June 2012

Can the BRICS Sink or Save Cuba?

Just as I was about to overlook news of the first visit to Cuba by an Indian Foreign Minister in nearly 25 years,  during which it was agreed to “open new horizons” in the bilateral economic relationship, the following headline caught my eye: “Will the BRICS rescue Iran?”  It’s an interesting commentary that reflects on Iran’s economic relationships over the last several decades and concludes not only will the BRICS not save Iran, but actually, one by one they seem to be abandoning ship.

If that is the case - that the tightened sanctions on Iran will eventually convince Iran to strike a real deal with the negotiating parties (who at the present moment are having a tough go of it), owing to the overwhelming nature of the economic sanctions, might we surmise that more pressure applied to Cuba could break that government’s will as well? 

I'm not so sure, as there are several key differences to consider.  Foremost is of course the fact that Iran sanctions are increasingly multi-lateral, led by the U.S., while Cuba sanctions are essentially unilateral – America is the holdout, not the leader.  I can’t think of another country that actually has active economic sanctions in place against Cuba. 

Rivera Takes Florida Law Targeting Cuba, Odebrecht to Washington

It's hard to imagine the U.S. embargo of Cuba could possibly get any tighter at this point, right?  Wrong.

First, a quick review of the fifty year-old entanglement of laws, regulations and presidential proclamations all designed to bring down the fifty three year-old Castro regime in Cuba starts with the 1917 Trading with the Enemy Act  - an ironic bill as Cuba was our friend in 1917, but Cuba is now the only country in the world to which the Act still applies.  It also includes several major sanctions upgrades designed to punish Cuba in the wake of the Eastern Bloc collapse two decades ago and create conditions on the island that would lead to regime change there, also to block U.S. companies, including their subsidiaries, from doing business with Cuba, to penalize anyone foreigners that 'traffick' in expropriated Cuban properties, and to dissuade foreign companies from doing business there at all (including, for example, by prohibiting any vessel docking in Cuba from docking in the United States for 180 days).   Such sanctions and more can be found in the 1992 Cuban Democracy Act, the 1996 Helms-Burton Act (known more for its sponsors than for its aspirational title) and the 2000 Trade Sanctions Reform and Export Enhancement Act, which though it legalized heavily regulated cash in advance food and medicine sales to the island, it itched into stone, or public law, the United States' only remaining travel ban, against Cuba (such bans were previously a matter of presidential policy). 

There's more.  So much more that this 44-page report focused on the legal and regulatory framework of the embargo doesn't even cover it all.  Like, efforts that began under the Bush administration and have increased under the Obama administration to prevent Cuba from using or exchanging U.S. dollars in foreign banks (even when those dollars come from American relatives licensed to send them). 

Though there are hundreds of thousands of Cuban Americans who now no longer support the embargo or consider themselves exiles (as evidenced by their frequent trips home to the island), it only takes a couple of well-placed and dedicated lawmakers to buck the trend, and yes, it is possible, further tighten the five decade-old embargo.

One such legislator, Rep. David Rivera, is particularly interesting because he has spent so very much time on Cuba since arriving to the U.S. Congress in 2011.  Since arriving to Congress in January 2011, Rivera has introduced 9 bills, 5 of which focus on Cuba (even if they don't all contain the word 'Cuba').  The various bills focus on the two biggest threats to the ongoing US-Cuba Cold War, the ongoing normalization of Cuban Americans immigrants' dealings with Cuba (excluding, of course, those largely 'historico' generation Cuban Americans who think of themselves as exiles), and deep water oil exploration in Cuba.  But Rep. Rivera is now championing yet another Cuba-related initiative - what I'll call his Odebrecht Amendment, added to the Defense Appropriations Act of 2013 passed out of a House Committee last month - and that could have a far greater impact on U.S. foreign and trade policy beyond U.S.-Cuban relations if it catches on.

Hopes Dim on Cuban Oil, Foreign Investment, Havana Club Rum Rights

It’s not been a banner week – or month – for Cuba on the trade, investment and economic front.

After its second attempt in 10 years to find commercial quantities of oil in Cuban deep water in the Gulf of Mexico – its latest well came up dry – Spain’s Repsol is “almost certain” it won’t try again.  Repsol has the option to drill again later this year before the Italian-owned Scarabeo rig – which, due to the U.S. embargo, had to be specially built with no more than 10% of American parts for exploration in Cuba - moves on to Brazil.  Next up are two  Malaysian and Russian firms, whose explorations this summer could be crucial to Cuba’s near-to-mid-term hopes of accessing undersea reserves it estimates to be as high as 20 billion barrels (the U.S. estimates it to have around 5 billion). 

As Jorge Pinon, a former oil executive and an expert on Cuba’s oil prospects, points out, once the only rig in the world that can drill in Cuban waters without violating the U.S. embargo moves on, it could be years before it’s available and another player is willing to invest millions in the gamble – especially when larger reserves beckon elsewhere around the world.  The prospect of an energy-independent Cuba was intriguing from a geopolitical standpoint, and surely a blow to Cuba’s hopes of digging out of its continuing economic troubles.   Just as some wondered if success in the Gulf could derail the economic reforms underway out of necessity, it might soon be time to ask if failure could spur on the painfully slow pace of the reforms.

The pace seems even slower for foreign investments on the island of late.  Cuban officials have cracked down on foreign investors and their domestic partners found to be involved in corruption – two British executives have recently landed in jail.  Other partners such as Unilever and a group of Israeli investors in Cuban citrus are on their way out following unsuccessful contract renewal negotiations.   It’s mystifying to watch Cuban officials working harder to chase off investors than to bring them in when, as one western diplomat put it, such concessions are “inevitable”.  With plans to drastically cut government payrolls (that the small domestic private sector can’t quickly or totally absorb), Cuba’s main benefactor and trading partner, Venezuela’s Hugo Chavez’s health (and hold on power) uncertain, and big bills to pay with not enough hard currency earnings to pay them, it’s hard to understand what’s going on.  And that is exactly the sort of climate that will scare off investors for the time being.

And in perhaps the most bitter news for Cuba, the U.S. Supreme Court has rejected a petition over the U.S. trademark rights to the Havana Club rum name.  Given that the U.S. accounts for 40% of the worldwide rum market, CubaExport and its French distributor partner Pernod Ricard, which distribute Cuba’s flagship rum to more than 80 other countries around the world but not in the U.S. yet, had hoped the U.S. Patent and Trademark Office (USPTO) would hold their seat in the U.S. market until the embargo is eventually lifted.  That’s  because CubaExport had registered the U.S. rights to the name in 1976 (after the prior owner, who’s rum distillery was expropriated by the Cuban government, failed to renew the U.S. trademark rights in 1973), and renewed its rights every ten years thereafter in order to keep its rights current.