Economic sanctions can be and are a valuable tool for enforcing international norms and protecting our national interests. The U.S. Policy of applying economic pressure in Cuba originated soon after Fidel Castro came into power in 1959. The United States first imposed a full trade embargo on Cuba on February 3, 1962, after the Kennedy Administration became convinced that Castro was moving rapidly toward the establishment of a totalitarian regime in alliance with the Soviet Union. Castro had not only confiscated U.S. and other Cuban and foreign-owned properties on the island, but had been providing indiscriminate support for violent revolution throughout the Americas as part of his efforts to carry on the “continental struggle against the Yankees,” which he considers to be his “true destiny.” The embargo was formally begun by President, John F. Kennedy, and has been supported by all successive Presidents. The U.S. embargo has had a major impact on the Cuban economy involving trade, wages, and jobs; and in addition, it has affected many United States’ businesses both directly and indirectly. The Helms-Burton Act is one of the major bills regarding trade with Cuba, and it has encountered much opposition and controversy both in the United States and abroad. Only recently was the news media ban in Cuba lifted allowing American journalists to get news from within Cuba. Health care in Cuba is also a major concern and is strongly affected by the Cuban Embargo.
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Our policy on Cuba is illustrative of one of the principal goals of economic sanctions-to encourage our friends and allies to adopt policies that can advance our common interests. Our allies and trading partners disagree with our embargo and have urged us to alter the provisions of the Libertad Act, also known as the Helms-Burton Act named after its principal sponsors.
Cuba’s economy is in complete disarray as a direct result of Castro’s insistence on adhering to a discredited economic model-that of communism. The impact of the U.S. embargo was offset during the Cold War years by five to six billion dollars in subsidies a year from Russia. The economic problems in Cuba were exacerbated by the demise of the Soviet Union. The U.S.S.R. annually gave nearly five billion dollars in subsidies to the Castro government. However, the communist regime dedicated a bulk of these funds to maintaining an over-sized military machine and to a massive internal security apparatus. With the collapse of the Soviet Union, Cuba suffered a 35% decline in its gross domestic product between 1989 and 1993 (see chart), revealing an inherently dysfunctional economy.
Food shortages and failure to provide basic public services incited disturbances that began to threaten the regime.
In order for the communist government to survive, they had to undertake certain limited economic reforms because of these problems coupled with the continuing embargo. In the mid-1990s, the Cuban government began to allow private citizens to offer certain services under strict government scrutiny. Then in 1997, they introduced heavy taxes that forced many of these people out of business. In this sector, employment peaked at 206,000 in 1996, and then fell to 170,000 in 1997. The Cuban government has actively encouraged foreign investment, but forbids private investment by Cuban citizens, leaving it hostile to private enterprise. Not until 1993, did the Cuban government make it legal for Cubans to possess U.S. dollars. Since then, it has become the major currency. Failure by the communists to launch major economic reforms has fostered the development of a large black market and vividly growing corruption. Those with access to dollars can purchase imported goods at government-run dollar stores. To earn dollar tips, many skilled persons, such as doctors, teachers, engineers, and scientists are working in more remedial jobs in restaurants or as taxi drivers. Nevertheless, the Cuban government has not employed any credible effort to adopt market-based policies and continues to keep tight control over the highly centralized economy. Over 80% of the work force are employed by the state.
To encourage a democratic transition in Cuba, Congress passed the Cuban Democracy Act (CDA) in 1992, which tightened the embargo by prohibiting American owned or controlled subsidiaries located abroad from doing business with Cuba.
The sanctions will also have an unanticipated indirect effect on the American economy too. In addition to the immediate impact of sanctions on trade with the target, Cuba, many American businesses will suffer. American businessmen claim that the effects of even limited unilateral trade sanctions will go well beyond the targeted sectors. They also argue that the effects of such action will tend to linger long after the embargo is lifted because U.S. forms will come to be regarded as “unreliable suppliers.” Exports lost today may mean lower exports after the sanctions are lifted because U.S. firms will not be able to supply complementary parts, replacement parts, or related technologies. These indirect effects may extend beyond the sanctioned products and even beyond the time period in which the sanctions are imposed.
Jobs in the export sector of the economy tend to pay better than the average wages. Thus even in the full employment economy that the U.S. is enjoying now, the loss of exports still means a loss in wages-the export wage sector premium. The export sector wage premium is about 12 to 15 percent, taking into account both direct and indirect employment. In 1995, the average salary in the manufacturing sector was about $34,020, so the premium paid by the export sector was about $4080 per worker (12% of $34,020). What these figures mean is that, as a consequence of U.S. sanctions, workers probably lost between $800 million and $1 billion in export sector wage premiums in 1995.
In some periods in the last two decades, when the U.S. economy was not flourishing with full employment, and when jobs were not readily available, the loss of these exports may have added to the unemployment rolls. But even if the loss of exports had a zero effect on unemployment, it certainly reduced the number of good paying jobs. If the next twenty years see similar applications of sanctions in the United States, the cumulative loss of wage premiums could be around $20 billion (20 years times roughly $1billion a year). This is a heavy cost for us, and does not even take into account less tangible costs like making U.S. companies seem unreliable as suppliers and handing over business to foreign competitors.
U.S. businesses are alarmed by the proliferation of trade sanctions by federal, state, and local governments and are pushing for legislation making it harder to use commerce as a weapon in international disputes. USA*Engage and its 632 businesses and organization members argue that unilateral trade sanctions rarely work, and often, they do backfire and have a bad affect ion American interests. Most of the analysis of the effectiveness of economic sanctions suggests they have limited utility for changing the behavior or governments of target countries. Previous research at the Institute for International Economics concluded that US sanctions had positive outcomes in fewer than one in five cases in the 1970s and 1980s. Much less is known about the costs of economic sanctions for the U.S. economy.
Foreign investment in Cuba has failed abysmally to meet the regime’s own expectations. Many of the countries that had committed investment hardly reached what they had actually promised (see chart below). Originally targeted at $500 million per year when new measures to attract foreign investment were introduced in 1990, the three-year investment total (FY 90-91 to 92-93) barely reached $500 million.
For thirty years, the United States had a media ban restricting the media from having outposts in Cuba. American news bureaus were closed down in Cuba in 1969 when Castro’s government expelled the last members of the Associated Press who had been operating in the country. Almost thirty years later, in February 1997, President Clinton stated that ten news organizations would receive licenses allowing them to resume operations in Cuba. The decision to lift the news media restrictions came at a time when questions concerning relations with Cuba began to cause policy rifts between the United States and our European allies.
Despite this minor concession made by the White House concerning the media networks, the policies of the Clinton Administration remained avidly anti-Castro. Clinton’s main intentions concerning Cuba are to promulgate democratic reforms in the government and bring an end to four decades of communism in Cuba.
During Clinton’s first term in office, he signed into law, a bill that imposed sanctions on any country that chose to do business with the Castro government, the Helms-Burton Act. Our European allies argued that the law was an attempt by the United States to control the foreign policies of other countries. And they vowed to challenge the law before the newly formed World Trade Organization (WTO).
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After Cuban fighter jets shot down two passenger planes without warning in February 1996, President Clinton showed no hesitation in signing this bill into law. Part of his intentions were to “send Cuba a powerful message that the United States will not tolerate further loss of American life,” as Clinton stated himself. The bill targets companies doing business in Cuba in an attempt to block crucial international investment sought by the Cuban government. It allows Americans to sue companies that profit from the property the Cuban government has confiscated in the past 35 years, a stipulation many U.S. allies have shown opposition for. One of the major reasons for the imposition of the embargo was the Cuban Government’s failure to compensate thousands of U.S. companies and individuals whose properties, large and small, were confiscated after the revolution. They specifically targeted and took property owned by U.S. nationals. Under the Cuba claims programs in the 1960s, the U.S. Foreign Claims Settlement Commission certified 5,911 valid claims by U.S. nationals against the Government of Cuba. The Castro government also took property from thousands of Cubans, some of whom have since become U.S. citizens. Under the law, any person who makes use of property confiscated from Americans by Castro’s government can be denied entry into the United States. Cuban-American Representative Ileana Ros-Lechtin, R-Florida, said the bill “will penalize those who have become Castro’s new patron saints: the foreign investors who callously traffic in American confiscated property in Cuba to profit from the misery of the Cuban worker.” The bill also urges the president to seek an international embargo against Cuba, but currently, no other economic power observes an embargo. Cuba doesn’t seem very concerned though. “The main victim of this law will be the United States itself,” said Paul Taladrid, Cuba’s deputy minister for foreign investment, “because it will have to face the opposition of the rest of the world, or its closest allies.”
Although many U.S. allies oppose parts of the policy, they have said that they agree with us on the key goal of encouraging democracy and human rights in Cuba. Even when supporting Cuba’s resolution at the UN General Assembly against the U.S. embargo of Cuba, The European Union made clear its opposition to Cuba’s human rights policies. The best known and most controversial parts of the Act are Title III and Title IV which created a private cause of action in U.S. Courts and prohibits visas and entry into the United States to those who “traffic” in confiscated property claimed by a U.S. national. The provisions extend well beyond America’s legal reach. These provisions prompted the European Union to initiate a complaint against the U.S. in the World Trade Organization (WTO). Canada and Mexico called for consultations under the provisions of NAFTA.
Many think that the Act is a misguided principle; critics claim that it attempts to undermine the regime of Castro by depriving him of hard currency. This is futile, not only because the U.S. finds itself alone in its policy of isolating Cuba; although sometimes a lonely policy may be the right one. Both Canada, the biggest investor in the island country, and the European Union are still poised to retaliate against the United States. American allies reject the idea of making foreign policy under threat of lawsuit. Although the United States has such a problem with other countries not backing the embargo, an embarrassing example is still extant. After the foundation of the state of Israel, an Arab boycott penalized foreign firms for doing business with the new state. America rightly opposed this policy; now it must prepare to reverse itself.
U.S. allies in Europe and Latin-America are livid over Helms-Burton; by what right, they ask, do U.S. Courts presume to impose sanctions against foreigners doing their own business in Cuba? Several of these countries have passed counteracting laws allowing their citizens to sue in their courts if Helms-Burton cases are brought against them in the United States. All this does is leave a potential legal rat’s nest benefiting nobody but the lawyers.
Helms-Burton in section 306(b) gives the President authority to suspend the provisions allowing lawsuits against traffickers for successive periods of six months if he finds that such a step “is necessary to the national interests of the United States and will expedite the transition to democracy in Cuba.” President Clinton has already exercised this option several times to appease the dissention from our allies.
We have been able to manage this serious disagreement with our close allies and trading partners and advance the promotion of democracy in Cuba. Under Secretary Eizenstat reached an “Understanding” with the EU in April 1997 under which the EU agreed to suspend its WTO case and step up its efforts to promote democracy in Cuba. The parties also agreed to negotiate disciplines on property confiscated in contravention of international law, including property in Cuba, and principles on conflicting jurisdictions. These discussions are in a crucial phase and, if an agreement is reached, the Administration will discuss with Congress the possibility of obtaining authority to waive Title IV of the Act.
There is a large body of misconceptions about the present state of health care in Cuba, including the false accusation that it is the U.S. policy to deny medicine or medical supplies and equipment to the Cuban people. The end of Soviet subsidies forced Cuba to face the real costs of its health care system. Unwilling to adopt the economic changes necessary to reform its dysfunctional economy, the Castro government quickly faced a large budget deficit. In response, the Cuban Government made a deliberate decision to continue to spend money to maintain its military and internal security apparatus at the expense of other priorities– including health care. In 1995, Cuba’s imports totaled $2.8 billion dollars, yet only $46 million dollars– only 1.5% of overall foreign purchases–on medical imports for its 11 million people. By comparison, Cuba’s neighbor, the Dominican Republic, spent $208 million dollars on medical imports for its 7.5 million citizens in 1995.
The US embargo does NOT deny medicines and medical supplies to the Cuban people. As stipulated in Section 1705 of the Cuban Democracy Act of 1992, the U.S. Government routinely issues licenses for the sale of medicine and medical supplies to Cuba. The only requirement for obtaining a license is to arrange for end-use monitoring to ensure that there is no reasonable likelihood that these items could be diverted to the Cuban military, used in acts of torture or other human rights abuses, or re-exported or used in the production of biotechnological products. Independent non-governmental organizations, international organizations, or foreign diplomats can perform monitoring of sales.
Since 1992, 36 of 38 license requests have been approved to U.S. companies and their subsidiaries to sell medicine and medical equipment to Cuba. Sales have included such items as thalamonal, depo-provera, pediatric solutions, syringes, and other items. The Department of Commerce declined the other two requests for licenses it received for failure to meet legal standards. Both of these exceptions to the general policy of approving commercial medical sales occurred in 1994.
Moreover, the U.S. embargo on Cuba affects only U.S. companies and their subsidiaries. Other nations and companies are free to trade with Cuba. Should Cuba choose not to purchase from the U.S., it can purchase any medicine or medical equipment it needs from other countries. Such third-country transactions only cost an estimated 2%-3% more than purchases from the U.S. as a result of higher shipping costs.
In closing, the essential element of the tragedy of the Cuban people is not the United States-Cuba conflict; rather, it is the struggle of eleven million people who seek to assert their human dignity and reclaim the inalienable political, economic and civil rights that were taken away from them by the Castro regime. The Cuban people have been victims of one of the most oppressive regimes of the twentieth century. The systematic violation in Cuba of each and every human right recognized in the United Nations’ Universal Declaration of Human Rights has been faithfully documented in recent years at the UN Human Rights Commission and by respected human rights organizations throughout the world. The truth is there for all that wish to see. Impervious to the deplorable living conditions of the people, the asphyxiating lack of liberty, and to repeated international calls for democratic change, Castro staunchly clings onto the reins of absolute power. Yet, despite the regime’s relentless repression, those on the island are courageously demonstrating their commitment to change with increasing resolve. The U.S. economic embargo against the Castro regime has weakened its capability to repress this universal desire for freedom and is an expression of moral support that strengthens the will of those who seek to wrestle from the hands of a dictator the destiny of a whole nation.
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