FTA Panama: Trade Agreements and Secret Banking

When examining the role of trade liberalization on the lives of the poor, it is sometimes helpful to look at one particular round of negotiations or trade agreement to simplify the picture. Every trade agreement has winners and losers. Those who have the most political and economic clout are most able to add provisions that benefit them, cut off access to favorable markets, or crowd out smaller producers.

The U.S. has signed Free Trade Agreements (FTAs) with dozens of countries, each of which has profound implications for quality of life and for the economies of the signatory countries. One can look to the political elites in the negotiating countries to get a better handle on who is likely to gain from the deal. Those who have disaggregated interests – farmers, the urban poor, small scale manufacturers – are the likely losers without powerful friends on the negotiating team. The largest multinational corporations with the most international flexibility and stronger negotiating terms are most likely to benefit.

For example, the U.S. has been trying to sign a free trade agreement with Panama for the better part of the last decade, but the deal has stalled. Obama has promised to pass the agreements despite many concerns about their human and environmental implications. The Republican leadership in Congress has been pushing for faster action from the Obama Administration on the deal. Senate Minority Leaders Mitch McConnell vowed to filibuster any trade related nominations to the executive, unless Obama submits the Panama, Columbia and Korean FTAs to Congress. Such efforts are clearly designed to limit debate and discussion of the contents of these different trade agreements and speed their passage.

The stalled deal made the news at the end of 2010, because Panama finally came up with a concession some hoped would move the process forward – a tax information sharing agreement with the U.S. An estimated 25-45% of holdings in Panama’s 40 year old secret banking sector are said to be American. An estimated 400,000 corporations are registered there, largely for purposes of using Panama’s tax-free realization of capital gains and legally-shielded accounts. Secret banking, also a major industry in Switzerland, the Cayman Islands, the Bahamas, Singapore, Lebanon, Luxembourg and Bermuda, allows bank account holders to evade taxes in their home countries, safeguard stolen money, and avoid government monitoring of financial activities. Major beneficiaries of Panama’s tax havens include major U.S. banks like Citi and Chase, as well many other members of the Fortune 500 and their top management.

The U.S. and the OECD countries have made a show of cracking down on secret banking lately and the tax-information sharing agreement with Panama is one part of this effort. The agreement will allow U.S. officials to request information about accounts held in Panama, so they can prosecute people using the accounts to evade taxes. But, the deal does not require regular releases of information, leading observes to wonder to what level it will be seriously implemented. The Economist predicts that this agreement will lead to significant capital flight from Panama. It remains to be seen if Panama will succeed in getting the U.S. to ratify the deal. If it is ratified, there is concern that the FTA would destroy rural farmers who likely cannot compete with American subsidized agriculture. NAFTA’s agricultural provisions devastated Mexican corn farmers leading to heavy economic migration and urbanization.

IPSA is thrilled to host the Director of Public Citizen’s Global Trade Watch, Lori Wallach, to keynote the 7th Annual IPSA Conference on Friday, April 8th. Public Citizen has consistently followed the Panama FTA, as well as the other major trade agreements currently being negotiated, reporting on their impacts on every day citizens in the U.S. and abroad. Please join us! More information at: http://www.wagneripsa.org/annual-conference.html.