C O N F I D E N T I A L PANAMA 000454

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)

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SUMMARY
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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.

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PROGRESS IN TIME FOR SENATE HEARING
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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.

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THE DAY AFTER
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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.

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THE OUTRAGE GROWS
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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."

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COMMENT
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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