In the U.S., Cuba has been on the list of states that sponsor terrorism since 1982 — a distinction it has shared with Iran, Sudan and Syria. In the wake of President Obama’s move to re-establish diplomatic relations with Cuba and lift a 54-year trade embargo, the Communist nation has been pressing the U.S. to take it off the list, and for good reason: Companies doing business with nations on the list face steep fines. In June 2014, BNP Paribas was fined a record $8.9 billion for hiding U.S. dollar transactions with Cuba, Sudan and Iran.
However, at the April 1 Cuba Opportunity Summit, held at the Nasdaq MarketSite in New York, the lead U.S. negotiator for talks in the normalization of relations with Cuba said that the government’s review of Cuba’s appearance on the list should be completed well before the President’s deadline of June.
“It’s in advanced stages,” Roberta Jacobson, assistant secretary of state for western hemisphere affairs, told the audience at the summit, which was organized by Knowledge at Wharton, Wharton’s Lauder Institute and Momentum Event Group. While Jacobson expects the review process to be completed “well ahead of the deadline,” she also cautioned that “there’s been no determination, no conclusion yet. We can’t prejudge the outcome.”
The rapprochement with Cuba also comes as China steps up its investments in Latin America. Indeed, China is one of Cuba’s largest trading partners. It is a major importer of Cuba’s sugar; it has opened hotels in Cuba, and many Chinese tourists visit the Caribbean country every year. The European Union is also a big trading partner with Cuba, the largest island in the Caribbean, with 11 million people and a 2012 GDP of $71 billion, according to the U.N.
“We are the first to acknowledge our own shortcomings, [but] Americans have the right to speak out about those shortcomings.”–Roberta Jacobson
Jacobson has led the U.S. delegation in three rounds of talks thus far with Cuba over normalizing relations, following President Barack Obama’s announcement last December that the U.S. would radically change a half-century of isolationist policies born out of the Cold War. The President has said that these policies, which include a sweeping trade embargo that has been criticized by other nations on humanitarian grounds, have not worked to change the Communist government in Cuba nor give its citizens more freedom.
Jacobson said talks are progressing, and Obama’s sanctions last month against seven Venezuelans for human rights violations did not have a “major impact” on U.S.-Cuba talks. The two sides have met on the issue of human rights, but discussions have centered more on “methodology and form” instead of “substantive” conversations, she noted. One hindrance is that the U.S.’s concept of human rights and international obligations differs from the Cubans’ definition.
Jacobson pointed out that the U.S. believes freedom of speech, of the press and assembly are universal rights. As for the Cubans’ criticism that the U.S. has committed human rights violations as well, “our response to that has never been defensive. Quite the contrary,” Jacobson said. “We are the first to acknowledge our own shortcomings, [but] Americans have the right to speak out about those shortcomings and to seek remedies.”
According to Jacobson, while the U.S. and Cuba are making seemingly small changes, they actually are big steps for two governments that have not talked for half a century. “After 50 plus years of a great deal of distrust and lack of confidence, we have made a great deal of progress,” she said.
The first step is the reopening of embassies, which would be a visible sign of thawing relations. The U.S. already has its U.S. Interests Section Havana office in Cuba, and there is the Cuban Interests Section in Washington that effectively functions as Cuba’s embassy. The goal is to reopen the embassies in time for the start of the Summit of the Americas in Panama on April 10, which Obama and Cuban President Raul Castro are expected to attend in what would be a very rare meeting between a U.S. president and a Cuban leader.
“The commercial opportunity is probably more limited in the near term, frankly.” –Stefan Selig
However, Jacobson cautioned that re-establishing diplomatic relations remains a “very small part” of a normalization process that will take years. It is a “first step on a much longer road,” she said. But such initial overtures are a necessity. “You have to engage even with people you don’t agree with if you want to get to a point where you can bring about change.”
One big hurdle for Obama is hostility from both parties in the U.S. Congress. When Jacobson testified in a February 4 hearing before the House Foreign Affairs Committee, lawmakers complained that they were not consulted about the change in U.S. policy. Several said the U.S. is rewarding Cuba without seeing political reforms and argued that it is time to apply pressure because the country’s main benefactor, Venezuela, is struggling economically due to falling oil prices. Instead, they said, Obama is giving Cuba a lifeline. Jacobson responded that the existing Cuban embargo has been a major “irritant” for U.S. allies in Latin America and Europe, and its removal would boost relations.
Stefan Selig, under secretary of commerce for international trade, clarified that the easing in U.S. restrictions for travel, remittances and sale of commercial telecommunications equipment to Cuba are not designed to get around the U.S. embargo. “They are not measures to lift the trade embargo codified by law,” he said in an earlier session at the same conference. Instead, they are first steps to encourage Cuba to take the right path towards a market-based economy.
Cuba does want the U.S. to lift its trade embargo — commercial, financial and economic sanctions set out in a series of statutes that will take an act of Congress to change. Notably, the Helms-Burton Act of 1996 codifies the embargo in law and penalizes foreign countries doing business with Cuba that involve the use of confiscated U.S. property. In the 1960s, Cuba nationalized U.S. refineries and other assets after they stopped processing crude oil from the former Soviet Union during the Cold War. The U.S. retaliated by imposing an embargo.
“The destination is a democratic and prosperous Cuba.” –Stefan Selig
No ‘Economic Miracle’
Convincing Congress to lift the embargo today remains a daunting challenge. But Jacobson said there has been a flurry of activity that has not been seen before. She noted that there are three bills in the Senate that aim to chip away at statutes enforcing the embargo. “There’s a great deal of interest in looking at these issues.”
But even if the embargo were lifted, Cuba’s underdeveloped economy and infrastructure would limit U.S. business opportunities on the island. The Communist nation has a decimated manufacturing sector, a slack labor market and poor telecommunications infrastructure, among other problems. For instance, there is only one undersea telecom cable connecting Cuba with the rest of the world. “There’s a lot of infrastructure work that has to be done,” Selig said.
Moreover, the market is small with a population about the size of Ohio and citizens who make an average of $20 a month, Selig pointed out. Few Cubans have access to the Internet — mainly through 90 Internet cafes, which charges $4.50 an hour. Cuba also must move towards a market-based economy, set up an independent judiciary that can hear claims from foreigners and become more hospitable to outside investment. “The commercial opportunity is probably more limited in the near term, frankly,” Selig said. “The Cuban people are going to need a lot of help.”
Selig added that companies should not be under any illusions that there is “some economic miracle that’s going to happen.” Rather, it is an opportunity for the U.S. government to spark a move to more freedom and prosperity for Cuba. He noted that similar economic moves have created positive change in other centrist governments, such as Vietnam, and more generally trade agreements have lifted environmental and labor standards in countries that signed on.
If Cuba moves towards a market-based system, it could join other nations in the region whose economies have improved over recent decades, including Mexico, Chile, Colombia and Peru. “This is going to be a long road; this is going to be complicated, but we shouldn’t lose sight of what we’re doing here,” Selig said. “The destination is a democratic and prosperous Cuba.”