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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 
----------------------------------- 
 
¶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