US embassy cable - 04PANAMA2274

C O N F I D E N T I A L SECTION 01 OF 04 PANAMA 002274 
 
SIPDIS 
 
 
DEPT. FOR WHA/CEN, EAP/CM, AND EAP/TC 
 
 
E.O. 12958: DECL: 09/07/2014 
TAGS: PREL, PINR, PGOV, PM, CM, TW, POL CHIEF 
SUBJECT: PANAMA: TAIWAN-PRC RECOGNITION ISSUE SIMMERS AS 
NEW GOVERNMENT TAKES OFFICE 
 
 
REF: A. BEIJING 13497 
     B. TAIPEI 2208 
     C. PANAMA 1953 
     D. 03 PANAMA 2895 
     E. 03 PANAMA 3211 
 
 
Classified By: Ambassador Linda E. Watt for reasons 1.5 (B) AND (D). 
 
 
SUMMARY AND INTRODUCTION 
------------------------ 
1.  (C) With a new, more PRC-friendly Panama government in 
office on September 1, the question of whether newly 
inaugurated President Martin Torrijos might drop Panama's 
long-standing diplomatic recognition of the Republic of China 
(Taiwan) in favor of the People's Republic of China (PRC) 
continues to simmer.  Taiwan, Panama, and the PRC all agree 
that Panama is Taiwan's most important formal diplomatic 
relationship, and the PRC would like to pluck it out of 
Taiwan's grasp (Ref B).  Panama has deftly leveraged its 
relations with both sides to extract maximum resources, in 
particular from Taiwan.  As a modernizing Panamanian 
government (GOP) with a heavy economic agenda that includes 
expanding the Panama Canal takes power, Panama will 
increasingly see PRC-vs.-Taiwan through the prism of its 
global interests, which include Canal traffic, shipping, 
container ports, trade, and investment, all areas where the 
PRC is becoming increasingly prominent. 
 
 
2.  (C) The Democratic Revolutionary Party (PRD) of President 
Torrijos (who took office on September 1) is closer 
historically to the PRC than the Arnulfista Party of outgoing 
President Mireya Moscoso.  Torrijos and his team have sent 
mixed messages on PRC-vs.-Taiwan, sometimes seeming to lean 
toward the PRC (saying that he would "reevaluate" PRC-Taiwan 
relations), then backtracking and leaning the other way 
(saying that he has no intention of changing relations). 
Despite showing clear interest in the issue, Torrijos has not 
signaled that he actually is considering derecognizing 
Taiwan.  Also, the incoming foreign minister has assured that 
he will consult the Embassy if and when serious internal 
discussions on PRC-vs.-Taiwan take place.  The Embassy's 
bottom line has not changed: We do not expect Panama to 
derecognize Taiwan in the near future.  (See Reftel C.)  In 
the medium term (during the 2004-2009 Torrijos 
administration), we only would expect Panama to derecognize 
Taiwan if Panama's cost/benefit analysis of PRC-vs.-Taiwan 
relations also changes.  For now, the calculus still favors 
Taiwan.  This message will analyze the issue and report 
recent Embassy meetings with the main players.  End 
Introduction. 
 
 
June 2004 Visit of PRC Vice FM Zhou Accomplishes Little 
--------------------------------------------- ---------- 
3.  (C) PRC Vice Foreign Minister Zhou Wenzhong's June 18, 
2004 pre-Presidential-inauguration visit to Panama was 
disappointing from the PRC perspective, apparently 
accomplishing little besides raising speculation.  In a 
recent meeting, China-Panama Commercial Development 
Representative Yang Fajin told PolCouns that Zhou got 
noncommittal responses from the Torrijos inner circle on his 
pitch to derecognize Taiwan and was denied access to top GOP 
policy makers. 
 
 
4.  (C) Torrijos and Foreign Minister-designate Lewis both 
refused to meet with VFM Zhou, Yang said.  Instead, Zhou met 
with (now Minister of the Presidency) Ubaldino Real (former 
foreign minister Jorge Ritter and former Torrijos campaign 
manager (and first cousin) Hugo Torrijos also may have been 
present).  With the Panamanians in listening mode, Zhou told 
them that the PRC wants to establish formal diplomatic 
relations with Panama, if Panama will cut all official 
contacts with Taiwan, although Panama could still maintain 
"civil" relations with Taiwan.  Zhou also suggested that 
formal Panama-PRC relations would bring increased economic 
cooperation. 
 
 
5.  (C) In response to a question from PolCouns, Yang denied 
reports that the PRC was willing to assist Panama with Canal 
expansion but emphasized recent newspaper reporting that 
Taiwan would provide Panama US$ 7 billion in private and 
government financing for Canal expansion.  Yang added that 
Vice FM Minister Zhou met with 22 members of the local 
Chinese expatriate community to discuss the peaceful 
reunification of China.   (Comment: Reports about the PRC's 
willingness and deep pockets to finance Canal expansion 
appeared in the Panama press last March, during the 
presidential election campaign.  End Comment.) 
 
 
PRC Vice FM Zhou Meets Minister Jacome 
-------------------------------------- 
6.  (C) If anything, Zhou's interaction with the Moscoso 
government was even less satisfying.  Yang's negotiations 
with then-Foreign Minister Harmodio Arias only yielded a 
meeting for Zhou with then-Minister of Commerce and 
Industries Joaquin Jacome -- but as Zhou only wanted to talk 
politics, Jacome replied that was not his area of competence 
and expertise but promised to forward Zhou's comments to 
President Moscoso. 
 
 
7.  (C) According to Yang, the 20-minute Zhou-Jacome meeting 
was a one-way tirade of complaints about the Moscoso 
government's "poor treatment" of the PRC.  Zhou criticized 
the Moscoso administration for failing to invite Yang to 
official events in Panama and for shunning PRC-hosted 
functions, such as China national day celebrations. 
Reminding Jacome that PRC officials regularly attend events 
hosted by Panama's "unofficial" representatives in Beijing, 
Zhou blamed Panamanian former Vice Minister of Foreign 
Affairs Nivia Rossana Castrellon for enacting and enforcing 
the Moscoso government's "anti-PRC" policy.  Zhou also 
complained that Panama was denying visa applications of PRC 
citizens unless the applicants already had U.S. visas in 
their passports, which he blamed on Taiwan pressure on 
President Moscoso. 
 
 
Will Relations Hinge on Chen Shui-bian's Visit? 
--------------------------------------------- -- 
8.  (C) Yang believes that President-elect Martin Torrijos 
has not yet decided anything about PRC-vs.-Taiwan and is 
waiting to see what kind of inducement package Taiwan 
President Chen Shui-bian may offer during his August 
31-September 1 visit to Panama's September 1, 2004 
inauguration.  Yang noted that an August 13 La Prensa story 
reported that President-elect Torrijos had announced the 
formation of a Panama-Taiwan working group to study Taiwan's 
interest in investing in Canal expansion and "alternative 
financing" options. 
 
 
9.  (C) Yang added that the Taiwan Ambassador and his staff 
in Panama are politically linked to Taiwan's former 
Guomintang government and may not enjoy close relations with 
the present government in Taipei.  The PRC has no plans for 
ministerial visits in the near future, Yang continued, but 
PRC commercial delegations will continue to come to Panama. 
Yang added that the PRC government is encouraging Chinese to 
invest overseas, adding that Panama is a location of much 
interest.  According to Yang, President Torrijos has visited 
the PRC twice, but not since the mid-1980s. 
 
 
A "Non-Substantive" Meeting 
--------------------------- 
10.  (C) Samuel Lewis Navarro, now Foreign Minister, 
corroborated much of Yang's account, in a recent meeting with 
PolCouns.  Lewis described Deputy Foreign Minister Zhou's 
June 18 meeting with Ubaldino Real as "non-substantive" and 
sought to downplay its importance.  "He's the same as the 
other Chinese who come through here.  They always say the 
same thing: 'You're on the wrong side of the issue.'  They 
want to intensify relations," he explained.  Prior to 
Panama's May 2, 2004 national elections, Lewis continued, 
Martin Torrijos said there is no reason to change our 
relations with Taiwan, "and that was it." 
 
 
No Plans, No Discussions... 
--------------------------- 
11.  (C) Lewis insisted that Panama has no plans, imminent or 
otherwise, to alter its current formal diplomatic 
relationship with Taiwan in favor of China, adding that the 
Torrijos team had not yet held any discussions on the matter. 
 He assured PolCouns that the United States is Panama's most 
important foreign relationship and that his government would 
consult closely with the Embassy if discussions on China and 
Taiwan take place.  (Comment: Lewis's denial of "internal 
discussions" somewhat contradicts his June 30 query to the 
Ambassador asking for U.S. views on such a change.  See 
Reftel C.  End Comment.) 
 
 
But Lots of Pressure... and "Shrinkage" 
--------------------------------------- 
12.  (C) Asked whether Panama is one of Taiwan's most 
important diplomatic relationships, Lewis said he thought it 
is the most important one.  Both sides had placed a lot of 
pressure on the Torrijos team, Lewis said.  He added that 
some of Taiwan's methods made him uncomfortable, implying 
that Taiwan had made some "non-transparent" offers. 
 
 
13.  (C) In a separate meeting with Ambassador, Lewis claimed 
Taiwan had given US$ 75 million in official and non-official 
contributions to Panama during the Moscoso administration and 
noted that significant "shrinkage" had occurred.  Lewis 
recounted that at a recent meeting he had attended with 
then-First Lady Ruby Moscoso (President Moscoso's sister) and 
Taiwan Ambassador David Hu, Amb. Hu had vocally insisted 
several times that the funds that Taiwan had donated to the 
Office of the First Lady must remain after Ruby Moscoso 
departs.  Apparently Ruby Moscoso wanted to keep those funds 
for her private foundation, Lewis explained, while in-coming 
First Lady Vivian Torrijos equally wanted to ensure that the 
funds remained available for her use after September 1. 
 
 
Taiwan Ambassador Clams Up 
-------------------------- 
14.  (C) In a separate meeting with PolCouns, Taiwan 
Ambassador David Hu apparently was unwilling to reveal 
anything of substance.  He called the formation of a 
Panama-Taiwan Canal Working Group "a fiction" and cast doubt 
on Taiwan's intention to help finance Canal expansion.  (See 
para 16.)  Besides confirming that a Chen-Torrijos meeting 
would take place, Hu claimed to know nothing about President 
Chen's plans for discussions with the Torrijos government. 
Also, Hu denied that Panama was Taiwan's most important 
formal diplomatic relationship, saying all the Central 
American countries that recognize Taiwan are equal.  (Note: 
Taiwan's embassy in Panama has 13 officers, Hu said, and 
15-16 Taiwanese technical cooperation volunteers working in 
Panama.  End note.)  Hu betrayed some uneasiness about the 
incoming PRD government, trying to paint it as having 
"socialist" sympathies and organization.  (Note: The PRC's 
Commercial Development Office in Panama was established under 
the 1994-1999 PRD administration of Ernesto Perez Balladares. 
 End note.) 
 
 
15.  (C) Hu called relations with Panama "excellent" and 
cooperation "marvelous," though he acknowledged that his 
Embassy traditionally had had little contact with the PRD, 
Panama's new ruling party.  He noted that many countries 
(including France, China, and Brazil) have interests in the 
Canal but suggested that the PRC would seek to increase its 
"influence" in the Panamanian government (GOP).  Hu doubted 
the PRC government had the ability to support expanding the 
Canal or that was prepared to offer significant sums to aid 
Panama in financing Canal expansion.  The new Torrijos 
government will be occupied with economic issues, Hu said. 
(Comment: In a later meeting with PolCouns, 
Chinese-Panamanian Cultural Center President Jose Chong-Hon 
suggested that Ambassador Hu is reluctant to share 
information with U.S. officials because the lack of 
diplomatic relations between the U.S. and Taiwan.  For 
instance, Chong-Hon affirmed the existence of the bilateral 
working group.  End Comment.) 
 
 
COMMENT 
------- 
16.  (C) Successive Panamanian governments skillfully have 
used the carrot and stick of diplomatic recognition to 
extract maximum resources from both sides of the Taiwan 
straits.  (See Reftels D and E.)  The GOP is aware that it 
will lose the ability to play one side off against the other 
if it derecognizes Taiwan.  Despite the recent conclusion of 
a Panama-Taiwan Free Trade Agreement, some observers believe 
Panama may derecognize Taiwan due to burgeoning PRC-Panama 
commercial relations but others disagree.  The skeptics point 
out that PRC trade with the eastern U.S. seaboard has no 
alternative to using the Panama Canal, whatever Panama's 
diplomatic orientation.  Also, they dismiss suggestions that 
lack of formal relations with Panama would deter serious PRC 
investors and point out that a Hong Kong company (Hutchinson 
Whampoa) already owns 51% of two of Panama's large container 
ports.  According to Yang, the primary obstacle to PRC 
investment in Panama is the PRC's ban on investment by 
Chinese state-owned enterprises in countries which have 
relations with Taiwan. 
 
 
17.  (C) Panama has a large, widely dispersed ethnic Chinese 
population, estimated to comprise up to 5% of Panama's 3 
million people.  The local Chinese community traditionally is 
oriented toward Taiwan (increasingly because of Taiwan's 
democracy), but the community is politically inactive and 
probably would play a minimal role in any GOP decision to 
switch sides. 
 
 
18.  (C) PRC officials will find many more sympathetic ears 
in the new Torrijos government than under President Moscoso 
and may well be able to increase their influence and access. 
For instance, PRC Representative Yang noted that he has many 
influential Panamanian friends, who include: Hugo Giraud (now 
PRD Presdient), Juan Jose Amado (former ambassador to Japan 
and the U.S., former Minister of Foreign Affairs, and former 
Minister of Commerce and Industry), Marco Ameglio (Arnulfista 
legislator, former Assembly President, former Foreign 
Relations Commission President), and Arturo Vallarino 
(out-going First Vice President). 
 
 
WATT