Another Free Trade Failure

In my prior Reality Check post, I noted with interest that Caribbean banks were listed as the fourth largest foreign holders of US debt, mostly due to bank secrecy laws in that area and the ease with which the true owners of assets can be hidden.  Of course, back in 2011, we had a chance to at least partially fix this problem when the Panama Free Trade Agreement (FTA) was being negotiated. But, as Bernie Sanders correctly pointed out at the time, the trade agreement actually protected US corporations and individuals from scrutiny about their use of Panama as a tax haven by international authorities.  However, at the same time, the US did sign a tax accord with Panama, which was separate from the Free Trade Agreement, that required fuller disclosure and improved exchange of information from Panama about US taxpayers.  Of course, because current US tax law does not allow for disclosures about individual taxpayers or information about requests made under these type of tax accords, it is impossible to tell whether the agreement really accomplished anything. Perhaps, upcoming revelations from the Panama Papers will give some indications of its effectiveness, or lack thereof. It is probable that the British tax authorities would have been interested in learning about their citizens use of these tax havens, but the FTA expressly forbid any information we may have gleaned on that issue from being passed on to the Brits. And, as Mr. Sanders correctly states, Panama’s puny economy provides no rational reason for the US having a free trade agreement with Panama. However, there was one sector that saw a benefit – Wall Street firms now had a better entrée into Panama’s financial services sector. What a surprise! And people wonder why Sanders’ and Trump’s similar message that free trade has failed the working class and advanced the interests of the asset class has such resonance in this political year.