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Cuba's Problems Beyond the Embargo

GeopoliticalDiary JULY28,2015|22:49GMT TextSize Print
OnTuesday,RepublicanU.S.
RepresentativeTomEmmer
introducedtheCubaTradeActof
2015,abillintendedtoliftthe
UnitedStates'54yeartrade
embargoonCuba.Thebillisone
ofseverallegislativeefforts
introducedoverthepastyearto
endthetradeban.Liftingthe
embargoisthenextlogicalstepin
theUnitedStates'eight
monthoutreachtoCuba.U.S.
PresidentBarackObamahas
alreadyissueddirectivestoexpand
financialinteractionwithCubaand
makeiteasierforU.S.citizensto
traveltotheislandcountry,but
presidentialpoweronlygoesso
far.AccordingtoU.S.law,muchof
theauthoritytoamendorannulthe
provisionsoftheembargodependsonCongress'determinationthatatransitionalgovernmentisinplacein
Havana.Consequently,thelawmustbechangediftheUnitedStatesistoproceedwithliftingtheembargo
anytimesoon.
WithCubanPresidentRaulCastrosteppingdownin2018,theUnitedStatescouldwaituntilthentoseeif
Cubameetsthelegislativecriteriatolifttheembargo.Asecondoption,whichEmmerandothersare
promoting,isforCongresstoamendthelawunderpinningtheembargo,therebyremovingthelegalrationale
formaintainingtheban.BothoptionswouldeventuallyrequirenegotiationswithintheRepublicancontrolled
CongressandperhapswithCuba.However,ifresistancewithinCongresswearsdown,thesecondoption
couldresultintheembargobeingliftedbeforeCuba'stransitionofpowerin2018.
ForCubaacapitalpoorislandonly90milesfromtheworld'slargest
economyliftingtheembargowouldbringsignificanteconomicbenefits.
TheCubangovernmentiseagertoshiftawayfromitsstateledeconomic
modeltowardamoresustainablesystemthatallowsCubatogenerate
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morewealthdomesticallyandreduceitsdependenceonexternalpatrons.ButevenwithWashington's
growingwilltolifttheembargo,Havanawillnotbeinapositiontoreceivethefullbenefitsofeconomictrade
withtheUnitedStatesforseveralyears.
EvenifCongressbeginsseriousdeliberationsonliftingtheembargoafteritsAugustrecess,themain
impedimentstoCubaexpandingtradetieswiththeUnitedStatesaremostlyinternaleconomicconsiderations.
DespiteHavana'sgreaterattemptstospurthenationaleconomy,startingwiththelegalizationofCuba's
informalbusinessactivityin2010,theimbalancescreatedbyfivedecadesofeconomicisolationwillremain
theprincipalconstraintsonCuba'seconomicgrowth.TheCubangovernmentisbyfarthelargestemployer
ontheisland,andstateownedexportingbusinesses(aswellaslimitedjointventureswithforeignfirms)are
highlyinefficientcomparedtoforeigncompetitors.Cuba'stwotieredcurrencyexchangeratealsocreates
significantdistortionsanddissuadesforeigninvestment.Moreover,thecountry'srestrictiveforeigninvestment
law,whichtaxesforeignownedfirmsheavilyandlimitsinternationalarbitrationtosettledisputes,isamajor
dragonforeigninvestment.IfCongressliftstheembargoandtravelbaninthenearterm,Cuba'seliteswill
stillbenefitfromincreasedtourism(alreadyamultibilliondollarindustrycontrolledbyCubanmilitaryfirms),
althoughtheylikelywillcontinuemissingoutonpotentiallyhighervalueeconomicactivityforyears.
Overthenextfewyears,theCubanswilllikelyturntheirattentiontoaddressingtheseissues,andtheendof
theembargowouldaddtothesenseofurgencysurroundingeconomicreform.TheCubangovernment
alreadyplanstohavealegaldraftinplacefortheunificationofthedualcurrencyratesbysometimein2016.
ButthepaceofCuba'sopeningtoforeigncapitalwillultimatelydependonwhethertheU.S.proposalstoend
theCubanembargocometofruitioninthenextfewyears.

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