Panama Investor Blog

Panama FTA is more about Fair trade than Free trade

When it comes to the Panama Free Trade Agreement, President Obama is being torn between helping certain companies acquire additional overseas business and keeping labor unions and politicians against tax havens happy.

The Caterpillar company has been working for years at positioning itself to take advantage of the heavy equipment business to be generated by the canal expansion project. Caterpillar equipment is made in the USA and with general construction there at a standstill, the company has been dependent on foreign sales for most of its business over 2008. Things are not looking any brighter for 2009-2010 except for a stimulus program called the Panama Canal Expansion. This is a major opportunity for Cat to help it's balance sheet for this year and next and they don't want to miss it. They are putting on the full court press by lobbying hard to get theFTA passed. Everyday this week there are articles saying it will or won't happen.

But in the end, one has to wonder, why does it matter so  much that they have the FTA. Can't they just sell and ship heavy equipment without it? Are import duties so high on this equipment that it would add to much to the price?

The fact is that the duties on this equipment are low or non existent and they certainly could build and ship from the U.S. and be competitive, but the real reasons Caterpillar wants the FTA has more to do with corruption than import duties. The fact is, any U.S. company wanting to do business in Panama right now is on a level playing field as long as they are willing to bribe there way to get the contracts they want. Of course, it is illegal for a U.S. firm to engage in such shenanigans, but other countries are not bound by such high moral standards and would be happy if the FTA were not in place. This gives foreign companies a distinct upper hand in gaining contracts in Panama.

The FTA has provisions in it that protects American companies from other foreign companies and governments using corrupt practices in order to gain contracts. These provisions call for complete transparency in the bidding process and allows a U.S. company to file charges in Panama that could bring all kinds of nasty things to light and hold up construction on the project until settled.

Like Obama, I too am torn on the FTA. I would like to see the provisions regarding corruption put in place to help eliminate the ability of the Panamanian politicians to rake it in, but I am against the strong arm tactics of the largest money laundering and tax haven in the world telling Panama it needs more transparency so the IRS can go fishing in ourfertile waters.

Obama reverses direction and withdraws Panama Free Trade Agreement

In an abrupt reversal of policy, the Obama administration withdrew the Panama Free Trade Agreement (FTA) from consideration in the U.S. Congress today just as the Senate was about to hold hearings.  In an apparent concession to the powerful trade union lobby, the administration said it would delay seeking approval for the FTA until "until President Barack Obama offers a new “framework” for trade".

The FTA was meeting unexpectedly stiff resistance in Congress as unions and anti tax haven groups lobbied the administration to pull the agreement from consideration.

It will be interesting to see whether the U.S. continues to pressure Panama to change it's banking secrecy and anonymous corporation laws.

From Bloomberg - Obama Delays Plans for Panama Trade Deal After Unions Object

Senator John Kerry joins the fight to turn up the heat on Panama

The U.S. Senate is considering the U.S.-Panama Free Trade Agreement (FTA) today during Finance Committee hearings and Senator John Kerry has penned an article on the Politico web site outlining his goal to close down the evil tax havens (like Panama). 

Although he concedes that both countries will benefit from the FTA, he makes it clear that "many of the factors that contribute to Panama’s economic growth also make it a sanctuary for tax cheats and money laundering – and that needs to be remedied".   So, a sitting United States senator feels it his duty to "remedy" a problem for the U.S. in a foreign country.  A problem that even he acknowledges has been partially responsible for Panama's recent economic growth. 

Senator Kerry likes to frame his argument around the need to "stop terrorist organizations, drug cartels and other criminal groups from exploiting bank secrecy havens".   But the real reason behind all this is made clear when he says "we need to protect against efforts by U.S. citizens to evade taxes".  But in his zeal to catch "tax evaders" he is also casting a wide net against those that legitimately use Panama's corporation laws to protect their assets.

Most ominously though is this quote from the honorable Senator Kerry when he describes Panama as a "place where it’s easy to set up an impenetrable offshore company and open a bank account shielded from the prying eyes of the Internal Revenue Service".  I think that just about sums it up.

Read more: "John Kerry: Let's close tax evader loopholes - Sen. John F. Kerry - POLITICO.com" - 

Senator Carl Levin attacks the U.S. - Panama Free Trade Agreement

The U.S. - Panama Free Trade Agreement (FTA) has been an on again, off again process for nearly two years.  After much lobbying by commercial interests here in Panama, the Panamanian assembly passed the FTA and it looked like passage in the U.S. Congress was a slam dunk since it was fairly non controversial and backed by the Bush administration at the time.  However, just before the FTA was to be voted on in the House of Representatives in 2007, the deal was sabotage by the appointment of Pedro Miguel Gonzales to head the Panamanian assembly.  It has languished there ever since.

There's been a recent revival of the FTA by the Obama administration who wants to get this agreement through the Congress before tackling more complicated trade agreements with South Korea and Colombia.  This time, the road block is coming from President Obama's own party in the form of U.S. Senator Carl Levin.

Senator Levin has been leading the charge against so called "tax havens" and he's got Panama right in his cross hairs.  Senator Levin wants countries like Panama to eliminate their laws on banking secrecy and the use of corporations with anonymous shareholders.  Both of these policies are keys to the thriving legal and banking industries operating in Panama.  That Senator Levin is using the Panama FTA to advance his crusade is instructive in understanding the importance of this issue in Washington D.C.

It will be interesting to see how this plays out over the next few months and whether Panama backs down to U.S. demands.  But it looks like this is just the beginning of an orchestrated attack on the freedom on U.S. citizens.  If Senator Levin is unsuccessful in convincing foreign countries like Panama to change their laws to accommodate his agenda, the next step will be to limit citizens from taking their money abroad.  Keep an eye on Senator Levin.

From the Associated Press

Lawmakers ask Obama to put off Panama trade deal

54 U.S. house members sign petition to stop Panama FTA

This petition signed and delivered to President Obama is rather disturbing and will certainly cause consternation for Panama government officials. I find it a bit disingenuous for the U.S. to make such claims about Panama banks acting as a tax haven when the U.S. banks do the exact same thing on a much grander scale. In addition, recent events have shown many U.S. top banks have poor oversight and regulation that would not even pass muster here in Panama. Within the letter is this paragraph about Panama.

"Panama FTA. We also believe that Panama is not an appropriate U.S. FTA partner. A Government Accountability Office study identified Panama as one of only eight countries and the only current or prospective FTA partner that was listed on all of the major tax-haven watchdog lists. Panama has long been a key target of both the Organisation for Economic Co-operation and Development and other tax transparency entities for its resistance to international norms in combating tax evasion and money laundering. Indeed, Panama is one of few countries that has refused to sign any tax information exchange treaties. We applaud your cosponsorship last year of S. 681 (The Stop Tax Haven Abuse Act), which designates Panama as an Offshore Secrecy Jurisdiction targeted for that legislations restrictions on the use of offshore tax havens and abusive tax shelters to avoid U.S. federal taxation. Panama is one of the top locations for multinational firms subsidiaries many created for the sole purpose of avoiding taxes. (my emphasis).

The day is coming soon when legislation will be passed that will severely restrict the way Americans can do business here in Panama.  I suspect that main restriction will be limitations on money flowing into Panama from the US.  If you are considering moving some of your assets out of the U.S. you need to act now.

Bush won't press Panama trade vote before Colombia

With this latest decision by President Bush, it is unlikely that the FTA will be completed during his administration. This from Reuters.

Excerpts: WASHINGTON (Reuters) - President George W. Bush does not want Congress to vote on a free trade agreement with Panama before it votes on a similar deal with Colombia, Bush administration officials said on Tuesday after a major obstacle to approval of the Panama agreement was  removed.

"We believe the FTAs (free trade agreements) should be acted upon in the order they were signed," said Sean Spicer, a spokesman for the U.S. Trade Representative's office. "Once Colombia is acted upon, we hope to see action on Panama and South Korea."

Read the rest of the story here...

Opps! Panama violates Proposed FTA

In their rush to make changes that give the keys to the candy store to government officials  which allow them to approve contracts without competitive bids, they have violated one of the articles of the proposed FTA agreement with the U.S.. Transparency is paramount to the FTA and when officials can dole out contracts at their discretion it certainly conflicts with that transparency. Apparently the assembly did not realize their error. Lets hope they reverse their position before it goes for vote in the U.S..

From La Prensa

Excerpts;

LA PRENSA

trade issue:While the FTA with the U.S. has not even been approved, Panama has already violated it by increasing the threshhold the government can award in “no bid” contracts.1069290

Even as Panamanian officials are pushing the U.S. to approve a free trade agreement (FTA) between the two countries, the Torrijos administration has pushed through a law that violates the pact's parameters.

On June 30, the Asamblea Nacional approved a measure proposed by the Ministerio de Economía y Finanzas to change the country's procurement regulations. One of these changes allows the government to award consulting contracts of up to $300,000 without putting them up for public bid.

But according to the proposed FTA, Panama is obligated to establish “clear rules” in government procurement procedures that should focus on “respect for the principles of non-discrimination, transparency and due process.”

The agreement specifically sets a $193,000 limit on contracts awarded without putting them out for public bid. This would allow U.S. companies to bid on government contracts on an equal footing with local entities.

“The changes to the Ley de Contrataciones violates the proposed treaty with the United States,” said Manuel Ferreira, president of the Cámara de Comercio de Panamá. “This administration's term is coming to an end, and now they want to do everything quickly. But they are not doing things right.”

Ferreira said the Asamblea should take steps to eliminate the changes and return to the original procurement regulations.

Read the whole story here....

Bush vows to help Panama clinch free trade agreement

Great picture of the two leaders in Washington. They spoke about;

FTA-Gotta have it!
Canal Expansion-Gotta build it!
Price of food-Gotta lower it!
Drugs-Gotta stop it!

That's it. So if you want to read it with fluff you can go here.

Panama FTA: Uncertain Fate

Excerpt from Latin Business Chronicles

Peter Hakim, president of the Inter-American Dialogue, believes the Panama FTA's main obstacle is the issue of Pedro Miguel Gonzalez, who was elected president of

Panama

's national assembly last year despite being wanted in the

United States

for killing a

U.S.

soldier based in

Panama

in 1992. (He has been acquitted by a Panamanian court, but

U.S.

authorities maintain he is guilty). Gonzalez belongs to the ruling PRD party and was allegedly elected congress president despite concern by President Martin Torrijos, who has been widely praised by local and foreign investors for his pro-business policies.

"Consideration of the Panama FTA has been delayed because the country’s parliament elected a leader who is accused in the

United States

of murdering an American soldier - although he was found not guilty by a

Panama

court," he says. "He is scheduled to leave office in September, which will open the way for approval of the Panama FTA, although this could be delayed if the White House and the U.S. Congress have not made any progress toward an agreed-upon [Trade Adjustment Assistance]."

Will Congress Pass Panama FTA?

It all depends on who you ask.

From the Latin Business Chronicles

Will the US Congress approve the U.S. free trade agreement with Panama despite stumbling blocs? Three experts share their views.

BY LATIN AMERICA ADVISOR
Inter-American Dialogue

Pedro Miguel Gonzalez, the head of Panama's National Assembly, said [recently] he would not seek re-election, removing a key obstacle to U.S. congressional approval of a free trade agreement with Panama because of an arrest warrant for Gonzalez in the United States on charges he murdered a U.S. soldier in 1992. What are the prospects for a U.S.-Panama FTA in the wake of this news? What is a timeline for possible approval?

Read the rest of the story here.....