RE: POST INPUT TO REPORT THE OPERATION OF THE CARIBBEAN

UNCLAS PANAMA 000797

SIPDIS
USTR PASS TO KENT SHIGATOMI
COMMERCE PASS TO MATT GAISFORD

E.O. 12958: N/A
TAGS: USTR ETRD ECON PM
SUBJECT: RE: POST INPUT TO REPORT THE OPERATION OF THE CARIBBEAN
BASIN ECONOMIC RECOVERY ACT

REF: STATE 75599


1. Below is post's response to reftel.



Economic Review

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2. (U) Panama is experiencing a period of extended economic growth,
with 8.5 percent GDP growth in 2006, 11.5 percent in 2007, and 9.2
percent in 2008. However, due to the global economic crisis, its
GDP growth rate was 2.4 percent in the first half of 2009. The main
drivers of growth have been capital investment, port activity,
tourism, construction, and goods and services exports. Panama's GDP
is $39,990 million (purchasing power parity) or $24,754 million
(current prices).




3. (U) The estimated population of Panama is 3.45 million people.
Unemployment in Panama as of September 2009 had fallen to 6.6
percent. The poverty rate is 28.5 percent. Employers consistently
report a lack of skilled labor, in particular a lack of
English-speaking workers.




4. (U) As of June 2009, the public debt was 43.7 percent of GDP
versus 45.2 percent as of December 2008. During the first half of
2009, Panama posted a non-financial public sector deficit of 0.8
percent of GDP. The annual deficit for 2009 is projected to be 1.9
percent of GDP.




5. (U) The U.S. exported $4,887.3 million to Panama in 2008, and
imported $379.1 million, resulting in a trade surplus of $4,508.2
million. US exports were dominated by oil and capital- and
technology-intensive manufactured goods, such as aircraft,
pharmaceuticals, machinery, medical equipment, and motor vehicles.
Most US imports from Panama are seafood, including fresh fish and
shrimp, and repaired goods.




6. (U) Foreign direct investment (FDI) during 2007 reached $1,907.2
million, down from $2,401.7 million in 2008; it received $386.9
million in the first half of 2009. In 2008, approximately 60
percent of FDI was due to the government selling two radio spectrum
bands. US FDI in Panama is concentrated largely in the non-bank
holding companies, energy, finance, insurance and wholesale trade
sectors.



Commitment to undertake WTO obligations and participate in
negotiations toward the FTAA or another FTA

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7. (U) Panama has been supportive of multilateral trade
liberalization through negotiations in both the WTO and the FTAA.
Panama played a constructive role in advancing the FTAA process at
the November 2005 Summit of the Americas in Mar del Plata. In
addition, Panama hosted the first ministerial meeting of the
Pathways to Prosperity initiative in December 2008.




8. (U) The United States and Panama signed a Trade Promotion
Agreement (TPA) on June 28, 2007, which incorporated the provisions
from the May 2007 New Trade Policy. The Panamanian National
Assembly ratified the TPA on July 11, 2007 by a vote of 58 to 4.
The TPA is awaiting U.S. Congressional action. The TPA is a
comprehensive free trade agreement. Once implemented, the
agreement significantly liberalizes trade in goods and services,
including financial services. The agreement also includes
important disciplines in such key areas as: customs and trade
facilitation, sanitary and phytosanitary measures, technical
barriers to trade, government procurement, investment,


telecommunications, electronic commerce, intellectual property
rights, and labor and environmental protection. Under the TPA,
Panama would provide broader and deeper commitments to maintain a
liberal market for services sector, extending well beyond its
commitments under the WTO General Agreement on Trade in Services.
Moreover, in connection with the TPA, Panama agreed to become a
full participant in the WTO Information Technology Agreement.




9. (U) Panama has actively pursued bilateral free trade agreements
(FTAs) in recent years, having entered into effect FTAs with El
Salvador (2003),Taiwan (2004),Singapore (2006),Chile (2008),and
Costa Rica, Guatemala, and Honduras (2009). It signed FTAs with
Nicaragua in 2003 and with Canada in 2008, but neither are in
force. Panama is in exploratory FTA discussions with Mexico, the
Mercosur countries, the Andean Community, the European Union, and
CARICOM. Panama has partial scope agreements with Mexico (1986),
Colombia (1995),and Cuba (2009).



Protection of Intellectual Property

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10. (U) Panama protects intellectual property rights standards
above the minimum provided under the WTO TRIPS Agreement. Panama
is not included on any Special 301 lists that identify countries
with particularly problematic IPR laws or enforcement practices.
Intellectual property policy and practice in Panama is the
responsibility of an Inter-institutional Committee for Intellectual
Property (CIPI),which includes representatives from five
government agencies - Colon Free Zone, Intellectual Property
Registry, Ministry of Education (for copyrights),Customs, and the
attorney general - under the leadership of the Ministry of Commerce
and Industry. It coordinates enforcement actions and develops
strategies to improve compliance with the law. The creation in
2002 of a specialized prosecutor for intellectual property-related
cases has strengthened the protection and enforcement of IPR in
Panama.



Provision of Internationally Recognized Worker Rights

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11. (U) Panama protects internationally recognized worker rights.
Panama has ratified all eight of the ILO core labor conventions.
These eight are Conventions 87 and 98 on freedom of association and
collective bargaining, Conventions 29 and 105 on the elimination of
forced and compulsory labor, Conventions 138 and 182 on the
abolition of child labor, and Conventions 100 and 111 on the
elimination of discrimination in respect of employment and
occupation.




12. (U) Among the major provisions of Panama's labor code are ones
addressing freedom of association, the right to organize and
bargain collectively, minimum wage, health and safety, hours of
work requirements, the minimum age to work legally, and
prohibitions against certain forms of child labor. Panamanian law
permits the establishment of unions in the private sector and
allows organization and collective bargaining by most public-sector
and all private-sector employees. The law sets the minimum size of
private sector unions at 40 workers and permits one union per
establishment. Umbrella unions based on skill groups may also
operate in the same establishment. The law provides for a
conciliation section within the Labor Ministry to resolve private
labor complaints and a procedure for mediation. The law governing
the Panama Canal Authority classifies the Canal as an essential
international service, and prohibits the right to strike but does
allow unions to organize and to bargain collectively. The
Panamanian labor code prohibits forced or compulsory labor by
adults or children, including prohibiting forced labor by
prisoners, and provides seafarers with the right to terminate their
employment by giving reasonable notice. The Labor Ministry is
responsible for setting and enforcing health and safety standards.
Inspectors from the Labor and the occupational health section of
the Social Security Administration conduct periodic inspections of
work sites.



13. (U) Some Panamanian labor leaders maintain that Panama's
industry does not fully observe laws on workers' rights and working
conditions in Panama, while parts of Panama's business community
view the labor code as extremely rigid, particularly with respect
to the dismissal of employees, and believe the labor code is a
deterrent to operating in Panama. The World Bank's October 2009
Doing Business report ranked Panama 177 out of 183 countries for
Employing Workers, which rates the difficulty of hiring and firing
employees. The ILO's Committee of Experts on the Application of
Conventions and Recommendations has noted a number of discrepancies
between Panamanian labor law and ILO conventions which the country
has ratified, particularly with regard to freedom of association
and collective bargaining. The specific concerns are the lack of
obligation on employers in export processing zones (EPZs) to comply
with requests from a qualified employee representative to bargain
collectively; thirty-five day cooling off periods before the
commencement of a called strike in EPZs and the nation's call
centers; and, the ability of employers to bargain directly with
unorganized groups of workers. The Government of Panama has noted
difficulties in reaching consensus with worker and employer
organizations about how to close some of these discrepancies. Many
consider safety measures in the construction sector to be lax,
resulting in approximately 25 deaths in 2007, 12 in 2008, and 13
deaths through August 2009.




14. (U) The GOP made significant progress in 2009 in addressing
perceived shortcomings identified by the ILO. Executive Decree 17,
also enacted May 20, clarified the criteria for legitimate
subcontracting, required labor inspections to prevent contracting
arrangements that undermined worker rights, ensured that
subcontractors and employers in breach of the requirements were
subject to sanctions and clarified the process for workers to file
complaints and secure remedies. Executive Decree 18, enacted on
May 20, prohibited employers from entering into collective
negotiations with non-unionized workers when a union existed, and
prohibited employers from using a pre-existing agreement with
non-unionized workers as grounds to refuse to negotiate with
unionized workers. Executive Decree 19, enacted May 20, required
employers to provide objective proof of the grounds for using thQ
exception in the Labor Code that allows successive temporary
contracts. Executive Decree 24, enacted June 5, established an
enforcement plan to protect the rights of temporary workers, and
included targeted inspections, a periodic and random review of
temporary contracts, workers' rights education, and the outline of
a process to receive and respond to workers' complaints. Executive
Decrees 25 and 26, enacted June 5, 2009, increased transportation
workers' ability to strike by limiting the scope of strike
restrictions on essential transportation services to those
involving public passenger services.



Commitments to Eliminate the Worst Forms of Child Labor

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15. (U) Panama has implemented commitments to eliminate the worst
forms of child labor. On October 31, 2000, Panama ratified ILO
Convention No. 182. Panama established by law the list of the worst
forms of child labor on June 19, 2006. The law lists 17 classes of
work considered hazardous by their nature and 12 considered
hazardous by their conditions. Panama is an ILO-IPEC participating
country.




16. (U) In June 2006, Panama adopted its National Plan Against
Child Labor (2007-2011). The Plan was developed by the National
Commission for the Elimination of Child Labor and the Protection of
the Adolescent Worker. The Plan's components are: raising
awareness of child labor issues, harmonizing national legislation
with international conventions, enforcing child labor laws,
improving national capacity to inspect and monitor child labor
violations, improving the conditions of parents of working
children, promoting the education and health of working children,
promoting recreational activities for children, and creating and
maintaining a database of credible information. The GOP provides
$1.22 million for the project. In 2008, 2,500 children participated
in the program and received scholarships from the Institute for
Human Resources, Capacity Building, and Vocational Training.



17. (U) Panamanian law set the minimum working age at 14 years, but
sets many restrictions on the amount of time and type of work
children can perform until the age of 18. Notwithstanding these
laws, there are media reports of child labor in the agricultural
sector, particularly among indigenous children in rural areas, and
children working in the informal sector can be observed in the
major cities (principally selling goods and menial services).
Additionally, there is public concern over the employment of
children, particularly indigenous children, in rural coffee and
sugar plantations.




18. (U) The Ministry of Labor, through its Child Labor Unit, is
responsible for enforcing child labor laws. The Ministry of
Government and Justice is responsible for developing policies to
combat trafficking in persons. The Ministry of Social Development
(MIDES) provides shelter and related services to trafficking
victims and vulnerable children, as well as children engaged in
exploitative labor and the sex industry. MIDES also provides
services to families in extreme poverty, which includes a monthly
stipend to female heads of households who commit to keep their
school-aged children in school and participate in school
activities.




19. (U) The GOP participated in three specific programs funded by
the ILO and US Department of Labor to combat child labor in rural
areas. These were the Direct Action Program for the Eradication of
Child Labor in Commercial Agriculture in the Ngobe Bugle with a
budget of almost $130,000, the Direct Action Program for the
Eradication of Dangerous Child and Adolescent Labor in the Santiago
District, Veraguas Province with a budget of almost $125,000, and
the Direct Action Program for the Eradication of Dangerous Child
and Adolescent Labor in Chorrera District, Panama Province, for
almost $115,000. Additionally, Panama completed in August its
participation in a two-phase, seven year ILO program, which was
received $2.6 million from the US DOL. The program resulted in
1,857 children being removed from the work force and prevented
another 1,543 from entering the work force, in addition to
strengthening GOP capacity to eradicate child labor. Panama
completed the second phase of an $8.6 million regional ILO project
to prevent and eliminate the commercial sexual exploitation of
minors in Central America, including Panama, and the Dominican
Republic.



Counter-Narcotics Cooperation

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20. (U) The Government of Panama was certified in March 2009 as
having cooperated vigorously with the United States on
counter-narcotics efforts. Additionally, Panama has a
comprehensive legal framework to detect, prevent, and combat money
laundering and terrorist financing, and provides excellent
cooperation with U.S. law enforcement agencies in combating drug
trafficking, money laundering, and financial crimes. However, by
virtue of its geographic position and well- developed maritime and
transportation infrastructure, Panama is a major logistics control
and trans-shipment country for illegal drugs to the United States
and Europe, and is used for money laundering purposes.



Implementation of the Inter-American Convention Against Corruption
(IACAC)

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21. (U) Panama is a signatory to the IACAC, having ratified the
convention on July 20, 1998, and deposited it with the Organization
of American States on October 8, 1998. On June 4, 2001, Panama
signed the Declaration on the Mechanism for Follow-up of the
Implementation of the Inter-American Convention Against Corruption
(MESICIC). The Government of Panama has established a National
Council for Transparency against Corruption (CNTCC),which includes
the Ministry of the President, Ministry of Economics and Finance,
Attorney General, and the Comptroller General.



22. (U) The Committee of Experts of MESICIC issued a Final Second
Report on Panama's implementation of the IACAC based on information
collected through May 25, 2007. The report acknowledged progress
by Panama in certain areas, and recommended the GOP strengthen the
systems for addressing conflicts of interest, ensuring there is an
oversight body with competence to establish through training then
enforce ethics standards, and increasing public participation and
monitoring of public administration. On March 16-17, 2009, the
CNTCC and the OAS held a workshop on the issues identified, and
CNTCC issued a report in September 2009 outlining what steps it has
taken to respond to the issues raised by the MESICIC reports. They
steps taken include adding to the CNTCC on July 21, 2009 the
responsibility to examine the ethics training of public officials
and announcing on November 19, 2008 that they will create an office
in the Ministry of Social Development to increase public
participation in public administrative matters.



Transparency in Government Procurement

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23. (U) Panamanian law 22 of 2006 regulates government procurement
and other related issues. Law 22 was intended to streamline and
modernize Panama's contracting system. It establishes, among other
things, an Internet-based procurement system
(www.panamacornpra.gob.pa) and requires publication of all proposed
government purchases. The PanamaCompra program requires publication
of all government purchases on the Internet; evaluation of
proposals and monitoring of the procurement process; consultation
of public bids, including technical specifications and tender
documents; classification of purchases by different government
institutions and gathering and analysis of data. The law also
created an administrative court to handle all public contracting
disputes. The rulings of this administrative court are subject to
review by the Panamanian Supreme Court. The Panamanian government
has generally handled bids in a transparent manner, although
occasionally U.S. companies have complained that certain procedures
have not been followed. The GOP procured approximately $100
million through sole-source contracts between July 1 and September
25 under the 'urgency' exception; some of the contracts were for
expansion of the coastal highway ($55 million),purchase of a
Presidential airplane ($17 million),and procurement of 20
ambulances ($1.7 million).




24. (U) While Panama committed to become a party to the WTO
Government Procurement Agreement at the time it joined the WTO, it
remains an observer and not a signatory. Its efforts to accede to
the GPA have stalled. Under the TPA, Panama would guarantee a fair
and transparent process for procurement covered by the TPA. The
TPA provides that U.S. suppliers will be permitted to bid on
procurement by a wide range of Panamanian government entities,
including the Panama Canal Authority, over a certain threshold
amounts on the same basis as Panamanian suppliers. The TPA would
strengthen rule of law and fight corruption by criminalizing
bribery in government procurements and establishing at least one
impartial administrative or judicial authority to receive and
review supplier challenges. Disputes relating to Panama Canal
Authority procurement will continue

to be addressed through the authority's existing procedures.



Extradition

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25. (U) The United States and Panama are signatories to an
extradition treaty, dated May 25, 1904 (entered into force May 8,
1905),which provides for the extradition from Panama to the U.S.
of U.S. citizens convicted of crimes.



Nationalization/Expropriation

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26. (U) The U.S. Embassy in Panama has not reported any
nationalization or expropriation of any property held in the name
of U.S. citizens since the publication of the previous CBERA
Report.



Arbitral Awards

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27. (U) The U.S. Embassy in Panama has not reported any arbitral
awards favoring U.S. citizens which Panama has actively failed to
recognize since the publication of the previous CBERA Report.



Market Access

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28. (U) Panama does not provide preferential treatment to any
developed country that has had, or is likely to have, an adverse
effect on U.S. commerce.
STEPHENSON