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### Viewing cable 09PANAMA435, PANAMA LAUNCHES CONTROVERSIAL FTA MEASURES AMID

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
09PANAMA435 | 2009-06-01 17:37 | 2011-05-31 00:00 | CONFIDENTIAL | Embassy Panama

`

    VZCZCXYZ0000
    OO RUEHWEB

    DE RUEHZP #0435/01 1521737
    ZNY CCCCC ZZH
    O 011737Z JUN 09
    FM AMEMBASSY PANAMA
    TO SECSTATE WASHDC IMMEDIATE 3437

` `

    C O N F I D E N T I A L PANAMA 000435

    INFO DEPT OF AGRICULTURE WASHDC IMMEDIATE
    DEPT OF COMMERCE WASHDC IMMEDIATE
    DEPT OF HOMELAND SECURITY WASHINGTON DC IMMEDIATE
    DEPT OF JUSTICE WASHINGTON DC IMMEDIATE
    DEPT OF LABOR WASHDC IMMEDIATE
    DEPT OF TREASURY WASHDC IMMEDIATE

    HQ USSOUTHCOM MIAMI FL IMMEDIATE
    NSC WASHDC IMMEDIATE
    SECDEF WASHDC IMMEDIATE
    WHITE HOUSE WASHDC IMMEDIATE

    SIPDIS

    WHSR PLEASE PASS TO AUSTR EISSENSTAT

    E.O. 12958: DECL: 05/29/2019
    TAGS: ECON EFIN EFTA ELAB ETRD PGOV PM PREL SNAR
    SUBJECT: PANAMA LAUNCHES CONTROVERSIAL FTA MEASURES AMID
    UNCERTAINTY

    Classified By: AMBASSADOR BARBARA J. STEPHENSON FOR REASONS 1.4 (b) & (
    d)

    -------
    SUMMARY
    -------

    ¶1. (C) Encouraged by front-page coverage of U.S. officials
    noting progress on the U.S.-Panama Free Trade Agreement (FTA)
    early in the week of May 18, the current (Torrijos) and
    in-coming (Martinelli) governments of Panama took actions on
    May 20 designed to pave the way for U.S. Congressional
    approval of this accord.  Specifically, the following steps
    were taken on May 20: (1) the Torrijos government enacted
    three labor decrees as mandated by agreement with USTR; and
    (2) Martinelli's Vice President-elect and FM-designate Juan
    Carlos Varela released a statement committing Panama to
    negotiate a Tax Information Exchange Agreement (TIEA) in
    ¶2009.  On May 21, signals from Washington shifted -- most
    significantly when prominent U.S. legislators released
    letters opposing the FTA -- and pointed to a delay submitting
    the FTA to Congress until the Fall.   The shifting signals
    have fueled growing resistance from key domestic
    constituencies -- especially organized labor, bankers, and
    lawyers -- and cast doubt on Torrijos, and Martinelli,s
    ability to complete necessary reforms as planned.  End
    summary.

    -----------------------------------
    PROGRESS IN TIME FOR SENATE HEARING
    -----------------------------------

    ¶2. (C) On May 20, President Torrijos, pursuant to prior
    agreement with USTR negotiators and fulfilling promises made
    to President Obama and Vice President Biden, issued three
    executive decrees on labor.  The first prohibits firms from
    circumventing legitimate unions by entering into collective
    bargaining agreements with employer orchestrated unions,
    often referred to as "yellow unions."  The second decree
    further defines and regulates the use of subcontractors, and
    the third decree places restrictions on the hiring of
    contract employees under a specific provision of the labor
    code. In addition, President Torrijos formally inaugurated
    the "Commission to Defend International Services in Panama,"
    to examine changes to Panama's financial system demanded by
    the U.S. Congress and the G-20/OECD, specifically regulation
    of bearer shares of anonymous corporations and negotiations
    for a tax information exchange agreement (TIEA).  Torrijos
    appointed Moises Cohen, President of the Panamanian Bankers'
    Association; Domingo Latorraca, currently at Deloitte
    Financial Advisory Services and a former Vice Minister of
    Finance under President Moscoso (representing the Panamanian
    Chamber of Commerce); Carlos Cordero of the Association of
    International Lawyers (who shares partnership in his firm
    with Ambassador-designate to the U.S. Jaime Aleman and former
    Torrijos Minister of Commerce and Industries Andy Ferrer);
    and Martha Lopez of the National College of Lawyers, Panama's
    bar association.  President Martinelli appointed Alvaro
    Aleman (brother of Ambassador-designate to the U.S. Jaime
    Aleman), also of the Association of International Lawyers.

    ¶3. (C) Later on May 20, Vice President-elect Juan Carlos
    Varela issued a statement that contains a commitment to
    negotiate a TIEA.  Specifically, Varela announced, "We will
    negotiate during the course of the present year a legal
    instrument to facilitate the exchange of information related
    to tax matters."  Release of that statement, which Varela
    couched in an article about working with the United States
    and appointing Alvaro Aleman to the Commission to Defend
    International Services in Panama, required coaxing on several
    occasions by the Ambassador and other USG officials.  Both
    Torrijos, and Martinelli,s actions were spurred in part by
    front page articles in the Panamanian press quoting USG
    officials saying they were "working furiously" and pressing
    the Panamanians for concessions on labor and finance matters
    to make the FTA presentable to Congress.

    -------------
    THE DAY AFTER
    -------------

    ¶4. (C) On May 22, most of Panama's dailies featured front
    page stories covering the May 21 Senate Finance Committee
    Hearing on the Panama FTA.  They focused on criticism of the
    Obama Administration by Senators Baucus and Grassley for not
    moving faster with this accord.  In addition, coverage
    included the Administration's statement before that Committee
    that President Obama will outline his vision for U.S. trade
    policy in the context of a "broader domestic agenda."

    ¶5. (C) Against this backdrop, it looks increasingly unlikely
    that the demoralized, post-election PRD will be able to enact
    all required labor and bearer shares legislation by June 30
    (when the Torrijos administration ends).  Fifty-four of the
    current 74 members of the National Assembly will not return
    to the chamber on July 1.  The PRD presence in the chamber
    diminished from 40 (of 74) seats currently to 26 (of 71)
    seats in the new Assembly following the May 3 elections.
    Thus, the mere act of reconvening the lame duck National
    Assembly, much less passing all of the attendant legislation
    tied to the FTA, will be difficult.  On May 26, Panamanian
    labor leaders were quoted in the press as rejecting the labor
    changes negotiated with USTR.  The spokesman for CONATO,
    Panama's largest umbrella union and former supporter of the
    FTA, called the U.S. requested modifications a "smoke screen"
    to enable inclusion of other unwanted changes in the labor
    code sought by firms.

    ¶6. (C) Septel will report Ambassador's May 29 conversation
    with President Torrijos, in which he undertook to issue all
    remaining decrees on labor as well as to seek to include
    labor legislation (not including the provision on the minimum
    number of workers able to form a union, which requires
    amending the labor code itself) in an omnibus package he is
    negotiating.

    -----------------
    THE OUTRAGE GROWS
    -----------------

    ¶7. (C) Lawyers and bankers continue to publicly criticize
    bearer share regulation and a TIEA.  The Panama Chamber of
    Commerce officer in charge of the FTA, Georgia Tech-educated
    telecom executive, Marco Gateno (whose daughter is an AMCIT),
    described May 26 forum on OECD transparency requirements
    sponsored by the well-regarded Panamanian Association of
    Enterprise Executives (APEDE) as follows:  "Members were
    outraged at the letter signed by Senator Levin, and very few
    people were responding rationally.  I thought I had walked
    into a SUNTRACS (a radical, anti-democratic union in Panama)
    meeting.  We call Eduardo Morgan (former Ambassador to the
    U.S. and chief opponent of bearer shares reform and of a
    TIEA) and his associates 'the Taliban,'  but we really need
    some help here from President Obama.  We know the FTA has
    been pushed off until the Fall, but we have nothing but
    insults left.  This is not going to yield the progress you
    want."

    -------
    COMMENT
    -------

    ¶8. (C) Comment.  It should not be overlooked that real
    progress has been made in the past few weeks - agreement on
    changes to labor standards and realization by all but the
    most intransigent Panamanians that changes will come one way
    or another on bearer shares and a TIEA.  Post will continue
    to press the waning Torrijos Administration to complete as
    many labor reforms as possible.  We judge bearer share reform
    by the outgoing government to be well nigh impossible, but we
    will engage the Martinelli team on bearer share regulation as
    well as a TIEA.  We understand Martinelli's government may be
    open eventually to addressing bearer shares as part of the
    TIEA process, but Martinelli himself has been clear he will
    not use his political capital on labor issues.  End comment.

    STEPHENSON

`