Time for Some Rational Thought About Doing Business in Cuba

Several years ago, during a visit to UCLA, former Defense Secretary Robert McNamara commented that in all his years of government service, he had found that Cuba was the one country that defied rational treatment. It seemed, he added, as if history and emotions would always take over, displacing careful and considered analysis of national interests and geopolitical reality.

We seem to be at it again. Since Fidel Castro’s visit to New York last October, debate has heated up on the continued embargo on travel, communications, trade and investment with Cuba. Legislation pending in Congress, known as the Helms-Burton bill, calls for stricter application of sanctions to foreign companies doing business in Cuba and President Clinton’s move in November to ease some travel and communications restrictions have brought out the extremists on both sides of the issue.

Against a background of the collapse of the former Soviet empire, the end of the Cold War and a gradual, if tentative, liberalization of the Cuban economy, the adoption by the Cuban National Assembly of a new foreign investment law last Sept. 5 has added urgency to the issue.

The American embargo on doing business with Cuba is now 33 years old and has gone through numerous cycles in the degrees of zealousness with which it has been applied. It was imposed at the height of the Cold War on the basis of the Trading With the Enemy Act of 1917, and a key provision forbade U.S. subsidiaries abroad from doing business with Cuba--another example of our penchant for the extraterritorial application of U.S. laws.

Increasing conflict with our trading partners, in whose political jurisdiction these affiliates were incorporated, forced the U.S. to retreat from enforcing the law. Then the Reagan administration tightened the embargo in 1982, an action upheld by the Supreme Court in 1984.

The Cuban Democracy Act of 1992--sponsored by Rep. Robert G. Torricelli (D-N.J.)--specifically prohibited U.S. subsidiaries overseas from trading with Cuba. At the time, it was estimated that 18% (or $700 million) of all hard currency imports into Cuba came from such sources. This measure passed with broad bipartisan support in spite of the evidence that foreign suppliers could easily meet the shortfall, and that many of the earlier conditions and rationale for sustaining the embargo had disappeared. Cuba no longer maintained troops in Africa, nor did it support guerrilla movements in South America, and its ties to the former Soviet military machine were rapidly being dismantled.

Now, proponents of the Helms-Burton bill are calling for even tighter restrictions on trading with Cuba, and would apply them to foreign business interests that do business in Cuba. The bill, overwhelmingly passed in the House last September (voting 294 to 130), would impose sanctions more restrictive than those applying to Iraq. These would range from the denial of U.S. visas to foreign executives and their families who have conducted business in Cuba, to granting access to U.S. courts to the former owners of confiscated properties in Cuba should such properties be involved in a foreign company’s activities in the island. Clearer heads prevailed in the Senate, however, where many of the most extreme provisions of the bill were removed or watered down.

The key question remains, however: Should we continue to single out Cuba for such extreme treatment, something usually reserved for countries with which we are at war?

First, it is obvious that the embargo has not worked. In 1992, Torricelli promised that Castro would fall “within weeks” after passage of his act. Instead, we have an economy that is beginning a gradual recovery after its gross national product dropped more than 40% from its 1989 level. Why should Castro’s resilience be any less now?

Second, the embargo may have actually hurt our ultimate objective of bringing democratic change to the country. It has stirred nationalism, bred resentment against those affiliated with the movement for change and, most important, provided Castro with a convenient excuse for the failure of his own policies.

The Cuban Council of Catholic Bishops, the Ecumenical Council and most human rights activists in Cuba oppose the continuation of the embargo. As Elizardo Sanchez, a leading figure in the Cuban human rights opposition--who has spent eight of the last 12 years in prison--has stated: “The external enemy, real or imagined, is the dictator’s best ally.” Instead, these people and organizations are calling for more open exchanges that will lead to a better informed public and internal pressures for change.

Our government argues that open trade and dialogue are the best policies to pursue in order to effect a more democratic political process in China and Vietnam. There is considerable debate as to whether this is, in fact, the case. But why should this policy, if appropriate, not apply in the case of Cuba?

And if change comes to Cuba, as it must, would it not be better that a new democratic regime begin the process of reconstruction from an economic base that has not been destroyed by the rigors of the embargo? Add to this the resentment that may be engendered in the Cuban population (as unjust as blaming the embargo may be) over the hardships people were forced to endure for years.

Third, our stand is increasingly seen as unjustified and immoral by the rest of the world. It violates rules established by the World Trade Organization, which the United States joined a year ago. And the Inter-American Human Rights Commission of the Organization of American States has found that the inclusion of food and medicine in the embargo violates international law.

When brought before the General Assembly of the United Nations, a nonbinding declaration condemning the embargo obtained only 59 votes in 1992. By 1994, the number had risen to 101, and last November, 117 countries voted against the United States on this issue. Only Israel and Uzbekistan, both of which trade with Cuba, sided with the U.S. on the resolution.

Finally, there is the question of the impact of the embargo on U.S business and economic interests.

In 1994, more than 500 U.S. business executives traveled surreptitiously to Cuba on scouting missions. Estimates for this year are several times that number, and many businesses are rumored to have signed “letters of intent” in anticipation of a change in the law. In the meantime, U.S. businesses are missing out on significant opportunities in agribusiness, mining, tourism, services and light manufacturing.

In the years since 1984, more than $2 billion in foreign deals have been signed, although less than half of that may actually be invested. But since the recent opening, more than $550 million in foreign investments have been announced, with Mexico and Spain leading the way with a more than 40% share between them.

Cuba’s new foreign investment law allows for 100% ownership and carries repatriation guarantees in all but three sectors: defense, health and education. Restrictions on hiring practices and other questionable provisions diminish some of its attraction, yet foreign executives are flocking to Cuba in anticipation of broader liberalization.

A senior executive from an Argentine company who had just returned from Cuba recently told me of the enthusiastic reception he had experienced. And, he added, “we should move quickly before the Americans are allowed to get in.”

What will be left when and if we change our policy is an issue of concern to many key U.S. executives. Last August, at a pep talk given by Assistant Secretary of State for Inter-American Affairs Alexander Watson, he argued for more aggressive investment policies by U.S. companies in the Western Hemisphere. Asked if this would apply to Cuba, he answered, “No, that simply can’t be, not for now.”

Make no mistake about it, Cuba is still a brutal place, one where, according to Amnesty International, more than 600 people languish in political incarceration. Castro’s goons are everywhere, and the government system exercises total control. Sanchez’s Cuban Commission for Human Rights and National Reconciliation estimates that there are more than 300 prisons and rehabilitation centers in the country. Economic reforms are small and carefully controlled.

But faced with a policy that has not worked for more than 30 years--one that may in fact be detrimental to the very goals we hold dear and that is causing damage to our international and domestic interests--should we not subject it to careful and rational analysis? The politics of an election year, one in which the Florida vote may be critical, is perhaps not the best of circumstances for such reasoned discourse.

But there is considerable evidence that the Cuban exile community is becomingly increasingly ambivalent about the hard-nosed policies advocated by the Cuban-American Foundation and others like it. A recent poll by Florida International University found that 63% of the local Cuban American population favors dialogue with the regime, although a majority still opposes lifting the embargo.

This legacy of the Cold War seems increasingly anachronistic. Perhaps the time has come to question Watson’s claim that “Cuba is a special case” and to prove McNamara wrong by approaching the issue rationally for once.