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.[1] 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.].”
Amen again! This blog repeatedly has called for just such action. (See posts listed in “Cuban Medical Personnel & U.S.” and “Cuban Migration to U.S., 2015-2016” in List of Posts to dwkcommentaries—Topical: Cuba.)
Conclusion
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.
[1]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 $8 billion when including 6.0 percent annual interest. These claims (without interest) have been categorized by the Brookings Institution’s report discussed below:
Claimants
Claims
Amount ($USD)
Corporate
899
1,677,280,771
Individual
5,014
229,199,112
TOTAL
5,913
1,906,479,883
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 U.S. courts various plaintiffs have sued the Cuban Government, which did not appear in the cases. As a result the courts entered default judgments against Cuba, now totaling $2 billion.
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[4]
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. [7]
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.
Conclusion
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.[8]
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.[9]
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.
[7]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.”
Reactions
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.’”
