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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