U.S.-Panama trade deal may test Obama goals

PANAMA CITY -- The month-old government here is expected to announce as soon as next week the first steps toward breaking with decades of banking secrecy that have drawn both tax-allergic customers and global rebukes.

Panamanian officials insist that their limited financial unveiling is motivated solely by a desire to retool the economy for the post-financial crisis era, but the initiative's more immediate impact may be felt in the halls of the U.S. Congress. That's because Panama's image as a leading offshore financial center conducive to hiding profits from the tax man has become the latest hurdle for a pending U.S. trade deal, which has languished since its 2007 signing during the Bush administration.

Congressional Democrats, skeptical of the accord's promised benefits after years of what they say are trade-related job losses, insist that Panama must resolve lingering doubts about its willingness to cooperate on international tax probes before Congress will consider the treaty. The nation is one of 12 "tax havens" listed by the Paris-based Organisation for Economic Cooperation and Development.

"We understand that we have to move ahead on this, and we're gonna do it," Panama Vice President Juan Carlos Varela told USA TODAY in an interview. "We are committed to fight tax evasion and corruption everywhere."

A country of 3.3 million people with a dollar-based economy, Panama is emerging as a test of the Obama administration's stated goal of reorienting U.S. trade policy toward the needs of the middle class. The tiny Central American nation's location astride a key global trade route in the Panama Canal and its role in hosting thousands of foreign corporations has earned it an economic profile out of proportion to its tiny $24 billion annual output.

But whether the Panamanian government's planned actions, including likely negotiations with the U.S. and other countries on new tax treaties, will ameliorate congressional resistance is unclear.

The open pressure from Washington, however, already is sparking predictable resentment in a region that has long chafed at the dominance of its largest northern neighbor. "We really do not think it's fair Congress is using ratification of the free trade agreement as some kind of pressure to obtain other things that were not on the table the first time. ... The agreement should be ratified without any preconditions," says Adolfo Linares, president of Panama's Chamber of Commerce.

Panamanian officials say the U.S. has its own corporate secrecy issues — such as an opaque "limited liability corporation" that can be established under Delaware law — and insist that the trade and tax issues should be kept separate. But political reality in Washington already has fused them. President Obama discussed with Panama's newly elected president, Ricardo Martinelli, the tax and other remaining hurdles shortly after the former businessman was sworn in July 2, says chief U.S. trade negotiator Ron Kirk. Obama co-sponsored legislation to crack down on tax havens while still a U.S. senator.