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John S. Kavulich II, President
U.S.-Cuba Trade and Economic Council, Inc.
Testimony Before the Subcommittee on Trade
of the House Committee on Ways and Means
Hearing on the Use and Effect of Unilateral Trade Sanctions
October 23, 1997
Mr. Chairman and members of the Subcommittee, thank you for the opportunity to appear
before this hearing on the "Use and Effect of Unilateral Trade Sanctions" to
discuss one country which has been the subject of unilateral trade sanctions in varying
degrees by the United States for longer than almost any other country.
Section One-Cuba and the United States
Cuba is the largest Caribbean Sea-area country, larger than nearly all of
the islands within the Caribbean Sea-area combined, and with nearly one-third of the
combined populations. Nearly as large as the State of Pennsylvania and approximately as
long as the State of Florida. With 11 million citizens, the population is approximately
the same as the State of Illinois, the home of Chairman Crane. If Cuba were a state within
the United States, it would rank 7th in population.
Cuba, like the United States, was a founding signatory of the General Agreement on
Tariffs and Trade (GATT). Cuba, like the United States, is a member of the World Trade
Organization, unlike the People's Republic of China and Russia, for example. The United
States and Cuba share membership in many international organizations and are signatories
to many of the same international treaties.
Between 1980 and the end of 1992, for example, the value of licensed United
States-owned foreign subsidiaries' trade with enterprises within Cuba was US$4.563
billion- US$2.637 in exports and US$1.926 billion in imports from 2,938 licenses issued to
more than 100 United States companies, a number of which have certified claims, yet
continued to choose to trade with Cuba when permitted.
Some of the companies receiving licenses included: Alcoa, Beckton Dickinson,
Continental Grain, Corning, Del Monte, Dow Chemical, E.I. du Pont de Nemours, Exxon, Ford
Motor Company, General Electric, Goodyear Tire and Rubber, Honeywell, ITT, Ingersoll-Rand,
Johnson & Johnson, 3M, Otis Elevator, Pfizer, Caterpillar, Cargill, Carrier, Picker
International, Tenneco, Union Carbide, Vulcan Hart, and Westinghouse among many others.
NOTE: Some of the same companies that have chosen to trade with Cuba have also chosen
to register their trademarks and patents within Cuba. During the last several years, these
registrations have increased at an exponential rate. Many United States companies have
continued to maintain their trademark and patent registrations since before the 1959
revolution. A number of well-known United States companies, including McDonald's,
Victoria's Secret, and Toys-R-Us, for example, each spent tens of thousands of dollars in
legal fees upon their return to South Africa because their trademarks had lapsed due to a
lack of use, and other companies were now using their names. Members of the Subcommittee
on Trade might find interesting that two years ago, when the Office of Foreign Assets
Control (OFAC) of the United States Department of the Treasury failed to continue the
authorization for United States companies to make the required payments within Cuba to
maintain the registration of their trademarks and patents, the Chamber of Commerce of Cuba
notified each of the United States companies that all protections would be continued until
the United States Government reinstated the authorization. The authorization was
reinstated, but one year later. Cuba has not, to date, become a market for pirated United
States-branded products, as continues to be symptomatic with some of this country's
significant trading partners.
The implementation of the Cuban Democracy Act in October of 1992 eliminated virtually
all United States-owned foreign subsidiaries' trade with Cuba.
Section Two-Cuba and Other Countries
In the absence of an unrestricted commercial and economic presence by United States
companies, the government of Cuba, Cuba government-operated companies, Cuba-based joint
ventures, and Cuba-based economic associations are importing from, exporting to, obtaining
financing from, and investments from other countries.
As of October 1997, the estimated value of announced investments within Cuba by
private sector companies and government-controlled companies from twenty-five countries is
US$5.9 billion, of which US$1.3 billion is estimated have been committed and/or delivered.
From Canada, the United States' principal trading partner, companies have announced,
committed, or delivered investments of more than US$2 billion in the mining, energy,
tourism, health care, transportation, and agriculture sectors. Canadian companies export
everything from air conditioners to food to telephones to construction materials.
From Italy, active companies include Fiat (automotive), Stet International
(communications), Benetton (clothing), Costa Crociera (passenger ship port and passenger
cruise operations), San Pellegrino (beverages), Olivetti (computers and cash registers),
Moneblanco (soda fountains), and Fantinel (winery). Various companies have exported
equipment used in the production of pharmaceuticals. A yacht constructed in 1938 for
Hollywood singer Kathleen Baker, and now owned by an Italian entrepreneur, is plying the
island's waters with tourists. Costa Crociera will cease to operate its cruise ship during
the first quarter of 1998 as United States-based Carnival Cruise Lines has purchased the
company, and United States Government regulations require the severing of the Cuba
commercial dealings.
From Spain, hundreds of millions of dollars have been targeted toward tourism,
agriculture, fishing (exclusive marketing rights), production of tubing, and real estate.
A Spanish company finances the production of, and imports, and distributes the majority of
Cuba's tobacco products. Recording contracts with Cuba-based musicians and groups from
which a Canary Islands-based company reported that it averaged 100,000 sales per compact
disc produced.
From Panama, Caribbean International Motors S.A., reported vehicle sales to Cuba
exceeding US$62 million in 1996, a nearly 100% increase from 1995.
From France, Devexport and Babcock & Gemco will upgrade a power plant. Sieta S.A.
provides the financing for the tobacco crop. ELF Aquitaine, the oil and chemical
conglomerate, plans to supply 100,000 eastern Cuba homes with gas stoves and cooking gas
by the year 2002. The gas, which will eventually amount to 40,000 tons annually, will
initially be imported and then bottled on the island. Companies are exporting poultry,
producing control panels for power plants, operating bakeries, and investing in tourism
(Club Med). Societe General and Alcatel (many telephones are from this company) have
offices in the Republic of Cuba. Citroen, Renault, and Peugeot export vehicles.
From Russia, Cuba imports a substantial quantity of its oil, Russia purchases sugar.
The value of the bilateral trade exceeds US$500 million annually.
From the United Kingdom, British American Tobacco (BAT) has an agreement to produce
various types of tobacco products for multiple export markets. The government is providing
millions in financing and financing guarantees. The first foreign investment fund to
operate in Cuba since the 1959 revolution is from the United Kingdom. Britain's Burmah
Castrol Group, through its Dutch subsidiary, has a joint venture to use excess Cuban
refining capacity to process lubricants for sale in the Caribbean.
From The Netherlands, Unilever PLC has a partnership with Cuba's Suchel to make
deodorant, soap, shampoo, toothpaste, perfumes and other products. Shell Caribbean has an
office in Havana. ING Bank NV became the first foreign bank to operate within Cuba since
the 1959 revolution.
From Mexico, a company will produce plowing equipment designed in Cuba. The equipment
will be sold in Mexico, Cuba, Latin American-area countries. Banamex has a joint venture
to process receivables from credit cards. TIMSA, an US$8 million joint venture, operates
cellular telephone systems. Raw materials are provided for the production of footwear.
From Germany, Mercedes Benz has been installing heavy equipment motors for more than
two years in Cuba. The company also signed a contract in 1996 for the sale of 480 buses,
with a ten-year parts guarantee, to the city of Havana. Mercedes Benz vehicles can be
rented in Cuba and are being used as taxicabs in some cases. Eurowings LTDA, announced
that it was negotiating in Cuba a series of investments and trade agreements for the
European and Latin American companies it represents. A government official proposed a US$1
billion project to reconstruct the island's railway system. Siemans and Brucker have
exported MRI and CAT Scan equipment. Adidas has sponsorship contracts, valued at an
estimated US$5 million, with Cuba teams.
From Sweden, Volvo has negotiated a joint venture that could result in the company
replacing as many as 100,000 truck motors, assemble buses and other heavy motorized
equipment. Volvo vehicles may be rented in Cuba.
From South Africa, Atlantis Diesel Engines has a US$85 million contract to supply
10,000 engines for the sugar industry.
From Namibia, negotiations to establish a joint venture to produce and package
vaccines and other pharmaceuticals.
From Brazil, Telebras is seeking the contracts for as many as 50,000 public telephones
during the next seven years, and contracts to export digital switching equipment.
From China, Cuba has imported more than 1,000,000 bicycles. Letters of intent to
construct a hotel, operate a restaurant, and produce footwear.
From Japan, Casio brand watches and calculators are being assembled. Cuba is the first
Latin American country to assemble Casio brand products. Other Casio products are planned
to be assembled in Cuba as well. Meiwa, the electronics company, has an office in Cuba.
Sharp Electronics products are exclusively distributed in Cuba by a Canadian company.
Canon photocopiers and facsimile machines have the overwhelming market share in Cuba.
Panasonic exports air conditioners. Heavy construction equipment from Komatsu, Hitachi,
and Mitsubishi. Mizuno, the Japan-based athletic equipment manufacturer, has sponsorship
contracts, valued at an estimated US$5 million, with Cuba teams. Nissan, Suzuki,
Mitsubishi, and Toyota vehicles are exported.
From South Korea, Samsung products are imported. Goldstar products are imported and
the company assembles televisions in Cuba. Daewoo construction equipment. Diahatsu
vehicles are exported.
From Israel, a US$1 million joint venture within Cuba to produce metal, plastic, and
cardboard containers for chemical products; and a US$22 million joint venture which
operates a 115,000 acre citrus plantation, exporting the fruit to Europe and the Middle
East.
From Australia, Western Mining Company is negotiating an agreement to operate mining
ventures in the country. The total value of the investments may exceed US$500 million.
From Vietnam, a company is producing and distributing Cuba-developed insecticide.
From Argentina, CODEMAR S.A. has a computer software joint venture.
From Lebanon, Fransabank has an office in Cuba.
Section Three-Cuba's Potential
The value of unrestricted annual United States-Cuba trade has been estimated to range
from US$3 billion to US$7 billion- with, perhaps, 70%, or US$2.1 billion to US$4.9 billion
being exports from the United States to Cuba.
According to the United States Department of Commerce, for each US$1 billion in United
States exports, 20,000 new employment opportunities can be created. United States-Cuba
trade could be responsible for creating perhaps 100,000 or more new jobs for United States
citizens.
According to the United States Department of Commerce, the value of United States
exports to the People's Republic of China in 1996 was approximately US$12 billion. The
People's Republic of China has more than 100 times the population of Cuba, yet Cuba's
estimated import potential from the United States may be nearly 40% of the current value
of United States exports to the People's Republic of China.
Which United States businesses would export to Cuba? Perhaps, Kemper Insurance and
Motorola from Chairman Crane's district. Dow Chemical from Representative Camp's district.
Corning and Dresser Industries from Representative Houghton's district. Cargill from
Representative Ramsted's district. Packard Bell and Blue Diamond from Representative
Matsui's district. Sylvia's from Representative Rangel's district.
Mr. Dwayne Andreas, Chairman of Archer Daniels Midland Company, headquartered in
Chairman Crane's state, has said that the current Cuba market could be a several hundred
million dollar per year opportunity for his company. Mr. James Perrella, Chairman,
President, and Chief Executive Officer of the Ingersoll-Rand Company has expressed his
company's interest toward Cuba. Mr. Oscar Wyatt, Chairman of the Executive Committee of
The Coastal Corporation, has said that an ability to access opportunities in Cuba would be
of value to the United States. Mr. Lee Iacocca, former Chairman and Chief Executive
Officer of Chrysler Corporation, who has visited Cuba, has spoken of the value to the
United States business community and consumers in having access to the island's developing
market. Mr. Curtis Carlson, Chairman and Chief Executive Officer of Carlson Companies, the
US$20 billion hospitality conglomerate headquartered in Minnesota wants to operate
Radisson Hotels, T.G.I. Friday's restaurants, and CarlsonWagonlit travel agencies in Cuba.
The tourism sector, for example, is receiving the most direct attention of the Cuban
government. In 1997, Cuba expects to receive 1,190,000 tourists and earn gross revenues of
nearly US$1.7 billion- a nearly 15% increase from 1996. Approximately forty foreign
airlines are providing services to Cuba. Since 1962, Delta, Continental, and United Air
Lines have held route authorities to Cuba from various states including Illinois, Florida,
New York, California, and Massachusetts. SH&E, the world's largest civil aviation
consultancy, estimates that United States-Cuba air travel could reach 5.2 million
passengers annually; that the economic impact upon United States airlines might approach
US$1 billion annually; and that there may be a potential for up to US$2 billion in
aircraft sales to Cubana Airlines, not including general aviation aircraft and
helicopters. Cubana Airlines currently operates U.S.S.R.-built aircraft, two leased
DC-10's through a Mexican company, and a small fleet of Fokker turboprop aircraft. The
Europe-based consortium, Airbus, and Canadian manufacturers, among others, are currently
seeking export opportunities.
The State of Arkansas was the largest supplier of rice to Cuba before 1959. Today,
Cuba imports from the People's Republic of China, Vietnam, and Thailand what amounts to
approximately 15% of current United States rice exports. Cuba Rice imports have been
decreasing as the People's Republic of China and Vietnam, among other countries, provide
Cuba with new growing and cultivation methods. In 1996, Cuba imported 350,000 tons,
spending approximately US$135 million.
Burger King, which is owned by Grand Metropolitan of the United Kingdom, has more than
100 restaurants in Puerto Rico, with one-third the population of Cuba.
Section Four-Questions
Generally, if a country institutes a unilateral trade sanction, the government and
citizens of the targeted country will design and implement short term, medium term, and
long term commercial and economic strategies designed to minimize the impact of the
unilateral trade sanction. Over time, a unilateral trade sanction becomes an expected
"cost of doing business." Those governments which choose to maintain commercial
and economic relations with the targeted country and those companies which choose to
maintain commercial and economic relations with the targeted country factor this
"cost of doing business" into the relationship.
The government and business sector of a country under a unilateral trade sanction may,
after a period of time, no longer expect, or count upon, the re-entry of United States
companies. If the government and business sector are no longer placing the United States
into their short term, medium term, or long term development strategies, United States
competitors may become confident that the market is theirs and will be theirs in the years
to come.
A long-term unilateral trade sanction by the United States may lessen the likelihood
that within the targeted country there will be many citizens old enough to remember any
advantages of having an unrestricted commercial and economic relationship with the United
States. Thus, a necessary advocacy constituency may not have influence. Then, a question
to consider: How does the United States demonstrably show the value of a relationship if
no tangible evidence of a positive relationship currently exists within the targeted
country for its citizens to support?
From the Congressional Record
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