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Running Head: AMERICAS CUBAN CONUNDRUM

Assignment #2: America's Cuban Conundrum


Dr. Deborah Hill
Rangsinee Junloy
International Marketing MKT 505
Strayer University
January 28, 2011







AMERICAS CUBAN CONUNDRUM 2

Americas Cuban Conundrum
1. Analyze the key issue that prompted the EU to take the Helms-Burton dispute to the
WTO
The 1963 U.S. embargo was reinforced in October 1992 by the Cuban Democracy Act
(the "Torricelli Law") and in 1996 by the Cuban Liberty and Democracy Solidarity Act (known
as the Helms-Burton Act) which penalizes foreign companies that do business in Cuba by
preventing them from doing business in the U.S. Justification provided for these restrictions was
that these companies were trafficking in stolen U.S. properties, and should, thus, be excluded
from the United States (Longmire, 2009).
According to the Department of State (2000), Helms-Burton Act is the latest incarnation
of U.S. efforts to internationalize it embargo of Cuba. Both the 1992 Cuba Democracy Act and
Helms-Burton target foreign investment in Cuba, seeking to undermine Cubas international
access to capital.
The European Union (EU), Canada and Mexico have taken steps to challenge the law in
the WTO and under NAFTA, seeking the nullification of the law on the grounds that it violates
international trade law. The EU resented the Helms Burton Act because it felt that the US was
dictating how other nations ought to conduct their trade and challenged it on that basis. The EU
eventually dropped its challenge in favor of negotiating a solution. Many nations have enacted
antidote legislation that bars their nationals from complying with Helms-Burton, under the threat
of fines. They also argue that Helms-Burton violates international trade laws and norms by
trespassing on the sovereignty of third countries.
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These countries regularly refer to the provisions of Helms-Burton that threaten their
nationals as "extra-territorial." They also believe that their trade relationships with Cuba are a
matter in which the United States has no right to interfere. Indeed, to many observers, the United
States' stance is quite surprising given its policies concerning "free trade" and the interests it has
involved in the success of that trade and its instruments, including the World Trade Organization.
Recall the strong U.S. opposition to the Arab boycott of third countries that traded with Israel.

2. Decide who benefits and who suffers from an embargo of this type and explain your
rationale
The U.S. has said, of course, that foreign companies are free to trade with Cuba, so long
as they respect as sacred the right of U.S. citizens to their property. This defense rings hollow.
U.S. corporations held much of the most valuable land in Cuba before the revolution. Helms-
Burton would leave few of the most enticing investment opportunities available. Also, many
countries have pointed out that Title III not only directly restricts many companies, but instills a
general fear of retaliation in international businesses that even further limits trade. Any business
interested in Cuba must take abnormal steps to protect itself, an expense many believe outweighs
the gains possible from a relatively small and shaky market. Anyone familiar with the embargo
and its attendant restrictions knows this is a well-used tactic of U.S. policy
A 1992 law, known as the Cuban Democracy Act (or Torricelli Law) and the 1996
Helms-Burton Act significantly increased obstacles to trading with Cuba. While these recent
laws did allow for some exceptions, such as humanitarian and religious aid, the laws made
corporate trade much more difficult. One provision made it illegal for any ship that has been to
AMERICAS CUBAN CONUNDRUM 4

Cuba to dock at an American port for six months. Such a provision made it difficult for foreign
nations to trade with both the US and Cuba. The Trade Sanctions Reform and Export
Enhancement Act of 2000 relaxed the embargo and allowed certain sales of food to Cuba.
Violating the embargo could result in up to a $1 million fine and a decade in prison (Sabin, n.d.).
While many business and humanitarians advocate ending the embargo because of free-
trade's ability to help the Cuban people and American profits, others claim that lifting the
embargo could cost America financially. Many countries that have agreed to sell goods to Cuba
on financed money have since ended the practice. Spain, France, Italy, and Venezuela have
discovered that Cuba is too poor to pay its debts. Consequently, loaning to Cuba has become at a
loss to the lending nations. Because of the threats of Cuba not repaying loans, foreign investment
in Cuba fell from $488 million in 2000 to $38.9 million a year later. Florida sugar growers also
are concerned that trade could cost them. Cuba is a major producer of sugar and could sell
considerably cheaper to the US market. Florida sugar growers suffered greatly following
NAFTA and fear trade with Cuba could easily bankrupt them.

3. Compose a resolution to the trade situation between the U.S. and Cuba
The embargo levied on Cuba has been described by the US government as "the most
comprehensive embargo the United States has against any country in the world." What are the
reasons the U.S. has for waging such a battle against a small, faltering nation? Should such an
embargo be continued? What are the potential gains and losses of ending the embargo?
Questions concerning the embargo abound, but satisfactory answers remain elusive.
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The world is making a definite and absolute trend toward global free-trade, and economic
development. Cuba, much like China, is attempting to include itself in freedom's bounty, while
still retaining significant central control. Nonetheless, Cuba is moving toward liberalizing its
economy. Castro has used the term "entrepreneurial upgrading" for a practice of allowing locally
run, but state-owned companies significant autonomy. The local companies are charged with
using technology, creating production according to market demands and managing manpower.
The Cuban government is making tremendous efforts to keep up with new technology. It
is now common for Cuban students to study IT in college, or to take adult courses in computer
applications. Cuba is even placing internet computers in every post office. Cuba's efforts to
embrace the new millennium are reinforced by the young population of the nation, and excellent
educational system. Cuba's literacy rate is at 98%, and Cuba has a higher per capita college
completion rate than any Latin American country, rivaling even the best European nations. Trade
with Cuba is a difficult and complex issue to debate. Each side has varied and valid issues to rise.

4. Given that trade relations resume between the U.S. and Cuba, determine what type of
economic barriers would have to be overcome by a U.S. firm to conduct business
successfully in Cuba
At present, the embargo, which limits American businesses from conducting business
with Cuban interests, is still in effect and is the most enduring trade embargo in modern history.
Despite the existence of the embargo, the United States is the fifth largest exporter to Cuba
(6.6% of Cuba's imports are from the US). However, Cuba must pay cash for all imports, as
credit is not allowed.
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The main reasons why sanctions are being weakened are strictly practical and economic.
Free-trade with Cuba has the potential to earn the United States billions of dollars. Currently
Cuba is trading with other nations. But, the US would seem the most logical trading partner in
many circumstances, because of the closed location. Why should Cuba buy goods from Europe
or Asia when the United States is a mere 90 miles away?
The Texas Senate voted to encourage the federal government the completely rescind the
embargo. The Senate cited facts such as that Cuba's oil production has increased by over 400%
in only ten years. Texas oil companies would certainly like to be able to purchase much of that
oil. The Senate further stated that "Cuba imports nearly a billion dollars worth of food every
year. The farmers in Texas want the opportunity to sell in a Cuba desperate for food. American
farmers are beginning to see much of that trade thanks to the Trade Sanctions Reform and Export
Enhancement Act of 2000. In the first year of sales to Cuba, the US sold $250 million in crops.
There is risk in trading with Cuba, as France, Italy, and Spain have discovered. However,
American businesses should be allowed to decide for themselves what level of risk they are
willing to take in trading with and loaning to Cuba. The American government, however, should
not risk tax payer money on an obviously high-risk and controversial investment.
Cuba also represents an untapped human resource for American businesses. Cuba's
excellent educational system has created highly qualified and skilled workers. Yet, Cuba's poor
economic situation has led Cuban workers to be the lowest paid in the West. US firms often use
Chinese labor, or those of other poorer nations. Using Cuban labor would allow US businesses to
save money of labor while also saving on shipping product into the US.
In the end, America has for too long fought a losing battle with Castro. Other nations
were always willing to circumvent US policy, and Castro survived. What communism and
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Castro may not survive, though, is the new economy. Free-trade has the power to bring in the
liberal, democratic values that might lead to the changes the embargo has failed to achieve. Of
course, as with all new ventures, American business must proceed with caution.
Castro has seized US assets once, Cuba's totalitarian regime can change policies at whim,
and Cuba's credit record is not encouraging. But, with due diligence, America and Cuba could
create a situation beneficial to both nations.



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References
Keegan, W. J., & Green, M. C. (2011). Global marketing: 2011 custom edition (6th ed.). Upper
Saddle River, NJ: Prentice Hall/ Pearson.
Longmire, S. (2009). U.S.-Cuba Politics 101: What is the Cuban embargo?, Retrieved January
26, 2011 from http://www.examiner.com/south-america-policy-in-national/u-s-cuba-
politics-101-what-is-the-cuban-embargo.
Sabin, B.M. (n.d.). American Trade with Cuba: An Analysis of The Current Embargo and Its
Future. Retrieved January 27, 2011 from
http://www.brucesabin.com/american_embargo_cuba.html.
US Department of State (2000). Libertad Act, Retrieved January 27, 2011 from
http://www.state.gov/www/regions/wha/cuba/helms.html.