Cuba’s 126 pages of new regulations for private enterprise (cuentapropistas), which were published on July 10, have been criticized by U.S. economist Richard Feinberg, a professor at the University of California San Diego’s School of Global Policy and Strategy and a Fellow at the Brookings Institution. He calls them “the revenge of the bureaucrats,” who are jealous of those in the private sector who are making much more money than employees of struggling state enterprises.
The new regulations contain details about potential violations, penalties and fines, oversight and performance requirements. For example, an operator of a private day-care facility must devote at least 21.5 square feet per child plus provide a detailed inventory of personal toiletry items.
These regulations also are designed to virtually guarantee that most private businesses will not grow beyond 20 employees. For example, once a private employer hires more than 20 employees, the 21st employee must be paid six times the average wage for the first 20 employees.
In short, private enterprise is fine so long as they “don’t get too rich, diversify their businesses, open branches, try to evade taxes, resort to the black market, or provide too much competition to the state sector.” Indeed, a major motivation for the regulations is to halt growing inequities between ordinary Cubans and those in the private sector.
Moreover, the new regulations do not allow “for white-collar professionals to work for themselves, . . . private entrepreneurs to directly import for their businesses, and there is no recognition of their businesses as legal entities” and no provision for the creation of wholesale markets for the private sector.
These criticisms of the regulations were echoed in a recent Cuban public opinion poll carried out by the CubaData Project with a team of academics from Cuba, Mexico and Venezuela. 87.6% believe that Cuban professionals should be able to establish businesses and businesses within their professions. In addition, a high percentage of those surveyed believe other political parties should be permitted and that the election of the island’s president should be direct.
There has been lots of news over the U.S. diplomats with medical problems from serving in Cuba. But there is still official uncertainty over the cause of those problems and resulting cooler Cuba relations with the U.S. and warmer relations with Russia.
CBS News on October 10 reported that one of the 22 U.S. diplomats who has suffered from purported “sonic attacks” in Cuba had asserted that the U.S. was trying to hide the attacks.
In addition, this individual reportedly told CBS that the attacks had happened at the Embassy itself, their Havana quarters and hotels, that the State Department “pressured” some U.S. embassy officials who had been injured to remain on the island and “waited too long” to withdraw personnel and that the initial treatment by doctors in Havana and at the University of Miami Hospital in the U.S. was “superficial and incomplete.”
The State Department denied these allegations later the same day. Its Spokesperson, Heather Nauert, at a press briefing, said, “We have an ongoing investigation that’s being spearheaded out of the [U.S.] with our best investigators on that, so they continue to move ahead with that investigation. We still don’t know who is responsible and we still don’t know what is responsible for the injuries of our American staff.” (Emphasis added.)
Pressed by other reporters about the above comments by one of the victims and by the Department’s recent identification of only two Havana hotels where some of the attacks occurred, Nauert said the following:
“I was just speaking with one of our colleagues who served down there in Cuba and is recently back here in the [U.S.]. And I asked this person that very question: ‘How do you feel that we responded?’ And I’ve asked numerous of my colleagues that very question. . . . [W]e all care deeply about how our folks are doing down there. And I asked the question, ‘Do you feel supported by us? Do you feel that we were quick enough to respond?’ And the answer I got back was ‘yes.’ . . . it took a while to put this together, because the symptoms were so different.”
“But this person said to me once we figured out a pattern, . . . the State Department was extremely responsive. This person said to me that they . . . never felt the pressure to stay in Cuba, although they wanted to make it clear that they wanted to serve down there. These folks love what they’re doing, they feel a real dedication to . . .our mission down there in Cuba, the activities that they were involved with on behalf of the U.S. Government with local Cubans, and they were encouraged by the State Department to come forward, please get tested if you feel like you’ve had some sort of symptoms or something.”
“I don’t have the actual timeline in front of me that lays out when attacks took place at different locations, and I’m not even sure that that is something that we’re making public. But once we started to figure out what this was all about and started to investigate and realized that we were not able to protect our people, that’s when the Secretary made [the decision to reduce U.S. personnel at the Embassy in Havana].”
U.S. Government Statements About the Attacks and Relations with Cuba
On October 12 White House Chief of Staff, John Kelly, provided a very unusual press briefing. Unusual because the chief of staff rarely, if ever, provides such a briefing. The apparent major reason for the briefing was to provide a platform for him to deny that he was quitting or being fired as chief of staff. In addition, in response to a reporter’s question, Kelly stated, “We believe that the Cuban government could stop the attacks on our diplomats.” But he provided no bases for that belief and was not challenged with additional questions by the journalists. (Emphases added.)
Later that same day Kelly’s comment was interpreted (or qualified) by the State Department spokeswoman, Heather Nauert, who said, “General Kelly, when he said we believe that they can stop the attacks, I think what he was referring to was, one, we have the Vienna Convention [on Diplomatic Relations]. And under the Vienna Convention, . . . the Government of Cuba, has a responsibility to ensure the safety of our diplomatic staff. That didn’t happen. But there’s also another well-known fact, and that is that in a small country like Cuba, where the government is going to know a lot of things that take place within its borders, they may have more information than we are aware of right now.” (Emphases added.)
The next day, October 13, President Trump addressed the 2017 Values Voter Summit. It included the following comment: “We’re confronting rogue regimes from Iran to North Korea and we are challenging the communist dictatorship of Cuba and the socialist oppression of Venezuela. And we will not lift the sanctions on these repressive regimes until they restore political and religious freedom for their people.” (Emphases added.)
Two days earlier (October 11) Vice President Mike Pence delivered a speech at a National Hispanic Heritage Month celebration at the Naval Observatory in Washington, D.C. in which he referred to meeting people from the Cuban communities here in the U.S., and had seen “the spirit of the Cuban exile community in this country firsthand.” On that same day, the Vice President continued. “President Trump announced a new policy to ensure that U.S. dollars will no longer prop up a military monopoly that exploits and abuses the Cuban people. Under this administration, it will always be “Que viva Cuba libre!”(Emphases added.)
The Associated Press obtained an audio recording of what some of the U.S. personnel in Cuba heard. Says the AP, it “sounds sort of like a mass of crickets. A high-pitched whine, but from what? It seems to undulate, even writhe. Listen closely: There are multiple, distinct tones that sound to some like they’re colliding in a nails-on-the-chalkboard effect.” The AP adds that it has “reviewed several recordings from Havana taken under different circumstances, and all have variations of the same high-pitched sound.”
Similar Problems at U.S. Embassy in Moscow, 1953-1976
The BBC reports that in May 1953 U.S. officials at the Moscow embassy detected a microwave frequency that oscillated above the upper floors at certain times, sometimes up to eight hours a day, and that autumn some embassy workers felt inexplicably ill. At first it was dizziness, palpitations, headaches, blood pressure too high or too low. But no one understood what was happening.
In 1962, those who were still there or even those who had already left had more severe symptoms: sudden cataracts, alterations in blood tests or chromosomes. In 1965 the U.S. began what was known as the “Moscow Viral Study,” a multimillion-dollar operation in which scientists apparently looked for the potential exposure of workers to an unknown strain of a mysterious and potent virus. The eventual conclusion was the Soviets were “bombing” the U.S. embassy with very low-level microwaves, which the U.S. called the “S ENAL Moscow.” This persisted until April 1976.
From Cuba, the Associated Press reports that “the common reaction in Havana is mocking disbelief” about the attacks.
The same tone was struck by Miguel Diaz-Canel, the first vice president who is widely expected to succeed Raul Castro when he steps down as president in February. He said, “A few spokespeople and media outlets have lent themselves to divulging bizarre nonsense without the slightest evidence, with the perverse intention of discrediting Cuba’s impeccable behavior.”
Journalists from the Guardian newspaper in London reported that “senior neurologists” say that ”no proper diagnosis is possible without more information and access to the 22 US victims,” but speculate that the diplomats’ ailments could have been caused by “mass hysteria.”
According to the Miami Herald, “after the election of President Donald Trump, the pace of [Cuba’s] bilateral contact with Russia has been frantic,” even more so after the eruption of U.S.-Cuba relations associated with the medical problems of U.S. diplomats. Here are such examples:
Just days before Foreign Minister Rodriguez’ September 26 meeting with Secretary of State Tillerson at the State Department, the Minister met with his Russian counterpart Sergei Lavrov on the sidelines of the U.N. General Assembly gathering. The conversation was “confidential,” according to a press release issued by the Russian Foreign Ministry.
On July 26 Cuban diplomat Josefina Vidal, the main negotiator with the U.S., went to Moscow and met with Deputy Foreign Minister Sergei Ryabkov.
Cuba’s ambassador to Russia has met with Ryabkov at least five times so far, this year.
Last December, just after the election of Mr. Trump, Russia and Cuba signed an agreement to modernize the Cuban army, and this year Russian officials — including military personnel — have made frequent visits to Havana.
In March, the Russian company Rosneft signed an agreement to ship 250,000 tons of crude oil and diesel to offset the decline in Venezuelan oil shipments to Cuba.
Rosneft also has discussed other joint projects with Cuba for oil extraction and the possibility of modernizing the Cienfuegos refinery, operated jointly by Cuba’s CUPET and Venezuela’s PDVSA.
In April, Russia offered to fund $1.5 million in U.N. projects in Cuba for hurricane recovery and later pledged to support recovery efforts following damage caused by Irma.
In September, Cuban Vice President and Minister of Economy Ricardo Cabrisas signed a package of agreements with Russia in the energy, rail transport and elevator-supply sectors.
Recently, Cuban news agency Prensa Latina, which has an office in Washington, and the Russian news agency Sputnik signed an official cooperation agreement.
These developments are no surprise to Richard Feinberg, an expert at Brookings Institution and a former U.S. policymaker for Latin America during Bill Clinton’s administration. He says, “[Vladimir] Putin’s message is not difficult to understand. [He] longs to regain the past imperial glory and relations with Cuba follow that same pattern.” Feinberg added, “From the point of view of the Cubans, they are looking to diversify their relationships. As closer economic relations with the U.S. do not seem likely for at least the next few years, they are looking for alternative allies, especially from countries with strong states like Russia and China that can offer favorable payment terms, something very welcome in an economy with poor international credit standards.”
In the above and the many other reports about the medical problems affecting some U.S. personnel serving in Cuba, I find it astounding that there still is official uncertainty about the cause or causes of the medical problems.
It also is astounding that no journalist or other commentator has publicly asked whether the U.S. has investigated whether the problems were caused by a secret and perhaps malfunctioning U.S. program or device and if so, to provide details. Such a possibility would help explain the delay in the U.S. public announcement of this set of medical problems and the apparent U.S. reluctance to share details of its investigation with Cuban investigators, all as discussed in previous posts to this blog. Moreover, this possibility would render various U.S. reactions—reducing the U.S. personnel at the U.S. Embassy in Havana, expulsion of 15 Cuban diplomats and the latest U.S. travel warning—as cover ups and as excuses for additional tightening of U.S. screws on Cuba.
Moreover, Trump’s hostile rhetoric and actions regarding Cuba, which are unjustified in and of themselves, have adverse effects on other important U.S. interests, including the prevention of increasing Russian influence in Latin America.
On October 3, the U.S. ordered the removal of 15 Cuban diplomats from the U.S. as discussed in a prior post while other posts looked at recent developments on these issues and on Cuba’s reaction to that U.S. decision and order. This post will discuss reactions from others.
“This White House and its pro-embargo allies in Congress have opportunistically seized on these mysterious illnesses affecting U.S. diplomats to overturn the pro-normalization policies of a previous administration, using bureaucratic obstruction and reckless language when they cannot make the case for policy change on the merits alone.”
By taking these precipitous actions, Trinkunas and Feinberg argue, “this White House is doing exactly what our adversaries in the region seek to provoke. Overt U.S. hostility [towards Cuba] empowers anti-American hardliners in the Cuban regime opposed to stronger bilateral relations between the two countries. In addition, [the announced American travel restrictions and warning hurts] the privately-operated [and progressive] segments of the Cuban tourism sector, and . . . [thereby weakens] the emerging Cuban middle class.”
Furthermore, they say, “a breakdown in U.S.-Cuban relations allows Russia, China, Iran and Venezuela to deepen their influence in Cuba and the broader Caribbean Basin. By pushing Cuba away, the U.S. is pushing it towards other actors whose interests are not aligned with our own.
“Our partners in Latin America welcomed the change in U.S. policy towards Cuba in 2014 as a sign that the Cold War had finally ended in the Western Hemisphere. The [Trump] administration’s retreat from the opening towards Cuba alarms our friends in the Americas and calls into question the enduring value of U.S. commitments . . . . This pattern of reckless animus towards diplomacy comes at a cost to the international reputation of the U.S. with no apparent gain for our interests abroad.”
“U.S. hostility [also] risks damaging the coming transition to a new Cuban government after President Raul Castro steps down in early 2018 by strengthening the hand of anti-American hardliners who oppose further economic opening on the island.”
“It damages Cuban-Americans and their families by impeding travel and the flow of funding associated with their visits, and those of other American visitors, which have allowed the Cuban private sector to gain traction. It also damages U.S. relations with our partners in the region, who have long criticized what they see as senseless hostility between the U.S. and Cuba. And finally, the Trump administration’s approach serves to widen the door to U.S. geopolitical adversaries, such as Russia and Venezuela, to advance their interests in Cuba and in the region.”
“Many of our professional diplomats, both those stationed in Havana and those at the State Department, oppose the dramatic downsizing of the U.S. and Cuban missions. While all are concerned for the safety of U.S. personnel, the health incidents seem to be in sharp decline. The U.S. diplomats in Havana are proud of the gains in advancing U.S. interests in Cuba, and they wish to continue to protect and promote them.”
EngageCuba, the leading bipartisan coalition promoting U.S.-Cuba normalization and reconciliation, said, “”The diplomats and their families suffering from unexplained health issues deserve answers. If the U.S. government is serious about solving this mystery, they shouldn’t make it more difficult to cooperate with the Cuban government during this critical time of the investigation. This decision appears to be purely political, driven by the desire of a handful of individuals in Congress to halt progress between our two countries. Expelling Cuban diplomats will not solve this mystery; it will not improve the safety of U.S. personnel, but it will make it harder for hundreds of thousands of Cuban-Americans to visit their families on the island. We hope that the driving forces behind this decision are comfortable with their Cuban-American constituents being unable to visit their loved ones.”
This EngageCuba statement followed the one it issued about the reduction of staffing of the U.S. Embassy in Havana. It said, “”The safety and security of all diplomatic personnel in Cuba, and anywhere in the world, is the first priority of our country. Whoever is behind these serious and inexcusable attacks on American diplomats must be apprehended and brought to justice. We must be careful that our response does not play into the hands of the perpetrators of these attacks, who are clearly seeking to disrupt the process of normalizing relations between our two countries. This could set a dangerous precedent that could be used by our enemies around the world.
EngageCUBA continued, “It is puzzling that the Trump Administration would use this delicate time in the investigation to advise Americans against traveling to Cuba, given the fact that none of these attacks have been directed at American travelers. We are also concerned for the Cuban people, who will be impacted by this decision. Halting the visa process in Cuba and discouraging Americans from traveling to Cuba will divide families and harm Cuba’s burgeoning private sector, civil society groups and efforts to improve human rights on the island.”
In conclusion, said EngageCUBA, “the U.S. and Cuba must redouble efforts to solve this mystery as quickly as possible in order to keep our embassy personnel safe and continue to move forward with strengthening relations between our two countries.”
A New York Times’ editorial similarly observed, “until there is concrete evidence about the source of the attacks, the Trump administration is wrong to expel Cuban diplomats from Washington. . . . Secretary of State Rex Tillerson’s explanation that Cuba should be punished for failing to protect American diplomats presumes that Cuba was at least aware of the attacks, which the [U.S.] has neither demonstrated nor claimed. “Furthermore, “Until something more is known, punishing Havana serves only to further undermine the sensible opening to Cuba begun under Barack Obama. President Trump has made no secret of his disdain for the détente — in June his government ordered restrictions on contacts with Cuba that have slowed the flow of visitors to the island, and last week the State Department warned Americans not to travel there, though there is no evidence that tourists are in danger. The sonic attacks on Americans are too serious to be used for cynical political ends.”
Geoff Thale, director of programs at the Washington Office on Latin America, a human rights advocacy group, said: “The United States is using the confusion and uncertainty surrounding these events as justification to take a big step backwards in U.S.-Cuban relations. This doesn’t serve our national interests, or our diplomacy, and it most certainly doesn’t do anything to help advance human rights or a more open political climate in Cuba. This is an unfortunate decision that ought to be reversed.”
Tom Emmer (Rep., MN), the Chair of the Congressional Cuba Working Group, stated, “The Administration’s decision last week to withdraw all non-essential personnel from our embassy in Havana was concerning but understandable to ensure the safety of our foreign service staff on the island. Unfortunately, yesterday’s actions do not seem to advance our efforts of identifying a cause or culprit behind these ‘sonic attacks.’ Instead of sending us back down a path of isolation, we must foster open lines of communication as we continue the investigation to determine who must be held responsible for these attacks on Americans. We cannot lose sight of the fact that an improved and sustained relationship with Cuba brings us one step closer to ensuring the stability and security of the entire Western Hemisphere.”
Senator Ben Cardin (Dem., MD), the Ranking Member on the Senate Foreign Relations Committee, more guardedly said, “Although . . . [the] decision to expel Cuban diplomats brings parity between U.S. and Cuban embassy personnel levels, I am concerned that it may also stoke diplomatic tensions and complicate our ability to conduct a thorough investigation of these attacks. The U.S. should not take actions that could undermine our bilateral relations with Cuba and U.S. policies aimed at advancing our strategic national interests in the hemisphere.”
Although the most recent Cuba Travel Warning from the State Department strongly discouraged Americans from traveling to Cuba, “several cruise lines operating ships in and around Cuba have released statements pushing back on the warning, noting that no tourists have been harmed in these incidents.” Moreover, “several cruise companies had already announced significant expansion of their Cuba operations before the warning was issued.”
Approval of Expulsion of Cuban Diplomats
This latest U.S. announcement is what was recommended by a Wall Street Journal editorial and by U.S. Senator Marco Rubio, who immediately tweeted that this was “the right decision.” His subsequent press release Rubio stated, “I commend the US State Department for expelling a number of Cuban operatives from the US. No one should be fooled by the Castro regime’s claim it knows nothing about how these harmful attacks are occurring or who perpetrated them. I have called on the State Department to conduct an independent investigation and submit a comprehensive report to Congress. . . . All nations have an obligation to ensure the protection of diplomatic representatives in their countries. Cuba is failing miserably and proving how misguided and dangerous the Obama Administration’s decisions were.” He added, ““At this time, the U.S. embassy in Havana should be downgraded to an interests section and we should be prepared to consider additional measures against the Castro regime if these attacks continue.”
This news should also be welcomed by the Washington Post, whose recent editorial continued this newspaper’s hard line about U.S.-Cuba relations by refusing to believe Cuba’s denial of knowledge about the cause and perpetrator of the “attacks” on U.S. diplomats in Havana. It asserts “recent events suggest that the unpleasant reality of Fidel Castro’s dictatorship remains in place” and that “For decades, the Cuban state security apparatus has kept a watchful eye on everything that moves on the island, and informants lurk on every block. It begs disbelief that Cuba does not know what is going on. Unfortunately, this kind of deception and denial is all too familiar behavior.” Therefore, if “Cuba sincerely wants better relations with the United States, it could start by revealing who did this, and hold them to account.”
This suspicion of Cuban involvement in the attacks received some corroboration by the Associated Press, which reports that six unnamed sources say that “many of the first reported cases [of attacks] involved intelligence workers posted to the U.S. embassy.” Moreover, of “the 21 confirmed cases, American spies suffered some of the most acute damage, including brain injury and hearing loss that has not healed.” U.S. investigators, according to the AP, have identified “three ‘zones,’ or geographic clusters of attacks, [which] cover the homes where U.S. diplomats live and several hotels where attacks occurred, including the historic Hotel Capri.” Both the State Department and the CIA declined to comment to the AP. This report undoubtedly will fuel efforts to overturn normalization of relations between the two countries.
I agree with Trinkunas and Feinberg, the recent decisions about Cuba by the Trump Administration do exactly what our adversaries in the region seek to provoke: empower anti-American hardliners in the Cuban regime opposed to stronger bilateral relations between the two countries; damage Cuba’s upcoming transition to a new government after Raúl Castro leaves the presidency early next year; and hurt and weaken the privately-operated and progressive segments of the Cuban tourism sector. In addition, those decisions weaken U.S. relations with most other governments in Latin America while damaging many Cuban and Cuban-American families seeking to maintain and increase their ties. Those decisions also allow Russia, China, Iran and Venezuela, all of which are hostile to the U.S., to deepen their influence in Cuba and the broader Caribbean Basin.
I must also note my surprise that at the two recent State Department press briefings no journalist followed up on the previously mentioned Associated Press report that the initial U.S. diplomats who reported medical problems were U.S. intelligence agents to ask whether that report was valid and other related questions.
All who support the continuation of U.S.-Cuba normalization and reconciliation should oppose these moves by the Trump Administration.
On September 12 the United States and Cuba held its Inaugural Economic Dialogue in Washington, D.C.
The goal of the Dialogue is promoting long-term bilateral engagement on a wide range of topics as part of the ongoing normalization process. The delegations discussed trade and investment, labor and employment, renewable energy and energy efficiency, small business, intellectual property rights, economic policy, regulatory and banking matters, and telecommunications and internet access. Both parties agreed to continue the dialogue and, under its auspices, convene working groups to continue technical discussions in the coming months.
The U.S. delegation was co-chaired by Assistant Secretary of State for Economic and Business Affairs Charles Rivkin and U.S. Department of Commerce Deputy Assistant Secretary for the Bureau of Industry and Security Matthew Borman. The Cuban delegation was headed by Ministry of Foreign Trade and Foreign Investment Vice Minister of Commercial Policy Ileana Nunez Mordoche.
In the meantime, a U.S. newspaper, InCubaToday, reports that the Cuban military’s Business Administration Group, GAESA, “has grown dramatically since the declaration of detente between the U.S. and Cuba on Dec. 17, 2014.” GAESA operates through at least the following branches or subsidiaries:
Its tourism office, Gaviota, “has 62 hotels with 26,752 rooms across Cuba, pulling in some $700 million a year from more than 40 percent of the tourists who visit Cuba” and “is in the midst of a hotel building spree that outpaces projects under control of nominally civilian agencies like the Ministry of Tourism.”
Its Cimex has “retail stores, auto-rental businesses and even a recording studio among its holdings.”
Its “retail chain, TRD, has hundreds of shops across Cuba that sell everything from soap to home electronics at prices often several times those in nearby countries.”
“The military-run Mariel port west of Havana has seen double-digit growth fueled largely by demand in the tourism sector.”
“The armed forces this year took over the bank that does business with foreign companies, assuming control of most of Cuba’s day-to-day international financial transactions.”
According to the InCubaToday article, the Cuban “armed forces are widely seen in Cuba as efficient, fast-moving and relatively unscathed by the low-level payoffs and pilferage that plague so much of the government.” A similar observation was offered by Richard Feinberg of the Brookings Institution: “GAESA is wisely investing in the more international — and more lucrative — segments of the Cuban economy. This gives the military technocrats a strong stake in a more outwardly oriented and internationally competitive Cuba deeply integrated into global markets.”
On August 29, a U.S. coalition made important recommendations for the Obama Administration to promote further U.S.-Cuba reconciliation by taking administrative actions that did not need congressional authorization. Here is a summary of these recommendations:
“Facilitate Greater Financial Engagement and Expand Commercial Transactions.”
These recommendations included (a) authorizing, “by general license, or a general policy of approval, participation by U.S. investors in business arrangements in Cuba, including with state-owned firms, cooperatives, or private sector firms, when the goods or services produced benefit the Cuban people;” and (b) authorizing “by a general policy of approval, the import and sale in the United States of Cuban agricultural products made by the private and cooperative sectors, including transactions that pass through Cuban state export agencies.”
“Expand Health-Related Engagement.”
These recommendations included (a) eliminating “barriers which deny U.S. citizens access to clinically proven Cuban-developed drugs; (b) authorizing “U.S. pharmaceutical and medical equipment companies to include Cuban hospitals and health centers in their clinical trials;” and (c) authorizing “U.S. entities (universities, research centers, and private firms) by general license to collaborate in medical and health-related research and development projects in Cuba, including commercial projects.”
“Strengthen Security Cooperation where there are U.S. Interests at Stake.”
These recommendations included (a) deepening and extending “counter-terrorism and counter-narcotics cooperation;” and (b) building “gradually on military–to-military contacts.”
“Eliminate or Suspend Programs that Fail to . . . Promote Democratic Opening.”
These recommendations were (a) suspending or redirecting “the ‘democracy promotion’ programs now funded through the National Endowment for Democracy (NED), the State Department’s Bureau of Democracy, Human Rights, and Labor (DRL), and USAID, while conducting a review of existing programs to ensure they are consistent with the President’s policies of normalization of relations with Cuba;” and (b) ensuring that “any program or policy that is carried out under this rubric should be conducted openly, transparently, and with the goal of expanding contacts between the people of the US and Cuba without interfering in Cuba’s internal affairs.”
These recommendations were (a) increasing “the number of visas [the U.S.] issues for Cubans to obtain legal residence;” (b) ending “preferential treatment for Cuban migrants arriving at U.S. borders;” and (c) ending “the Cuban Medical Professionals Parole Program, which offers incentives to Cuban doctors working abroad to leave their country and immigrate to the [U.S.].”
The coalition’s letter also supported Congress’ enacting measures to end the U.S. embargo of Cuba; to give U.S. farmers better access to the Cuban market, by permitting private financing for U.S. agricultural sales; to provide full staffing for the U.S. Embassy in Havana to protect American citizens and provide visas to qualified Cuban applicants; to better manage irregular migration from Cuba; and to take steps to level the playing field for U.S. businesses interested in the Cuban market, relative to foreign competitors.
Letter, Coalition to President Obama (Aug. 29, 2016). This blogger assumes that the coalition independently researched and concluded that the Obama Administration has the legal authority to take such administrative actions.
On December 8, the U.S. and Cuba held discussions in Havana about the two countries’ damage claims: (1) U.S. claims to recover damages for U.S. property interests that were expropriated by the Cuban government at the start of the Cuban Revolution in 1959.; (2) U.S. courts’ money judgments against Cuba; (3) Cuba’s claims for alleged damages resulting from the U.S. embargo of Cuba; and (4) Cuba’s alleged damage claims for Cubans personal injuries and deaths from U.S. hostile actions.
This post will briefly examine those claims, the recent U.S.-Cuba discussions on the subject and an analysis of the issues by Washington, D.C.’s Brookings Institution.
Some 5,913 U.S. corporations and individuals have $1.9 billion worth of claims (without interest) for factories, farms, homes and other assets that were nationalized in Cuba after Fidel Castro’s rebels came to power in 1959. These claims have been registered and validated by the U.S. Justice Department’s Foreign Claims Settlement Commission. They are now worth roughly $8 billion when including 6.0 percent annual interest. These claims (without interest) have been categorized by the Brookings Institution’s report discussed below:
Nevertheless, the Brookings’ report identifies these potential issues with respect to the claims validated by the U.S. Commission: (1) Whether to recognize the Commission rulings as a legitimate procedure in which cuba did not participate; (2) Whether to accept or challenge its valuations of lost properties; (3) Whether Cuba should recognize accumulated interest as awarded by the Commission on its certified claims or whether to negotiate an alternative benchmark interest rate or other formula for partial payments.
In a 2015 report to the United Nations General Assembly, Cuba asserted that the accumulated economic damages from the U.S. economic sanctions had reached $121 billion. The annual report offers some estimates on sectoral damages but does not discuss methodology. An earlier 1992 Cuban statement detailed these estimated cumulative losses among others:: (a) $3.8 billion for losses in the tourist industry; (b) $400 million for losses in the nickel industry; (c) $375 million for the higher costs of freighters; (d) $200 million for the purchase of sugarcane crop equipment to substitute for U.S.-manufactured equipment; and (e) $120 million for the substitution of electric industry equipment
4. Cubans Killed or Injured by Alleged U.S. Hostilities
The Cuban government claims that U.S. “acts of terrorism against Cuba have caused 3,478 deaths and 2,099 disabling injuries.” Examples of such alleged acts include (a) U.S.-supported hostilities in Cuba resulting in 549 deaths between 1959-1965; (b) the Bay of Pigs invasion resulting in 176 deaths and over 300 wounded of whom 50 were left incapacitated; (c) the explosion of the French vessel La Coubre on March 4, 1960 in Havana Harbor, resulting in 101 deaths including some French sailors; (d) the terrorist bombing of Cuban Airlines Flight 455 in 1976 killing all 73 persons on board including 57 Cubans; (e) the September 11, 1980 assassination of Cuban diplomat Félix García Rodriguez in New York City; (f) Numerous aggressions from the U.S. naval base in Guantanamo resulting in the deaths of Cuban citizens; and (g) suspicions that the U.S. employed biological warfare to spread fatal dengue fever in Cuba.
Immediately before the December 8 discussions, a U.S. State Department spokesperson said the U.S. expected this to be “a first step in what we expect to be a long and complex process, but the United States views the resolution of outstanding claims as a top priority for normalization.”
Afterwards a U.S official said that reaching a settlement of these claims was “a top priority” for the U.S. and that these talks were “fruitful” and would continue in 2016. This official also said that the U.S. had provided information on the additional $2 billion in judgments awarded to plaintiffs who had sued the Cuban government in U.S. courts, proceedings that Havana does not recognize.
Other than the above sketchy summary, very little has publicly emerged about the specifics of the talks. It sounds as if the discussions were akin to the pretrial discovery process in U.S. civil lawsuits when parties learn about each other’s evidence and arguments.
A Cuba legal expert, Pedro Freyre, said, “It’s the first time the two countries are going back to look at this history and try to sort out a system for fixing it.” The Cubans, he added, were “very tough, very clever” in such negotiations.
On the same day as the U.S.-Cuba discussions (December 8), the Brookings Institution released a cogent report on the subject by Richard Feinberg, a nonresident senior fellow in Brookings’ Latin American Initiative. 
Introducing the report at a press conference, Feinberg said, “The convening of these talks in Havana [is] a major milestone in the process of gradual full normalization of relations between the United States and Cuba, especially important with regard to commercial relations. Property ownership and claims are at the strategic heart of the Cuban revolution, dating from the early 1960s and also a major cause, perhaps the major cause, of the conflict between the United States and the Cuban revolution. The seizure of U.S. properties was the proximate cause of the imposition of U.S. economic sanctions back in the early 1960s.” These talks are of “strategic importance in the bilateral relationship.”
Feinberg also emphasized that both the U.S. and Cuba “agree on the principle of compensation” for expropriation of property.” Indeed, he said, to do so is in Cuba’s national interest. It “wants to demonstrate [that] it is not a rogue nation . . . [that] it is a nation of laws” and it “wants to remove major irritants to its international diplomacy and commercial relations” and “to attract international investment.”
Another point made by Feinberg was Cuba was not so poor that it could not pay any compensation, especially if the payments were spread out over time, as seems likely.
In addition to setting forth information about the above claims, the report examined the following ways of resolving these claims.
The Grand Bargain
The Report asserts that “a much more promising alternative approach” is “to take advantage of the very size and complexity of the conflicting claims and to make their resolution the centerpiece of a grand bargain that would resolve some of the other remaining points of tension between the two nations, and embrace an ambitious, forward-looking development strategy for Cuba.”
In such a grand bargain, “the settlement of U.S. claims could be wrapped in a package of economic opportunities for Cuba. Importantly, the United States could further relax its economic sanctions (amending or repealing Helms-Burton), providing more trade and investment opportunities – and the capacity for Cuba to earn the foreign exchange needed to service debt obligations. In turn, Cuba will have to accelerate and deepen its economic reforms, to offer a more attractive business environment for investors and exporters. Politically, the Cuban government could present a significant softening of the U.S. embargo as a victory, offsetting any concessions made in the claims negotiations. A comprehensive package might also be more attractive to the U.S. Congress; formal Congressional consent would enhance the measures’ legitimacy and durability and help to close off any court challenges, should some claimants be unsatisfied with the final settlement.”
“The [U.S.] strategic goals in a massive claims resolution process must be political: to heal the deep wounds of past conflicts, to lay foundations for peaceful coexistence and the non-violent resolution of disputes, to avoid jeopardizing fiscal balances and crippling debt burdens, to build investor confidence and international reputation, and to help render the Cuban economy more open and competitive. . . . In the interests of both Cuba and the United States, the twentieth-century trauma of massive property seizures should be transformed into a twenty-first century economic development opportunity.”
“Wrapping a claims settlement within a more sweeping diplomatic package could have large advantages. A robust accord could help overcome long-simmering bilateral animosities and reconcile the fractured Cuban family. Potentially embarrassing ‘concessions’ by either party could be masked by larger victories on more weighty or emotive issues. What to some might appear the unseemly materialism or inequity of property claims would be subsumed within a higher-toned humanitarian achievement. Having turned the page on a half-century long era of conflict, Cuban society could begin in earnest on a new path toward social peace and shared prosperity. The claims settlement, which would bolster investor confidence, could also be linked to a reformed economic development model for Cuba actively supported by the international community.”
2. Lump-Sum Settlement
Separate resolution of the damage claims could be done in a lump-sum settlement, whereby “the two governments negotiate a total amount of financial compensation that is transferred in a lump-sum or global indemnity to the plaintiff government which in turn assumes the responsibility to distribute the transferred monies among its national claimants.” Such a settlement would provide “greater efficiency in coping with large numbers of claims; enhanced consistency in the administration and adjudication of claims; promoting fairness among claimants in setting criteria for evaluating claims and distributing awards; and upholding professionalism and integrity in the national claims commission.” In addition, sometimes lump-sum arrangements “allow the two governments to address other matters, such as broader investment and trade relations.”
3. Two-Tier Resolution
Another way for separate resolution of the U.S. expropriation damage claims is what Brookings calls a two-tier solution, “whereby corporate claimants can choose either to seek creative bargains, or join individual claimants in a lump-sum settlement.”
The 5,014 individual claims validated by the U.S. Commission total about $229 million (without interest). Of these, only 39 amount to over $1 million each while only four were valued at over $5 million. A lump-sum cash settlement of these claims could be shared share equitably by all or with caps on those over a certain figure, such as $ 1 million.
The 899 corporate claims are heavily concentrated: the top 10 corporate claims are valued at nearly $1 billion while the top 50 at $1.5 billion. “The corporate claimants could be given the opportunity to be included in a lump-sum settlement—albeit possibly facing an equity hair-cut to limit the burden on Cuba and to ensure a minimum payment to the smaller claimants—or to ‘opt out’ of the general settlement and instead seek alternative remedies” in Cuba, such as a voucher for new investment; a right to operate a new business; a final project authorization for a new venture; a preferred acquisition right for a venture; Cuba sovereign bonds; and restoration of properties.
Although I hope that the Brookings’s “grand bargain” or more limited negotiated solution is reached, a Miami Herald article emphasizes the difficulties in reaching any settlement. First, some of the claims that were validated by the U.S. Foreign Claims Settlement Commission could be stricken from the list that the U.S. may negotiate if the claims have not always been owned by a U.S. citizen or business. Second, the U.S. government is not authorized to negotiate the previously mentioned U.S. courts’ default judgments against Cuba. As a result, U.S. attorneys for the plaintiffs in those cases could seek to seize any assets in the U.S. of the Cuban government such as a Cuban plane or ship to satisfy the outstanding judgments. Third, Cuba also has to fear that any payment of U.S. claimants for expropriated property will invite demands for similar payments by Cuban exiles around the world and by Spanish claimants after some Spanish courts have ruled that Spain’s 1986 settlement of such claims with Cuba is not binding on at least some Spanish claimants. Fourth, the time to complete such a settlement at the end of the Obama Administration is rapidly shrinking, and a new administration in January 2017 may not be as willing to do such a deal.
I, therefore, reiterate the solution proposed in a prior post: an agreement by the two countries to submit all of their damage claims against each other for resolution to the Permanent Court of Arbitration at the Hague in the Netherlands under its Arbitration Rules 2012 before a panel of three or five arbitrators.
My experience as a lawyer who handled business disputes in U.S. courts and in international arbitrations leads me to believe that arbitration is the appropriate way to resolve these claims by the two governments. The International Court of Arbitration was established in the late 19thcentury to resolve disputes between governments. It would be a third-party, neutral administrator of the proceedings and the arbitrators who would be selected would also be neutral. Finally it has an existing set of arbitration rules and procedures. Moreover, in the arbitration process, both sides would gain a better understanding of the opponent’s evidence and argument that could lead to a settlement before the arbitrators would be asked to render an award.
Brookings is a non-governmental organization that “brings together more than 300 leading experts in government and academia from all over the world who provide the highest quality research, policy recommendations and analysis on a full range of public policy issues.” Feinberg is a professor of international political economy in the School of Global Policy and Strategy (formerly the School of International Relations and Pacific Studies) at the University of California, San Diego. Previously, Feinberg served as special assistant to President Clinton for National Security Affairs and senior director of the National Security Council’s Office of Inter-American Affairs; his other government positions include positions on the policy planning staff of the U.S. Department of State and in the Office of International Affairs in the U.S. Treasury Department.
On December 15th a New York Times editorial, “Cuba’s Economy at a Crossroads,” called for the U.S. to end its designation of Cuba as a “State Sponsor of Terrorism.” This recommendation first was made on October 11th in the Times’ initial editorial in its series “Cuba: A New Start.”
Summary of the Editorial
Now, however, ending the designation is seen as a way the U.S. could assist a struggling Cuban economy. Surprisingly this editorial does not mention ending the U.S. embargo of the island as another, and more important, way the Cuban economy could be aided by the U.S. Instead the Times makes a vague suggestion of the U.S.’ “relaxing sanctions through executive authority and working with the growing number of lawmakers who want to expand business with Cuba.”
Most of the editorial is devoted to discussing the many problems of the Cuban economy.
The 1959 Cuban Revolution’s “[c]ommunism brought an ever more anemic and backward economy, one propped up largely by Moscow. But after the Soviet Union collapsed in 1991, so did Cuba’s economy.” After that collapse, Cuba found Venezuela as a “new benefactor” that provided “heavily subsidized oil” to the island, but now that country’s “worsening economic and political crisis” threatens that subsidy.
Low wages and poor prospects have forced many Cubans to leave the island “in recent years in search of a better life.” This could be accelerated by the elimination of the country’s two-currency system, which the government plans to do.
“The country’s birthrate is declining, while its elderly are living longer.” Couple these facts with the exodus of working-age citizens presents Cuba with an enormous demographic challenge.
“The agricultural sector remains stymied by outdated technology and byzantine policies. A foreign investment law Cuba’s National Assembly approved in March has yet to deliver a single deal.”
Cuba’s leaders have adopted various measures to reform the economy, but the “pace [of economic reform] has been halting, with plenty of backtracking from the government’s old guard.”
Yet these reforms have created a “small but growing entrepreneurial class.” All of them “struggle with the [Cuban] bureaucracy, since they are unable to import legally items as basic as mattresses and pillows. Bringing items from the United States is onerous and complicated by American sanctions.” Changes in U.S. policies could make “it easier for Americans to provide start up-capital for independent small businesses. Doing that would empower Cuban-Americans to play a more robust role in the island’s economic transformation. More significantly, it would gradually erode the Cuban government’s ability to blame Washington for the shortcomings of an economy that is failing its citizens largely as a result of its own policies.”
Continuing U.S. antagonism, on the other hand, “is only helping the old guard.”
I concur in the Times’ call for ending the U.S. designation of Cuba as a “State Sponsor of Terrorism.” It is an unfounded, stupid, absurd action that is only counter-productive as has been argued in posts in 2010, 2011, 2012 (with supplement), 2013 and 2014.
But I do not see ending this policy as the linchpin for the U.S.’ helping the Cuban economy. Instead it is ending the embargo, which the Times on October 11threcommended, but which is not mentioned in the latest editorial.
Moreover, I think the latest editorial understates the troubled state of the Cuban economy even though a prior post expressed optimism about Cuba’s attracting $8.0 billion of foreign investment for the Mariel port’s industrial park now under construction. Further reflection raises the following points that question that optimism:
First, the Cuban economy by itself is obviously unable to afford to purchase the many commodities that presumably will be unloaded from the new super-container ships that will be able to cross the expanded Panama Canal.
Second, for the commodities to go elsewhere will require the unloading of the super-container ships at Mariel and then reloading those commodities in smaller container vessels to go to the major countries on the northern and eastern sides of the South American continent: Venezuela, Brazil, Argentina, Uruguay and Paraguay. How big are those markets?
Third, presumably the major Latin American countries with coasts on the Pacific Ocean like Mexico, El Salvador, Costa Rica, Colombia, Ecuador, Peru and Chile will not be markets for commodities transshipped from Mariel.
Fourth, unless there is U.S.-Cuba reconciliation, the largest potential market for such transshipment, the U.S., presumably would not be importing commodities from the Mariel port.
Similar skepticism about Cuba’s ability to attract foreign investment for other reasons have been voiced by foreign investment experts. The Inter-American Dialogue, which is the leading U.S. center for policy analysis, exchange, and communication on Western Hemisphere affairs, has provided the following four such skeptics.
Matthew Aho, consultant in the corporate practice group of Akerman Senterfitt in New York, said, “While the [Cuban] rhetorical message was positive: ‘Cuba is open for business,’ little has changed to improve Cuba’s general investment climate, and foreign companies there report few changes to their dealings with Cuban counterparts. In fact, many businesses say the same bottlenecks, delays and idiosyncrasies that have long frustrated investors have been exacerbated recently by growing wariness among major banks to handle legitimate Cuba-related transactions.” He added, “While Cuba clearly has potential, most mainstream investors will steer clear until the Cubans define clearer rules of the road and improve their track record with new and existing partners.”
According to José R. Cárdenas, director of Visión Américas in Washington, “Eight billion dollars is a wildly exaggerated figure that Cuba has no chance of ever realizing. [Foreign investors] demand such things as transparency, legal guarantees and predictability, which the Cuban government is incapable of providing. Witness the widely publicized ordeals of Canadian businessman Cy Tokmakjian and Englishman Stephen Purvis, among others, who wound up in incarcerated in Cuba’s Kafkaesque legal system for unclear reasons. There may as well be a ring of flashing red lights surrounding the island warning foreign investors of the exorbitant risks to doing business in Cuba. . . . Any progressing economy needs the freedom to innovate, take risks and guarantee that one will reap the benefits of their efforts. Cuba, like China, cannot ultimately offer such conditions. As long as the primacy of the Communist Party remains the Cuban lodestar, the country will continue to head into an uncertain future.”
Scott J. Morgenstern, associate professor and director of the Center for Latin American Studies at the University of Pittsburgh also was skeptical. He said, “Cuba must create new opportunities for private employment. Thus, while the reforms are making some investment possible, investors will not find wide-open markets and streamlined bureaucratic procedures. In many areas, there are severe limits concerning where people can invest and the types of businesses they can open. Currency convertibility will also be a critical issue for any business; currently there are two currencies, only one of which is convertible. Foreigners, formally, are only allowed to use the convertible currency, and the official exchange rates distort the currency values. Reforms are promised, but the uncertainty will likely discourage some investors. One other important concern for investors is the size of the Cuban domestic market. The country is attracting several million tourists per year, and many Cubans do receive financial support from abroad, but purchasing power is still limited.”
Carlos A. Saladrigas, chairman of the Cuba Study Group and Regis HR Group offered these comments. “Cuba’s economic reforms so far have been too little, too late and too timid to result in significant economic performance . . . . [Cuba’s] continuing economic mismanagement, the numerous distortions in Cuba’s economic and political systems, a stubborn ideology, an obtuse and weighty bureaucracy and the fears of change harbored by Cuba’s leaders all play even more heavily in keeping Cuba’s economy from reaching its full potential. Cuban leaders continue to expect ‘silver bullet solutions’ to their economic woes. The port of Mariel is a perfect example. Pinning hopes of an economic recovery on mega-projects or a few foreign investments take attention away from the core distortions and inefficiencies plaguing the entire domestic economy. Fear of change and ideological rigidity can be clearly seen in Cuba’s eight-month-old foreign investment law. Since the law was passed, Cuban authorities still don’t have any significant major investment projects to report. The foreign investment law was a great missed opportunity to really send a message to the world, and specifically to the United States, that Cuba is ready for business. Such a message would have added great momentum to the anti-embargo movement, which is building momentum in the United States and in Miami. Yet, they chose more of the same, leaving arbitrariness, lack of clarity and burdensome regulations.”
Similar skeptical opinions about the Cuban efforts to develop the Mariel port were expressed by Richard Feinberg, the Brookings Institution’s Nonresident Senior Fellow, Foreign Policy, Latin American Initiative. He said, “the industrial sites are not yet fully leveled nor are they hooked up to basic infrastructure! But the problems run much deeper: previous Cuban efforts to launch free trade zones floundered on the requirement of hiring expensive labor through government employment agencies, and the continuing closure of the most logical export market, the nearby [U.S.]. Cuba’s newly revised foreign investment laws appear to allow investors greater flexibility in setting wage scales, but this potentially promising reform, and its impact on labor costs, remains to be fully tested in practice.”
Finally, Miguel Coyula, a retired Cuban government official on a trip to Washington before returning home to the island, stated ““Mariel is the most promoted place in Cuba, with special development zones for investors. But soon it’ll be a year after the opening of Mariel, and there is absolutely nothing. Even the container terminal in Havana was moved to Mariel to give it a sense of activity, but no one will invest there. For one thing, potential foreign investors in Mariel don’t like the fact that they can’t hire employees on their own, but instead must pay a government employment agency in dollars for that labor. The agency, in turn, pays workers in Cuban pesos. That’s because the Castro government wants to avoid creating a class of highly paid Cubans who work for foreign companies, ‘but inequalities are there whether you like it or not.’”