US-Cuban Trade: When does a Cold War Strategy Become a Cold War Relic?

Analyze the Case Study in Chapter 6 of the textbook, pp. 252-256, “U.S.-Cuban Trade: When does a Cold War Strategy Become a Cold War Relic?” Answer the first four questions, 6-3 through 6-6, at the end of the case.

·         Your paper should be at least three pages in length.

·         Make sure each question is used as a heading (as required by APA style guidelines) and answered in the order presented.

·         All sources used, including the textbook, must be referenced, and quoted or paraphrased material must have accompanying in-text citations.

·         Title and reference pages do not count towards the minimum word count requirement.

 

U.S.–Cuban Trade: When Does a Cold War Strategy Become a Cold War Relic?

The U.S. embargo of Cuba has been a resilient foreign policy, able to weather a variety of political leaders, economic events, and historical eras for over 50 years.59 In 2011, the Obama administration rescinded earlier restrictions by allowing licensed organizations to grant U.S. citizens permission to make purposeful (academic, cultural, and humanitarian) travel to Cuba. In addition, Cuba announced in 2011 that it was easing restrictions on Cubans’ ability to buy and sell houses and automobiles and to travel abroad. In 2012, a maritime service sanctioned by both the U.S. and Cuban governments began carrying humanitarian goods directly from Miami to Havana, but the service ceased in less than a year because of bankruptcy. When it operated, Cuba was picky about what it allowed in; flat screen TVs were allowed, but air conditioners were not. On one hand, these moves led to speculation that commercial relations would grow between the two countries. On the other, there are still hard-liners in the U.S. House of Representatives and Senate, who want stricter restrictions on U.S.-Cuban relations, such as by limiting the number of flights between the countries and revoking visas for executives from non-U.S. companies doing business in Cuba.

Many U.S. observers want normal commercial relations with Cuba and many do not. The opposing positions are straightforward and similar to those that have prevailed for decades: proponents of normal relations argue that the long embargo has not worked and that U.S. com- panies have been forced to lose business to competitors from other countries; opponents argue that a demoralized Cuban population will overthrow the regime if economic conditions deterio- rate just a little more, and that there is a moral obligation not to do business with a regime so economically and politically repressive. (Cuba is on the official U.S. lists of countries sponsoring terrorism and refusing to do enough to prevent child prostitution.) It also has one of the largest numbers of incarcerated political prisoners (as percentage of population) of any country in the world. Let’s first look at the history of the situation.

Before and After the Revolution

Since Cuba’s independence from Spain in 1899, it has depended on a succession of “sugar daddies.” Until Fidel Castro overthrew the Batista government in 1959, more than two-thirds of Cuba’s foreign trade took place with the United States. The U.S. bought Cuban sugar at a price well above the world market price, which was a disguised form of foreign aid that extended the U.S. sphere of political influence. Later, the Soviet Union poured aid into Cuba, while Venezuela has followed by subsidizing oil exports there.

 

After Castro came to power in 1959, he threatened to incite revolutions elsewhere in Latin America. The U.S. countered by canceling its agreements to buy Cuban sugar, and Cuba retali- ated by seizing U.S. oil refineries. When the oil companies refused to supply Cuba with crude oil, it turned to the Soviet Union for replacement supplies.

The Cold War Sets In

This conflict occurred at the height of the Cold War tension between the United States and the Soviet Union. In 1962, the U.S. severed diplomatic relations and initiated the full trade embargo of Cuba. The following year, the Treasury Department prohibited all unlicensed financial transactions, forbade direct or indirect imports from Cuba, and imposed a total freeze on Cuban government assets held in the United States. Trade between the countries stopped.

The incidents that strained relations during the next decades are too numerous to detail. Some threatened peace; others bordered on the absurd. They included the U.S. sponsorship of an invasion by Cuban exiles at the Bay of Pigs, the placement and removal of Soviet missiles in Cuba, the deployment of Cuban forces to overthrow regimes the United States supported (such as in Nicaragua and Angola), and exposés claiming the CIA had tried to airlift someone to assas- sinate Castro and had tried to develop a powder to make his beard fall out. Figure 6.3 gives a time line of major events in U.S.-Cuban relations.

Enacting the Embargo

During this period, the trade embargo endured as originally set. Despite the collapse of communism in most of the world in the early 1990s, the U.S. Congress passed the Cuban Democracy Act in 1992 which codified the ban on American travel to Cuba and extended the embargo to the foreign subsidiaries of U.S. companies operating abroad—there would be no trade, direct or otherwise, between the United States and Cuba. The Act also required Cuba to hold democratic elections before the U.S. executive branch could repeal the embargo.

Shifting Sympathies

Over time, the U.S. role in the Cuban drama has played to a less sympathetic audience world- wide. Initially, many countries supported the U.S. embargo. All members of the Organization of American States (OAS) except Mexico agreed in 1964 to endorse it. Gradually, countries began trading with Cuba anyway. In 2012 the United Nations voted 188 to 3 against the U.S. embargo; only Israel and Palau voted with the United States. In 2009, the OAS lifted a 47-year suspension of Cuba as a member, basically by redefining democracy to include Marxist–Leninist ideology and not requiring property rights, transparent elections, and free speech as part of the definition.

Figure 6.3 The Saga of u.S.–Cuba relations. Relations between the United States and the island nation of Cuba have been embroiled in the vicissitudes of international politics for more than a century—and especially since Fidel Castro took power in 1959. Cuba downs two U.S. planes from a Miami-based anti-Castro group Cuban National Assembly claims U.S. embargo violates 1948 UN convention against genocide Raul Castro replaces brother as leader The U.S rescinds restrictions on purposeful travel to Cuba by U.S. citizens Cuban War of Independence (Spanish-American War) Fidel Castro takes control of Cuba 120,000 Cubans flee country in Mariel boat lift Bay of Pigs invasion Platt Amendment allows U.S. intervention in Cuba and establishes military base at Guantanamo Bay U.S. trade embargo begins The two countries agree on maritime shipments of humanitarian goods Collapse of Soviet trading bloc U.S. begins allowing agricultural, food, and medical exports Cuban missile crisis 1895–1898 1901 1959 1961 1962 1962 1980 1989 1996 1999 2000 2008 2011 2012

The Cold War Thaws

Events increasingly created questions about the rationale for continuing the embargo. The fall of the Berlin Wall and the end of the Cold War in the early 1990s triggered many changes. The attendant collapse of the Soviet Union deprived Cuba of annual subsidies that sustained its feeble economy. Before long, the export of revolution from Cuba seemed less of a threat. In 2000, congressional legislation allowed certain exports of U.S. agricultural, food, and medical products. Since the passage of this act, the United States has become the fourth largest exporter to Cuba, after Venezuela, China, and Spain.

The Argument for Policy Change

Those in favor of establishing diplomatic relations with Cuba argue that hard-liner policies caused adversity for over 11 million Cubans without weakening either Fidel Castro’s or Raúl Castro’s political power. (Raúl replaced his older brother in 2008 and turned 82 in 2013.) In fact, they point to the Cuban government’s past actions against the Cuban people in retaliation for new, stringent U.S. economic policies, which included raising prices in Cuba for foreign-produced goods and eliminating the U.S. dollar as an official currency. They also warn that Cuban economic problems merely aggravate the two countries’ immigration tensions. A growing number of U.S. leaders (including heads of major firms, Democratic and Republican members of Congress, and labor leaders) have publicly favored normalization of U.S.–Cuban trade. In essence, they believe that increasing exposure to the United States, not the embargo, would be a more promising force of change.

Are There U.S. Business Advantages in Cuba?

Repealing the embargo might help many U.S. industries and companies inasmuch as businesses from other countries have already found advantages in tapping Cuba’s highly qualified workforce and near-perfect literacy rate. (The Cuban government announced elimination of a half million state jobs, thus creating a substantial labor supply.) Further, there is a Cuban demand for foreign products and services. However, after an absence of so many years, U.S. brands may be at a disadvantage with those of other countries that have long traded with Cuba.

Groups in the United States have noted Cuba’s market potential for U.S. companies within the tourism and transportation sectors. Cuba received over 2.7 million international arrivals in 2011. Even with travel bans, there were about 300 sanctioned flights per month between Miami and Cuba. Further, many Americans defied U.S. travel bans by entering Cuba from non-U.S. embarkation points. Cuba may also offer a source of oil inasmuch as there is current exploration off the north coast only 65 miles from the United States. In fact, environ- mentalists feel that greater U.S-Cuban cooperation is needed to help prevent spills that could enter U.S. waters. Present exploration is by the Spanish company Repsol, using Chinese- made rigs.

At the same time, many argue that the potential for business with Cuba is highly limited. Its per capita GDP is low (about $9900 at PPP in 2012), which, when coupled with its small population (a little over 11 million), does not amount to much purchasing power. This is evident by the prevalence of 1950s U.S.-made cars in Cuba (shown in the adjacent photo) even though European and Asian auto companies face no embargoes on their sales.

Cuba also has to earn enough from abroad to pay for imports. Aside from tourism earnings (and there is disagreement about the capacity of its hotels to accommodate increases), it receives substantial remittances from its citizens working abroad and from Cuban relatives in other countries. By sending its doctors abroad on contract work (about 30,000 in Venezuela), the Cuban government earns about $6 billion a year while paying the doctors only a small fraction of that revenue. Cuba depends heavily on commodity exports—sugar, nickel, tobacco, citrus, coffee—for which the United States has ample alternative supplies. In fact, the U.S. sugar quota

system with a number of countries would surely cause a political backlash in those countries if part of their sugar quotas were given to Cuba. Further, there has been concern in some coun- tries, such as the Bahamas and the Dominican Republic, that tourist growth in Cuba would be at their expense.

Is the Embargo a Cold War Relic?

Finally, many debate the basis for the pro-embargo position. Some argue that, in an age when China is a member of the WTO and nations like Vietnam are trading with the United States, the Cuban embargo looks like a Cold War relic. Moreover, it is the longest and harshest embargo by one state against another in modern history. But a move to normalize economic relations with Cuba without getting any quid pro quo would certainly be viewed as a weakness on the part of the United States. In addition, many argue that any Cuban economic gains will be used to increase political repression even more.

However, a change in U.S. commercial policy toward Cuba does not necessarily mean that Cuba would welcome or accept it. For example, U.S. trade actions have given the Cuban government something other than inept policies to blame for economic blunders. Further, when the OAS allowed Cuba’s reentry, Cuba rejected the overture by calling the OAS “totally anachronistic.” Fidel Castro said that the OAS will end up “in the garbage dump of history.” Further, Raúl Castro purged Cuba’s political leadership by referring to former aides as foreign lackeys and indicating that he would not allow any cozying up to foreigners.

QuestIons

6-3. Should the United States seek to tighten the economic grip on Cuba? If so, why?

6-4. Should the United States normalize business relations with Cuba? If so, what conditions might/should the U.S. stipulate?

6-5. Assume you are Cuba’s leader. What kind of trade relationship with the United States would be in your best interest? What type would you be willing to accept?

How do the structure and relationships of the U.S. political system influence the existence and specification of the trade embargo?

6-6. How do the structure and relationships of the U.S. political system influence the existence and specification of the trade embargo?

 

College textbook

Daniels, J. D., Radebaugh, L. H., & Sullivan, D. P. (2015). International business: Environments and operations [VitalSource Bookshelf version] (15th ed.)

 

Field of study: 

Answer

Unit IV Case Study

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