Peterson Institute for International Economics

A Snag for the Panama FTA

Gary Clyde Hufbauer argues that stalling the Panama free trade agreement because of Panama’s bank secrecy laws and supposed status as a tax haven could imperil trade accords across the board.

Recorded June 9, 2009. © Peterson Institute for International Economics.

Steve Weisman: This is Steve Weisman at the Peterson Institute for International Economics. Gary Clyde Hufbauer, senior fellow at the Peterson Institute, is here to talk about the latest controversy in the trade area, which is over Panama’s status as a so-called tax haven. Gary, thanks for joining us.

Gary Clyde Hufbauer: Thank you.

Steve Weisman: Gary, the Panama free trade agreement (FTA) looked at one time like it was the one of the three pending agreements that was going to sail through. Then there was talk that Panama was a tax haven and that its problems need to be cleared up. What do the critics mean when they say Panama is a tax haven?

Gary Clyde Hufbauer: They mean two things, but I think it’s been narrowed down to one of the two. One thing is that Panama is a low-tax country in terms of corporate income taxes, and so it’s a good place if you can do business there, at least in a fairly wide range of activities, particularly the financial area. It’s a good place to do business because the tax on your income is going to be fairly low. That’s one aspect of the tax haven story.

The second aspect is that Panama has bank secrecy laws, which are like the laws of many other countries, and it makes it difficult for the US authorities, which means a combination of the Internal Revenue Service and the Justice Department when we’re talking about money laundering and drug cartels and that kind of thing, to get hold of the data on money flowing through bank accounts that are situated in Panama. And it’s that second aspect that then became the focus of negotiations in the broader context of this free trade agreement and has now been the hang-up there.

Steve Weisman: It’s not really possible for the United States to tell Panama to raise its corporate tax rate in order to get this free trade agreement, is it?

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Originally published at the Peterson Institute for International Economics.© 2009 Peterson Institute for International Economics. all rights reserved.

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