WTO: “Money Laundering Tariff” Judgment for Panama against Colombia

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On Tuesday, the World Trade Organization (WTO) granted an appellate ruling in favor of Panama against Colombia. The ruling pertained to Colombia’s use of high tariffs on imported textiles, clothing, and shoes as part of a plan to address alleged money laundering.

The Latin American nation of Panama recently made the news when it was discovered that a prominent law firm was taking advantage of the country’s loose financial laws in order to help foreign nationals to launder money and avoid taxes in their home countries. The so-called “Panama Papers” scandal has had far-reaching consequences throughout the world.

Strangely, Columbia’s tariffs attached to physical goods traded with Panama, claiming that the goods were part of an “illicit trade” pattern because they were imported at below market prices. Columbia argued that this showed that the goods were just part of an effort to legitimize funds paid into Panama. Colombia flagged these transactions and attached a higher than usual tariff to them in an effort to allegedly discourage such practices.

The Appellate Body of the World Trade Organization delivered its ruling on Tuesday, upholding a prior ruling that held the Colombian tariff a violation of the WTO’s trade rules. Moreover, it held that the tariff did not appear necessary to combat money laundering as Colombia claimed.

Panama brought the case against Colombia in 2013, several years before the Panama Papers scandal became known. It had previously filed two other cases against Colombia, but settled out of court on the first dispute in 2006, then won the second case in 2009.

The most recent case came after Colombia took an appeal of the adverse ruling of the lower WTO tribunal in November 2015. At that proceeding, a panel of three WTO adjudicators dismissed Colombia’s claims of combating money laundering as mere pretext, finding in favor of Panama's position in the dispute.

The tariff in question consisted of a fixed 10 percent tariff plus a variable component that could easily reach in excess of the maximum of 35 - 40 percent allowed for the specified goods under the WTO’s trade rules.

The appellate ruling of the WTO is final (i.e., no further appeals are allowed), and was the second the WTO issued this year concerning Panama. The first came down in April when the Appellate Body dismissed a complaint from Panama against Argentina regarding the latter nation’s efforts to combat tax evasion.

The action against Argentina accused it of discriminating against financial services from other nations based on "countries not cooperating for tax purposes."