09 11 2015

THE US-CUBA THAW – WHAT THAW?

The reestablishment of diplomatic relations between Cuba and the US is historic. From not talking together for more than 50 years, they now talk. From the press coverage you could get the impression that the relations between the two neighbouring countries are now almost normal. Alas, they are a very far cry from that. The embargo against Cuba has not been lifted and the financial embargo against the country has actually been tightened. European banks, which have broken none of their own countries' laws, have lately accepted breathtaking fines in the US – the last one of 8,900 million dollars for French bank BNP. Their crime: they have carried out financial transactions with Cuba, not from the US but from their home country. That is a criminal offence in the US.

Well something has improved, hasn't it? Yes. The two countries have elevated the status of their “interest offices” to Embassies and now have official diplomatic relations. They have exchanged a US contractor, imprisoned in Cuba, with three Cuban spies, who had spent 16 years in prison in the US. And the US has taken Cuba of the list of countries, whichsponsor terrorism - a list it should never have been on. But apart from that, very little has changed. As a general rule, US citizens are still not allowed to visit Cuba, even if some exceptions have been introduced. Cuban products still can't be sold in the US, and only a very limited range of US products can be sold to Cuba, mainly agricultural products, and only against upfront cash payment. Foreign ships arriving at a port in Cuba are still banned from US ports. And Cubans who are denied a visa to the US, can only get into the country if they register as asylum seekers: if they can reach the US mainland illegally they automatically get residence and work permit, the so-called “wet-foot-dry-foot" policy.

 

"The Cuban 5"

This is despite that almost the whole world unanimously is against the embargo. The embargo is condemned ritually every year in the UN general assembly, latest in September this year with 191 votes for and 2 votes against: USA and Israel. A similar resolution can of course not pass the Security Council, where it would be binding, as the US will veto any intent to do so. In regional Latin American fora the embargo is unanimously condemned, even by US acolytes as Colombia, Chile and Mexico and the Washington-based Organisation of American States, OAS.

It can of course be argued that the US is free to trade with who it wants, and cut trade with countries it considers enemies, and that this should not be the business of other countries. It pursues a noble cause, doesn't it? Human rights, democracy, free elections, devolution of unjustly confiscated US property. So why all this fuss about it?

Being locked out of the US market and being unable to buy US products is of course a challenge for Cuba, but generally the Cubans have been able to sell their produce elsewhere and to find alternative sources for imports. The main problem with the US embargo, however, is that it reaches beyond the US, as it also punishes companies from other countries doing business with Cuba. The embargo is based on extra-territorial laws. To be on the safe side, you have to choose: do you want to do business with Cuba or with the US? You can do business with both if you are very careful, but it may go wrong. Guess what most companies choose.

There are many absurd consequences. Cuba can of course not buy Boeing aircrafts, as they are made in the US. But they can't buy Airbus either, as they have US-made components. They are even not allowed to buy Brazilian Embraer or the Russian Sukhoi Superjet-100, as these also have US-made components. So they are forced to buy oldfashioned Russian airplanes that have all but gone out of production such as Tupolev 204 and Ilyushin 96. As the embargo laws also prohibit any US-owned company or daughter company in third countries from doing business with Cuba, despite that these companies should be governed by local laws, you get absurd examples as when Hilton Hotels bought the Scandic hotel chain in Scandinavia and then rejected Cuban guests. Some years ago, Cuban civil flights arriving at Managua Airport in Nicaragua could not be refuelled as the service was provided by the american company ESSO – they had to make an agreement with the Nicaraguan Air Force to provide them with fuel (now ESSO has gone and with it this problem).

What is hurting most, however, is no doubt the financial embargo. As most international transactions are made in US dollars, these transactions pass through US Banks, even if they are between two third countries, as a Danish retired Police officer found out in 2012. He had – as a hobby - set up a small shop for special spirits and cigars (“Cognachuset”) and bought Cuban Cigars for 26,000 USD over the internet from a company in Hamburg, Germany. The payment was transferred from a small local Danish Bank to a German Bank in Germany, but the money was confiscated in the US – financing of terrorism, you know. He got the money back from his local bank after some months, but the bank never got the money back from the US. Bad luck.

Cuban staff working all over the world have problems with even opening a bank account. This includes diplomatic staff and Cuban UN employees. They are simply financial pariahs. The Cuban interest office in Washington had to get suitcases with cash sent from Cuba so they could pay their expenses in cash – they could not open a bank account in Washington. The Cubans put as a condition for re-establishing diplomatic ties that this should change, but then they struggled to find a US Bank, which would accept them as a customer, as the large banks did not want to risk problems with the embargo laws. They know Obama soon will not be in the White House. It would be tempting to think that now that Cuba has been taken of the US list of countries sponsoring terrorism, these problems would have been solved. They have not, as the embargo laws are still in place.

The brunt of the punishment for doing business with Cuba has been taken by European banks, and the fines are breathtaking. France’s largest bank, BNP Paribas, was in May this year fined 8,900 million dollars for breaking US sanctions against several countries, including Cuba. They have of course now closed their representation in Cuba. This despite that BNP, as the British weekly Economist noted, “did not break European or French laws”. France's Credit Agricole SA has in October 2015 agreed to pay the U.S. authorities 787 million USD for breaking the sanctions against Cuba and Iran. The Swiss bank UBS was in 2004 fined 100 million USD for sending US cash dollars to Cuba and other countries. You can go on - the list is very long.

How come that European companies accept to pay fines, when they don't break the law in their own countries? They do so because the international financial transactions depend on the US markets and institutions, so being excluded from this market hurts their main business. So they choose to obey. Even if, as in the case of Scandic Hotels in Norway, they actually break local laws. What happens is that Europe simply doesn't count. No, it is not a joke – Europe is simply politically irrelevant. These companies know where the power is, and it is definitely not in Europe. At some moment it is possible, as the “Economist” writes, that by “eagerly exploiting their authority over dollar-denominated transactions, American regulators are increasing the incentives for international banks to set up a payments system based on another currency.” However, that initiative is more likely to come from the Chinese or the Russians, and not from Europe.

So what will happen next? It is difficult to predict. According to Gallup, 59% of Americans favour the lifting of the embargo against 29% who oppose it. Roughly the same proportions are in favour and against the lifting of travel restrictions. The percentage of Americans having an overall positive or negative opinion of Cuba is 46%-48% (against 10%-90% two decades ago). The embargo against Cuba is a problem for the US in both international and regional fora, creating an increasingly uncomfortable situation for it. At the Summit of the Americas held at Cartagena, Colombia, in 2012 the US insistence on excluding Cuba led several Latin American countries to state that they would not attend the next summits unless Cuba was invited. So for the 2015 summit in Panama Cuba was invited despite US opposition. The embargo is clearly out of touch with the present mood, internationally and – particularly - in Latin America. The policy was to isolate Cuba – now it is rather the US that looks ridiculous.

The republican majority in the Congress and the House of Representatives will certainly not vote for abolishing the embargo laws (there are several). On the other hand, Obama can, if he wants, administratively reduce the extent of the embargo considerably, and maybe that is the only possibility for getting rid of it, as it would void the embargo laws of most of their content. Whether he will do that is doubtful.

The Europeans, who have shunned Cuba so not to upset the US, have taken the reestablishment of the ties between the two countries as green light for improving their ties with Cuba - the boss has given his go-ahead. Presidents, prime ministers and foreign ministers are lining up to visit Cuba: French PresidentFrancois Hollande, Italian PM Matteo Renzi, German Foreign Minister Frank-Walter Steinmeier, Norwegian Foreign Minister Børge Brende, former Spanish Prime Minister José Luis Rodríguez Zapatero, UK Foreign Office minister Hugo Swire, etc. And then there are of course all the old friends: President Xi Jinping from China, President Vladimir Putin from Russia, President Truong Tan Sang from Vietnam, President Dilma Rousseff from Brazil and so on. And not to forget Pope Francis.

Will that make USA change their policy towards Cuba? Maybe. And maybe not. You know, all these Third World and European leaders don't really count.

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Thorbjorn Waagstein

Thorbjørn Waagstein, Economist, PhD, since 1999 working as international Development Consultant in Latin America, Africa and Asia.

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