HOW SANCTIONS CAN AFFECT U.S. POLICY INTERESTS

Prepared Statement of Daniel Fisk⁽¹⁾
Before the Committee on International Relations
U.S. House of Representatives
Washington, D.C.

June 3, 1998

Mr. Chairman, Members of the Committee:

Thank you for the opportunity to appear before you today to discuss "how sanctions can affect U.S. policy interests." I have had an opportunity to give this topic a great deal of thought and study, from both a legislative and executive policy-making perspective and, now, from an academic framework. The views I express, however, are my own.

Mr. Chairman, five premises underlie my analysis of the question before this committee on U.S. sanctions policy:

First, that there is no perfect foreign policy tool or instrument. If sanctions are an imperfect tool, so are United Nations resolutions, the use of the military, and doing nothing. Recent experience in Haiti, in my opinion, stands as a perfect example of the limitations of the gamut of foreign policy options.

Second, that U.S. foreign policy and U.S. foreign economic policy should be complementary, not distinct, and that both should enhance U.S. national interests. The distinction between the two that some would like to have codified is an artificial one. Why? It allows them to promote their interests (e.g., economic and commercial) while criticizing other aspects of U.S. national interests. I do not think we should fall into the trap that there are sanctions for "foreign policy" purposes and sanctions for "economic purposes": there are sanctions - and other policies - which seek to enhance or promote our interests. Promoting free markets is equally important to U.S. interests as promoting free elections, modes of democratic and transparent governance, and respect for human rights.

Third, that it is impossible to hurt a national government without negatively impacting its citizens, and there is no way to help its citizens and not help the government. This was as true of Ukraine famine relief in the 1930s as it is for humanitarian aid to Iraq or Cuba. In each case, helping the people helps the government that is primarily responsible for the human destruction at work in each of those countries.

What cannot be forgotten is that internal regime behavior bears primary responsibility for the conditions of that nation's citizens. There were intentional efforts by the Soviet government to starve a significant portion of its population in the 1930s, just as there was the intentional use of starvation by the Ethiopian government in the late 1970s and early 1980s. Weather contributed, but human governments intentionally exacerbated the situations and increased the toll in human lives.

Cuba and Iraq are recent examples. It is the regimes' own policies that bear primary responsibility for the human condition in those two States. External economic and humanitarian factors do not determine the treatment of a regime's own citizens; the regime determines that. Critics of embargoes are right: the elites continue living well. What the critics do not go on to say, however, is that this condition is not the fault of the embargo or sanctions; it is a result of direct and deliberate governmental policies. One cannot ignore the human cost of the system imposed by the regime.

Fourth, that States do not have to have a one-size-fits-all foreign policy. In other words, the United States does not have to treat every nation the same. What we should be consistent in is primarily the values that we seek to promote, but also our national interest as we define it at the time must be a major consideration.

In this regard, the question of consistency is raised about U.S. policy on so-called "secondary boycotts": that the treatment we accord Israel with our opposition to the Arab boycott against that nation differs from our treatment of Cuba. The United States, to its credit, took a leadership role against the extension of coercive measures against Israel by the Arab states. What's the difference?

In the cases of Israel and Castro's Cuba, we obviously share values with the former, not the latter. And it has been, and remains, in our national interest to oppose any boycott of Israel. In other instances, we have applied "secondary boycotts," at least to the extent of prohibiting foreign firms controlled by U.S. firms from transacting with North Vietnam, South Vietnam, Cambodia, North Korea, Rhodesia, and the Soviet Union.⁽²⁾

Fifth, that there are, and will be, irritants in our bilateral and multilateral relationships. These exist in our individual, everyday relationships, why, then, do we presume that they will not exist among States? The United States shares many interests with other nations, but we also have different approaches to, views on, and objectives for various matters.

The debate about the use of embargoes, economic coercion, or sanctions is as old as the American Republic, and it revolves around the issue of whether U.S. trade policy is an instrument of or distinct from boarder United States foreign policy objectives. The first significant debate on the utility and costs of economic coercion occurred in 1794, as the young Republic sought to balance its response to tensions between British and French and their attacks on American shipping as a result of those tensions. What is of note is that the debate in the U.S. Congress over the proper American response to the 1793 British Orders in Council, which allowed for the detention and seizure of "neutral" vessels bound for France with foodstuffs, involved the question of whether the subject should be confined to purely commercial matters or should be it be broadened to all matters to which the U.S. and Great Britain were at odds. Before this question could be settled, events overtook the positions of both sides, as the U.S. and Great Britain entered a period in which war seemed imminent.⁽³⁾

Sanctions: What are they?

How "sanctions" are defined depends on who you talk to or what academic one reads. This is as true in the policy debate as it is in academic discussions. As one researcher noted, "Definitions tend to be idiosyncratic, often sloppy, and frequently in violation of the minimum requirement that a word be defined in a way that generally conforms to common usage."⁽⁴⁾ While "economic sanctions" or "economic coercion" are often used, there is no general agreement among academics as to what the terms mean beyond an overarching notion of one state's (the "sender"/"initiator") use of economic instruments for coercive reasons against another state (the "target").

In a majority of the academic literature, the author constructs a specific definition. In a small number of cases, authors either leave the term undefined (leaving it to the reader's imagination) or accept another's definition for testing purposes. For example, one author defined sanctions as "economic measures directed to political objectives."⁽⁵⁾ Another says they are "measures in which one country (the initiator) publicly suspends a major portion of its trade with another country (the target) to attain political objectives."⁽⁶⁾ Perhaps the definition that is becoming the "accepted" one can be found in the work of Hufbauer, Schott, and Elliott, in Economic Sanctions Reconsidered: History and Current Policy. They define sanctions as the "deliberate, government-inspired withdrawal, or threat of withdrawal, of 'customary' trade or financial relations … [with] 'customary' mean[ing] levels that would probably have occurred in the absence of sanctions…" But this must be done "in order to achieve foreign policy goals" (i.e., in order to achieve changes "in the political behavior of the target state").⁽⁷⁾

It reminds me of the quip about pornography - we may not be able to define it, but we know it when we see it. What is and is not a "sanction" is dealt with in the same manner. However, this lack of any accepted definition has been used by opponents of sanctions to define them as excluding those actions taken for economic or commercial purposes.⁽⁸⁾ Hence, we are led to believe that "foreign policy" sanctions fail, without any mention of sanctions put in place to protect economic, commercial or trade objectives. The exception to this dichotomy are actions taken in response to expropriation/nationalization disputes, especially those resulting from massive expropriations in Cuba and Nicaragua, and policies designed to promote worker rights and deter the use of "slave labor."

This convenient economic/non-economic categorization allows sanctions opponents to sidestep the "success" of trade actions, such as those taken in response to violations of intellectual property agreements, thus protecting and perpetuating the fiction that trade policy is distinct from broader U.S. foreign policy. This approach also protects from scrutiny a record of trade sanctions that is no more effective in achieving its objectives than non-economic sanctions are deemed to have been.

Types of Sanctions

In discussing "sanctions" there are several levels that should be kept in mind.

First, there are private trade and investment activities. These involve activities which do not rely on U.S. subsidies, but which may be subject to negotiated agreements (e.g., GATT, NAFTA). These, then, are further divided into activities which may entail a legal entitlement and activities in which a government does not interfere with the ability of its own citizens to engage in economic pursuits.

In these cases, the United States can dictate whether its nationals can or cannot engage in all or certain economic activities with another nation. And there will be obligations that other nations will deem it appropriate, if not essential, that the United States respect: for instance, benefits extended by the United States as part of the GATT or NAFTA.

Second, there are bilateral assistance programs, including programs that subsidize or guarantee trade and investment activities (e.g., OPIC, EXIM). In this area, at least as regards the United States, no one or no State is entitled to bilateral assistance. There is no right to a form of international welfare. The United States can condition these types of relationships in any way deemed to serve U.S. interests.

Third, there are multilateral assistance programs, including assistance and loans made by international financial institutions (IFI's). Again, the United States, by joining these institutions did not surrender its rights as to whether it will support or oppose a particular provision of assistance to a state. Nor do our obligations preclude us from conditioning bilateral assistance upon how member states vote (or do not vote) in the IFI's.

Costs of sanctions

In the "great sanctions debate," a major discussion centers on the costs of sanctions. One recent estimate placed the cost of current sanctions between $15 and $20 billion in lost exports.

There is no doubt that sanctions cost American business and impact the American economy. In fact, a cost analysis of U.S. foreign policy would be a very helpful tool for evaluation. But in order for it to be useful, such an analysis must consider all aspects, including the cost of engagement as well as the cost of doing nothing.

We can make projections of what it will cost us if we do not respond to a situation. For example, what is the cost to the United States for the recent policies of engagement with India and Pakistan? This question is especially relevant given the heightened tensions in the region. What is the cost of engagement in Indonesia, where U.S. businesses, operating within Indonesian law, supported crony capitalism? What is the cost of U.S. engagement with China, especially in technologies that enhance its military potential? Without getting into the debate on the allegations involving the transfer of satellite launch capabilities, it is fair to ask about the costs of commercial engagement. I will call the Committee's attention to the situation last summer when the government in Beijing made threatening gestures towards Taiwan and the U.S. responded by deploying naval forces to the straits separating those two. To what extent was the cost of that deployment - the cost of potential warfare - attributable to engagement?

Let me turn to a real case - one which the opponents of current U.S. sanctions policies categorize as a "failure": the question of the Soviet pipeline designed to carry Siberian natural gas to Western Europe. As a result of President Reagan's decision to prohibit U.S. involvement in this endeavor, some 60 U.S. companies were affected, including such corporate giants as Caterpillar (which lost a $90 million order) and General Electric (which lost a $175 million order). In each instance, other non-U.S. companies were quick to attempt to fill the void. In addition, American companies lost credibility with suppliers, admittedly a cost that is difficult to calculate but is no less real. I do not minimize the sacrifice made by these companies when the decision was made not to "engage" the Soviet Union.

However, there was a cost for cooperating with the pipeline project. First, there was the question of Europe's dependence on a hostile foreign ideology/power. We know - and the Reagan Administration and European governments knew then - that the European nations had misrepresented to their own populations the extent of dependence on Soviet supplies. They were trading reliance on Middle East supplies for dependence on the Soviet Union, a situation with significant geostrategic ramifications.

The pipeline case is deemed a "failure" because it was completed without American involvement. That would be a valid conclusion if that were the entire story, but it is not. U.S. sanctions did not stop the pipeline, true, but they did raise the cost at a time when the Soviets could least afford it. The pipeline, it has been estimated, would provide for the flow of natural gas westward and hard currency, to the tune of $10 to $12 billion, eastward. The Soviet Union needed this cash and needed the pipeline. What they did not need was a project that cost them two years delay and some $15 to $20 billion in unexpected expenses to complete. And, the United States, despite protests from the Europeans, got something else out of the deal: tightened export restrictions on technologies to the Soviet Union. The Reagan Administration used the prohibition to negotiate a tighter export regime.⁽⁹⁾

Mr. Chairman, the pipeline sanctions did not cause the fall of the Soviet Union, but they contributed to, rather than ameliorating that regime's difficulties. They raised the costs to the regime in a way that forced it to allocate already scarce resources. In this case, sanctions were part of a strategy to engage the question of the Soviet Union's future. They were not a case of enunciating a policy and leaving it to the rhetoric in hopes of a positive outcome. Rather than a "failure," the pipeline example is one of sanctions working, or contributing to a policy to affect the life-span of a hostile regime. My question is, what would have been the costs if the Soviets had completed the pipeline as scheduled and without having had to pay the additional costs inflicted by the U.S. action?

Let me go back to the cost of not acting; in effect, of acquiescing in unacceptable behavior, and let me relate this to property takings in this hemisphere. I will remind the committee, that as 1994 ended, American citizens had had over 1,400 properties, valued at $600 million, taken in Nicaragua, there were about 25 claims in Costa Rica, and some 20 cases in Honduras.⁽¹⁰⁾ These, even without the 5,911 certified claims involving properties taken in Cuba, made the Western Hemisphere the worst offender in terms of uncompensated property takings. American citizens, as well as the American and local economies, were the losers in these takings.

As I discuss further below, one of the objectives of the LIBETAD Act was to move the agenda on the protection of property rights. That process had gained momentum in 1994 with the enactment of Section 527 of the Foreign Relations Authorization Act for fiscal years 1994 and 1995 (P.L. 103-236), which sought to sanction nations that had engaged in uncompensated takings by conditioning U.S. bilateral assistance and support in the IFIs on the willingness of those nations to remedy the situation. This type of sanction directly benefited private citizens and corporate America. During consideration of the LIBERTAD Act, several foreign and U.S. ambassadors and private U.S. citizens conveyed to the Foreign Relations Committee the new seriousness with which both the U.S. and foreign governments were taking the question of property rights.

Mr. Chairman, I acknowledge that property issues, including those in Nicaragua, remain an open issue in our bilateral relationships. However, from my experience on the Senate Foreign Relations Committee handling both the Cuba and general property issues, there is no doubt that the combination of section 527 and titles III and IV of the LIBERTAD Act focused attention on property rights in a positive way for Americans overseas - and I would argue for property rights generally.

Do sanctions or economic coercion work?

The conventional pundit and academic wisdom is that sanctions do not work. Study after study, op-ed after op-ed, concludes that they are ineffective, basically because they do not topple governments.

In fact, the answer to the question of sanctions working is, "it depends." It depends on the regime. They appear more effective when applied against crony capitalist states, such as Somoza's Nicaragua, Marcos's Philippines, or Suharto's Indonesia, than against totalitarian states as characterized by the former Soviet Union or Castro's Cuba. But, as noted above in the case of the Soviet Union (and as I will discuss below as regards Cuba), sanctions can have a significant impact on totalitarian states.

Multilateralism also is a chimera: In the case of "multinational" sanctions against South Africa, U.S. businesses were concerned about divesting because Japanese firms were prepared to - and in some cases did - move in and replace the U.S. firms. The same happened in Haiti: when U.S. businesses withdrew, there were reports of French firms moving in to fill the void. There will always be someone willing to profit from repression and the willingness of others to protest that repression or other unacceptable behavior.

I argue that in answering the question of "do sanctions work?" the first issue is whether they have been implemented. Too often, sanctions are announced, a notice is published in the Federal Register, and then, nothing. When sanctions are implemented, sanctions by themselves, generally are ineffective to change a government's behavior, unless the economic relationship is so disparate that the withdrawal of economic relations provokes a backlash. One instance in which they worked was in Guatemala, in 1993, in the U.S. response to the so-called Serrano "autocoup." The threatened withdrawal of U.S. economic relations, and U.S. opposition in the IFIs prompted the business sector in that country to intervene, with the military, in stopping the Guatemalan president from exercising supreme control.

I argue that sanctions must be part of a policy to engage the issue of the target country, which is not the same as engaging the target itself. Let me explain: sanctions policy is no different than any other policy, be it foreign or domestic. In any number of instances, Congress does not simply enact a piece of legislation or the President invoke an executive order, do nothing, and a problem is solved or removed. There must be enforcement; there must be engagement on the issue. Again, I argue that Soviet pipeline sanctions met this criteria. Not "engagement" as articulated by anti-sanctions advocates.

Second, sanction policy has two dynamics: first, there is the effort to have a clear U.S. position on a particular question or country/regime; second, there is getting executive branch action. Congress can and does play an important role in the former, but has to find the right mechanisms to move the latter. As I understand the legislative history of both the LIBERTAD and Iran-Libya Sanctions Acts (ILSA), as well as the Cuban Democracy Act before them, they sought to achieve both objectives. They enunciated a clear U.S. position and attempted to create incentives so that the executive branch could not avoid the issues. In this regard, legislatively-mandated sanctions are working, albeit not necessarily as the authors of the legislation envisioned it.

Engagement: the Solution?

Before turning to the specific question of U.S. sanctions against Cuba, I want to address a side of the debate that has been ignored, especially by those who oppose U.S. sanctions policies. This is the question of whether the United States achieves its foreign policy/national security/foreign economic policy objectives any better through a policy of "engagement." I must add that the opponents of current sanctions ignore this question with good reason, and I will explain why.

Opponents of sanctions, in general, have outlined three criteria that should be assessed before taking any unilateral action:

(1) the sanctions are likely to achieve their intended objective;

(2) the impact or harm the sanctions will cause to other national interests; and

(3) the impact or costs the sanctions will have on American citizens.⁽¹¹⁾

These are reasonable judgements, and one would hope that they would be asked of any foreign policy initiative, not just the decision to implement sanctions. However, what happens when you apply the same criteria to "engagement"? "Engagement" does not pass the test established for sanctions. There is no evidence that "engagement" (whether it is called "constructive" or "economic") achieves any policy results (unless the objective is simply that a trade relationship exist).

The United States pursued engagement with Imperial Japan, and it failed to deter Japanese aggression. The United States pursued a form of engagement - détente - with the Soviet Union. The result: the military balance threatened U.S. national security and we saw a period of Soviet expansion. In the case of Romania, the United States extended most-favored-nation status - the only East Bloc country to be accorded that status - to that nation. It failed to moderate the repressive behavior of Ceausescu's regime or the transition when it came; in fact, the transition in Romania was the most violent of all Soviet Bloc states.

The United States has pursued "engagement" with India in hopes of deterring its nuclear ambitions; we recently witnessed the success of that policy. In another recent case - Indonesia - engagement did not give us the leverage and access that one would have expected. For example, the Washington Post noted that military-to-military relations failed to give the United States insights into how the Indonesian military would respond to turmoil in that country.⁽¹²⁾

It is argued that engagement, especially economic engagement, results in the economic empowerment of individuals. China, it is argued, is the successful example. This ignores the fact that U.S. policy has sought to promote political rights and freedoms, as well as economic and social rights. And there is no evidence that economic rights lead to or result in political rights. Economic empowerment does not necessarily lead to political access or opportunities to participate politically.

China remains an example of a repressive political state for a significant portion of its population. The same was seen in apartheid South Africa and the de facto military rule of Haiti. In those cases, as with China, the ruling elite was prepared to grant some degree of economic rights to its citizens. But these economic opportunities were limited and could be revoked at any time - and they were not a prelude to political empowerment. The Soviet Union also experimented with such "openings" throughout its history, and we have seen the same phenomena in Castro's Cuba.

"Engagement" works when the regime in power makes a fundamental decision to open the system both in economic and political terms. Examples include South Korea and Taiwan. In the case of Vietnam, "engagement" came after the regime made the decision to allow some economic opening to its citizens. The question remains as to whether and how this will translate into political rights, which I see as the ultimate objective of U.S. policy. Simply to "engage" with a regime that has made a tactical decision to trade does not facilitate political or policy changes.

Finally, we now have three cases of "engagement" which should raise questions of that approach's effectiveness: Indonesia, India, and Pakistan. In each instance, the United States sought to "engage" the nations, offering them economic/commercial relations in the hopes that that would either deter or compel them to act in a certain manner. As luck would have it, each acted in ways that we did not expect.

In Indonesia, capitalism, in particular its manifestation as the IMF, is being given some credit for the end of the Suharto government.⁽¹³⁾ But, "even before Indonesia was gripped in turmoil, it was evident that U.S. policy there, based on trade and tacit backing for Suharto, had reached a dead end."⁽¹⁴⁾ In this case, then, "engagement" did not envision a regime change, nor turmoil. In fact, according to the "engagement orthodoxy" this sort of tumultuous change is not supposed to happen. Admittedly, there has not been the bloodshed that could have occurred, but still some 500 dead is no small matter. Not to mention that "engagement" failed to give us any more insight into what was happening and how the various factions would line up. According to press reports, the U.S. military was "shut out from the inner workings of the [Indonesian] armed forces" as it was making decisions on how to respond to the anti-Suharto unrest.⁽¹⁵⁾ Military-to-military contacts were to help make sure that we were not ignorant of the Indonesian military's thinking. It does not appear to have worked that way, however.

In India, the United States sought to convince (entice?) that nation away from a view that nuclear weapons were needed for its security. We now have five nuclear explosions to show the "success" of engagement. Again, politics trumped economics.

The same could be said for Pakistan and engagement. Pakistan now appears to the target of the world's failure to sanction India sufficiently.

Cuba and U.S. Sanctions Policy

Finally, Mr. Chairman, I want to review U.S. sanctions policy as it relates to Castro's Cuba. This issue, in particular, is one I have spent a great deal of time on and I think there are several misconceptions that need to be addressed, as well as areas where U.S. policy has achieved some results which are often dismissed or overlooked by the policy's critics.

I should start out by giving some background on the most recent legislative manifestation of U.S. policy towards Cuba. In 1994, as Chairman Gilman knows, I moved from the staff of the then-Foreign Affairs Committee to join the staff of the Senate Foreign Relations Committee. Senator Helms and Admiral "Bud" Nance, his committee chief of staff, raised the question of Cuba with me and asked that I give it attention. Both expressed concerns that the policy needed to be looked at again.

I began the process, at the staff level, of reviewing the situation on the island and the range of available policy options. My only criterion from Senator Helms and Admiral Nance was to think about the policy in terms of what served U.S. national interests best.

One question that those favoring lifting the embargo could not answer was: why is Castro's number one priority the lifting of the embargo? I received many answers, some more credible than others, but the one thing that kept emerging was that Castro does seek the embargo's end. The conclusion that I came to - and which others have expressed - is that Castro wants it lifted because he thinks he can survive such a U.S. policy change.⁽¹⁶⁾ Further, it was, and remains, my conclusion that Castro wants the legitimacy that the embargo's lifting would bestow upon him and his cult of personality. Remember, for Castro, "the revolution" is embodied in him as much, if not more so, than in the institutions that have been constructed since 1959.

A second factor was the record of engagement. The argument is that U.S. policy has failed; that after nearly 40 years and eight U.S. Presidents, that we have not succeeded in removing Castro or moderating his behavior. Castro is still in power, true, and his internal behavior remains as repressive today as it did in its infancy. However, there is another record of relations with Cuba that equally bears upon this debate: the record of 40 years of engagement by other nations with Castro's Cuba. Frankly, that record is no more successful in removing Castro or moderating his repression. Rather, this engagement, arguably, has supported his regime.

The most recent example of this engagement policy occurred in April with the visit of the Canadian Prime Minister to Cuba. The "success" of Canada's policy was clearly articulated by Castro after seeing off Prime Minister Chretien: "We are not going to change; we are going to continue defending our cause and our socialism."⁽¹⁷⁾ The record of European engagement and of Latin American engagement is not much better.

Sitting on a beach, mining nickel or other extractable resources, or exploiting Cubans forced into either government-controlled labor markets or illicit economic endeavors, such as prostitution, does not support change; it does not give that foreign investor or a foreign government "leverage"; it does not do anything more than endorse the current structure.

Third, given this lack of any discernable positive results of others' engagement, the question is, why, then, are others in Cuba? I asked this of foreign embassy personnel and foreign and U.S. businesspersons. In 1994, the consistent answer I received was that they were in Cuba awaiting the lifting of the U.S. embargo, for the advent of a U.S. market in Cuba, not because of any Cuban market. There was almost total agreement that it was not for profit. The exception, of course, were those in the hotel and mineral extraction areas. But, at the time, even those in hotels and tourism had a mixed record.

Fourth, how does Castro have engagement structured and where is Castro getting his hard currency? Castro was hit hard with the loss of between $5-6 billion in Soviet subsidies. He, logically, began searching for an alternate means of gaining hard currency and relieving the internal economic pressure. This effort entailed an opening for Cubans to engage in "self-employment" (known as cuentapropistas or trabajadores por cuenta propia)⁽¹⁸⁾ and a new campaign to promote foreign investment.⁽¹⁹⁾

The structure of foreign economic engagement is well-known to this committee and I will only briefly review it here: In Cuba, foreign investors work through the central government, who determines the investor's labor force. The foreign investor pays the government, in dollars somewhere between $400 and $900 per month, for each Cuban employee and the government then pays that employee roughly the equivalent of $10-20 a month. One analyst concluded that this "wage confiscation scheme" is the Cuban state's "most important source of earnings from foreign joint ventures" and that the informal supplements given workers by foreign investors "means little more than putting food in hungry stomachs, allowing the favored workers to get by somewhat better than the impoverished rest…[and that] its overall impact on empowerment is trivial."⁽²⁰⁾

Not only is the government the investor's "business partner," but this is actually advertised as something positive. In April 1996, The Economist, which is not usually known for its starry-eyed assessments, noted that one of the benefits of having Castro as your business partner is that it makes it "easy to hire, fire, and control workers."⁽²¹⁾

Fifth, there has been a lot of noise about the LIBERTAD Act "violating" international law. This is proof that if you repeat something enough that it will begin to be believed. What struck me - and, I must confess, continues to be beyond my comprehension - is that Castro's behavior, be it in the realm of human rights or in his government's takings of properties (and subsequent efforts to provide the benefits of those takings to foreign entities who are not even pretending to be operating for the good of Cuba or the Cuban people) is not the source of any international outrage. In fact, it has been a struggle just to get others to acknowledge that his actions were in violation of international law!

My argument remains that foreign investment in Cuba, as currently structured and implemented, supports the regime and ratifies the taking of property. In fact, it creates a "Cuba precedent" that destroys current international law on property takings. If Castro's Cuba can nationalize and/or expropriate properties, deny the rightful owners any compensation or redress, and then turn those same entities over to other private concerns which then can operate against the rightful owner, then why cannot other nations do the same? Since international property settlements are based on customary international law, which itself is based on State behavior, then European, Asian, Canadian, and Latin American acceptance of that situation raises the question as to whether Cuba's takings are acceptable behavior. The answer seems to be that, if the takings are at the expense of a U.S. citizen, then it is proper to trample on their rights. This situation was unacceptable to Senator Helms and the other authors of the LIBERTAD Act - and, with LIBERTAD's enactment, put the United States clearly in a position to object to an arguable evolution in international law legitimating similar property takings.

Why the LIBERTAD Act?

This situation on the island, combined with signals from the Clinton Administration that democracy in the Western Hemisphere did not include Cuba, gave impetus to the LIBERTAD Act. In fact, every signal from the Administration indicated rapprochement with Castro. Except for the question of containing the large outflow of Cubans attempting to flee Castro's repression, administration appointees primarily saw U.S. policy towards Cuba as little more than a vestige of the Cold War.

What highlighted the Administration's inactivity on Cuba was its "proactivity" on Haiti. In the case of Haiti, the Administration was willing to exert the diplomatic, political, and military capital and credibility of the United States, as well as risk American lives, to restore to power an anti-American demagogue, albeit a democratically-elected one. The Administration worked to form an international coalition, applying the necessary leverage to achieve this objective. As Ambassador Jeane Kirkpatrick asked, "What has happened to the Clinton administration's enthusiasm for promoting democracy in the Caribbean? When Haiti was the issue, 'restoring democracy' had top priority. The Clinton team was indefatigable in pressing demands before the U.N. Security Council--to tighten an already punitive economic embargo, to further isolate the country, to secure a mandate for the use of force to remove Haitian 'dictators' who constituted a threat to international peace and security."⁽²²⁾ The Administration's willingness to pursue democratic objectives in Haiti at any price was not lost on Congress.⁽²³⁾

While the Administration remained inactive on Cuba, Castro was engaged in an aggressive international campaign to sell the idea that Cuba was opening economically and the United States was on the verge of lifting its embargo. As I noted above, the reality was that Castro was seeking a means of replacing billions in lost Soviet subsidies by convincing the international business community that Cuba was "open for business." What Castro had to offer for exploitation was a labor force watched over by state security and an infrastructure which primarily consisted of properties taken from American citizens in violation of international law and, arguably, Cuban law.

The only significant initiative on Cuba during the first two years of the Clinton Administration came from Congress, which was then-controlled by the Democrats. The "Free and Independent Cuba Assistance Act of 1993," written and introduced by Congressman Bob Menendez (D-NJ), attempted to establish some parameters for U.S. policy for an inevitable end to the Castro regime. With the approval and support of the Clinton Administration, however, the congressional leadership kept that legislation bottled up until its provisions were incorporated as title II of the LIBERTAD Act.

In late 1994, there was a listless U.S. Cuba policy, an Administration that could and would apply U.S. leverage when the cause suited it (e.g., Haiti), and a Cuban regime desperately seeking new sources of hard currency.

How has the LIBERTAD Act affected U.S. interests?

The LIBERTAD Act is in its third year since enactment; I cannot say "enforcement" because that remains an open question. However, the "conventional wisdom" has been that it, specifically, and the embargo, generally, has harmed U.S. interests; that we are worse off today than we were 10, let alone, two years ago. Like many pieces of "conventional wisdom," the story is better with the telling than in reality.

The intensity of the Castro regime's reaction to the law is the first litmus test of determining the impact of the policy. Castro yells when he is squeezed; otherwise, Havana is quiet. The LIBERTAD Act has been effective, a view supported by the intensity of the Castro regime's efforts against it. Castro is not gone yet, but he is being squeezed. And the "squeeze" includes both sanctions and initiatives like the Cuban Solidarity Act (Solidaridad) and other initiatives to get aid to the Cuban people.

But progress should be judged not only in terms of where we are today, but also where we might have been without the LIBERTAD Act. Further, the results should be judged in terms of whether the Act has begun to meet some of the goals that the authors set, not solely in terms of outsiders' reactions.

The original bipartisan coalition of co-sponsors of the LIBERTAD Act recognized that any U.S. policy shift that might extend the Castro dictatorship was immoral. But they also recognized that the status quo -- that is, the policy of doing nothing -- was equally intolerable. The objective of the LIBERTAD Act was clear from the beginning: break the status quo through a proactive American policy to encourage the demise of Castro's repressive regime and to lay the foundation for American support for Cuba's democratic transition.

The Act sought four broad policy objectives: (1) halt the drift in U.S. policy; (2) stimulate global isolation of the Castro regime; (3) shut-off Castro's escape route by complicating his foreign investment schemes (and, in so doing, protect the property rights of American citizens who had been victimized by Castro's exploitation of wrongfully taken property and elevate international attention on property rights); and (4) have the United States prepare for the inevitable transition.

In some form, each of these objectives is being achieved.

First, the LIBERTAD Act has done more than stop the drift in U.S. policy. The law has invigorated U.S. policy and produced a level of effort on Cuba that is almost unprecedented -- and which many would never have expected from the Clinton Administration. Since the bill's enactment, we have seen the most sustained U.S. policy focus on Cuba in nearly three decades.

The drift in U.S. policy was halted, in part, by the codification of the embargo. While the President retains flexibility in implementing provisions of the Cuban embargo, it cannot be suspended or lifted in its entirety until real political and economic reform is underway in Cuba. Congressional frustration and dissatisfaction with the implementation of the economic embargo was specifically noted in the Conference Report which accompanied the LIBERTAD Act.⁽²⁴⁾

Perhaps most importantly, approval of the multifaceted LIBERTAD Act, like the Cuban Democracy Act before it, shattered any illusions that U.S. policy resolve might be softened.

The Act's second overall objective was to stimulate global sanctions and increase the international pressure on the Castro regime. It is remarkable, but fair, to say that until the European Union's adoption of a "Common Position" in December 1996, the European country that had done the most to help the cause of freedom in Cuba, albeit unintentionally, was none other than the Soviet Union. Its collapse deprived Castro of billions in subsidies, increasing the pressure on the regime to allow some economic space. While Castro and his cronies have referred to these economic steps as "tactical" and "emergency measures," these so-called "reforms" were forced by the failure of socialism.

The authors of the LIBERTAD Act favor an international embargo against Cuba similar to that implemented against the Haitian military regime, but they also understood that pressure could be exerted on the Castro regime in various ways beyond such an embargo. For a regime that is overly sensitive to public criticism of any kind, any number of avenues that increase international attention on its behavior can be seen as a sanction and a move towards isolation.

Coinciding with LIBERTAD's enactment was the election of Jose Maria Aznar as Prime Minister of Spain. The fortification of U.S. resolve on Castro's Cuba through the LIBERTAD Act combined with the Aznar government's honesty in addressing the brutality and repression of Castro has changed the international focus. (Unlike the Felipe Gonzalez government which, in my opinion, seemed determined to rationalize away Castro's misdeeds, Aznar has not shied away from publicly criticizing Castro's repression.)

Although the European objections to the LIBERTAD Act continue, the subject of Cuba as something other than a place to sit on the beach has begun to enter into their policy calculations. Since the enactment of the LIBERTAD Act, there have been unprecedented political and diplomatic initiatives taken by the international community on Cuba.

The most notable initiative remains the adoption of a "Common Position" by the European Union (EU). On December 2, 1996, EU member states and the European Commission committed themselves to pursue with the Cuban Government -- both publicly and privately -- respect for human rights, reform of the criminal code, release of all political prisoners, an end of harassment of dissidents, and compliance with international human rights conventions. This position clearly conditioned future European relations with Cuba on specific and concrete progress towards democracy. The position also requires that EU member states channel humanitarian aid to Cuba through NGOs instead of the Cuban government.

While respect for and implementation of the EU "Common Position" has been uneven among EU member states, it is no less significant that such a document was promulgated. The fact is that the EU policy was codified, in effect, in a legally-binding document after the enactment and partly as a result of the LIBERTAD Act.

Other actions coming in the wake of LIBERTAD include:

· The Brazilian Foreign Minister, at the end of May, held what was described as an "unprecedented meeting" with Cuban human rights activist Elizardo Sanchez. The Brazilian minister said human rights was a "heartfelt and priority policy" for President Cardoso.

· The British Government, late last year, announced it would step up its human rights activities in Cuba; and collectively, EU member states with embassies in Havana created a Working Group on Human Rights.

· The November 1997 Ibero-American summit saw unprecedented public criticism of Castro for not fulfilling promises he made at the 1996 summit in Santiago, Chile. While I did not expect Castro to change his stripes, I was surprised at the number of Latin officials who were prepared to criticize publicly Castro for his failure to live up to his political commitments. (During the November 1996 Ibero-American summit, Castro signed the communiqué calling for democracy throughout Latin America.)

· Symbolically, Nicaragua's President-elect Aleman did not invite Fidel Castro to his inaugural in January, 1997.

· The International Confederation of Free Trade Unions, Europe's largest labor confederation, issued a stinging report condemning labor conditions in Cuba's "worker's paradise." The report calls for truly independent unions and enhanced worker rights, and strongly supports adherence to "best business" practices by foreign investors in Cuba.

· The international business community, for the first time, is serious about the development and implementation of "best business practices" for investors in Cuba. While the ultimate impact of such guidelines are open to question, they are a positive step forward. Nonetheless, any "best business practices" must mandate that Castro not control an investor's workforce. Cubans should be free to work for whom they want, not for whom Castro wants them to work. The serious discussion of "best business practices" did not emerge until after LIBERTAD was on the books.

Other notable actions highlighting international attention on Cuba and the fallacies of Castro's "communism-with-a-human-face" and expressing support for freedom in Cuba recently were outlined by the Mr. Michael Ranneberger before this Committee's Subcommittee on International Economic Policy and Trade, so I will not repeat them here. What is significant is that no comparable list of international and/or multilateral activities exists before the enactment of the LIBERTAD Act.

When the LIBERTAD Act was introduced, no one would have predicted this level of pro-human rights and pro-democracy efforts towards Cuba. The LIBERTAD Act raised the stakes on Cuba and has advanced U.S. strategy to win unprecedented multilateral support for common goals in Cuba.

Another objective of the Act is to prompt the U.S. Government to prepare for Cuba's inevitable democratic transition. Prior to the enactment of the LIBERTAD Act, the U.S. Government had done no formal planning to support Cuba's transition. It had contingency plans to deal with another Mariel exodus, but no plans to address the broader and more important question of democratic change in Cuba.

The LIBERTAD Act's authors wanted to send a clear message to the Cuban people that the United States is prepared to assist fully a democratic transition on the island, while respecting the Cuban people's right to self-determination. On January 28, 1997, the President released a report on "Support for a Democratic Transition in Cuba," as mandated by the LIBERTAD Act, outlining the areas where the United States is prepared to help the Cuban people meet the challenges of democratic governance. As President Clinton noted in his preface, "It is my sincere hope that it will contribute to a better understanding of the international community's potential role in a transition to democracy and underscore the strong commitment of the American people to support the Cuban people when they embark upon that process of change." The Act allows the President to lift the embargo, without further congressional action, once he determines that a democratic government is in place in Cuba.

Castro's reaction to the plan was immediate and "indignant," reported the Miami Herald. "Comparing Cuba to a lamb facing a U.S. dragon, Castro declared, 'You will never devour this lamb...because this lamb is smarter than you, and its blood has and will always have only venom toward you.' "⁽²⁵⁾

While subject to review and adaptation to an evolving situation on the island, the plan represents the first significant effort of the U.S. Government to deal with Cuba as something other than an immigration problem.

Finally, Mr. Chairman, I want to discuss an objective which has now taken center stage: the protection of property rights. In discussing the objectives of the LIBERTAD Act, I have made reference to the bill having a "macro" and a "micro" component when it comes to property rights. The "micro" aspect was the effort to shut off Castro's escape route by complicating his foreign investment schemes. In this area, the LIBERTAD Act has scored some successes.

Prior to first the introduction and then enactment of LIBERTAD, the number of joint ventures was increasing steadily: Cuba entered into 11 such joint ventures in 1991, 33 in 1992, 60 in 1993, and 74 more in 1994. Just the introduction of the LIBERTAD bill in the U.S. Congress in 1995 sent a chill through the foreign investment community: In 1995, only 31 new ventures were formed, and this at a time when Castro was trumpeting a new foreign investment law.⁽²⁶⁾ The drop in the number of new joint ventures from 1994 to 1995 was attributable, in part, to the LIBERTAD bill.⁽²⁷⁾

Since its enactment, reports continue to show that the LIBERTAD Act's objective to complicate Castro's foreign investment schemes is working. The Castro government claims to have entered into more than 50 new joint venture agreements in 1996. While this number is up from the 1995 level, there remains uncertainty in the international investment community as to whether Cuba is worth the risk and it remains difficult to verify Cuban Government statistics.⁽²⁸⁾ Cuban officials, for their part, have acknowledged that the LIBERTAD Act is working.⁽²⁹⁾

Since enactment of the LIBERTAD Act, at least 19 companies have ended or curtailed their business operations in Cuba, including (according to the State Department and press reports⁽³⁰⁾) the following:

C Banco Bilbao Vizcaya, a Spanish bank, has backed out of co-financing with ING packages worth nearly $60 million a year. This action forced Cubans to accept terms from other European investors at rates as high as 20 percent.

The Act's intent to deter third-country nationals from seeking to profit from wrongfully confiscated properties and to deny Castro a source of hard currency is working. Both the right of action (title III) and the denial of entry (title IV) provisions have complicated the math for those who are attracted to the unsavory benefits of doing business in Castro's Cuba. When legal accountability creeps into the calculation, some investors have crept away.

These provisions also have had the effect of elevating international sensitivities about property rights, generally, and the rights of American property claimants, specifically.

Although President Clinton suspended the right of American citizens to bring suits under title III, he did allow the civil wrong of "trafficking" -- the unjust enrichment of a third party through the unauthorized exploitation of a property wrongfully taken from an American citizen -- to go into effect. This historic step recognized the harm that continues to be perpetrated against American citizens by the actions of Castro and those who would seek to benefit economically at the expense of a property's rightful owner.

While many in the international community have cried "foul" about these provisions, the debate generated has prompted increasing recognition that international law lacks effective mechanisms to protect property rights and that the system needs to evolve to better defend these rights.

EU-US Disciplines on Property

This brings me to the recently announced EU-US accord on property disciplines.

In April 1997, the EU and US agreed "to step up their efforts to develop agreed disciplines and principles for the strengthening of investment protection, bilaterally and in the context of the Multilateral Agreement on Investment (MAI)…[with these disciplines seeking to] inhibit and deter the future acquisition of investments from any State which has expropriated or nationalized such investments in contravention of international law, and subsequent dealings in covered investments."

The fact that the EU was willing to discuss property "disciplines" confirmed one of the underlying assumptions of the LIBERTAD Act that current international property standards were inadequate. The disciplines, as negotiated, appear to further confirm - or should I say, affirm - the LIBERTAD Act's finding that

The international judicial system, as currently structured, lacks fully effective remedies for the wrongful confiscation of property and for unjust enrichment from the use of wrongfully confiscated property by governments and private entities at the expense of the rightful owners of the property (sec. 301(8)).

Mr. Chairman, while it is tempting to simply declare victory and take the EU-US accord, and while the accord is a positive step forward in the evolution of an enforceable international property regime, to accept it has implications that, I conclude, should not be acceptable to the United States.

In reviewing the trade-off of current U.S. law, especially title IV of the LIBERTAD Act, for these disciplines,⁽³¹⁾ the Congress should take into account the following:

First, the disciplines, in effect, admit that the LIBERTAD Act was right and then commits the United States to condone and permit the use of wrongfully taken property - property which the EU acknowledges was taken in contravention of international law - when U.S. law says that such behavior is unacceptable. It does this by "grandfathering-in" investments which are now acknowledged to be have been taken in violation of international law. Does U.S. acceptance, then, legitimize these wrongful takings?

U.S. officials argue that this is the best deal we can get as conduct such as that prohibited in the disciplines (investments prior to May 18, 1998) is beyond reach. This is not exactly correct: On March 12, 1996, with the signing of the LIBERAD Act, the United States put all investors on notice of potential penalties, under titles III and IV, for the use of wrongfully taken American properties in Cuba. And, on August 1, 1996, the President did not exercise his authority to suspend liability accruing for "trafficking" (as defined by the LIBERTAD Act, section 4(13)).

Under the proposed disciplines, the United States is required not only to recognize investments prior to May 18, 1998, but must also accept that those investors remain eligible for governmental commercial assistance. And, the United States must agree that that wrongfully taken property remains immune from sanction in perpetuity (or, effectively, until a new Cuban government decides how to deal with Castro's confiscations - a decision, which given Castro's efforts to cloud title, may cause further complications and lead to charges of a wrongful taking of the rights of the Castro-period foreign claimant). Admittedly this is limited by that investor's willingness to forego new property rights in wrongfully taken property. But the bottom line is the same: The United States is being asked to accept a wrongful act in the name of remedying a wrongful act.

Second, what is the enforcement mechanism for the disciplines? As I read the disciplines, they are voluntary and have no legal effect. One must ask, if the European Union's "Common Position" is legally binding and appears to be honored in the breach as much as in effect, then what is one to think of these disciplines?

The disciplines do have symbolic significance and that should not be dismissed, as the symbolism is that the EU is willing to undercut their own investors. The disciplines should have an additional chilling effect on investment in Cuba, specifically. However, they would be far more effective if they were legally binding, at least as I understand the term. Giving EU member states an open-ended discretionary authority to interpret the disciplines is not my definition of "legally binding" in anything more than a hortatory sense. The text of the disciplines does not seem to hold up the impression left by U.S. officials that there is more "there" than there really is.

Third, during my tenure with the Foreign Relations Committee, U.S. officials assured Congress that they agreed that there are certain categories of states, namely rogue states, which merit heightened scrutiny and standards. I am informed that this same view continued to be the U.S. position and that the United States actually proposed language that when "there has been an established record of repeated expropriations in contravention of international law …[then the discipline participants] will apply specific disciplines that inhibit and deter acquisitions of and dealings in property that was expropriated as part of that established record…"

This stronger "established record" language is not in the disciplines. I have no illusions that the EU would fight us at each determination of what States fall into such a category, but the inclusion of such strong standards is in the interests of the both the US and EU (as well as all other investors). Frankly, to be effective, States should know that there is a threshold beyond which their wrongful property takings will receive more forceful sanctions. This makes both policy sense and common sense.

Fourth, the creation of a registry is a positive step forward, especially if it gives some form of international notice to prospective investors and contributes to the deterrent effect against those who would invest in wrongfully taken properties. But the disciplines give each participant State the right to determine the validity of what constitutes a valid claim. Does this mean that all certified U.S. property claims are subject to some type of second, EU assessment as to their validity? This would mean, then, that the EU, and others, including Castro, may find that some of the 5.911 certified properties fall outside the disciplines. That would create a new gap in existing U.S. property law. Congress needs to make sure, at the least, that all 5,911 certified claims are covered and not open to any second-guessing.

Fifth, what happened to the other American claims, specifically the non-certified claims? It appears that the agreement does little, if anything, to protect their rights. At a time when international human rights law has evolved, in some cases at the prodding of the United States, and when there is a consensus that there are certain behaviors which merit international sanction, basic rights to the fruits of one's legitimate labor remain to be advanced in a significant way. The disciplines should be an important building block in international human rights law.

The United States, in the case of Cuba, should not condone wrongful takings that occurred under the previous or current regimes. However, the clearly targeted, discriminatory takings engaged in by the Castro regime should be taken into account by the United States, the EU, and the disciplines. The United States should not be engaging in a process that allows the international community to legitimize the taking of property against norms that reject governmental actions against individuals because of reasons of race, religion, or personal beliefs, etc..

Sixth, and finally, Congress should question the reference to a permanent title III waiver in exchange for continuing EU efforts regarding democracy and respect for human rights in Cuba. The EU's interest in doing away with the current six-month waiver process is not new, nor is it surprising. However, the law requires that a waiver be "necessary to the national interest of the United States and will expedite a transition to democracy in Cuba" (sec. 306(b)(2), emphasis added).

In my opinion, the President and Ambassador Stuart Eizenstat used the July 1996 waiver decision to focus positive attention on the Castro regime. And the January 1997 waiver came primarily as a result of the European Union's adoption of a "Common Position." But since then, the evidence for a waiver rests more on hope than reality. Waivers should be based on the implementation of concrete steps - not more promises.⁽³²⁾ The disciplines imply that the United States will trade title III for more promises.

More Needs to be Done

As with any piece of legislation or policy objective, there remain areas that need to be addressed or which could be pursued more aggressively.

Having just discussed the EU-US disciplines on property, title IV is an area in which more aggressive implementation is required. State Department officials, especially in the Legal Advisors' office, are expected to keep things at a "go slow" pace by creating evidentiary and "due process" hurdles regardless of the weight of the evidence. Before reaching any conclusions about changing title IV, Congress should receive a full accounting from the State Department on title IV implementation. Further, title IV sanctions should be made public. The United States does not have to protect the names of those found to be violating U.S. law.

Second, the LIBERTAD provision conditioning U.S. bilateral assistance to states of the former Soviet Union on their relationship with Cuba (Section 106) remains to be implemented. The United States has a number of interests involving the states of the former Soviet Union. Their relationship with Cuba, especially to the extent that it continues to subsidize Castro's repression, is one of those interests. It should be taken seriously by the administration. Proof of the Cuba-connection and its potential harm to U.S. interests recently emerged when the Miami Herald reported that Moscow intercepted strategic communications during the Persian Gulf War in 1991. These intercepts reportedly came from the Russian (and former Soviet) facility in Cuba. The same article noted that Cuba wants to increase the "rent" it receives from the facility from $200 million to $1 billion annually in oil, weapons, and military spare parts.⁽³³⁾

A third area is United States' activity at the United Nations. During his confirmation hearing, Ambassador Bill Richardson said that Cuba would be a priority for him. It is time to ask him for the evidence of his commitment. We may be in a minority within the UN on the question of Cuba, but that is all the more reason to be engaging on the issue. We also were a minority in the UN on the question of "Zionism is racism." U.S. policy is not predicated on winning a popularity contest. We were right to object to the UN's stupidity on that resolution; we are right to be challenging member states on Cuba.

Finally, the United States should be looking at avenues to support civil society. There are tools in the Cuban Democracy and LIBERTAD Acts that can - and must - be used. I have no illusions as to how easy this will be; it will not be a simple task. We must be creative and indirect in many of the avenues to be pursued. In this area, we should be able to deal with a number of other countries, if their commitment to democratic change in Cuba is genuine. In this regard, we do have "allies" - and they have an ally in us. Building or sustaining the foundation for a civil society in Cuba is a challenge which accrues to the benefit of the Cuban and world communities. It also represents a challenge to Castro. He should be tested every day.

From the Congressional Record

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1. ^** Dan Fisk is currently a member of Board of Directors of the Institute for U.S. Cuba Relations, an Adjunct Fellow with the Center for Strategic and International Studies, both of which are nonpartisan, public policy research institutions based in Washington, D.C., and a Teaching Associate in the Department of Political Science, Arizona State University, Tempe, AZ. Until August 1997, he was a member of the Republican Senior Professional Staff and an Associate Counsel of the Committee on Foreign Relations, U.S. Senate, where he was responsible for Western Hemisphere affairs. The views and opinions expressed are those solely of the author and do not necessarily represent the views of the institutions listed above.

^32. Juan O. Tamayo, "Soviets Spied on Gulf War Plans from Cuba, Defector Says," Miami Herald, April 3, 1998.

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