Stop pursuit of Panama trade pact

A lot of fiscal conservatives were startled to hear U.S. Trade Representative (USTR) Ron Kirk’s comments about the Obama administration plans to consider pushing forward with President Bush’s Panama Free Trade Agreement (FTA).

On economic merits alone, it’s hard to imagine why the Obama administration would want to revive any Bush FTA given that each of the three leftover pacts contains many of the same provisions of the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO). These include special privileges for foreign investors that promote the offshoring of investment by providing special treatment for firms who decamp. Also included is the right to challenge U.S. laws, including those designed to crack down on offshore havens, in foreign tribunals where foreign firms can demand compensation in American taxpayer dollars for U.S. policies that undermine their expected future profits.

{mosads}The few remaining defenders of NAFTA and WTO add up gross import and export numbers and boast about how trade volumes have increased. But to what end for American workers, firms or farmers? Since NAFTA’s and WTO’s implementation we have lost a net 4.3 million U.S. manufacturing jobs, our real median wages sit scarcely above 1973 levels and income inequality has risen to levels not seen since the robber baron era. We have become a net importer of food. Under these pacts we saw trade deficits climb to $800 billion with economists warning that years of massive, persistent U.S. trade deficits that exceeded 5 percent of GDP were not sustainable. And now we have seen these structural imbalances contribute to a global economic crisis of dire proportions.

On the campaign trail, President Obama made many commitments to change this failed trade model. He also pledged to eliminate tax breaks for corporations that offshore U.S. jobs — a commitment he reiterated during his Feb. 24 speech to Congress. Eliminating these loopholes could save U.S. taxpayers $210 billion over the coming decade, according to the Office of Management and Budget (OMB), while the Senate Homeland Security Committee estimates a savings five times as great. These funds would assist greatly in helping put people back to work amid the deepest recession in the post-war period. And, now the G-20 and G-7 have both honed in on how banking-secrecy jurisdictions are contributing to the economic crisis and must be countered.

This gets us back to the “What did he say?” reaction to USTR Kirk’s comments on the Panama FTA. Talk about a double whammy: another job-killing Bush trade agreement, and with the country that a Government Accountability Office study identified as one of only eight countries — and the only current or prospective FTA partner — that was listed on all of the major U.S. and international tax-haven watchdog lists. Panama’s unwillingness to sign a tax information treaty with the U.S. is just the tip of the iceberg. The country’s industrial policy is premised on obtaining a comparative advantage by banning taxation of foreign corporations, hiding tax liabilities and transactions behind banking secrecy rules and the ease with which U.S. and other firms can create unregulated subsidiaries.

According to the State Department, Panama has over 350,000 foreign-registered companies. According to Securities and Exchange Commission (SEC) filings, Citigroup Inc. has a whopping 17 Panamanian subsidiaries and it is not alone among recipients of TARP and other bailout funds. The New York Times just ran an exposé about how AIG is currently suing the U.S. government to get back taxes it claims it does not owe thanks to its use of one of its Panamanian corporate entities called Starr International Company Inc.

When the House Trade Working Group spoke with President Obama during the campaign, he explained that if he was going to be the one responsible for enforcing a trade agreement, he wanted to be the one setting its terms. In the case of Panama, renegotiating the agreement is a necessary, but insufficient, step.

Removing the special investor rights and limits on Buy America and other non-trade policies is essential. But, no FTA should go into effect with Panama until that country eliminates its excessive banking secrecy practices, re-regulates its financial sector and forces banks and multinational subsidiaries to pay their fair share of taxes.

Michaud is a member of the House Small Business Committee.

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