Identifier
Created
Classification
Origin
09PANAMA367
2009-05-06 22:58:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Panama
Cable title:  

TORRIJOS BRIEFS MARTINELLI AS TIEA THREATENS FTA

Tags:  ECON ETRD PREL PGOV EFTA EFIN SNAR PM 
pdf how-to read a cable
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UNCLAS PANAMA 000367 

SENSITIVE
SIPDIS

WHSC PLEASE PASS TO USTR

E.O. 12958: N/A
TAGS: ECON ETRD PREL PGOV EFTA EFIN SNAR PM
SUBJECT: TORRIJOS BRIEFS MARTINELLI AS TIEA THREATENS FTA
PASSAGE

REF: A. PANAMA 326

B. PANAMA 293

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SUMMARY
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UNCLAS PANAMA 000367

SENSITIVE
SIPDIS

WHSC PLEASE PASS TO USTR

E.O. 12958: N/A
TAGS: ECON ETRD PREL PGOV EFTA EFIN SNAR PM
SUBJECT: TORRIJOS BRIEFS MARTINELLI AS TIEA THREATENS FTA
PASSAGE

REF: A. PANAMA 326

B. PANAMA 293

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SUMMARY
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1. (SBU) Vice-President Lewis reported to the Ambassador that
President Torrijos recommitted to his endgame (reftels) for
the U.S.-Panama FTA (FTA) during his first meeting with
President-elect Martinelli. That endgame calls for the Obama
Administration to submit the FTA to Congress, after which
President Torrijos intends to pass labor reforms and
immobilize bearer shares. However, if the Obama
Administration requires a completed Tax Information Exchange
Agreement (TIEA) as a condition for submitting the FTA,
Torrijos will be unable to deliver and will instead seek a
gracious disengagement to preserve bilateral relations as
much as possible. While Torrijos knows completion of a TIEA
is impossible in the eight weeks remaining in his
administration, he told Martinelli a TIEA as inevitable in
the face of OECD pressure. Torrijos was relieved that
Martinelli essentially agreed to this game plan, telling
Torrijos: "You take care of this. I'm not going to be able
to deal with it."

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TORRIJOS CAN PASS THE LABOR
AND BEARER SHARES REFORM
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2. (SBU) In a May 5 six-hour first meeting between President
Torrijos and President-elect Martinelli after Martinelli's
landslide win, President Torrijos discussed the importance of
the FTA and its current political state of play in Panama and
United States. President Torrijos informed Martinelli that
the labor reforms are nearly negotiated with the USG and he
simply needed to decree some new regulations and pass already
written legislation. However, the much more difficult
legislation to immobilize bearer (anonymous) shares of shell
corporations has not been written. Minister of Commerce and
Industries Porras is leading a Bearer Shares Commission that
is writing the legislation. The Commission contains
representatives from the broader business community -
including the bankers and attorneys. In an effort to gain

support from Martinelli, Torrijos invited Martinelli to
appoint a representative to the commission.

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A TIEA IS INEVITABLE,
BUT THE FTA IS NOT
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3. (SBU) Torrijos acknowledged to Martinelli that he does not
have sufficient political capital to pass a TIEA during his
administration, but he made the case to Martinelli that
passage of a TIEA by Panama is inevitable. Torrijos'
argument flows as follows: the OECD/G20 will demand a TIEA by
March 2010 when Panama's status on the OECD greylist
(jurisdictions committed to the internationally agreed tax
standard, but have not yet substantially implemented) may
downgrade to the blacklist (jurisdictions that have not
committed to the internationally agreed tax standard).
According to Torrijos, being blacklisted will endanger the
economic growth of Panama by discouraging foreign investors.
(In 2008, foreign investment totaled $2.4 billion and exceed
10% of GDP.) Sharply lower levels of investment flows will
increase unemployment and poverty, and result in social
instability. Thus, Torrijos argued, Panama must pass a TIEA
before the G-20 meets again in March.

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RECOMMENDATION
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4. (SBU) How do we move both the FTA and TIEA forward? We
strongly recommend a two pronged strategy:

(a) We should make a commitment to negotiate a TIEA appear
(and it is) part of a pre-existing obligation, as opposed to
a new obligation the USG imposed on the Panamanians after
conclusion of ten rounds of negotiations and signing of a

comprehensive FTA. This format, as opposed to an explicit
linkage by the USG, enjoys a far greater chance of success.
It allows the Panamanians to retain pride and fend off
political attacks, while achieving the substantive goals of
greater transparency and enhanced revenue collection in the
United States. President-elect Martinelli's economic
advisor, Frank De Lima, is quoted by Bloomberg as saying in
reference to a TIEA, "We are aware that times are changing."
However, he also asserts that "we will not succumb to
pressure from the United States," and that the FTA and TIEA
"should be dealt with separately." Post will engage all
leading economic players within the Martinelli team starting
this week to send the following message: we can have an FTA
and a manageable TIEA commitment, or we can lose the FTA and
have a TIEA imposed upon you by the OECD/G20.

(b) We should allow Congress (vice the Administration) to
mandate negotiation of a TIEA as a condition of
implementation of the Agreement, as opposed to being a
condition for passage of the Agreement. The Panamanians are
far more comfortable with a Congressional directive, which
has a precedent in the unilateral DeConcini Amendment
(authorizing the use of force in defense of the Canal) to the
1978 Panama Canal Neutrality Treaty, which achieved U.S.
objectives while preserving Panamanian prerogatives. What is
more, this course of action allows us to direct the remaining
capital of the Torrijos administration toward labor reforms
and immobilizing bearer shares, desired USG outcomes that are
very unlikely to be forthcoming from a Martinelli
administration. We can then concentrate all our firepower
with the new Martinelli government on negotiating a TIEA,
both to avoid an OECD blacklist and to gain entry into force
of the FTA.
STEPHENSON