US embassy cable - 05PANAMA235

S E C R E T SECTION 01 OF 03 PANAMA 000235 
 
SIPDIS 
 
WHA/CEN PASS USTR 
SOUTHCOM ALSO FOR POLAD 
VANCOUVER FOR CG ARREAGA 
 
E.O. 12958: DECL: 01/31/2015 
TAGS: PREL, PGOV, ETRD, PM, POL CHIEF 
SUBJECT: PANAMA PRESIDENT TORRIJOS TOUTS POLITICAL VALUE OF 
FTA, EMPHASIZES PANAMA'S FRIENDSHIP WITH U.S. 
 
REF: PANAMA 0089 
 
Classified By: AMBASSADOR LINDA WATT FOR REASONS 1.4 (B) AND (D). 
 
1.  (U) This is an action message.  See Embassy 
recommendations in paras 13 and 14 below. 
 
Summary 
------- 
2.  (S) Citing internal political pressures and dwindling 
domestic room for maneuver, President Martin Torrijos on 
January 27 made a plea to the Ambassador for U.S. concessions 
in the final stage of the bilateral Free Trade Agreement 
(FTA) talks.  (The eighth round, January 31-February 4, is 
underway in Washington.)  Accompanied by most of his 
inner-circle "brain trust," Torrijos argued that U.S. FTA 
concessions, particularly on rice and sugar, would properly 
recognize Panama's special relationship with the United 
States; assign appropriate status to Panama's importance to 
U.S. regional security objectives (such as intelligence 
sharing, discussed in Panama with Secretary of Defense 
Rumsfeld on November 13), and would relieve the GOP from 
having to defend an agreement that its opponents claim 
contains more stringent conditions than CAFTA.  More to the 
point, such concessions would permit the GOP to sell the FTA 
to domestic agricultural interests, who in conjunction with 
local business groups have inflamed public opinion against 
the GOP's recent proposals to significantly raise tax rates 
for rich Panamanians and businesses, which became law January 
31.  (See Reftel.) 
 
3.  (S) For her part the Ambassador laid down markers on U.S. 
commercial and geo-strategic interests in Panama's Canal 
expansion plans and on suspicions of Venezuelan meddling in 
Panamanian affairs.  End Summary. 
 
4.  (S) At the invitation of President Torrijos, Ambassador 
attended a January 27 luncheon that included First Vice 
President/Foreign Minister Samuel Lewis, Trade Minister Andy 
Ferrer and Minister of the Presidency Ubaldino Real.  The 
main Panamanian agenda item during the two-hour-plus meeting 
was the FTA.  Torrijos explained that his administration's 
recently enacted tax reforms have exacted a significant 
political price.  The National Assembly passed the bill on 
January 31; business groups who are expected to pay 
significantly higher taxes under the new law have fiercely 
resisted it. 
 
5.  (S) Some of the most strident voices on the tax issue 
represent farming sectors which also are those most likely to 
be negatively affected by FTA, Torrijos continued, such as 
rice and sugar (and pork, poultry, potatoes, onions, coffee, 
and oil, to lesser degrees).  Torrijos made plain that he 
needs U.S. "flexibility" on rice and sugar at the FTA talks 
to allow him political space to maneuver.  Although his 
administration is strongly pro-free trade, Torrijos said that 
the FTA has been a hard sell for certain formerly protected 
and politically influential farming sectors.  Torrijos said 
that he needs a Free Trade Agreement that he can tout 
domestically as a political victory, that is, he needs U.S. 
concessions on rice and sugar in a package that cannot be 
construed as "worse" than CAFTA. 
 
6.  (C) (Note: The meeting took place on January 27, a day 
that featured two anti-government demonstrations, one led by 
former president Guillermo Endara, who opposes tax reforms 
and the FTA.  Anti-government sentiment is running high among 
the Panamanian business elite, some of whom will have to pay 
taxes for the first time under the new law.  Fierce 
negotiations were underway between the executive branch, 
business, and the National Assembly to find a workable 
solution.  The tax reform bill passed the Assembly on January 
31.  End Note.) 
 
7.  (S) Torrijos underlined the all-but-perfect record of 
cooperation that his government has with USG law-enforcement 
and security priorities, including extraditions (to the point 
where Torrijos has reported receiving veiled threats from 
"Colombians") and on High-Value Canal Transits of 
nuclear-powered submarine (highly appreciated by US Navy and 
SouthCom).  He also reminded the Ambassador of his 
government's commitment to anti-corruption and democratic 
governance, both U.S. priorities for the Hemisphere. 
Torrijos claimed his government is "sending signals" to 
United States but that the United States has not reciprocated 
by sending him a message of political support.  The best 
signal of U.S. political support, Torrijos believes, would be 
in the form of concrete concessions at the FTA negotiations. 
 
8.  (S) Ambassador Watt countered Torrijos's claims of the 
lack of U.S. political signals, noting the high-level visits 
to Panama by Secretary of State Colin Powell in September 
2004 and by Secretary of Defense Donald Rumsfeld in November 
2004, not to mention the multi-agency, multi-million-dollar 
annual U.S. assistance portfolio to Panama, and energetic 
Embassy outreach at all levels. 
 
9.  (S) The Ambassador then turned to U.S. concerns about 
Canal procurement, the negative perception that Panama's 
relations with Venezuelan President Hugo Chavez could 
engender, and a nagging disquiet in Washington about PRC 
intentions regarding the Canal.  While noting that our 
bilateral relations were excellent and that we are impressed 
with the policies, high-level appointments, and political 
will of the President Torrijos's administration, she clearly 
told the group that perceptions are critical on these 
"hot-button" issues.  Specifically, would U.S. business get a 
fair shot at some of the principal Canal expansion contracts? 
 Is there an effort underway at the Canal to distance itself 
from the U.S. via its current and future procurements?  Also, 
the Ambassador said, many in Washington are not sure what to 
make of Panama's recent talks with Venezuela about a pipeline 
project to send Venezuelan oil to Chinese customers, 
especially in light of rumors regarding Bolivarian Circles 
operating in Panama.  (To be reported septel.)  Finally, she 
cautioned the GOP about accepting offers of assistance for 
Canal modernization with political strings or baggage 
attached. 
 
10.  (S) The Panamanians were taken aback, hearing such 
perceptions so candidly expressed.  "We are your friends!" 
Samuel Lewis exclaimed.  On Canal procurement, Torrijos 
quickly discounted any suggestion of anti-American bias at 
the Canal and added that the Canal Authority (ACP) and he 
believe bidding processes to be transparent.  He was quick to 
state that there is no political (i.e. from the Presidency) 
interference with Canal administration.  On Venezuela, taking 
the Ambassador's point that Chavez has become increasingly 
anti-U.S. and radical, Torrijos claimed that the oil pipeline 
idea is purely commercial (from Panama's point of view), to 
take advantage of Panama's geographical location.  He pointed 
out that other countries, including Colombia, have various 
commercial arrangements with Venezuela.  Despite the scandals 
involving the Moscoso government with Taiwan money, he 
pointed out, his government has maintained a respectful 
relationship with Taiwan.  VP/FM Lewis complained of a lack 
of response from Washington on Panama's intelligence sharing 
proposal made to Secretary Rumsfeld in November.  (Note: 
Embassy is similarly disappointed at the lack of response to 
date.  End Note.) 
 
Comment 
------- 
11.  (S) The big picture: The Torrijos administration is 
trying to fight corruption, address poverty, make the 
government more efficient and responsive, be a close partner 
with the United States and cooperate closely with us on 
security, terrorism, and law enforcement, as well as free 
trade.  Showing political courage, Torrijos has paid a 
political price for his principles, even within his own 
party, which he has stiffed on government jobs and payola. 
Though far from perfect, the  Embassy believes that this is 
exactly the kind of progressive, trade and 
investment-friendly, socially conscious ally and friend that 
the U.S. is seeking in the region. 
 
12.  (S) At several points during the lunch, Torrijos and/or 
Lewis emphasized that President Torrijos, due to his 
political pedigree, is uniquely positioned as a channel or a 
bridge to Hemispheric political leaders.  Much like DR 
President Leonel Fernandez, Torrijos wants to be viewed as a 
regional player whose excellent relationship with the U.S. 
and with the Latin American moderate left is an advantage to 
all.  In Ecuador on January 26, at Colombian President 
Uribe's request, Torrijos reached former Spanish Prime 
Minister Felipe Gonzalez to seek his possible intervention 
with Chavez on the Granda case fallout.  Torrijos told the 
Ambassador that this was but one example of his quiet 
diplomatic efforts which he is willing to use to our benefit. 
 
Embassy Recommendations 
----------------------- 
13.  (S) For USTR: Ambassador Watt's telcon with Regina Vargo 
on January 28 covered the FTA-related points.  Again, rice 
and sugar are the most sensitive sectors for which Panama is 
pursuing U.S. "flexibility."  CAFTA equivalency is the 
minimum they say they can accept. 
 
14.  (S) Embassy strongly supports Washington efforts to 
schedule a Bush-Torrijos meeting, both to send a political 
signal of support for Torrijos's reforms and to offer both 
sides the opportunity at the highest levels, inter-alia, to 
share ideas for further cooperation, including the 
intelligence sharing proposal. 
 
WATT