PANAMA PRESIDENT TORRIJOS TOUTS POLITICAL VALUE OF

S E C R E T SECTION 01 OF 03 PANAMA 000235

SIPDIS

WHA/CEN PASS USTR
SOUTHCOM ALSO FOR POLAD
VANCOUVER FOR CG ARREAGA

E.O. 12958: DECL: 01/31/2015
TAGS: PREL PGOV ETRD PM POL CHIEF
SUBJECT: PANAMA PRESIDENT TORRIJOS TOUTS POLITICAL VALUE OF
FTA, EMPHASIZES PANAMA'S FRIENDSHIP WITH U.S.

REF: PANAMA 0089

Classified By: AMBASSADOR LINDA WATT FOR REASONS 1.4 (B) AND (D).


1. (U) This is an action message. See Embassy
recommendations in paras 13 and 14 below.

Summary
--------------


2. (S) Citing internal political pressures and dwindling
domestic room for maneuver, President Martin Torrijos on
January 27 made a plea to the Ambassador for U.S. concessions
in the final stage of the bilateral Free Trade Agreement
(FTA) talks. (The eighth round, January 31-February 4, is
underway in Washington.) Accompanied by most of his
inner-circle "brain trust," Torrijos argued that U.S. FTA
concessions, particularly on rice and sugar, would properly
recognize Panama's special relationship with the United
States; assign appropriate status to Panama's importance to
U.S. regional security objectives (such as intelligence
sharing, discussed in Panama with Secretary of Defense
Rumsfeld on November 13),and would relieve the GOP from
having to defend an agreement that its opponents claim
contains more stringent conditions than CAFTA. More to the
point, such concessions would permit the GOP to sell the FTA
to domestic agricultural interests, who in conjunction with
local business groups have inflamed public opinion against
the GOP's recent proposals to significantly raise tax rates
for rich Panamanians and businesses, which became law January

31. (See Reftel.)


3. (S) For her part the Ambassador laid down markers on U.S.
commercial and geo-strategic interests in Panama's Canal
expansion plans and on suspicions of Venezuelan meddling in
Panamanian affairs. End Summary.


4. (S) At the invitation of President Torrijos, Ambassador
attended a January 27 luncheon that included First Vice
President/Foreign Minister Samuel Lewis, Trade Minister Andy
Ferrer and Minister of the Presidency Ubaldino Real. The
main Panamanian agenda item during the two-hour-plus meeting
was the FTA. Torrijos explained that his administration's
recently enacted tax reforms have exacted a significant
political price. The National Assembly passed the bill on
January 31; business groups who are expected to pay
significantly higher taxes under the new law have fiercely
resisted it.


5. (S) Some of the most strident voices on the tax issue
represent farming sectors which also are those most likely to
be negatively affected by FTA, Torrijos continued, such as
rice and sugar (and pork, poultry, potatoes, onions, coffee,
and oil, to lesser degrees). Torrijos made plain that he
needs U.S. "flexibility" on rice and sugar at the FTA talks
to allow him political space to maneuver. Although his
administration is strongly pro-free trade, Torrijos said that
the FTA has been a hard sell for certain formerly protected
and politically influential farming sectors. Torrijos said
that he needs a Free Trade Agreement that he can tout
domestically as a political victory, that is, he needs U.S.
concessions on rice and sugar in a package that cannot be
construed as "worse" than CAFTA.


6. (C) (Note: The meeting took place on January 27, a day
that featured two anti-government demonstrations, one led by
former president Guillermo Endara, who opposes tax reforms
and the FTA. Anti-government sentiment is running high among
the Panamanian business elite, some of whom will have to pay
taxes for the first time under the new law. Fierce
negotiations were underway between the executive branch,
business, and the National Assembly to find a workable
solution. The tax reform bill passed the Assembly on January

31. End Note.)


7. (S) Torrijos underlined the all-but-perfect record of
cooperation that his government has with USG law-enforcement
and security priorities, including extraditions (to the point
where Torrijos has reported receiving veiled threats from
"Colombians") and on High-Value Canal Transits of
nuclear-powered submarine (highly appreciated by US Navy and
SouthCom). He also reminded the Ambassador of his
government's commitment to anti-corruption and democratic
governance, both U.S. priorities for the Hemisphere.
Torrijos claimed his government is "sending signals" to
United States but that the United States has not reciprocated
by sending him a message of political support. The best
signal of U.S. political support, Torrijos believes, would be
in the form of concrete concessions at the FTA negotiations.


8. (S) Ambassador Watt countered Torrijos's claims of the
lack of U.S. political signals, noting the high-level visits
to Panama by Secretary of State Colin Powell in September
2004 and by Secretary of Defense Donald Rumsfeld in November
2004, not to mention the multi-agency, multi-million-dollar
annual U.S. assistance portfolio to Panama, and energetic
Embassy outreach at all levels.


9. (S) The Ambassador then turned to U.S. concerns about
Canal procurement, the negative perception that Panama's
relations with Venezuelan President Hugo Chavez could
engender, and a nagging disquiet in Washington about PRC
intentions regarding the Canal. While noting that our
bilateral relations were excellent and that we are impressed
with the policies, high-level appointments, and political
will of the President Torrijos's administration, she clearly
told the group that perceptions are critical on these
"hot-button" issues. Specifically, would U.S. business get a
fair shot at some of the principal Canal expansion contracts?
Is there an effort underway at the Canal to distance itself
from the U.S. via its current and future procurements? Also,
the Ambassador said, many in Washington are not sure what to
make of Panama's recent talks with Venezuela about a pipeline
project to send Venezuelan oil to Chinese customers,
especially in light of rumors regarding Bolivarian Circles
operating in Panama. (To be reported septel.) Finally, she
cautioned the GOP about accepting offers of assistance for
Canal modernization with political strings or baggage
attached.


10. (S) The Panamanians were taken aback, hearing such
perceptions so candidly expressed. "We are your friends!"
Samuel Lewis exclaimed. On Canal procurement, Torrijos
quickly discounted any suggestion of anti-American bias at
the Canal and added that the Canal Authority (ACP) and he
believe bidding processes to be transparent. He was quick to
state that there is no political (i.e. from the Presidency)
interference with Canal administration. On Venezuela, taking
the Ambassador's point that Chavez has become increasingly
anti-U.S. and radical, Torrijos claimed that the oil pipeline
idea is purely commercial (from Panama's point of view),to
take advantage of Panama's geographical location. He pointed
out that other countries, including Colombia, have various
commercial arrangements with Venezuela. Despite the scandals
involving the Moscoso government with Taiwan money, he
pointed out, his government has maintained a respectful
relationship with Taiwan. VP/FM Lewis complained of a lack
of response from Washington on Panama's intelligence sharing
proposal made to Secretary Rumsfeld in November. (Note:
Embassy is similarly disappointed at the lack of response to
date. End Note.)

Comment
--------------


11. (S) The big picture: The Torrijos administration is
trying to fight corruption, address poverty, make the
government more efficient and responsive, be a close partner
with the United States and cooperate closely with us on
security, terrorism, and law enforcement, as well as free
trade. Showing political courage, Torrijos has paid a
political price for his principles, even within his own
party, which he has stiffed on government jobs and payola.
Though far from perfect, the Embassy believes that this is
exactly the kind of progressive, trade and
investment-friendly, socially conscious ally and friend that
the U.S. is seeking in the region.


12. (S) At several points during the lunch, Torrijos and/or
Lewis emphasized that President Torrijos, due to his
political pedigree, is uniquely positioned as a channel or a
bridge to Hemispheric political leaders. Much like DR
President Leonel Fernandez, Torrijos wants to be viewed as a
regional player whose excellent relationship with the U.S.
and with the Latin American moderate left is an advantage to
all. In Ecuador on January 26, at Colombian President
Uribe's request, Torrijos reached former Spanish Prime
Minister Felipe Gonzalez to seek his possible intervention
with Chavez on the Granda case fallout. Torrijos told the
Ambassador that this was but one example of his quiet
diplomatic efforts which he is willing to use to our benefit.

Embassy Recommendations
--------------


13. (S) For USTR: Ambassador Watt's telcon with Regina Vargo
on January 28 covered the FTA-related points. Again, rice
and sugar are the most sensitive sectors for which Panama is
pursuing U.S. "flexibility." CAFTA equivalency is the
minimum they say they can accept.


14. (S) Embassy strongly supports Washington efforts to
schedule a Bush-Torrijos meeting, both to send a political
signal of support for Torrijos's reforms and to offer both
sides the opportunity at the highest levels, inter-alia, to
share ideas for further cooperation, including the
intelligence sharing proposal.

WATT