Impact of Cuban Trade Embargo

The Impact of the Cuban Trade Embargo By: Natalie Bell 2/25/09 [pic] International Business Law BLAW 4320 [pic] Cuba, the largest island nation in the Caribbean just ninety miles off the coast of Florida, experienced many difficult struggles through its extensive history. It was the last major Spanish colony to gain independence, following a lengthy struggle that was begun in 1868. It was in 1898 when the U. S. intervened during the Spanish-American War that it finally overthrew Spanish rule. The Treaty of Paris established Cuban independence, which was granted in 1902 after a three-year transition period. The United States and Cuba concluded a Treaty of Relations in 1934, which, among other things, continued the 1903 agreements that leased the Guantanamo Bay naval base to the United States (CIA World Factbook). In the time before 1959, the United States had maintained strong ties with Cuba. Many Americans had many various business investments there, and the country was a special place for tourists from around the world. Since the fall of the U. S. -supported dictatorship of Fulgencio Batista in 1959, it was Fidel Castro who has mainly led Cuba throughout the years. It was in Febuary 19, 2008 when Fidel Castro finally ceded power to his brother Raul Castro. Since the majority of Cubans were born after the 1959 revolution, most of the Cuban people have known no other leader. President Fidel Castro outlasted no fewer than nine American presidents since he took power in 1959 (Castro:Profile). Relations between the United States and Cuba deteriorated rapidly as Fidel Castro and the Cuban regime moved toward the acceptance of the one-party communist system. Cuba seized the assets of American citizens and U. S. irms including farms, factories, hotels, bank accounts, and real estate without compensation. It was finally on April 16, 1961 when Fidel Castro declared Cuba a socialist state. Cuba's Communist revolution, with Soviet support, was brought to other countries throughout Latin America and Africa during the 1960s, 1970s, and 1980s. Castro maintained close relations with the Soviet Union and worked jointly with the goals of Soviet communism by fund ing and provoking violent rebellious activities, as well as using military intervention in other countries, until the fall of the U. S. S. R. in 1991 (Castro: Profile). In response, the United States imposed an embargo on Cuba in October 1960, and, broke diplomatic relations on January 3, 1961. This began the over forty-year period of tension between the U. S. and Cuba, beginning with President Kennedy’s failed Bay of Pigs invasion in 1963 and the Cuban Missile Crises (CIA World Factbook). Since 1961, Cuba portrayed many difficulties as the result of the U. S. embargo and the embargo had a great effect on both nations. It was in 1963 that the United States passed the Cuban Assets Control Regulations, under the authority of the Trading with the Enemy Act. The Act was enacted in 1917 to restrict trade with countries that are hostile to the United States. The law gives the President the power to oversee or restrict any or all trade between the U. S. and its enemies in times of war. The purpose of the law was to isolate Cuba economically and politically. It banned all trade and financial transactions between Cuba and the U. S. , and froze all U. S. held assets of the Cuban government and of private Cuban citizens. It also prohibited almost all travel to Cuba by researchers, student groups, journalists, athletes, and those traveling to see immediate family members (Schaffer 268). After the fall of the Soviet Union in the early 1990’s, the U. S. Congress wanted to pressure Cuba for democratic change. First in 1992, the U. S. Congress approved the Cuban Democracy Act, restricting Americans from vis iting the island, banning family remittances, and prohibiting foreign subsidiaries of U. S. ompanies from doing business with Cuba. Following a few years later, on March 12, 1996, President Bill Clinton signed the Cuban Liberty and Democratic Solidarity Act, also called the Helms-Burton Act. After this law was signed, it further toughened the Cuban sanctions. It imposed penalties on foreign companies doing business in Cuba, it permitted U. S. citizens to file lawsuits against foreign investors who made use of the American-owned property that was seized after 1959 by the Cuban government, and it denied an entry visa into the U. S. to such foreign investors. It was a very controversial because this included many Mexican, Canadian, and European businessmen who did business in Cuba (268). The passage of the Helm-Burton Act caused a worldwide protest, primarily in Mexico, Canada, and the European Union, who argued that the Helm-Burton Act violated international law. A protest was filed with the World Trade Organization by the European Union, but was suspended when the Clinton Administration reassured that the law for visa restrictions under Title III of the Helm-Burton Act would not be enforced against citizens in third world countries. The Act calls for the trade sanctions between the U. S. and Cuba to end as soon as Cuba agrees to have a democratically elected government, abide by human rights conventions, opens its prisons to international inspection, returns Cuban citizenship to Cuban exiles living in the U. S. , and makes progress in returning expropriated property to its rightful owners (268). Today, there are many laws, rules, and regulations that derived from the U. S. sanctions against Cuba. Presently, most commercial imports from Cuba are illegal by law but remain listed under the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA). Under the Act, the sale of certain items, including medicine and medical supplies, and agricultural commodities have been approved for export by specific regulations. According to the Act, â€Å"The Department of the Treasury is responsible in issuing licenses that are used to export these goods on a case-by-case scenario and authorizing Cuban travel-related transactions that are only relating to marketing, sales negotiation, accompanied delivery, and servicing of exports and re-exports that also must appear in line with the licensing policy of the Department of Commerce† (U. S. Treasury Department). The only sectors in which U. S. citizens may sell and service products to Cuba include agricultural commodities, medicine, and medical devices. The Treasury Department will is also be able to consider requests for specific licenses for humanitarian travel, educational exchanges (that are at least 10 weeks in length), and religious activities by individuals or groups that are associated with a religious organization. However, any U. S. citizen or corporation that is subject to U. S. law and engages in any travel-related transaction in Cuba violates the regulations. The Act specifically states that, â€Å"The Cuban Assets Control Regulations affects all U. S. citizens and permanent residents wherever they are located, all people and organizations physically in the United States, and all branches and subsidiaries of U. S. organizations throughout the world† (U. S. Treasury Department). If the regulations are not followed, then it may result in both civil penalties and criminal prosecution upon return to the United States (U. S. Treasury Department). Today, traveling to Cuba also has many rules and laws that make traveling to the Cuba very complex. In 2004, President Bush’s Commission for Assistance to a Free Cuba placed a further reduction on the restrictions on family visits to Cuba. Visits by Cuban Americans to family in Cuba are permitted only once every 3 years instead of once every year. No humanitarian exceptions are given if there is any of a family illness or crisis going on in Cuba. Visits are restricted to two weeks and strictly limited to immediate family as defined by the U. S. Department of Treasury’s Office of Foreign Assets Control (OFAC), which eliminates the right to visit cousins, aunts, uncles, nephews, nieces, or more distant relatives (LAWG). Only if a traveler receives a license, then a valid passport will be required for entry into Cuba. The Cuban government requires that travelers obtain their visas before they arrive to the country. If there are attempts to enter or exit Cuba illegally, or there is in any kind of aid in helping Cuban nationals or others escape Cuba then punishment is served by stiff jail terms. Entering Cuban territory, territorial waters or airspace, which include being within 12 miles of the Cuban coast, without any prior permission from the Cuban government may result in arrest or other enforcement actions by Cuban authorities. According to the U. S. Department of State, most immigration violators are subject to prison terms that range from four years for illegal entry or exit to as many as 30 years for certain cases of assisting Cuban migrants to attempt to leave Cuba illegally (U. S. Department of State). Family remittances or money sent to Cuba also have specific rules and regulations that must be followed by the people residing under U. S. law. According to the U. S. Department of State, â€Å"U. S. ersons aged 18 or older may send money to members of the remitter’s immediate family in Cuba of up to $300 per household in any consecutive three-month period, regardless of the number of members of the remitter’s immediate family residing in that household. † The law also states that no member of the household can be a prohibited official of the Government of Cuba or a prohibited member of the Cuban Communist Party (U. S. Department of State). Other laws that are also a part of the on g oing U. S. embargo with the Cuban government involves the use of money in Cuba that U. S. travelers are limited to spend during their stay in Cuba. U. S. people traveling to Cuba to visit their family or traveling for other purposes can spend no more than $50 per day on non-transportation-related expense in Cuba, and up to an additional $50 per trip to pay for transportation-related expenses in Cuba. However, professionals such as journalists, photographers, or any other kind of licensed travelers may spend additional money for their professions that are directly related to what they need in order to fulfill their work (U. S. Department of State). It is also interesting to know that U. S. citizens and permanent resident aliens are not allowed from using their credit cards, personal checks, or travelers’ checks that are drawn from U. S. banks in Cuba. U. S. credit card companies do not accept any kind of vouchers from Cuba, and, at the same time, Cuban shops, hotels and other places of business do not accept any types of U. S. credit cards (U. S. Department of State). Today, the U. S. Cuban embargo has become one of the most controversial issues upon many countries throughout the world. There have been many advocating for a change of the current policies towards Cuba for some time now. The sanction has continuously been condemned and voted against by almost all nations throughout the world. For the 16th consecutive year, the U. N. General Assembly recommended that the U. S. ended the embargo. In 2006, a total of 183 member nations of the U. N called on the U. S. to end the sanctions with Cuba (Sierra). In 2007, the 192-member General Assembly passed the measure by 184 votes to four, with one abstention (U. S. Urged). According to Remy Herrera, â€Å"The normative content of this embargo and its rules, which the U. S. intends to inflict on the international community with its unilateral sanctions is a violation of the spirit and letter of the United Nations Charter and of the Organization of American States, and of the very fundamentals of international law† (Herrera). This excessive extension of the territorial jurisdiction of the U. S. , Herrera adds, â€Å"Is contrary to the principle of national sovereignty and to that of non-intervention in the internal choices of a foreign state, s recognized in the jurisprudence of the International Court of Justice† (Herrera). According to Richard Schaffer, even the Vatican protested Helms-Burton, claiming that it increased economic suffering of the Cuban People. Many trade groups have also argued against the law because they believed that economic engagement actually would promote freedom in totalitarian countries. The U. S. firms that are h oping to engage in the business activities in Cuba also seek an ending to the U. S. trade sanctions (Schaffer 269). According to U. S. Congresswoman Nancy Pelosi, many feel that the lifting of the travel restrictions to Cuba, family remittances, and trade exchange are necessary and are some of the most important issues in the policy changing process that the U. S. needs to undergo in order to have better relations with Cuba (Pelosi). Ironically, surveys of the American public opinion show that the vast majority of Americans favor ending sanctions as well, and recognizing the government of Cuba (Schaffer 269). According to a recent poll from USA Today that took place between February 21- 24, 2008, 61% of 2,021 adults nationwide favored re-establishing U. S. diplomatic relations with Cuba, 29% opposed, and 10% of the people were unsure (PollingReport). Over Forty-five years of communism have left the island nation an economic ruin and the U. S. embargo had many diverse effects on Cuba. According to a BusinessWeek article by Geri Smith, â€Å"The Cuban government has always referred to the embargo as a ‘blockade,’ a word that has a more sinister tone than ‘embargo’† (Smith). Cuba went through many difficulties as the result of the U. S. embargo since 1961 and suffered much more since the collapse of the Soviet Union in 1991. The country faced a severe economic downturn, which really caused the Cubans' living standards to significantly fall. The disappearance of Soviet aid following the collapse of the USSR forced the government to introduce tight rationing of energy, food, and consumer goods, as well as the withdrawal of the former Soviet annual subsidies that were worth $4 billion to $6 billion (Country Profile: Cuba). Since then, it has taken action with limited reforms in order to increase enterprise efficiency and improve some of their economic problems which included their serious shortages of food and goods. Due to the economic problems and domestic inefficiencies that Cuba faced during the 1990’s, President Castro allowed a few steps towards a more market-oriented system. In 1993, the U. S. dollar was accepted by Cuba and allowed to circulate throughout the nation. Because of their lack of basic necessities and few consumer goods, Cuba’s economy persisted with the help of Canadian, European and Latin American investments. Essentially for Cuba, the nation also developed closer relations with China and Venezuela. China invested in Cuba’s nickel industry and provided Cuba support in the form of trade credit, technology, and investment capital while Venezuela provided supply to cheap fuel (Smith). Since late 2000, Venezuela has been supplying about 100,000 barrels per day of petroleum products. Cuba has been paying for this oil with the services of Cuban personnel in Venezuela, including 20,000 medical professionals (CIA WorldFactbook). After market factors improved, in 2004 the U. S. dollar transactions in Cuba were banned and a 10% tax was imposed on the dollar-peso conversions. According to the CIA World Factbook, Cuban exports total $3. 31 billion and their major exports include Sugar, nickel, tobacco, fish, medical products, citrus, and coffee partners. The countries that Cuba mainly exports to include the Netherlands (21. 8%), Canada (21. 6%), China (18. 7%), Spain (5. 9%) (CIA WorldFactbook). On the other hand, Cuban imports have totaled $10. 86 billion and consist mainly of petro leum, food, machinery and equipment, and chemicals. The countries that Cuba mainly imports from include Venezuela (26. 6%), China (15. 6%), Spain (9. 8%), Germany (6. 4%), Canada (5. 6%), Italy (4. 4%,) the U. S. (4. 3%), and Brazil (4. %) (CIA WorldFactobook) Today, Cuba has two currencies in circulation, which include the Cuban peso (CUP) and the convertible peso (CUC). The Cuban peso (CUP) is specifically for the Cubans, while the convertible peso (CUC) is strictly for tourists and foreign businessmen. According to a BBC News article by Michael Voss, â€Å"The average Cuban salary of 400 pesos a month is worth about $16, yet almost everything available in the shops has to be paid for in the convertible pesos (CUC's)† (Voss). â€Å"Why has the economy moved to convertible pesos when workers are paid in the national currency? † declared one of the students in the article. You need to work for two days just to buy a toothbrush† (Voss). The problem with the dual c urrency is one of the biggest challenges that negatively influences the Cuban economy. Cuba faces many hardships because of the economic problems throughout the country. Many of the effects have caused an increase in prostitution, corruption, black marketeering and desperate efforts to escape in search of a better life (Country Profile: Cuba). Many Cubans had enough with the hardships and risk their lives to escape from the country. Thousands have tried to escape through the sea in a waterborne exodus to Florida, but many have drowned. Castro: Profile) According to the BBC News article, Castro: Profile of the Great Survivor, â€Å"Even his own daughter Alina Fernandez prefers a life of exile as a dissident in Miami to rule under her ‘despotic’ father† (Castro: Profile). According to the CIA World Fact Book, illicit migration to the U. S. , using homemade rafts, alien smugglers, or air flights, is still a continuing problem. The U. S. Coast Guard seized 2,864 peop le trying to cross the Straits of Florida in the year 2006 (CIA WorldFactbook). Cuba has also been fraudulent with the UN's top human rights forum, over specific rights abuses. The UN has insisted that Cuba allows for freedom of expression and to release imprisoned protesters who have protested against the government (Country Profile: Cuba). The U. S. has caused Cuba many economic damages because of the U. S. embargo. According to U. S. congresswoman Nancy Pelosi, â€Å"The over-45-year US economic, commercial and financial blockade of Cuba has translated into over 89 billion dollar losses for the U. S. † (Pelosi). According to the article, The Effects of the U. S. Embargo Against Cuba, the direct economic losses for Cuba by the U. S. embargo would exceed 70 billion dollars. The damages were estimated by calculating amounts of Cuba’s potential earnings and unnecessary losses since the institution of the U. S. embargo in 1961. The embargo negatively affected all of the sectors in Cuba, which also directly imposed on the major driving forces of the Cuban economy, which included tourism, foreign direct investments (FDI) and currency transfers (Herrera). Cuba became very limited in having access to technologies and various resources because of the obstacles that were forced by the Unites States. According to a Business Week article, â€Å"Trade and investment open up economies to new ideas. Cell phones, the Internet, and other high-tech communication technologies are detrimental to closed-minded bureaucracies† (Farrel). Since December, 2001, when food and agricultural products were allowed to be exported to Cuba, over $2 billion dollars worth of goods were earned by U. S. firms and shippers (LAWG). According to the article, The Travel Industry’s Push to Unlock Cuba, loosening the restrictions could boost the U. S. economy in the long term by as much as $1. 6 billion annually and create as many as 23,000 new jobs (Unlock Cuba). In this way, Cuba has the potential for economic growth if the U. S. nds or even loosens their trade sanctions. This can also further ease the hardships and economic issues of poverty in Cuba. Relations between the United States and Cuba are hoping to improve in the future, especially because Fidel Castro retired his control over Cuba. Many hope that Cuba will be open for business and that there may be signs of new beginnings of chang e on the economic front under Raul Castro (Smith). Some, however, are more skeptical of the idea. According to a recent poll from USA Today that took place between February 21- 24 of 2008, only 37% of 2,021 people felt that the situation for people in Cuba would get better. A majority of 51% felt that the situation for people in Cuba would stay the same, 6% felt that it would get worse, and 6% felt they were unsure (PollingReport). Fortunately, Raul Castro has introduced a series of reforms since taking over as president from his brother Fidel in February and has already taken steps on improving certain services for the Cuban public. The new leader started focusing on some of the most-mentioned problems, such as spotty public transportation and the low wages paid by the government to private farmers (Smith). According to the article, Cuban Leaders Plan More Reforms, these reforms have also included the removal of some restrictions on the purchase of electrical goods such as mobile phones, microwave ovens and DVD players. According to the article, Cubans have been reported to take out 7,400 new mobile phone contracts in the 10 days since the restrictions were eased. The country has also lifted a ban on its people staying in hotels previously reserved for foreigners (Cuban Leaders). It will be interesting to see if more market-oriented steps will take place with the Raul Castro’s new regime. Another major issue that will be crucial for many U. S. businesses as soon as the embargo ends in the future is the growing interest in the tourism sector of Cuba. According to an article by Sucharita Mulpuru, Americans represent only a small part of the nearly 1. 2 million visitors who come to Cuba every year, mainly from Canada, Spain, France, Germany, and Britain (Mulpuru). Tourism continues to inspire high hopes among many investors. In the article, Enzo Alberto, the Canadian-Italian CEO of ICC, a major investor in the island's Internet infrastructure states, â€Å"I believe that Cuba could be to America like Hong Kong is to Asia,† (Mulpuru). Many countries pour nearly $2 billion into the economy, outstripping revenues from sugar and other core crops such as tobacco (Mulpuru). According to the article, A Warmer Climate for Trade with Cuba, the industry argues that the island nation is a potential source of needed revenues that would be able to boost both the travel business and the U. S. economy while opening to tourism and foreign investment in Cuba. As a result, this will also boost the economy as well as the currency reserves of Cuba. Unfortunately, all of this potential to help both economies and many people in both nations will not end until the U. S. rade embargo ends and the Cuban government loosens its stranglehold on the economy. It will be interesting to see how the U. S. embargo will be affected by the policies of the future elected president of the U. S. Of the three leading Presidential candidates, only Democratic contender Senator Barack Obama has stated that he would be willing to sit down and talk with Rau l Castro's government, as long as human rights are on the agenda. On the other hand, Senator Hillary Clinton stated said she would not do so until Cuba started to implement economic and political reforms, while Senator John McCain has kept President George W. Bush’s policy and states that â€Å"talks are off† until Cuba begins a â€Å"transition to a free and open society† and releases all political prisoners (Smith). According to the Associated Press, the presidential candidates are expected to lightly discuss the question of lifting the embargo during their campaign. According to their article, Five-decade U. S. Trade Embargo with Cuba Expected to Outlast Fidel Castro, there is a great deal of sensitivity on the issue, especially in states with high populations of Cuban immigrants such as Florida (Associated Press). The entrepreneurs of the U. S. ave seen their foreign competitors take advantage of opportunities in Cuba. U. S. businesspersons can only hope that the trade and travel restrictions will be lifted eventually, so that they can tap the potential markets in Cuba especially in the tourism and agricultural sectors. This is very unlikely to happen soon because of the ongoing disputes between many in regards to the Cuban embargo. The impact of the Cuban embargo caused many diverse effects for both nations, but with new policies and politicians that are developing for the future, this story can be the end of an old era. Works Cited ACN Cuban News Agency. 2007, May 2). â€Å"Nancy Pelosi Says U. S. Blockade of Cuba Should be Lifted. † Retrieved April 24, 2008, from http://www. cubanews. ain. cu/2008/0425nancypelosi. htm Alomso, Cynthia C. â€Å"The Travel Industry's Push to Unlock Cuba. † BusinessWeek. 27 August 2003 Associated Press. Five-decade U. S. Trade Embargo with Cuba Expected to Outlast Fidel Castro. 20 February 2008. Retrieved on April 24, 2008 from http://www1. whdh. com/news/articles/national/BO73631 BBC News. (2008, February 19). â€Å"Castro: Profile of the Great Survivor†. Retrieved April 24, 2008 from http://news. bbc. co. k/2/hi/americas/244974. stm BBC News. (2008, April 12). â€Å"Cuban Leaders Plan More Reforms†. Retrieved April 24, 2008, from http://news. bbc. co. uk/2/hi/americas/7343883. stm BBC News. (2008, February 26). â€Å"Country Profile: Cuba†. Retrieved April 24, 2008 from http://news. bbc. co. uk/2/hi/americas/country_profiles/1203299. stm BBC News. (2008, April 24). â€Å"Cubans Snapping Up Mobile Phones†. Retrieved April 24, 2008, from http://news. bbc. co. uk/2/hi/business/7364791. stm BBC News. (2007, October 30). â€Å"U. S. Urged to End Cuba Embargo†. Retrieved April 24, 2008, from http://www. bbc. co. k/caribbean/news/story/2007/10/071030_cubaun. shtml CIA World Factbook. Cuba. (nd). Retrieved on April 22, 2008 from https://www. cia. gov/library/publications/the-world-factbook/geos/cu. html Farrell, Christopher. â€Å"The Case Against Embargoes† BusinessWeek. 25 April 2005 Herrera, Remy. The Effects of the U. S. ‘Embargo’ Against Cuba. 7 October 2003. Retrieved on April 22, 2008 from http://www. alternatives. ca/article876. html Latin America Working Group (LAWG ). Top Ten Reasons For Changing U. S. Policy Toward Cuba. (nd) Retrieved on April 22, 2008 from http://www. lawg. org/docs/new_member_packet. df Magnusson, Paul. â€Å"A Warmer Climate For Trade in Cuba. † BusinessWeek. 16 June 2000 Mulpuru, Sucharita. â€Å"In Cuba, History’s Joy—and Curse. † BusinessWeek. 3 Feb 2003. Pew Hispanic Center. Cubans in the Unite States: A Profile. 25 August 2006. Retrieved from http://pewhispanic. org/files/factsheets/23. pdf Polling Report. Cuba. Retrieved on April 22, 2008 from http://www. pollingreport. com/cuba. htm Plummer, Robert. â€Å"How Cubans Heal Their Economic Ills† BBC News. 3 January 2007. Schaffer R. , Earle B. , & Agusti F. (2005). International Business Law and Its Environment. Ohio: Thomson-Southwestern West. (6e). Sierra, J. A. Economic Embargo Timeline. (nd). Retrieved on April 22, 2008 from http://www. historyofcuba. com/history/funfacts/embargo. htm Smith, Geri. â€Å"Cuba Under the Other Castro? † BusinessWeek. 24 February 2008 Smith, Geri. â€Å"When Will Cuba Be Open for Business? † BusinessWeek. 29 February 2008 U. S. Department of the State. (http://www. state. gov). Retrieved on April 22, 2008. U. S. Department of the Treasury. â€Å"Cuba: What You Need To Know About The U. S. Embargo†. Retrieved April 22, 2008 from http://www. treas. gov/ofac Voss, Michael. â€Å"Stepping Into Big Brother's Shoes? † BBC News. 24 February 2008