTA tried to portray the deal as a winner for the U.S. economy and American workers:

I am very pleased that the United States and South Korea have reached agreement on a landmark trade deal that is expected to increase annual exports of American goods by up to $11 billion and support at least 70,000 American jobs. 

A "factsheet" accompanying the announcement reveals that the U.S. International Trade Commission's (USITC) study on the Korea FTA was the apparent source of these figures:

With the U.S. International Trade Commission (ITC) estimating that the tariff cuts alone in the U.S.-Korea trade agreement will increase exports of American goods by $10 billion to $11 billion, advancing this agreement will secure the tens of thousands of American jobs supported by those exports...

A New York Times article published today reveals the real story on these numbers:

But the pact is likely to result in little if any net job creation in the short run, according to the government’s own analysis....

In fact, the effect of the agreement on aggregate output and employment in the United States “would likely be negligible,” according to a federal study, largely because the United States economy is so much larger than that of South Korea. Indeed, the study found, the country’s overall trade deficit with the rest of the world is likely to grow slightly as a result of the agreement.

Back in August we debunked the administration's Korea FTA stats, but the Obama administration has continued to tout these bogus figures. Regarding the alleged $11 billion rise in exports, the crux of the issue is that the factsheet is quoting the wrong section of the USITC report (the administration is citing Table 2.2 on page 2-8 of the report). The USITC study predicts that U.S. exports will increase by only about $4.8-5.3 billion, as Table 2.3 on page 2-14 of the report indicates. In addition, the study predicts that U.S. imports will increase by $5.1-5.7 billion due to the Korea FTA. This large increase in imports completely wipes out the benefits of the increase in exports and turns the predicted effect into a net negative.

The $10-11 billion figure that the administration is citing is merely the change in the U.S. bilateral exports to Korea itself, which tells only part of the story. As the USITC study acknowledges, bilateral tariff reductions induce significant "trade diversion" effects, which means that implementation of the Korea FTA will “rob” from the volume of U.S. exports that currently go to third countries and shift those exports to Korea, leading to little net increase in U.S. exports. The diversion occurs because many exporters of U.S. goods will stop exporting their goods to other countries like Germany and instead start exporting to Korea, just because the tariff that they face for exporting to Korea is lower than the tariff that they face when trying to export elsewhere. The shift in the destination of exports alone does not increase U.S. economic output or employment. Only net export gains matter for American workers.

This distinction between the USITC's projections for U.S. exports to the world vs. U.S. exports to Korea is not splitting hairs in the least.  In fact, a National Bureau of Economic Research working paper that analyzed changes in trade flows due to NAFTA found a small increase in U.S. economic welfare due to NAFTA-induced changes in bilateral trade flows with Canada and Mexico, but this positive welfare effect was completely wiped out and transformed into a net negative due to "too much trade diversion," i.e. shifts of U.S. export flows from non-NAFTA countries to NAFTA countries. 

Our own back-of-the envelope calculations suggest that 50% of the increase in U.S. exports to Korea, as predicted by the USITC, represents U.S. exports that currently flow to third countries being diverted to Korea due to the bilateral tariff reductions.

On the jobs figure touted by the Obama administration, the crux of the issue is that their calculation only considers the job creation induced by exports and ignores all of the jobs that will be destroyed due to increased imports. The USITC predicts that the Korea FTA will lead to an increase in the U.S. goods trade deficit. This increased deficit will lead to a net loss of U.S. jobs, not the 70,000 jobs gained as alleged by the administration.

Unfortunately, the administration's errors in discussing the USITC's study on the Korea FTA were being repeated by news reports in the immediate aftermath of the Friday announcement, misinforming the public. Though at least one outlet, the International Business Times, got it right, noting that Public Citizen "pointed out that Bush-era International Trade Commission studies showed the Korea deal will increase America's trade deficit."

As Paul Krugman said, Korea FTA proponents are flat-out wrong about the economic impact of the FTA. In fact, the FTA will likely destroy jobs, increase the trade deficit, and hinder the U.S. economic recovery.  Now that the Obama administration has taken ownership of the NAFTA-style Korea FTA without substantive fixes, it should expect more job loss in the next few years and voter rage in November 2012.

Krugman Slams Korea FTA

In a blog post yesterday, renowned economist Dr. Paul Krugman slammed the advocates of the Korea FTA who are claiming that the FTA will hasten the economic recovery and create jobs:

One thing I’m hearing, now that all hope of useful fiscal policy is gone, is the idea that trade can be a driver of recovery - that stuff like the South Korea trade agreement can serve as a form of macro policy.

Um, no

Our macro problem is insufficient spending on U.S.-produced goods and services....

Trade agreements raise [exports] - but they also lead to higher [imports].

Krugman notes - and we have pointed out previously - that U.S. GDP growth is dragged down by the trade deficit. When U.S. consumers spend money on imported goods rather than domestically-produced goods, there is less output from U.S.-based producers, factories shut down, and workers lose their jobs. Since studies have predicted that the Korea FTA will lead to an increase in the deficit, implementation of the Korea FTA will likely stunt the economic recovery and destroy American jobs.

Krugman further argues:

If you want a trade policy that helps employment, it has to be a policy that induces other countries to run bigger deficits or smaller surpluses. A countervailing duty on Chinese exports would be job-creating; a deal with South Korea, not. If you want the Korea deal, fine; but don’t claim virtues for it that it doesn’t possess.

If anyone is qualified to assess the value of a particular trade policy, it is Dr. Krugman. In 2008, he received the Nobel Prize in economics for his groundbreaking work in trade theory. The Obama administration ought to lend an ear to Krugman to hear his views on trade. Unfortunately, it seems that the administration has been listening to the advice of the U.S. Chamber of Commerce to approve the Korea FTA without substantial changes, which will allow its corporate members to offshore even more jobs.

Industrial Policy IS Sexy - CRT

The following is recent dispatch from the Climate Reality Tour - a movement building bike tour. My bike partner and I are biking from West Virginia to the U.N. Climate Talks in Cancún to connect the dots between Globalization policies and global climate change.

+++ For most folks, there might be nothing less sexy than industrial policy. An abstract government process for deciding how to intervene in the globalized marketplace to support what major industries - often quite polluting ones. It lacks the high-speed flare of bike culture (in which we are awash), the colorful bouquet of community gardening, the human drama of environmental justice struggle.

But green industrial policy might just be what saves the planet. It’s a tragic that it’s sultry allure is lost on us.

We were impressed in our interview with Bill Londrigan, the President of the Kentucky AFL-CIO, how deeply he understood the need for holistic green industrial policy – one that moves rapidly to phase out dirty industry and replace it with green jobs. “Hopefully we can make some rational decisions about where we need to go… to make sure we can evolve to where [energy and industry] aren’t harmful to the environment” Londrigan says. “And the government could play a great role.”

But we are talking more than your typical one-time weatherization jobs and beyond just the renewable energy sector. Green industrial policy can tie the other threads together, and create jobs and healthier communities in the process. As has been discussed, if we shifted our food, transit, and energy policy we could address the injustice and unsustainability in those systems. We can imagine regional bike manufacturing with green energy, and labor-intensive local food systems underwritten by our government. This would be welcome industrial policy to shift from unsustainable centralized corporate status quo.

Obama’s Decision to Push Bush’s NAFTA-Style Korea Trade Deal Without Real Fixes Is Major Policy, Political Mistake

Statement of Lori Wallach, Director, Public Citizen’s Global Trade Watch, on 1 p.m. Obama administration press briefing to discuss conclusion of negotiations and the deal struck on the auto chapter of the U.S.-Korea Free Trade Agreement 

The U.S. Chamber of Commerce and GOP congressional leaders must be gleeful that they are getting the Obama administration to take ownership of another Bush NAFTA-style trade deal that would simultaneously favor their job offshoring agenda and put Obama’s re-election in peril.

Why the administration would consider moving another NAFTA-style trade deal is inexplicable, especially given that export growth under past U.S. free trade agreements was less than half of that to the rest of U.S. trade partners. Bush-era International Trade Commission studies show the Korea deal will increase America’s trade deficit, and Americans across diverse demographics are united in opposition to more-of-the-same trade policy.

Choosing to advance Bush’s NAFTA-style Korea free trade agreement rather than the new trade policy President Obama promised during his campaign will mean more American job loss and puts the White House at odds with the majority of Americans who, polling shows, oppose more-of-the-same job-offshoring agreements.

Merely tweaking the “cars and cows” market access provisions of Bush’s NAFTA-style Korea trade pact but leaving in place the offshoring-promoting foreign investor protections is a slap in the face to the majority of Americans who, according to repeated polls, oppose the same old trade policy that has cost millions of American jobs.

More Than TIEA is Needed for Panama Trade Deal

The Obama administration signed a Tax Information Exchange Agreement (TIEA) with Panama yesterday. But a lot of work remains to be done before resolution of Congress’ concerns that no U.S.-Panama “free trade agreement” be considered until Panama cleans up its financial secrecy practices. Verifying that Panama is actually making the necessary changes will take some time. This gives the Obama administration the space to modify the terms of the deal that would make fighting tax-haven abuses difficult.

Read Todd Tucker's statement.