http://online.wsj.com/article/BT-CO-20090422-713050.html
By Martin Vaughan Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--Questions about Panama's status as a tax haven have raised a new hurdle for U.S. approval of a free trade deal between the U.S. and the Central American nation.
The U.S.-Panama trade pact was signed in June 2007, but the deal has been stalled along with separate bilateral trade pacts with Colombia and South Korea.
The latter two trade deals are ensnared in controversial human rights and market access disputes. But the White House said earlier this year in a "trade policy agenda" document that it hoped to send the Panama deal to Congress for consideration "relatively quickly."
Democratic lawmakers and Obama administration officials now say Panama must take steps to increase transparency and information exchange with U.S. authorities on tax issues, before the free trade agreement can advance.
"I would say with respect to Panama that there are also some important issues that need to be worked through having to do with cooperation in resisting tax evasion," White House National Economic Council Director Larry Summers said at an April 18 press conference at the Summit of the Americas.
The Treasury Dept. launched talks with Panama towards a tax information exchange agreement in 2002, but the talks have made little progress.
U.S. business lobbyists who back the U.S.-Panama trade deal have been pushing for a vote prior to Congress' August recess. But the demands from the Obama administration on tax transparency seem to make that timetable unlikely.
Panama holds presidential and parliamentary elections May 3, and it is doubtful whether the Treasury Dept. would be able to conclude a tax information exchange agreement with the lame-duck administration of outgoing President Martin Torrijos.
The Organization for Economic Cooperation and Development on April 2 listed Panama as one of 30 tax haven jurisdictions that have committed to international standards on bank secrecy, but have "not yet substantially implemented" those standards.
Panama is also mentioned in legislation introduced by Sen. Carl Levin, D-Mich., with sanctions for tax haven jurisdictions.
Panamanian officials did not immediately respond to inquiries for this article.
In a March letter to the OECD, Panama said that while it is not a tax haven, it is taking steps to strengthen its "legal and regulatory framework, thus helping our international financial center to not by unduly utilized by citizens of other States to evade or defraud their respective tax authorities."
But the letter from Minister of Commerce and Industry Gisela A. de Porras said Panama will insist on protecting fundamental privacy, and will respond only to "individual requests provided with a specific rationale and justification."
Automatic exchange of information will thus not be considered, the letter said.
It is only in recent days that U.S. politicians have linked progress on tax and bank secrecy issues to approval of the trade deal, however. Opponents of the Panama pact - led by fair-trade activist group Public Citizen's Global Trade Watch - have long sought to bring attention to Panama's history as a tax haven.
Their efforts have been helped by a flurry of media interest in global tax evasion, as U.S. and European authorities have ramped up pressure on such jurisdictions as Switzerland, Liechtenstein, and Bermuda to relax secrecy laws.
House Ways and Means Committee Democrats have long been pressing Panama to make changes in its labor laws, as a prerequisite for allowing the free trade deal to advance.
Rep. Sander Levin, D-Mich., raised the tax haven issues in connection with the free trade deal during a March address to a Washington trade group.
By Martin Vaughan, Dow Jones Newswires; 202-862-9244; martin.vaughan@dowjones.com
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