C O N F I D E N T I A L PANAMA 000439

SIPDIS
NOFORN

WHSR PLEASE PASS TO USTR

E.O. 12958: DECL: 06/01/2019
TAGS: PREL PGOV ECON ETRD EFTA PM
SUBJECT: PANAMA: NEITHER TORRIJOS NOR MARTINELLI CAN
DELIVER ON FTA LABOR PACKAGE

Classified By: Ambassador Barbara J. Stephenson.
Reasons: 1.4 (b) and (d)

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Summary
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1. (C) While President-elect Ricardo Martinelli would very
much like to secure U.S. ratification of the pending
bilateral Free Trade Agreement (FTA), Martinelli and his
closest advisors assess that President Martin Torrijos and
his Revolutionary Democratic Party (PRD) deputies in the
National Assembly will not be able to deliver on its promised
legislative reforms to Panama's labor code, Minister of the
Presidency-designate Demetrio "Jimmy" Papadimitriu told
POLCOUNS on May 26. Organized labor's opposition to the
proposed changes to the code virtually ensure that PRD
deputies, most of whom are not returning to the National
Assembly after the July 1 inauguration, will not vote for the
legislative changes to the labor code. If the PRD, which has
the strongest ties to labor, cannot provide the "lion's share
of the lift on labor," why should Martinelli's four-party
Alliance for Change invest any political capital in an
endeavor that is doomed, Papadimitriu asked rhetorically.
Keenly aware that expectations for "change" would be sky high
following their 23-point victory that decimated the PRD,
Papadimitriu noted that the Alliance would have only a short
period to galvanize their political movement and consolidate
the major political in-roads already achieved by the
Martinelli phenomenon. The only way to lock in this
unprecedented victory was to make significant advancement on
top domestic priorities -- security, education,
transportation, and healthcare -- over the next year,
Papadimitriu asserted. As much as they might want to secure
U.S. ratification of the FTA, Papadimitriu noted that
Martinelli needed to make the tough political calculation to
invest his political capital on domestic priorities; "The FTA
simply does not help us much domestically."

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Labor Fears Opening Pandora's Box
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2. On May 25, CONATO, Panama's largest labor umbrella group,
announced its opposition to opening the labor code to
legislative reform. Union leaders assessed that the proposed
legislative changes -- reducing from forty to twenty people
the minimum number of workers necessary to organize a union
(a provision of the Labor Code) and expressly extending labor
protections to export processing zones (EPZs) (which requires
changing legislation not in the labor code) -- were not
important enough to risk backsliding on other areas of the
labor code at the behest of employers. Papadimtriu explained
that organized labor did not want to "open Pandora's box" to
make changes that it viewed as "inconsequential" for fear
that more important parts of the labor code would be
"manipulated" by the private sector. Papadimitriu
acknowledged that the PRD had significantly more influence
over organized labor than did any party in the Alliance for
Change. Martinelli, Papadimitriu explained, wanted to avoid
a clash with labor and concluded that, if the PRD could not
deliver the lion's share of the political lift on legislative
changes to the labor code, it would be a fool's task for the
Alliance to even try.

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Consolidating Victory, Harnessing it for "Change"
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3. "We want to outflank labor and other key interest groups,
not incite them or start off with frontal assaults on them,"
Papadimitriu explained. In the wake of the Alliance's
23-point victory that decimated the PRD, Papadimitriu said
that expectations would be very high for Martinelli to start
delivering on the change he promised. The Alliance needed to
focus on top domestic priorities -- security, healthcare,
education, and transportation -- not international
priorities, if it was to consolidate its impressive victory
at the polls. Desiring to fundamentally re-align the way
politics is done in Panama, Papadimitriu explained that
Martinelli had to create facts on the ground quickly that
demonstrated that a new era had dawned in Panama. Perhaps,
at some indeterminate point down the road the political
landscape would have changed significantly enough to allow
Martinelli to consider investing political capital to
finalize the legislative changes to the labor code sought by
the U.S., according to Papadimitriu. As for the U.S.
pressure to immobilize the bearer shares of anonymous
corporations and negotiate a tax information exchange
agreement (TIEA) with the U.S., Papadimtriu assessed that, if
the PRD could not deliver on the labor reforms, the pressure
to enact financial sector reforms would be lessened in that
it would not be as linked to FTA ratification. "We would be
better off allowing the OECD/G-20 calls to close down tax
havens to play out at their own pace," Papadimitriu said,
stating that it would be better to grapple with key interest
groups in the legal and banking sectors in due course.
"Eventually we will need to negotiate a TIEA," Papadimitriu
acknowledged, noting that immobilizing bearer shares would be
essential to any such agreement.

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La Prensa: "Panama can wait"
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4. (SBU) Momentum to await a better time to finalize the
bilateral trade deal appears to be gaining momentum. "Now
the country must wait for a better moment or for Washington
to appreciate its relationship with a good neighbor that is
poor, but not naive," Panama City's leading daily declared in
its front-page opinion article on May 30. "Definitely, Panama
can wait" for U.S. congressional ratification of the
U.S.-Panama Free Trade Agreement (FTA). Noting that "the
time for negotiations had passed," La Prensa asserted, "It is
unjust for the U.S. superpower to impose more conditions --
proper and yet harmful conditions -- on our service economy."


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Comment
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5. (C) Martinelli and his closest advisors are dismayed that
the FTA may slip away. Martinelli lays the blame for the
"loss" of the FTA at Torrijos' and the PRD's dithering over
extra rounds of FTA negotiations, electing Pedro Miguel
Gonzalez to be President of the National Assembly, though he
is under U.S. federal indictment in connection with the 1992
murder of a U.S. soldier, and not being able to deliver all
the legislative fixes on labor. Not only has the incoming
Martinelli Administration concluded that pushing through the
labor reforms is out of their hands, but Papadimitriu and
Martinelli have arrived at the shrewd political calculation
that they must capitalize now on their impressive victory at
the polls by delivering the "change" that voters demanded by
making significant progress on top domestic, not
international, priorities.

STEPHENSON