Trade Reform Begins Glacial Move Via the Changing Debate Over Panama

Often times, change on huge issues like trade and globalization comes at a glacial pace - largely because these issues are the political equivalent of glaciers: Huge blocks of seemingly immovable policy cemented by years and years of ice and stone. But glaciers can move, and so can trade policy - the latter, as evidenced by the shifting debate over the Panama Free Trade Agreement.

More than a year and a half ago, I wrote a column [1] about how the Panama Free Trade Agreement, if passed, would reward a country that has allowed itself to become one of the world's leading corporate tax havens. My column was based, in part, off an even older piece by trade expert Peter Riggs [2]. At the time, the argument against rewarding corporate tax havens put forward by myself, Riggs and groups like Public Citizen were completely ignored - most of the very few objections from lawmakers to the agreement surrounded the election of Pedro Miguel Gonzalez to Panama's parliament, despite his being indicted for murder in the United States.

Now, suddenly, with the U.S. government desperate for increased revenues, the argument against the Panama agreement on the basis of its tax haven status is the pact's major obstacle [3]:

May 1 (Bloomberg) -- A trade agreement with Panama faces objections by Democrats in the U.S. Congress who say they won’t support the pact unless that country agrees to clamp down on tax evaders who find refuge there. The dispute is a setback to President Barack Obama’s bid to get the free-trade agreement approved soon...

“There is no doubt that the tax issue has become front and center,” said Christopher Wenk, a lobbyist for the U.S. Chamber of Commerce.

So, we've gone from a small amount of opposition to this specific pact based on problems with an individual criminal to a much larger amount of opposition to this kind of pact based on problems with the structural issue of corporate tax evasion. That is genuine progress, because it means we're finally starting to have a conversation about the overall trade and globalization system, and how it often works to reward and intensify the worst kind of corporate behavior.

To better understand that latter point, note Public Citizen's new report [4] about how the Panama Free Trade Agreement, if passed, would help banks both offshore taxpayer bailout cash and allow them to use international courts to strike down any domestic financial regulations that are passed in the wake of the Wall Street meltdown:

Many of the top 30 recipients of TARP money have subsidiaries in Panama. Because Panama does not charge taxes on “offshore” subsidiaries, the TARP and other bailout fund recipients may be able to avoid paying significant amounts of U.S. taxes by essentially permanently deferring repatriation of their income in Panama...

[If the Panama agreement passes] TARP recipients’ Panama-registered subsidiaries would be newly empowered to demand U.S. taxpayer-dollar damages for U.S. financial service regulations or limits on transfers (related to Panama’s status as a tax-haven country) that they could claim undermined its future expected profits and were thus ”tantamount” to (“indirect”) “expropriations.” These cases would be heard by UN or World Bank tribunals, and could be brought to attack domestic regulatory measures...

If you don't believe that corporations are happy to use trade agreements' protectionist provisions on "investor rights" to crush domestic laws in this country, just take a look [5] at how corporations may attempt to use NAFTA provisions to destroy California's new anti-pollution regulations.

This goes to the bigger point: Proponents of pacts like the Panama Free Trade Agreement will float any argument to get these things passed into law - and their favorite argument is size. "Oh, Panama's economy is tiny, so the opposition to this agreement is way overstated," they will insist - except, as you can see, these agreements often have little to do with the size of a potential trading partner's economy, and much to do with other more systemic issues. In Panama's case, it's the multi-billion dollar tax evasion industry, in other deals' case (as well as Panama's actually), it's opening up a source of cheap labor from workers who are paid slave wages, have no union rights, etc.

Again, though, we're seeing progress - especially this week with the Obama administration being forced [6] to publicly say it is concerned about these tax haven issues in the Panama pact. Indeed, the fact that the Panama trade deliberations are focused on tax evasion means the Obama administration now has to deal with big questions about our entire trade and regulatory system. That suggests the entire trade/globalization debate is slowly moving beyond the manufactured idiocy that presents these questions as Enlightened Advocates of Trade against Luddite Protectionists Who Hate All Commerce. And because that shift is happening, there's genuine reason to hope that our trade policies may change.