Council on Hemispheric Affairs | Friday, 26 August 2011
The US whitewashes Panama’s fatal flaws to champion FTA
• Panama’s notoriously corrupt judiciary and political backdoor dealings make the U.S.-Panama FTA a most problematic transaction.
• This FTA is yet another example of catering to big business interests abroad; indeed, it creates few benefits for the average U.S. citizen while generating possibly detrimental effects in Panama.
• Several WikiLeaks cables have portrayed President Martinelli and other Panamanian government officials in a self-defaming light, as the government continues to be buffeted by daily scandals.
• Panamanian authorities seem to be totally unperturbed, but Washington continues to portray an exceedingly venal society as a virtuous trading partner.
United States-Panama Free Trade Agreement
The pending Free Trade Agreement (FTA) between the United States and Panama, also known as the Panama Trade Promotion Agreement (TPA), has remained in limbo since its initial signing on June 28, 2007. While Panama approved the TPA several weeks later, the U.S. Congress has left the agreement in political purgatory until this past June, when the U.S. House of Representatives irresponsibly struck a deal on terms to be considered for approval during a new round of FTAs with South Korea, Colombia and Panama. This represented the first time during the Obama administration that the TPA seemed to be moving forward; however, the interminable debt talks and the congressional recess in August, have essentially put progress on hold again. Representative Dave Camp (R-MI) of the House Ways and Means Committee had earlier stated that he did not “think this [would] happen before August unfortunately.” Therefore, the issue may still be in doubt, at least at this time.
In the meantime, lobbyists and big businesses have been hard at work trying to get all three trade measures passed. Yet, a poll conducted by NBC News and The Wall Street Journal in 2010 found that, of Americans surveyed, 53 percent believe that FTAs hurt the U.S., a sizeable increase from the 32 percent who believed so in 1999. Many politicians since have taken note and have protectively campaigned on anti-FTA platforms, promising not to outsource U.S. jobs. Therefore, both the White House and fervent K Street lobbyists have had to push hard, as the latter “have been going in and, one by one, flipping the people who campaigned against it,” according to Lori Wallach, Director of Public Citizen’s Global Trade Watch. Wallach also has observed that there remains a “liability [in] voting in favor of a job-offshoring, unsafe-import-flooding, ‘Buy America’-killing, food-safety-undermining, drug-price-rising, foreign-corporate-treasury-raiding, financial-deregulating trade agreement.”
With the looming certainty of more prolonged internal debt talks, along with the current recess, U.S. policymakers would be wise to re-evaluate the TPA, carefully separating the pros from the cons. Thus far, the congressional course of action has essentially been to bundle all three FTAs together in an effort to push them through; a bundle, however, has caused the TPA to become something of an afterthought. The South Korean FTA is the “big hitter,” as South Korea has the 14th-largest economy in the world and is an important trading partner to the U.S. The Colombian FTA trails the Korean FTA in terms of importance, but has sparked debate about Colombia’s low labor standards and its poor human rights record involving the treatment of labor leaders, including the murder of a number of them. Panama, however, is less critical; Dan Froomkin of The Huffington Post has observed that: “The Panama deal is considered relatively minor, attracting attention mostly because of the country’s checkered history as an off-shore tax haven.” In response to this concern, Panama signed a tax information-sharing treaty with the US, “but most experts think this is somewhat toothless in terms of preventing tax evasion and corporate secrecy.”
So Why Panama?
The TPA initially was signed under former Panamanian President Martín Torrijos, who was considered a conservative and a close U.S.-Latin America ally. Toward the conclusion of the Torrijos presidency, in a 2009 testimony before the United States Senate Committee on Finance, Assistant United States Trade Representative for the Americas Everett Eissenstat stated, “Panama is a strong U.S. ally and is a country heading in the right direction.” He assured the committee that the TPA would guarantee strong labor and environmental standards, increased transparency, protected investments, fundamental labor rights, and checks on bribery and corruption. Just months after this statement, Torrijos was succeeded by current President Ricardo Martinelli, who has since been accused of opening the floodgates for what has proved to be a grossly abusive and disappointing administration. Thus the merits of a “country heading in the right direction,” which has turned out to be pure science fiction, have been brought into question.
However, U.S. policymakers have chosen to pound the drum for free trade as an economic weapon without any consideration allocated to the democratic or ethical proclivity possessed by the candidate. Instead, Washington has taken on a new tactic, emphasizing that Panama has always been an important partner in Latin America due to its military and geopolitical strategic location, as well as its role as a hub for international trade. In recent years, this geopolitical position has become even more important to Washington, as the Panama Canal inevitably serves as a conduit for the ever-increasing flow of illicit drugs and arms in the region. In fact, “one third of all ships are flagged in Panama, and Panama lets the U.S. board those ships to search for drugs.”
Along with the strategic location of the canal, Panama has “one of the fastest growing economies in Latin America, expanding 6.2 percent in 2010, with similar annual growth forecast through 2015.” This growth means that other nations have begun to vie for a share of the Panamanian market, which prompted former President George W. Bush to seek a bilateral agreement with the transit country that would break down trade barriers, reduce tariffs, and level the playing field in both the U.S. and international markets. Indeed, the recent progress on a Canada-Panama FTA, aimed for implementation this fall, has undoubtedly increased pressure on the U.S. Congress to make a final move on its own stalled FTA.
Yet Congress never approved the TPA during the Bush Administration, leaving the better part of the battle to be fought during Obama’s tenure. Recent debates over labor law reforms, trade adjustment assistance, and, most particularly, the tax haven statuses for offshore corporations and multinational subsidiaries in Panama, have slowed developments on the proposed TPA. The U.S. Department of State has claimed that Panama is the second largest tax haven in the world, further stating in a 2006 WikiLeaks cable that Panama’s “incorporation regime ensures secrecy, avoids taxes, and shields assets from the enforcement of legal judgments. Along with its sophisticated banking services, Panama remains an environment conducive to laundering the proceeds from criminal activity and creates a vulnerability to terrorist financing.”
According to the Obama administration, the FTA “guarantees access to Panama’s USD 20.6 billion services market, including in priority areas such as financial, telecommunications, computer, distribution, express delivery, energy, environmental, and professional services.” It has been lauded as beneficial to both small and big business interests, as well as an instrument of job creation. However, the FTA has been criticized as a channel for outsourcing U.S. service jobs – not exactly a favorable move during a slow economic recovery. Also, concerns remain over potential detrimental effects in Panama, including lowered wages for Panamanian workers, poor and unregulated working conditions, and environmental degradation with no consequences. In addition, the TPA would further open the Panamanian market to U.S. businesses, creating an “equal footing” that would likely force small and medium-sized Panamanian companies out of business. Therefore, the average Panamanian would stand to reap little benefit from the TPA while the rich would profit, further contributing to the growing inequality gap in Latin America.
To some, the injunction of the FTA with Panama should be viewed mainly as an opportunity for big business to further expand its reach abroad without upholding basic labor and environmental concerns. Consequently, if the status quo were left alone, the corruption scene would darken in Panama at the very time that self-serving members of the Obama administration would be chanting its wonders. Essentially, it would be left up to Panama to properly implement and uphold these terms of the TPA, which seems highly unlikely due to the country’s documented history of corruption and the neglect of labor and human rights, while at the same time disregarding its environmental shortcomings in the face of a potential economic windfall.
The Panamanian Judiciary
The Panamanian courts are particularly corrupt and politically partisan, chronically interpreting the laws to favor a select few, namely those in positions of wealth and power. Several high-profile public corruption cases have exposed a tangled web of bribery, deceit, and chicanery. One glaring example of this occurred when President Martinelli and the country’s servile Supreme Court removed the independent-minded Attorney General Ana Matilde Gómez from office on trumped up charges “and then reinvent[ed] a position that had been eliminated by constitutional amendment in order for Martinelli to put an obsequious replacement in her post.” Her replacement was Giuseppe Bonissi, a lawyer accused of letting major drug traffickers walk free, “even though Panamanian law allows for no bail in drug cases and reverses the burden of proof.” Such measures “were ignored when charges were dropped against four individuals tied to the landing of a small plane on an illegal airstrip on a farm in the Azuero Peninsula. The provincial anti-drug prosecutor, who later ordered the four detained suspects freed, had recently been hired by Bonissi.”
However, the shady dealings of the Panamanian court did not stop there. In a WikiLeaks cable sent in May 2004, the U.S. ambassador to Panama “describes the role of the Supreme Court in a case of illegal arms trafficking on a vessel named the ‘Otterloo.’ The United States concluded that, based on various sources, eight of the nine Panamanian judges sitting on the bench received “bribes to drop the proceedings” and to free the only person who was detained in the case, the Israeli Shimon Yalin Yelinek, who was also investigated by the DEA for a money laundering case.” It should be noted that the other clients of Yelinek’s lawyer, Carlos Carillo, were found to include politician Pedro Miguel González, drug trafficker Arcángel Montoya ‘s sister, and former Panamanian President Ernesto Pérez Balladares.
In fact, in 2005, the U.S. ambassador stated that such examples of corruption in the Panamanian judiciary “has had and continues to have a direct and serious adverse effect on U.S. national interests.” Subsequent cables expressed concern over unchecked corruption in the Supreme Court and named certain justices considered to be ‘corrupt.’ For example, in a 2005 cable, Supreme Court Justice Winston Spadafora was described as “epitomiz[ing] everything that is wrong on the Court, where unbridled venality and a culture of entitlement to ill-gotten riches continue to reach new depths.” Spadafora’s reputation was further marred when his visa to the U.S. was revoked due to his alleged connections to human trafficking.
This series of high-profile scandals exemplifies the crooked nature of backdoor dealings in the Panamanian judiciary. As usual, the judicial structure does little to create positive incentives and instead breeds corruption in an atmosphere conducive to a good ol’ boys’ club. One major factor contributing to this flawed climate is that the “hierarchical method of [judicial] appointment makes it especially prone to corruption, a susceptibility that is exacerbated by the relative autonomy offered to justices at all levels.” The system also employs “an inquisitorial system [in which] judges are offered extensive latitude in determining how cases are to be investigated.” Furthermore, a large salary gap between the different levels of the judiciary can be partly to blame for the pervasive bribery, especially in the lower courts; a 2008 study concluded that Supreme Court Justices earned USD 10,000, while municipal judges earned only USD 1,630.
The international community has earmarked aid in hopes of creating a fair judicial system. In 1991, the United States Agency for International Development (USAID) constructed an agreement that would assist Panama in improving its administration of justice, allocating USD 12 million over a five-year period. Then, in 1998, the Inter-American Development Bank loaned Panama USD 18.9 million for judicial reform, with the Panamanian government itself contributing an additional USD 8.1 million. A few years later, in 2003, the European Commission announced that it would provide EUR 6.5 million (USD 9.2 million) over a period of four and a half years to aid in the “modernisation of the judiciary.” Yet, despite the millions of dollars of aid, Panama’s courts still seem to be buckling under inefficiency and greed.
Panama Under Ricardo Martinelli
Not long after taking office, President Martinelli began to undermine his country’s democratic fundamentals, subordinating Panama’s basic constitutional components available to its citizens. Along with arbitrary detentions, repression of journalists, and the continued corruption of the judicial system, Panama’s National Assembly enacted the highly controversial Law 30, better known as the “Chorizo Law,” just one year after Martinelli became president. “While the new law simultaneously amend[ed] the penal code and regulate[d] commercial aviation, some of its other stipulations dramatically weaken[ed] Panama’s labor standards.” This law essentially undermined labor unions and environmental protections, as well as amended the penal code in favor of the police, further removing accountability and justice from an already deficient system. Panamanian civil society reacted strongly to the Chorizo Law, leading to a fierce labor protest in which three people died and hundreds more were injured. Despite these repercussions, Martinelli refused to revoke the Chorizo Law until October 2010—nearly four months after its enactment.
More recently, in 2011, Martinelli pushed for reform of the country’s 1963 mining code in order to open Panama’s copper industry to increased foreign investment. The move was not surprising for Martinelli, whose pro-business propensities were always very marked, also showing little restraint in safeguarding his country’s natural resources. However, after the new law was enacted on February 10, 2011, it sparked protests across the country, with the strongest opposition coming from indigenous groups and environmental activists. Following a sharp backlash and a particularly acute plunge in his approval rating, which “drop[ped] to an unprecedented 41% (down from its usual 60%-70%),” Martinelli was persuaded to repeal the new law in early March.
The Chorizo Law and the mining code reform are just previews to the behavior of the current administration, in which President Martinelli has been repeatedly accused of abusing his power. One such damaging accusation includes his alleged connection with Colombian racketeer David Murcia Guzmán, known for his massive money laundering operations and various pyramid schemes. The link was first suggested when Martinelli appointed José Abel Almengor to the Supreme Court in 2009 after the latter had served as a prosecutor in the Murcia case in Panama. LatinNews reported that former U.S. Ambassador Barbara Stephenson “suggested in a October 2009 cable [that this] was a ‘quid pro quo’ for Almengor’s discovery of information … ‘linking Martinelli to Murcia during his investigations’ and specifically claim[ing] that he (Martinelli) had received a US$800,000 campaign contribution from Guzmán (Murcia).” The DEA also reported that Alberto Shamah, brother of Panamanian Director of Tourism Salomón Shamah, had worked as Murcia’s pilot. Ambassador Stephenson’s cable further stated, “According to a DEA source, Alberto Shamah once flew Martinelli’s plane with Murcia on board. After the Murcia scandal broke, all records of that flight disappeared.”
Not surprisingly, Washington has since revoked Salomón Shamah’s visa to enter the U.S. due to allegations from both “U.S. and Colombian law enforcement (officials) that he is tied to drug and arms smuggling activities.” In the aftermath of these allegations, Martinelli indicated that Shamah would be removed from his position; however, the day after the U.S. announced that the TPA was moving closer toward ratification, Martinelli rescinded his decision to remove Shamah. The U.S. Congress should take note of Martinelli’s backpedaling and perhaps reconsider pushing through the TPA, which would link U.S. economic interests to Panama’s suspicious backroom dealings.
Washington should also be closely monitoring other recent questionable political developments in Panama. LatinNews reported that on July 3, 2011, the “Movimiento Liberal Republicano Nacionalista (Molirena) voted to end 29 years of political life and merge with President Ricardo Martinelli’s ruling Cambio Democrático (CD).” The resulting merger would make the CD the second largest party in Panama, following its impressive membership growth in recent years. However, on August 4, 2011, Panama’s electoral authorities denied the merge due to procedural violations of the country’s electoral law. The party now must complete the merger through the proper procedure, replacing the present roll call motion with a secret ballot. Such developments will be important for the U.S. to watch, as Martinelli already has demonstrated a more than passing interest in controlling the country’s judiciary and seems to be indicating that the “independence of the party political system is now also at stake.”
The Panama Canal Expansion
The Panama Canal expansion project, as well as the corrupt bidding process for new locks, should also wave a warning flag in Washington. The U.S. had been actively promoting the Bechtel Corporation to receive the contract and carry out the heavy construction needed for the project. However, Panama “gave a huge margin on the ‘technical ability’ side of the bid[ding] process to the consortium led by the almost-bankrupt Spanish Sacyr Vallehermoso [enterprise].” This may be why, in a 2009 WikiLeaks cable pertaining to the bidding process, former US Ambassador Stephenson said, “The pre-announcement conventional wisdom on the technical plans was so prevalent that the audience collectively gasped when the Sacyr high technical score was announced.”
After the bidding process was completed and work on the expansion commenced, Stephenson sent another cable outlining the Panamanian government’s fears about the progression of the project. She said Martinelli “grimaced” when asked about the expansion and “said that he feared that Canal Administrator (Alberto) Alemán (Zubieta) might have tipped the bid toward the consortium that included CUSA (Constructora Urbana S.A.), which is run by his cousin Rogelio Alemán.” With this instance of bid rigging and blatant favorability, can the U.S. really believe that their companies will be granted equal footing in Panamanian markets, as is supposedly guaranteed in the TPA?
Washington’s Next Steps
The Obama administration has a deep desire to continue sugar coating the TPA to make it more palatable for Congress to swallow. However, Washington needs to discontinue whitewashing Panama’s rather nefarious leader, government, and judicial system to make the country appear more of a compelling candidate to engage in a free trade relationship. Panama consistently has shown a high degree of disdain for playing by the rules, especially when it comes to the rule of law and the well being of its citizens. The U.S. should not lower its social and environmental standards just to push a pact that is neither necessary nor dire, especially one that is most likely to benefit big business interests abroad and to severely undermine transparency. If Panama proves that it can take constructive steps to clean up its government and freely adhere to the terms of the TPA, then Congress might consider ratifying the agreement (although separately from the Colombian and South Korean FTAs). Unfortunately, Panama’s governing class has shown time and again that it is not prepared to take on the institutional reform that it so desperately requires. If the TPA continues to move forward, the U.S. would be wise to tread carefully into such murky waters.