End of the Embargo: the Future of Cuban-American Economic Cooperation

President Obama’s state visit to Cuba has garnered a lot of press, as he is the first sitting president to do so since 1928. But while momentous, this isn’t surprising; it’s merely the latest in a series of steps the President has taken over the years to normalize relations with the island nation. Since 2009, Obama has lifted travel restrictions, released prisoners, and last year, removed Cuba from the list of terror-sponsoring states. In July, the two countries officially restored diplomatic relations and re-opened their embassies in their respective capitals. During his visit, Obama has declared his intention to lift the economic embargo on Cuba entirely. “I have come here to bury the remnants of the Cold War,” he declared.

The embargo itself is a tricky piece of American policy. Rather than a physical, military blockade, which hasn’t been present around the island since after the Cuban Missile Crisis in 1962, it is entirely a commercial, economic, and financial enterprise. It was first imposed back in 1960, only two years after the Cuban Revolution deposed the US-backed Batista regime, as a reaction to Cuba’s nationalization of American-owned Cuban oil refineries without compensation.

This action was in turn a response to then-President Eisenhower’s decision to cancel 700,000 tons of sugar imports from Cuba and refusal to export oil to the island nation, leaving it reliant on Soviet Russian crude - and with American oil companies further refusing to refine the Soviet crude oil, Cuba seized the American-owned refineries. The embargo was soon expanded to include almost all imports and exports. In total, the US holds approximately $6billion in claims against the Cuban government, and the Cuban Democracy Act of 1992 states that sanctions are to be maintained so long as the Cuban government refuses to democratize and respect human rights. These policies were further tightened under President Clinton with the Helms-Burton Act after Cuba shot down two planes flown by anti-regime protest group Brothers to the Rescue that had repeatedly violated Cuban airspace to drop anti-Castro leaflets over the island, killing four, three of whom were American citizens. Former Cuban President Fidel Castro did encourage insurgence against the USA back in 1982, but in 1992 he promised to cease all such activity, and the State Department reports that Cuba has indeed ceased their support for terrorism. More recently, relations between the two countries took a turn for the worse in 2011 when Cuban authorities arrested Alan Gross, a US Agency for International Development (USAID) subcontractor for the crime of bringing in internet and communications equipment for Havana’s Jewish community. His release was part of a prisoner swap as part of Obama’s “Cuban Thaw” policy.

Refusal to normalize diplomatic relations does not, in fact, have anything to do with communism, as the USA was certainly able to normalize relations with the Soviet Union during the Cold War, as well as with China and Vietnam. Nor is Cuba much of a security threat, as it is militarily impotent, no longer serves as a base for Soviet intelligence operations, nor does it seek to export Communism, or fund or encourage terrorism abroad. It isn’t an entirely toothless country, as it has maintained close relationships with both North Korea and Iran, and has gone back on previous agreements in the past, failing to act in good faith, and remains a sovereign nation run by dictat, not democracy, but it is far from the threat it posed it posed in the height of the Cold War. But while the embargo might have started as a reaction and resistance to Castro, it soon became a political club for first generation Cuban-Americans, often manifesting in election years for politicians running for election, especially in Florida. And indeed, it seems to be generational; the most recent generation of Cuban-Americans differs from the politics of their parents, and many seek to renew ties with island and their families left behind. A Pew Research poll from 2014 shows that the majority of Americans support engagement with Cuba, and a poll from Florida International University shows similar sentiments among Cuban-Americans specifically. A 2015 poll shows that this feeling is reciprocated, with 97% of Cubans favoring restoring ties to the United States. And Obama’s overtures to Cuba have been celebrated around Latin America as well.

Does the embargo even work? It seems not. The Castro regime is well entrenched, and despite the hardships of the Cuban people, doesn’t seem to be going anywhere. There is doubt that the embargo has had any positive effect at all. The United States doesn’t block Cuba’s trade with third parties or other countries, and despite the embargo, the US is the fifth largest exporter to Cuba, consisting mostly of agricultural goods and accounting for over 6% of its imports, though the island nation must pay for it in cash. Moreover, since 1992, the UN has passed a non-binding resolution every year condemning the embargo and declaring it to be in violation of the UN Charter and international law. Only the United States and Israel voted against this resolution in 2014, with a few Pacific island nations abstaining. A great many states engage in active trade and tourism with Cuba. In fact, the embargo might be helping entrench the regime, as it is a convenient scapegoat for the Cuban government on which to pin all its ills and policy pitfalls.

The American embassy in Cuba

The US Chamber of Commerce estimates the embargo hurts us as well as Cuba, costing the economy $1.2billion per year in lost sales and exports. The Cuba Policy Foundation, a non-profit organization dedicated to America-Cuba relations and policy, estimates that the annual cost to the US is a much higher $3.6billion. The Cuban government estimates the embargo costs them approximately $685million annually. Moreover, the embargo uses US resources in endeavors like tracing property ownership of Spanish hotels in Cuba to ensure they weren’t stolen from Americans decades ago. At least 10 different agencies are responsible for enforcing the embargo, and according to the Government Accountability Office, a huge amount of resources are spent on enforcement, to the tune of hundreds of millions of dollars and tens of thousands of man hours every year. Over 70% of US Treasury Department inspections each year are focused on smuggled Cuban goods, even though the agency administers more than 20 other trade bans. Resources spent on this and on programs like Radio Mardi, an anti-regime radio broadcast that is actively jammed by the Cuban government, could be re-directed towards other American endeavors abroad, like Radio Free Afghanistan, where the broadcasts aren’t jammed, or monitoring terrorist financial networks.

Some Americans have been agitating against the embargo for some time, citing the untapped markets of Cuba as avenues for potential profit and growth. Free market supporters and lawmakers representing agribusiness are some of the strongest in vocalizing this. Recently, the American government has approved American investment in Cuba. Two men from Alabama were permitted to construct a factory to build tractors to sell to Cuban farmers, and they are expecting to deliver products beginning as soon as 2017. This plant would be the first significant US business investment on Cuban soil since 1959, and is well in line with Obama’s anti-embargo intentions. And Cuba’s few exports do not rival any US industries, making future free trade with the island low cost both politically and economically, with high potential yields. But that can’t happen until Cuba liberalizes their economy and makes private enterprise a more accessible option for their populace, though the reforms put in place by President Raul Castro since 2008 have begun the process that Obama hopes to accelerate.

In other words, the embargo has utterly failed to accomplish any of its goals, only resulting in harming the US economy and failing to liberate a single Cuban or move the regime towards democracy. And isolation isn’t often an effective tool towards fostering change either. In 1970, 17 out of 26 Latin American and Caribbean nations were authoritarian; today, Cuba is the sole holdout. But only Cuba has been subjected to such a comprehensive embargo, whereas economic engagement has been the rule for everyone else. That Cuba’s government is oppressive isn’t under dispute, but the embargo certainly hasn’t made things better. And indeed, President Obama’s rationale for visiting Havana was grounded in the notion that interaction will empower Cubans and bring about change faster than decades of isolation ever did. Obama urged Castro more about liberalizing the economy and embracing the free market than he did about decreasing authoritarian control and respecting human rights, indicating his belief in the power of capitalism to aid transformation of the country from within, using economic policy to circumvent political stalemate. Moreover, ending the embargo would send a powerful message to regimes that do pose threats to American security: foreign governments that attack the United States will be sanctioned severely and possibly worse, but those that cease to engage in such activity will benefit from trade with us. Carrot and stick.

Still, Obama has to overcome strong opposition in Congress in order to lift the embargo once and for all, and it won’t happen immediately.

The sanctions in place were poorly designed and demonstrably easily circumvented, making them difficult both to enforce as well as to remove in the face of political opposition. Until the embargo does eventually end, Obama and successive presidents can use the existing barriers and the clout we do have and that Obama has built as incentives for Castro to change, as well as encouraging grassroots democratization movements in the island nation. This may involve taking the hard-line at relaxation of barriers, making them conditional on Castro ending some of his regime’s most egregious human rights abuses and harmful economic and political policies.

In the short-term however, Obama can use executive authority to create ties around trade, investment, and travel, with the agricultural and telecommunications industries standing to gain the most both from immediate increased ties and the eventual collapse of the embargo over the long term. Farmers in the southeastern part of the USA especially stand to gain, as their proximity to Cuba makes them ideal exporters of poultry, fish, rice, and corn, but all American wheat and rice farmers are likely to benefit from increased trade with Cuba. “We believe our market share could grow from its current level of zero to around 80% to 90%” said Alan Tracy, president of the US Wheat Associates.

Trade with Cuba could result in the creation of 6000 new jobs in the agricultural sector, many of them in Florida. And for Cuba, an end to chilly relations with the USA means tourism, travel, and remittances from relatives already in the USA. Currently, the $5.1billion annual remittance money that Cuba receives overwhelmingly comes from the USA, and is critical for the Cuban economy, and the Cuban government estimates the impact on remittances as part of the overall impact of the embargo on its economy. It also means that other Latin American businesses will start investing in Cuba, as previously they have not done so in fear of risking their lucrative ties to US markets.

As mentioned above, Obama hopes that economic liberalization will pave the way to political liberalization as it has in so many other countries, though it might be some time before we see results on that front. But the more globally integrated Cuba becomes, the more it will be able to contribute not just to US and regional markets, but global affairs. Cuba has already sent large teams of doctors to Africa to combat Ebola, and has helped successfully mediate the decades long and bloody war between Colombia’s government and the FARC rebels. Despite its current ties to states like Iran and North Korea, it is to be hoped that stronger and more beneficial ties to nations aligned with the United States might be incentive enough to turn them away from this axis. Then this type of engagement would increase, and the world will very possibly be better for it.

Images courtesy of Shutterstock.

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