The Panama Papers’ detailed revelations of a massive international tax-haven scheme have snowballed this week into a fierce debate among Democrats over President Obama’s trade policies with the tiny Central American nation and again laid bare sharp divisions within the party over such agreements.
Trade critics lambasted the administration as failing to heed their prior warnings and win sufficient financial reforms from Panama before signing a landmark free-trade deal in 2011, missing a chance to disrupt the elaborate financial arrangements disclosed in a massive leak of private data last weekend.
But Obama aides and their allies responded forcefully Thursday, defending the U.S.-Panama trade pact as an instrument that the administration used to exert leverage and bring greater transparency to Panama’s shadowy offshore banking system.
Although trade deals do not typically address tax issues, U.S. officials said, the Obama administration won a separate agreement that gave financial regulators greater access to information on Panamanian bank accounts.
“We fought time and time again,” said Rep. Sander M. Levin (D-Mich.), who supported the trade deal, “and I was personally involved in making clear to the Panama government that no matter what else was in the free-trade agreement” it would not win support from Congress without additional transparency rules.
Consumer advocates who have fought U.S. trade policies said the administration and its allies are trying to claim credit for reforms in Panama without accepting responsibility for the revelations in the unfolding Panama Papers scandal about potentially widespread tax avoidance. High-ranking political leaders in a dozen countries have been implicated, and nearly 215,000 offshore shell companies and more than 14,000 people have been tied to the unfolding scandal.
“The Panama Papers just show once again how entirely cynical and meaningless are American presidents’ and corporate boosters’ lavish promises of economic benefits and policy reforms from trade agreements,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. The Panama free-trade deal’s “investor protections and official U.S. stamp of approval made it safer to send dirty money to Panama,” she said.
The debate highlighted the depths of antipathy toward trade agreements on the 2016 campaign trail, where candidates in both parties have responded to the economic anxiety of voters who have come to doubt the benefits of globalization.
The Obama administration has sought to use trade deals, including the 12-nation Trans-Pacific Partnership, which is awaiting congressional ratification, to win commitments from foreign partners on a host of issues including labor rights and environmental protections.
But opponents have denounced the concessions as paltry and difficult to enforce.
On Wednesday in Philadelphia, Sen. Bernie Sanders (Vt.), a candidate for the Democratic presidential nomination, blasted the Panama trade deal and accused rival Hillary Clinton of not being “qualified” for the White House.
The Panama free-trade agreement was initially negotiated by the administration of President George W. Bush, but it stalled in Congress — along with separate trade pacts with South Korea and Colombia — amid concerns among lawmakers over various provisions.
In 2010, the Obama administration moved to resurrect the deals by obtaining additional provisions in each to win congressional support. Critics of the Panama deal had warned the administration about entering into an economic arrangement with a nation with a history of shady offshore tax shelters where large corporations and powerful foreign leaders allegedly stashed hundreds of millions of dollars.
Panama had refused since 2002 to sign a financial-transparency treaty known as a tax information exchange agreement (TIEA) with the United States.
In a Senate floor speech on Oct. 12, 2011, ahead of a vote on the Panama trade deal, Sanders denounced the pact, highlighting Panama’s tax-shelter system and arguing that the free-trade agreement would “make a bad situation much worse” by barring the United States “from cracking down on illegal and abusive offshore tax havens.”
Later that day, Congress approved the Panama deal, along with the pacts with South Korea and Colombia, which also underwent changes negotiated by the Obama administration.
Supporters of the Panama trade deal said Thursday that critics, including Sanders, had misstated several key facts.
The Obama administration, with support from congressional Democrats, informed Panamanian negotiators that the deal would not move forward until they agreed to a separate provision binding them to sign and implement the unrelated TIEA treaty.
Such a move, according to administration officials, was virtually unprecedented, because free-trade deals do not typically address tax issues or monetary policy, normally the province of the Treasury Department.
“It’s a great sound bite, but the arguments don’t hold up,” said Miriam Sapiro, who served as deputy U.S. trade representative from 2009 to 2014.
Trade advocates suggested that Sanders, whose campaign posted a video of his 2011 floor speech on its website, was politicizing the issue. In recent weeks, Clinton has tried to tie herself closer to Obama’s policies on gun control and education, but she has attempted to move to the left on trade and announced her opposition to the Pacific Rim deal that she touted while serving as the nation’s top diplomat.
“Senator Sanders has it backwards,” Levin and his brother, former Democratic senator Carl Levin (Mich.), said in a statement Thursday. “We in Congress used the negotiations on the Panama [deal] as leverage.”
The agreement, they added, gives the Internal Revenue Service “critical tools to go after U.S. tax cheats who use Panama.”
But Wallach, the consumer advocate, said the Obama administration did not push hard enough. The financial-transparency treaty, she said, “requires someone in the U.S. to know what to ask for. It’s not like in Canada, where a financial transaction is automatically reported.”
She said that the trade talks were “a potential opportunity, and if Panama really wanted that opportunity, the administration should have said, ‘These are the things you must do if you really want it and your government is interested enough to change some of this.’ But they didn’t even ask those things.”
John Wagner in New York contributed to this report.