As the holiday weekend neared last week you probably didn't notice that on May 21st the U.S. Senate Finance Committee held a hearing on the pending free trade agreement (FTA) between the United States and the Republic of Panama.
Some confusion preceded the hearing, with U.S. labor leaders and radical anti-tax heaven Senator Carl Levin (D-MI) (left) calling for defeat of the Panama FTA, while U.S. business and agricultural groups issued statements of support.
As it turns out, even though he was a frequent critic of NAFTA and other trade pacts when he was preaching "change" on the 2008 campaign trail, President Obama, the Candidate of Change, has once again changed his mind.
Obama is now throwing his support behind the trade deal with Panama, courting a potential backlash from his labor union supporters. Obama now apparently views the Panama FTA as a strategic imperative.
The Panama pact has been bogged down in the Democrat-controlled Senate over hyped up concerns about Panama's alleged poor enforcement of labor rights and its well earned reputation as a leading offshore tax haven.
Panama a Major Latin Player
With the Panama Canal undergoing a major $6 billion expansion, its strategic location and importance and booming U.S. tourism and trade, Panama has taken on an important profile, said one person familiar with the Obama administration's thinking.
Panama is also a staunch ally in the U.S. war on drugs, U.S. counter-narcotics officials say. "If we alienate this country, it does matter," said the person. "For them, the free trade agreement is a sign of friendship."
One Washington source predicts: "The Panama deal, the smallest and least controversial treaty, will pass by July. Congress still wants some answers about Panama's tax and bank secrecy laws. But in the end, it'll approve the pact, opening up trade and investment opportunities tied to the expansion of the Panama Canal."
The irony of U.S. labor opposition is that the benefits of the Panama FTA largely go to the U.S. and will help create American jobs.
Panama exported $377 million to the United States last year and 96% of the goods from Panama already enter the U.S. duty free under existing trade preferences. By contrast, Panama currently applies tariffs ranging from 8% to 15% on most manufactured goods, with rates in the high double and even triple digits for U.S. agricultural products. Panama also bans the import of re-manufactured goods. That’s a potentially lucrative market for U.S. industrial and consumer exports, including cell phones, computers and earthmoving equipment.
Secret Concessions?
There may be a hidden reason for Obama's abrupt change of direction. The Los Angeles Times reported that last week a White House negotiating team visited Panama "...and successfully extracted concessions from the Panamanians on those issues, according to people familiar with the talks."
As I wrote on May 7th, after Panama elected its new president, conservative businessman Ricardo Martinelli (left): "A Panama City rumor has it that outgoing President Martin Torrejos and his losing PRD majority in Congress might attempt to reach some tax information agreement with the U.S. before leaving office, but that appears highly unlikely."
At the time, a Panama news report stated: "There is concern in various professional associations about the possibility that the current government might yield to these pressures and complete deals that affect the financial system and international services offered by Panama."
Since then these groups have been emphatic in their opposition to any quick agreement to change Panama's financial privacy laws that now make it a crime to reveal information unless done under court order.
Deal Now, or None Later
At the May 21st Senate hearing, the Finance Committee chairman, Senator Max Baucus (D-MONT), (left) warned that it is doubtful that the new government of Panama's president-elect, Ricardo Martinelli, would make concessions to the United States in order to get approval of the FTA. He said that a deal with the outgoing president, Martín Torrijos, might be possible before he leaves the presidency on July 1st.
Martinelli has said that finalizing the trade pact with the United States will be a major goal once he is in office. He rejects accusations that Panama is a tax haven.
New Policy?
Shortly after the election on May 3rd, Frank De Lima, Martinelli's top economic adviser, told Reuters: "The perception that Panama is a tax haven is totally false," De Lima also said the new government will be open to sharing tax information with U.S. authorities.
That was hardly an encouraging sign for Panama's banking and offshore professional community for which banking secrecy is a major drawing card for business. Panama is a leader in the offshore financial world, and the leading banking center in Latin Americium south of Miami. Its financial privacy laws have played a major part in its success.
At the Senate hearing it also was claimed that the vice president-elect of Panama, Juan Carlos Varela (left), is already committed to support a treaty for the exchange of tax information demanded by both Washington and the Organization for Community and Economic Development (OECD), a claim my Panama sources seriously doubt.
Numbered Accounts & Bearer Shares
Representing the Obama administration, Everett Eissenstat, assistant U.S. trade representative for Western Hemisphere affairs, emphasized repeatedly that his office had been working closely with representatives of both Torrijos and Martinelli, and had made "great progress" on tax and labor issues.
Eissenstat (left) claimed that Torrijos's government had made "important commitments, " saying they had accepted the "principles of transparency and exchange of tax information," will soon take steps to "deal with numbered accounts" and has appointed a commission to recommend how the Panama government can "immobilize bearer shares."
Apparently Eissenstat is ignorant of the fact that Panama has no "numbered accounts" and that Panama's anti-money laundering laws already require full "know your customer" identification of all bank account holders in Panama. My Panama sources tell me that most locals think that "bearer shares," (in which a change in corporate ownership can be achieved by transferring shares without revealing the identify of owners), probably have outlived their day.
Sharp Torrijos Response to OECD
In a letter to the OECD after the London G-20 meeting at which Panama arbitrarily, (along with Switzerland and a number of other respected offshore financial centers), was placed on a less than black list (the Grey List), President Martin Torrijos' (left)Minister of Commerce and Industry, made clear that his government would only go so far in exchanging tax information.
She condemned the G-20 and the OECD for "...discriminatorily affecting the good name and competitiveness of the international [financial] services offered by the Republic of Panama and that are the backbone of our economy."
The minister laid down these pre-conditions under which Panama only would exchange tax information: "1) The privacy of persons will continue to be protected and guaranteed against undue interference. 2) There shall be no automatic exchange of information. 3) There shall be no undue triangulation of information furnished among nations. 4) Any exchange of information shall be done based on individual requests supported by a specific and justified principle or law. 5) There shall be a reasonable transitional period with respect to any measure that must be implemented and that has an impact in the international services platform offered by the Republic of Panama, it being understood that the application of any measure shall occur at the same time as similar measures applied in each and every one of the states that are members or not of the OECD and that Panama considers to be competitors in the provision of international services."
Why Trust the U.S.?
As one long-time Panama offshore professional put it to me today: "After what the U.S. Department of Justice has done to the friendly government of Switzerland in the UBS bank case, why should any country trust a tax information exchange treaty with the United States?"
He was referring to the fact that U.S. prosecutors ignored the 1997 U.S.-Swiss tax treaty that provides liberally for tax information exchange in individual cases, instead demanding UBS release the names of an alleged 55,000 Americans who are said to have UBS accounts which the U.S. claims were used for tax evasion.
"That," my Panama friend said, "is the essence of a 'fishing expedition' which the treaty forbids."
He also doubted any tax information exchange deal could be finalized by the Torrijos government and the Obama administration before July 1st when Martinelli takes office.
Such a deal would require extensive legislative revision of Panama's financial privacy and bank secrecy laws, the Congress is not in session, and the new Martinelli-dominated congress takes office in five weeks.
Watch this space for further developments.
** To learn about the many current offshore opportunities offered by the Republic of Panama, my best-selling book, Where To Stash Your Cash: Tax Havens of the World, explains all. For greater detail, Panama Money Secrets, which I also wrote, is a good bet.
** The Sovereign Society is a recognized voice in the complex offshore world. Join the Sovereign Society and keep informed.
Comments