How the blockade of Cuba really works

bodega-mediumThis is a translation that Machetera produced at the request of Cuba-L Analysis, of an article that clarifies some important issues in regard to the blockade of Cuba, which too often, people outside Cuba still call an embargo.  Calling it an embargo is a way of diminishing its seriousness, and in fact as Machetera has written here previously, there are people who delight in pointing out that if Cuba has U.S. (or for that matter, Argentinean) products on its store shelves, it’s not a serious embargo after all.  It’s an argument for shallow minds.

But it’s not an argument that is always made outside Cuba.  It’s not that difficult inside Cuba to find Cubans as well as English speaking expats who are dubious about the blockade’s serious effects, ready to argue that it provides a nice blanket excuse for economic shortcomings.  Machetera has been the recipient of some of these arguments from armchair economists, and one thing she always noted was that none of those making the argument had actually run a business, which because of the dependence on credit, supply and budgeting, must have some similarities to running an economy. (Disclaimer: Machetera’s never run the latter and has no great desire to return to the former.)  These are things that can be much more difficult to calculate and manage than people imagine, and when there are barriers to any one of those three things, e.g; no access to credit, an unwilling supplier, insufficient funds, your business quite quickly becomes a living hell.

Machetera has no special sources inside the offices of Cuban economic planning/purchasing, but then again, neither do foreign reporters.  Marc Frank, the Reuters reporter who blithely tossed off a figure some months ago about retail markup in Cuban stores which he has never qualified and Machetera believes he pulled from thin air, is no more likely than she is to be given that kind of information.  Perhaps less.  But what Machetera does have is some practical experience and a practical imagination, and when she considers what the problems might be for a Cuban company in finding suppliers and credit and how the price negotiations might go, she’s quite happy to be in another line of work altogether.

When she imagines how Cuba had to start from scratch, building all these systems in an entirely new way after the revolution, and starting with bank accounts that had been looted by the Batistianos, she’s even more amazed.  Helen Yaffe’s well researched and accessibly written new book, “Che Guevara: The Economics of Revolution” is indispensable to understanding this process (see review here).

This article explains in a very clear way, some, though not all, of the difficulties Cuba faces in purchasing food products.  Although the emphasis is on describing the artificial barriers that are imposed on those purchases from the United States, the difficulties in purchasing from other countries are also mentioned in passing (geographical distance, the extra-territoriality of U.S. law).  And it includes an interesting note at the end which appears not to have occurred to anyone reporting on the changes announced by Obama earlier this year in regard to U.S. telecommunications companies seeking to do business with Cuba, which is, if all the other barriers remain in force for those companies the way they are for rice producers, for instance, how exactly are these transactions meant to work?  They appear cosmetic more than anything else, a bone tossed to a not very inquisitive press, but then, seven months into the Obama administration, that is becoming a mantra.

The Blockade of Cuba Shakes its Branches, But the Trunk Remains Intact

Marta Veloz, for Opciones (Havana)

Translation: Machetera

Pedro Álvarez, the President of Alimport, the company responsible for bringing food products to market in Cuba declared that despite the fact that the United States market is a promising one with growth indicators, even while traditional suppliers remain, purchases from the U.S. have faded, due to the difficult conditions that the blockade has imposed on these imports.  Managers from major companies in this country made statements on this issue to this weekly, which we will publish in upcoming editions.

After maintaining steady upward growth until 2005 when the largest volume was reached, Cuban purchases of food products from the United States have suffered a decline over the past three years, although according to all the forecasts, it should continue growing, given the benefits these imports represent for both parties.

The decline in import volumes, Pedro Álvarez told us, is due to the continued blockade and the resurgence of obstacles to the purchases which make the imports insecure, to which is added the lack of credit.  Therefore, the import purchases that Alimport used to make from the United States have been redirected toward other more secure markets which do not face these impediments on exports to Cuba, and have credit available; aspects that are very important during the international economic crisis which has caused an increase in food prices.

With so many drawbacks, the volume of imports from the U.S. cannot continue to grow, despite the seriousness of U.S. business owners, the quality of their products and their geographical proximity, the only advantages they presently offer, emphasized Álvarez.

“In order to give an idea of the twisted inconveniences legislated by the U.S. government, it’s enough to know that for any U.S. company to initiate any kind of contact with Cuba, they must request a license from the U.S. Treasury just to travel to Havana.  If they want to make a deal, before it can be signed, they have to apply for another licence with the U.S. Department of Commerce,” explained Álvarez.

To close the business, a Letter of Credit must be issued by the Cuban bank to a European bank, and from there to a corresponding bank in the United States, and finally to the bank used by the U.S. business.  When at least three or four banks are involved, this generates additional costs and an elevated risk of errors in the handling of the documentation.  On top of this, because of the time difference with Europe, this can lead to delays, as have occurred, in loading the ships at U.S. ports, if all the documentation and the necessary payment do not arrive on time or on a business day.  Additionally, the bank in the third country also requires a license from the U.S. Treasury Department in order to operate.

“Continuing the chain of problems, in order to transport the merchandise to Cuba, the ships also must have another license issued by the Treasury Department, and after unloading their cargo in a Cuban port, must return to their country empty, since the United States does not authorize the import of Cuban products.  As if all this were not enough, a recent regulation allows the U.S. Coast Gaurd to intercept and register a ship en route with merchandise from the U.S. bound for Cuba, under the arbitrary argument that Cuba does not have all the necessary controls in place to avoid possible terrorist acts.  This causes additional delays  in the ships’ passage, which only pertain to ships that are traveling under U.S license.  If they are not traveling under U.S. license, they are prohibited from docking in U.S. ports for six months afterwards.  Therefore, Cuba cannot use its own ships.”

“It must also be remembered that all of these licenses can be revoked whenever the U.S. authorities see fit, without any previous warning to those involved, which obviously constitutes an important element of insecurity and risk for both parties, Cuba, above all, considering that Alimport’s essential duty is to guarantee the import of foodstuffs for the basic needs of its people.”

“As expected, so many problems, unique to the Cuban market, have made it impossible for small and medium-sized U.S. companies to do business with Cuba, because of these additional costs which can only be absorbed by the huge agro-businesses.”

“It’s also worth keeping in mind that another link in the chain of prohibitions is the fact that U.S. subsidiaries in third countries are prohibited from selling to Cuba, which is an extra-territorial extension of U.S. law.”  In this case, said Álvarez, there have been Brazilian, Argentinean, Canadian and European countries who have cancelled contracts that were already negotiated and signed with Alimport, once they were acquired by U.S. companies, since they were no longer allowed to sell to Cuba from third countries, even though this is against the commercial laws in the countries where these subsidiaries are located.”

Obviously, against “such opportunities” it’s possible to understand why the business between Cuba and the United States has not be able to grow, despite the natural conditions and the real interest of business people on both sides who are in favor of it.

PURCHASES OF U.S. RICE AND WHEAT DECLINE

In the last two years, Alimport has purchased more than 650,000 tons of rice annually, a basic foodstuff for the Cuban people, which used to acquire it from the neighbor to the north.  “Out of this figure,” said Álvarez, only 12,000 to 15,000 tons came from the United States each year.

“While maintaining its regular suppliers such as Vietnam, Cuba might have become the second largest or perhaps even first largest importer of milled rice from the United States, but the obstacles, even more than the fact that it must be sold to us without credit, among other inconveniences, have impeded these transactions which started with such good prospects,” he explained.

A similar situation has presented itself with wheat, another foodstuff that Cuba is acquiring in good quantity from the U.S. market, also with growth possibilities.  “Now we’re buying it in growing volume from Canada, where companies offer us a good price and a quality product.  Canada is an important commercial partner.  At the last International Fair in Havana, we signed important contracts with companies in that country.  Because of everything I’ve explained, the market for U.S. rice, wheat, and soy products has been lost, and we’ve turned to Argentina, Brazil and other countries to acquire them instead.”

“For the moment, under present conditions, we continue to import certain things from the United States, like chicken pieces, a certain quantity of wheat, corn, soy products and to a lesser degree, feed ingredients.  We will prioritize our purchases if better conditions are offered in order to acquire products that are a priority for the people.”

Despite the braking on U.S. imports, according to Alimport data, since the beginning of its operations in December of 2001 until now, Cuba has paid its U.S. counterpart more than $4.4 billion dollars, has sustained negotiations with more than 5,000 businesses, and of these, has closed contracts with more than 150, something that palpably demonstrates the interest that the Cuban market has for U.S. businesses.

Generally, the Cuban company imported more than $2.5 billion dollars worth of products last year, primarily to cover its citizens basic food supply.  To the extent that the Cuban economy grows, these purchases of foodstuffs can also increase, says Álvarez.

The Cuban market, without being huge, with more than 11 million people is not insignificant either.  For U.S. businesses, mainly because they are so close by, the Cuban market is of interest not just to sell food products, but as a purchaser of other important goods and services, such as construction materials, medical equipment, household appliances, and electric generation, or to participate in oil exploration, among others, in which according to Álvarez, interest has been expressed as long as it is allowed.

In order for there to be a normal exchange of goods and services, said the Alimport president, conservative calculations estimate that bilateral commerce could reach more than $21 billion just in the first five years, a figure that is forecast could grow depending on the market at that moment, although he stressed that this would not mean the cancellation of imports from Alimport’s traditional suppliers, such as Vietnam, Brazil, Canada, Venezuela, China and Argentina.  “Cuba’s doors are open, following the regulations of the law regarding investments in our country, to all those who wish to invest in sectors that affect national development, including U.S. businesses,” insisted Álvarez.

He also expressed that every day the number of U.S. business owners expressing their opposition to the blockade and their desire to freely visit the island, to do business in different areas and purchase Cuban biotechnology products, is growing.  “There are even plenty, pertaining to diverse sectors of the economy, who’ve told us they’re interested in participating in the International Fair in Havanaa which will take place the first week of this coming November,” he pointed out.

We cannot overlook the fact that Cuba’s main source of income is its export of goods and services and tourism.  Currently the bulk of the country’s visitors come from Europe and Canada.  However, travelers from the United States represented 90% of tourism until the U.S. broke relations with Cuba in 1961, according to data from the national Tourism Ministry.  This source says that in the last four decades, the restrictions imposed by the U.S. government kept almost 30 million of its citizens from visiting the Pearl of the Antilles.  Recent studies on these countries forecast that two years after the blockade is lifted, around 1.8 million U.S. citizens could visit their Caribbean neighbor.

Touching on this subject, Álvarez emphasized that the arrival of U.S. tourists should not be feared.  “The opening of tourism, besides creating a bridge of friendship and allowing for people to see the real Pearl of the Caribbean, will increase the sources of income for the country, and thereby, its purchasing power, which in turn would allow for imports from different markets, which would also benefit U.S. businesses and people, by being able to sell their products and assure employment.”

“The blockade continues full force.  There have been no changes.  We hope that one day, with the opposition of the people and business owners, the new administration will realized that this policy does not hurt only Cuba, but also the businesses of its own country, and even more now, in the middle of a complex international economic situation, when unemployment in the United States is growing.  I’ve read recent statements by the rice growers federation, the wheat growers, the U.S. Chamber of Commerce and many other institutions, and executives, demanding an end to the blockade of Cuba.”

Many people in the United States are calling for urgent change in this regard, such as the former diplomat Wayne Smith, whose task it was to open the U.S. Interests Section in Havana in 1977, during the government of Jimmy Carter, and who remained as Ambassador until 1982, when Ronald Reagan abandoned all rapprochement with Cuba.  Smith, in his present role as professor and specialist in research and analysis centers, has said that he is trying to “encourage a more sensible policy toward Cuba.”  Last April during a visit to Havana, he told the BBC:

“I’m a little disappointed; I thought Obama was going to change everything quickly and drastically, but until now the only thing he’s done is lift the restrictions on travel and remittances for Cuban-Americans.  We should re-establish a dialogue and Obama should make it very clear that he wants to start this process.  In this sense, the next step is not Cuba’s but that of both parties.”

BLOCKADE AGAINST TRADE

Almost half a century of harrassment of Cuba has passed, with the formalization by President John F. Kennedy in 1962, of the Presidential Proclamation on the financial and economic blockade of Cuba which they call an “embargo,” and which scores of U.S. presidents have taken it upon themselves to maintain and tighten over time.

Only in 1977, during the Carter presidency, were certain steps taken toward rapprochement through the opening of the U.S. Interests Section in Havana, attempts that were left there, when in 1982, Ronald Reagan assumed the presidency and fortified the blockade.  This position was aggravated by the well known Toricelli Law, approved by President George Bush in 1992, and the Helms Burton Law in 1996, under President William J. Clinton, on which were hung all kinds of amendments additions, etc., which President George W. Bush took it upon himself to implement.  The objectives have been to asphyxiate the Cuban economy, wear out the people and thereby eliminate this “bad example” for Latin America that resulted from a country that fought for its democracy and autonomy, without the customary tutelage of the United States over countries in the region.

And so we come to the present, where the condemnation of this cruel blockade has been expressed in every international forum, including the meetings of the United Nations and the Organization of American States (OAS), where the vote was unanimous to abolish the resolution that expelled Cuba from that group 48 years ago.

And with this strong international pressure in respect to the blockade, Barack Obama became president of the Empire.  In 2004, when his predecessor fortified all the restrictions against Cuba, and Obama was running for Senate, he said that he supported lifting the “embargo,” and that it was time that “we should recognize that this particular policy has failed.”

Now, in Port of Spain, during the recently concluded Summit of the Americas, in which once again many made declarations against the blockade, a journalist asked Obama about what he’d said on the subject in 2004 and Obama answered: “Well, 2004 seems a thousand years ago.”  It’s true that in a few months of taking office, in the middle of the serious national and international events that he’d inherited, Obama opened a gap in respect to Cuba by approving the elimination on travel for Cuban Americans to their country of origin, as well as removing the restrictions on remittances for their families, steps that certain analysts have said were limited to “resuming the policy toward Cuba where Clinton had left it,” before Bush Jr. took over.

He also accepted the resumption of bilateral migratory talks, interrupted for more than five years, which have just taken place in the United States satisfactorily, according to published accounts.  On the other hand, the new president announced that he would allow U.S. cellular telephone and satellite television businesses to negotiate possible investments in Cuba, with their Cuban counterparts.

Although no other information has been made available about this specifically, it’s worth asking how President Obama would design this step, in light of the iron-clad restrictions that it maintains on business with Cuba as part of the blockade, which only allow the sales of agricultural products under unusual restrictions, without contemplating joint investment and disallowing the purchase of Cuban products.

How might an international U.S. communications company, for example, invest in Cuba and maintain its business when in order to speak personally with their Cuban counterparts they are only allowed to travel to Havana once a year, and conversely, as has happened with Alimport executives such as its very president, Pedro Álvarez, they are prohibited from coming to the U.S. for reasons of “national security”?  How would they design a business of combined capital, if once again, against all international norms, they cannot offer credit to the Cubans to boost sales or imports to Cuba?

These are just a few of the Machiavellian provisions that come along with “facilities” for these sales to Cuba, since they began at the end of 2001, as a result of the signing in the United States of the Agriculture Appropriations Bill for fiscal year 2001, which included the Nethercutt Amendment, which limited the ability of the U.S. administration to apply unilateral embargoes on countries using U.S. foodstuffs and medicines.

Executives of major ports, shipping lines, and U.S. businesses that continue to do business with Cuba; the President of the U.S. Rice Producers – one of the products that is sold more than any other to Cuba during the last five years – as well as the President of the U.S.-Cuba Business Association, have recently made statements to this publication on the blockade and the difficulties it imposes on bilateral negotiations, which we shall publish serially, in coming editions.

Machetera is a member of Tlaxcala, the network of translators for linguistic diversity. This translation was produced for Cuba-L Analysis and may be reprinted as long as the content remains unaltered, and the source, author, and translator are cited.

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