Biden Presidency Shouldn’t Return to Obama Era Cuba Relations

Despite the potential in agricultural trade

By R. O. Niederstrasser-Hernández and James Gordy*

HAVANA TIMES – With the deterioration of U.S.-Cuba relations during the Trump administration, much of the agricultural initiatives developed during Obama’s Cuban Thaw were reversed, new restrictions were introduced, and the economic embargo was strengthened.

Early in his presidency, Trump released a statement extending the “National Emergency with Respect to Cuba” declaration arguing that mass migration and the unauthorized entry of Cuban vessels into the United States endangers national security.

Soon after, Title III of the Helms-Burton Act was activated for the first time. One of the law’s principal objectives was to discourage foreign businesses from doing business in Cuba by allowing American property claimants to sue them in United States courts for trafficking in confiscated property.

In this way, Title III cleared the way for lawsuits against foreign companies active in Cuba, especially those that were benefiting from the expropriation of US-owned companies and private property after the Cuban Revolution. Since Bill Clinton’s term in office, every United States president suspended this provision for fear of offending allies and complicating relations with Cuba.

As the bilateral political climate continues to be strained, economic opportunities are eroding. Export promotion and capacity building programs in Cuba, developed during the normalization of relations during the Obama administration, are now severely limited in the capacity for further advancement.

A Biden presidency would have a different reality in negotiating with Havana than Obama had in 2014. For example, sanctions on Cuba over Venezuelan oil exports to the island were increased in 2019 as punishment for its continued support of Venezuelan leader Nicolás Maduro whom Washington considers to be a Cuban puppet.

Another important issue are the human rights in Cuba. Human rights violations on the island are one of the primary concerns that have shaped US policy towards the island nation. Despite the political opening, human rights continue to be severely restricted.

A third emerging problem that has caused frictions between the two countries are the incidents of the “Havana Syndrome.”In September of 2017, the State Department announced it was withdrawing all non-essential personnel from the United States Embassy in Havana. It warned American citizens against traveling to Cuba due to reports that American diplomatic personnel on the island had suffered unusual, inexplicable health problems that dated back to the end of 2016.

Around twenty-six personnel were diagnosed with minor traumatic brain injuries and permanent hearing loss, as well as symptoms such as loss of balance, severe headache, perceptual disorders, and brain swelling. As of May 8^th, 2020, a definitive conclusion on the case has not yet been determined.

THE POTENTIAL OF TRADE NORMALIZATION

If the Cuban government opens the economy for foreign trade and investment, an expansion of growth and diversification into other products could be expected in important sectors such as tourism, restaurants, food manufacturing, and livestock production. In addition, aliberalized economic management model would increase productivity, diversification, and strengthen the independent sector.

The 2019 Cuban constitution recognized private businesses, foreign investment, and non-farm cooperatives as legitimate and important economic actors in the economy. But overall, the Cuban economic laws and climate are far from friendly for large-scale foreign investment or trade.

While these sectors are now recognized, they remain regulated and subordinated to the Cuban government, which controls the economy. Therefore, there is no perception of the market’s real and objective existence in terms of the “production-distribution-exchange-consumption cycle, and the necessary interrelationship between macro and microeconomics.”[1]

The command-economy model pursued for many decades only created inefficiencies and hyper centralization negatively affecting wages. By engaging in a liberalized approach towards a mixed economy, state ownership of the land should be transferred to the agricultural growers in a step to give them more autonomy. They also would be given greater decision power on the aspects of what they grow, whom to hire, whom they sell it to, and at what prices.[2] In addition, it could also lead to a reduction in the black market in Cuba.

Another important aspect is the democratization of the political system will free the state’s economic monopoly. The communist system in Cuba has gone through some moderate waves of political reforms. The reforms after Fidel Castro’s death, for example, decentralized power from the president towards the communist party. While many aspects of the state bureaucracy have been pushed out towards new positions such as primer minister and governors, these reforms still grant the Cuban Communist Party (PCC) the monopoly of power within the Cuban political and economic system.

Democratization will ensure the expansion of freedoms and human rights of the Cuban population. In economic terms, it will translate into a loss of control mechanisms over the population and, instead, a focus towards markets. Damaging protective measures of the Cuban government into the economy could be prevented, such as the reversal of the sweeping agricultural reforms of 2010 that loosened regulations favoring market forces and prices.

If these changes were to happen in Cuba, U.S. trade restrictions that are harming agricultural exports to Cuba, would fall imminently. The United States has restricted its export markets for political reasons, abandoning a 2 billion USD market in which it could reasonably expect to capture an estimated 959 million USD in sales.[3]

Cuba currently imports products like rice at higher prices from countries like Vietnam, when the United States would have the natural comparative advantage due to proximity. Restrictions that prevent these imports including prohibiting credit and shipping restrictions raise the price of US goods above the prices of competitors.

The decision to lift trade restrictions should not be dependent upon decisions made within Cuba. Through the codification of the embargo in Helms-Burton, the United States has constricted its ability to determine its foreign policy and trade policy, instead basing such policy solely on domestic policy in Cuba. Eliminating restrictions based in legislation will introduce more flexibility to US trade policy with Cuba and allow the United States to more effectively engage with Cuba.

In addition, investing in export promotion programs will increase market capture and open trade in new products. Despite the possibilities of a hugely expanded agricultural trade, the United States will not be able to capture its full potential in market share unless it operates the usual export promotion programs.

For programs to consider in Cuba, US policymakers should look towards programs currently in place in the Dominican Republic including chambers of commerce and trade representatives, as well as offering services for US exporters including trade counseling, market intelligence reports, and commercial diplomacy programs. These programs are key parts of the United States’ trade relationships throughout the world, there is no reason not to apply these programs to the Cuban market given the potential growth identified.

Lastly, an important aspect is to take steps to ameliorate the negative effects of sanctions. Impacts of sanctions remain a major factor even after sanctions are lifted. Sanctions reduce foreign direct investment, joint ventures, and interest in participating in trade between two countries, with effects lasting after sanctions are lifted due to uncertainty surrounding the economic relationships. Given the history of US-Cuba trade with repeated cycles of easing and tightening of restrictions on trade, policymakers should make clear that the opened space for agricultural trade between the two countries will not just be closed again.

*Havana Times reader guest post.

[1] Jolly, Curtis M., Thomson, Henry: “Free trade with Cuba: The effects of a lifted embargo in Alabama,” Southern Economics and Business Journal (2008), http://webhome.auburn.edu/~thomph1/simcuba.pdf

[2] Ibid.

[3] Gordy, James and Niederstrasser-Hernández, R. O.: “U.S.-Cuba Agricultural Trade: How Trade Normalization will affect Exports and Investment,” Walsh School of Foreign Service, Georgetown University, May 2020.