On July 15 some
of competition’s greatest advocates --- and a
representative of Panama’s greatest competitor in the ship
registry field --- talked public policy and international
economics before an audience of admiralty lawyers. It was a tax
competition seminar at the Colegio de Abogados, hosted by the
Panamanian Maritime Law Association and co-sponsored by the
Center for Freedom and Prosperity (CFP). The night’s
invited guests included Jill Keohane, the in-house lawyer for
the Liberian International Ship and Corporate Registry, a young
journalist and law student named Joel Mowbray, the Center for
Freedom and Prosperity’s Andrew Quinlan and Dr. Daniel J.
Mitchell and Juan Felipe Pitty C., the president of the
Panamanian Maritime Law Association.
This was an
occasion to bash the Organization for Economic Cooperation and
Development (OECD, an international organization mainly
composed
of industrialized countries) and the European Union over
policies that arguably run counter to Panama’s interests.
Basically the OECD, largely at the behest of European
countries,
has this “Harmful Tax Competition Initiative” that
would blacklist countries deemed “tax havens.”
Moreover, within the OECD and the International Maritime
Organization there are proposals for changes in ship registry
laws, ostensibly for protection against the fleet said to be
owned by Osama bin Laden’s outfit, which would discourage
ship owners from using Panamanian or Liberian flags of
convenience.
“The OECD
is trying to force all countries to share information... to
everybody to pay tax back to their home countries,”
Quinlan
explained. He detailed the history of the Center for Freedom
and
Prosperity, a small think tank and lobbying outfit spun off
from
the larger American conservative movement and specializing in
international tax issues.
Noting that in
order to avoid economic sanctions, the Moscoso administration
signed a letter of intent conditionally agreeing to OECD tax
information sharing guidelines, Quinlan explained that the EU
subsequently allowed several European countries to opt out of
the system. That, he argued, vitiated the “level playing
field” condition under which Panama and several Caribbean
countries agreed to the OECD guidelines and, he predicted,
amounts to the “death knell for the OECD Harmful Tax
Competition Initiative.”
Still, the
underlying concept is not entirely settled within the
Republican-
dominated US government. For example, there are tax policies
left over from the Clinton administration such as forcing
Panama
to pierce banking and corporate secrecy to aid in American tax
investigations and the controversial IRS regulation that would
subject those with money in US banks and brokerages but who are
neither citizens nor residents of the United States to interest
and dividend income reporting. Quinlan said that the CFP and
others have convinced the Bush administration to oppose these
things, but less than unanimously so and with stiff resistance
from the federal bureaucracy.
“There are
factions in every government in the world,” Mitchell
noted,
“and the Bush administration is no exception.”
Mowbray, who
writes for the National Review, has a syndicated column and
studies law at Georgetown, told the audience “I came here
both as a conservative and as a journalist. I support tax
competition, privacy and fiscal sovereignty.” (Note,
however, that the latter two values are not shared by everyone
in a Bush administration that has the FBI investigating people
for what they read and that asserts the US president’s
right to overturn all notions of sovereignty if he feels that
another country needs a “regime change.”)
“The
United
States is at the heart of the tax competition debate,”
Mowbray pointed out, “because whatever it does affects
everybody else.” He complained that in America some
politicians “talk about tax havens or tax shelters, but
they ignore the same thing when it’s happening in their
back yard.” Arguing that competition between jurisdictions
that seek to attract investment through tax incentives is a
good
thing that creates jobs and stimulates business growth, he
observed that state and local governments in the US do this all
the time and identified the practice on a global scale with two
conservative icons of the 1980s, Ronald Reagan and Margaret
Thatcher.
When the OECD
“was honest,” Mowbray alleged, “they said
‘we want more money,” but then changed sales tactics
when their international taxation ideas failed to impress
governments. “So the new argument is that they’re
trying to stop money laundering.” However, the journalist
argued that the laundering of the proceeds of criminal
enterprises can be fought without touching tax policies. He was
especially scornful of the more recent argument that OECD tax
information sharing is necessary to stop the financing of
international terrorism: “The last time I checked,
terrorists don’t pay taxes.”
Mowbray noted
the stakes in the argument over the IRS regulation that would
require reporting of nonresident foreigners’ bank deposit
interest. “People from outside the US have some $200
billion in US banks,” he said, and linked that fact to the
overwhelmingly negative response when the government sought
public comment on the proposal.
This, however,
was a gathering of maritime attorneys (although the general
public was invited, and among the few who don’t make their
living from admiralty law in the audience Vice-Minister of
Education Adolfo Linares was the most notable), and the
shipping
aspect of the OECD’s economic plan was probably the matter
of greatest concern to those assembled.
Quinlan alleged
that international competition in ship registration fees and
taxes is threatened and that Panama, Liberia and the Bahamas
are
currently in the OECD’s crosshairs. He left it to Jill
Keohane to flesh out the details.
The lawyer for
Liberia’s ship registry said that she came onto her
competitors’ turf because there’s this “ill-
conceived campaign of the OECD” that should be
“brought into the light of day.” She accused the OECD
of “jumping on the security bandwagon,” acknowledging
that there is a legitimate concern but arguing that ship owners
have a very strong interest in maintaining maritime
security.
What’s
happening is an argument that started within the International
Maritime Organization (IMO) over transparency in ship
registries. Some OECD members pressed for regulations that
focus
on “the ultimate beneficial owner of the ship,”
whereas Greece and the United States took the position that
control over the ship is the more important issue that should
be
the focus of transparency rules.
Liberia and
Panama, Keohane argued, already have transparency on the issue
of control. When a vessel approaches American waters, she said,
the US Coast Guard mainly wants to know who makes decisions
about crew hiring, who is allowed at the helm and which cargoes
are transported from where. They don’t want to see a
partnership agreement.
The IMO
ultimately decided to focus on the issue of control, but since
then the OECD’s Maritime Transport Committee has taken up
the issue on its own and, Keohane alleged, is attacking the
concept of corporate secrecy when a company owns a ship.
It’s not even just a matter of corporate secrecy, but also
would apply to limited partnerships and Panamanian foundations,
she said.
“It
isn’t really about making shipping more secure,”
Keohane asserted. Arguing that the United States and other
threatened jurisdictions must take care to ensure that their
economic interests are not unduly harmed by security measures,
she called for the Bush administration’s representatives
in
bodies such as the IMO to work for Bush rather than Clinton
policies and for Panama and Liberia to work together to defend
their common interests. Otherwise, she argued, the cost of
shipping things by sea will go up substantially.
Dan Mitchell
joined the threads of the presentation by pointing out that
Panama has “a special niche” because of its low-
bureaucracy corporate and ship registry laws, and because of
its
territorial philosophy of only taxing income made within its
own
borders. The OECD, he claimed, would do away with all of this
in
favor of a “one size fits all” policy cut from the
pattern of high-tax, high-bureaucracy jurisdictions. “Our
view is ‘tough luck --- don’t attack the countries
that do it right.’”
Noting that the
countries with the highest standards of living are all tax
havens, Mitchell argued that “if we want economic growth,
if we want international security, we need a free market
system.”
He delved into
the nuts and bolts of the CFP’s work, noting that when
lobbying the US government it does no good to plead for Panama
but it is very effective to predict that the sort of uniformity
that the OECD is pushing would likely end up regulating easy
corporate registrations in states like Delaware and Nevada out
of existence. The OECD, he charged, wants to drag such states
into an EU-style bureaucratic quagmire, until “everybody
is
forced down.” Mitchell noted that the CFP has mobilized
the
support of dozens of members of Congress and won the praise of
several conservative Nobel Economics Prize laureates, the best
known of whom is Milton Friedman. Moreover, in the question-and-
answer period after the main presentation he noted that most
members of the Congressional Black Caucus --- not particularly
noted for their conservative politics --- have joined in the
effort to withdraw US support for the OECD’s blacklisting
of Caribbean “tax havens.”
On the American
scene, Mitchell pointed out that a portion of US corporate tax
law will have to be rewritten because a World Trade
Organization
tribunal held it illegal, and he expects that this will be an
opportunity to pass legislation more in keeping with the
CFP’s philosophy.
From the
Panamanian perspective, Juan Felipe Pitty called the OECD
“basically Eurocentric” and blasted its attempts to
“restrict Panama.” “Our policies date back to
the
beginnings of the republic,” Pitty argued, adding that low-
tax and low-bureaucracy incentives are “one of the few
opportunities” for a relatively poor country in the world
economy.
Quoting with
favor Thomas Jefferson’s words in the US Declaration of
Independence, Pitty contrasted them with the OECD’s
attitudes. “The pursuit of happiness --- that’s
something that the folks at the OECD wouldn’t recognize if
it hit them over the head.”
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