A Sanctioned Crisis

The United States’s role in Cuba’s economic collapse
Protestors call for freedom in Cuba, Washington D.C., July 25, 2021 (CNS photo/Tyler Orsburn).

The recent demonstrations in Cuba have been met with excitement by Cuban Americans in Miami hoping for the fall of the Cuban government. The Biden administration attributes the turmoil to the country’s political repression and poor economic management, while professing concern for the Cuban people. Pundits for the most part have attributed Cuba’s economic crisis, and the demonstrations, to state measures, such as reductions in internet connectivity; to the pandemic, which has paralyzed much of the economy; and to the loss of oil imports from Venezuela. U.S. sanctions are mentioned only in passing, then dismissed in one way or another. We’re told that there are so many factors at play that it’s impossible to know what harm, if any, can be attributed to the sanctions. Or we’re told that the actions of the Cuban government are really the core of the crisis, and the situation would surely be the same even without the sanctions. Or we’re told the purpose of the sanctions is to call attention to Cuba’s human-rights violations, and that any incidental, unintended consequences are outweighed by the good that they are intended to do.

It is certainly the case that the pandemic has had a huge impact on the country, and that state policies of various kinds may also have played a significant role in Cuba’s economic situation. But more needs to be said about the U.S. sanctions, which are nearly comprehensive, indiscriminate, and quite devastating, not only to every aspect of Cuba’s economy, but also to the daily lives of the 11 million people living on the island. They are also nearly insurmountable. Even if the government responded with singular efficiency and resourcefulness, it would be impossible to find adequate workarounds for U.S. efforts to block Cuba’s imports and exports, its access to fuel, capital, and equipment critical for its infrastructure, and its ability to engage with the international banking network. Any one of these forms of systemic damage would be crippling on its own. Together, they have ensured a catastrophic level of harm, affecting every sector upon which the economy, and human well-being, are reliant. 

The U.S. sanctions regime against Cuba has some statutory components that can only be changed by Congress. Two of the most damaging laws were adopted in the 1990s: the Torricelli Act of 1992 and the Helms-Burton Act of 1996. The Torricelli Act prohibited foreign subsidiaries of U.S. companies from trading with Cuba. This runs completely counter to international commercial law, according to which a company’s nationality is determined by where it is incorporated, not by the nationality of its owners. As a result of the Torricelli Act, companies all over the world were subject to severe penalties by the U.S. Treasury Department if they bought or sold goods or services from Cuba. U.S. trading partners were infuriated. In response to these two statutes, Canada, Mexico, the United Kingdom, and other nations passed “clawback” retaliatory legislation, and the U.K. and the EU brought an action against the United States before the World Trade Organization. Still, the effect on Cuba was enormous: it was barred from trade not only with U.S. companies, but also with countless other companies throughout the world.

The Torricelli Act also provided that any ship that docked in Cuba could not enter a U.S. port for six months. But of course, any cargo ship coming from Europe or Asia would be likely to carry goods to the United States, with its enormous market. As a result, for Cuba to import goods from, say, Europe, it often had to pay double—it would pay for the ship to deliver goods to Cuba, and then pay for it to return empty, if Cuba did not have enough goods to send as exports. So Cuba’s shipping costs greatly increased—a particularly onerous burden for an island nation. And this rule applied not only to U.S. shipping companies, but to ships based anywhere in the world. 

 

While the Helms-Burton Act may be blatantly illegal, that has not prevented it from doing considerable harm.

The Helms-Burton Act of 1996 created additional impediments for Cuba’s trade with companies from other countries. One of its most significant components allowed Cubans who had left the island after the revolution and become U.S. citizens to sue any foreign company whose business in Cuba involved properties that had been confiscated from them. For example, the Bacardi Building, a beautiful art-deco building in Old Havana, is now owned by the Cuban government. An Italian or Spanish company that wants to open a store or have an office in the building is at risk of being sued in the United States by the Bacardi company. 

Like the Torricelli law, this also provoked the ire of the international community. In effect, U.S. courts could subject a foreign company, such as a Spanish hotel chain, to being sued in the United States for actions involving a property in a foreign country, taken from a foreign citizen, and now used by a foreign entity. Under international law, these measures are considered to be “extraterritorial”—that is, the United States is illegitimately subjecting foreign parties to its own jurisdiction.

Every year since 1992, the United Nations General Assembly has adopted a resolution denouncing the U.S. embargo as a violation of international law. Nearly every member of the United Nations joins in supporting these resolutions. This June, one hundred eighty-four countries supported Cuba’s claim and held that the United States was acting illegally. These include nearly all U.S. trading partners and allies. Only two countries—the United States and Israel—voted against Cuba’s resolution (three countries abstained).

But while the Helms-Burton Act may be blatantly illegal, that has not prevented it from doing considerable harm. In the face of widespread international opposition, President Bill Clinton offered a compromise of sorts: the most controversial section, Title III, which put foreign companies at risk of judgments in U.S. courts, would be suspended for six months, and that suspension could later be renewed indefinitely. And so it was, for the next two decades. This changed when President Donald Trump announced in 2019 that he would reinstate Title III lawsuits. Soon after that, lawsuits were filed against companies such as Orbitz, Tripadvisor, and Bookings.com, on the grounds that their databases for hotel reservations include hotels near Varadero beach, now operated by European companies. Another suit was filed against the Canadian company Teck Resources, which operates mines in the El Cobre area of Cuba. By the fall of 2019, there were lawsuits brought under Title III against American Airlines, Amazon, the Spanish hotel chain Melia Hotels International, and the French investment bank Société Générale. A European commercial attaché says that, for companies from Western countries doing business with Cuba, “the situation is catastrophic.”

Even though some of the suits have been dismissed, and the clawback legislation allows companies to bring countersuits in their own countries, the costs and burdens of operating under these conditions have created a “chilling effect.” The U.S. statute may have no legitimacy under international law, but any company that wants to invest in Cuba must be willing to take on far more costs, and risks, than is normal in any ordinary business arrangement. 

In addition to foreign investment, the Cuban economy is highly dependent on exports. The Helms-Burton statute targets these: no foreign company may export goods to the United States that contain even trace amounts of Cuban materials. A Belgian chocolate company, for example, may not sell its products to the United States if they contain any Cuban sugar. So the company would somehow have to segregate the Cuban sugar it uses from other sugar, and then make sure that the Cuban sugar is used only in products sold outside the United States—a logistical nightmare. Or it could simply forego buying Cuban sugar. Cuba is also home to some of the world’s largest reserves of nickel and cobalt. Nickel is a hardening agent, used in stainless steel; cobalt is used in cell phones and batteries for electric cars. So, as with sugar, any manufacturer of stainless steel that buys nickel from Cuba must either go to great lengths to avoid selling those particular products in the United States, or it will simply avoid buying these products from Cuba, as often happens. Thus, Helms-Burton not only restricts U.S. nationals; it also directly undermines Cuba’s trade with other countries.

We saw all this play out when the Canadian mining company Sherritt International sold cobalt from its joint venture in Cuba to the Japanese company Panasonic, which supplies electric batteries to the Tesla electric car company. The Cuban cobalt was intermingled with cobalt from other sources during the manufacturing process. Tesla and Panasonic ran into problems with the U.S. government, so Panasonic suspended its business relations with Sherritt. Like other non-U.S. companies, Sherritt must factor in the loss of business due to U.S. government measures, however remote its ties to the U.S. market may be.

 

While all of these measures were adopted by Congress in the 1990s, the U.S. sanctions regime also consists of measures that can be taken unilaterally by the president or his administration—primarily executive orders, issued by the president, and regulations, generated by federal agencies, particularly the Treasury Department through its Office of Foreign Assets Control (OFAC). While the Obama administration rolled back many of the sanctions regulations that were within its discretion, the Trump administration aggressively imposed new and much harsher sanctions. In 2019, the Trump administration’s efforts to torpedo the Cuban economy increased dramatically. Reuters reporter Marc Frank wrote that some two dozen Western executives, consultants, and diplomats he had interviewed felt that the Trump administration’s tightening of the sanctions had done much to “poison the business climate.”

There were extensive measures to undermine Cuba’s access to oil. In April, the Treasury Department blacklisted thirty-four ships owned by Venezuela’s national oil company for shipping crude oil to Cuba, imposed costly penalties on two U.K.-based oil companies, and then imposed additional penalties on four companies and nine more ships in the Venezuelan oil sector, alleging they had transported oil to Cuba. OFAC continued to blacklist persons, companies, and ships from Italy, Colombia, Panama, and Cyprus, claiming they had all provided Cuba with oil. The message was clear: anyone who delivers oil to Cuba should expect to face penalties that could be commercially catastrophic.

As fuel imports plummeted, the effects were felt throughout Cuba, with the state facing a difficult choice: Would there be gasoline for trucks, buses, and cars? Or would the declining fuel imports be directed instead to industry and agriculture? Would oil be used to generate electricity for domestic consumption? Or would there be blackouts in people’s homes, in order to reserve electricity for critical infrastructure, such as water treatment and crop irrigation?

The U.S. sanctions are so suffocating that even humanitarian aid is threatened.

The Trump administration’s measures reducing cash remittances to Cubans from family members abroad have been equally devastating. The Obama administration had lifted the restrictions from remittances, allowing family members in the United States to freely send funds to support their extended family on the island. The Obama administration also allowed “donative remittances,” permitting Americans to send funds to friends and organizations within Cuba, not just family members. 

Remittances are critical to the Cuban economy; they are the second most important source of hard currency in Cuba. Of the more than 2 million Cubans who have immigrated to the United States, an estimated seven hundred thousand send funds annually to their family members on the island. Whereas the income from tourism and exports goes directly to the state, remittances directly benefit Cuban families and small businesses. According to Oxfam, remittances are the main source of direct income for about half the population of Cuba.

In the fall of 2019, the Trump administration took measures to drastically reduce the financial remittances sent to Cubans by friends and family members abroad. Family remittances were limited to $1,000 each quarter. Remittances to friends and organizations were prohibited altogether, as were remittances to distant relatives. And there were other restrictions. People outside the United States had been permitted to send dollar-denominated transactions from, say, a Spanish bank, which would go through the U.S. financial system and then on to another foreign bank (“U-turn transactions”). These were prohibited in 2019, making it harder for foreign nationals, living in foreign countries, to send funds to their families in Cuba. 

In the run up to the 2020 presidential election, the Trump administration ramped up its sanctions in order to appeal to the anti-Castro Cuban American community in Florida. In the summer of 2020, the United States blacklisted FINCIMEX, the Cuban agency that manages remittances entering the country, with the result that any bank or person doing business with the agency—regardless of their nationality—would be at risk of penalties by the U.S. Treasury Department. 

Perhaps the greatest damage from this measure was the termination of Western Union’s services to Cuba. Western Union had operated in Cuba for more than twenty years, with more than four hundred offices throughout the country. Since 2016, Western Union had been handling most of the remittances to Cuba from abroad, transferring between $900 million and $1.5 billion annually, in collaboration with FINCIMEX. In October 2020, the Trump administration ordered Western Union to sever its ties with FINCIMEX. This left Western Union with little choice but to withdraw from Cuba. In November, the company shut its operations throughout the country. As one expert noted, “The problem is not the closure of Western Union, but that Western Union is practically the only U.S.-to-Cuba provider of remittance payments.”

The Trump administration’s rationale for blacklisting FINCIMEX was that its parent agency, Grupo de Administración Empresarial S.A. (GAESA), the Group for Business Administration, is operated by the Cuban military. The Cuban military is involved in many sectors of the Cuban economy, from tourism to agriculture. Arguing that the Cuban military benefits from these enterprises, the Trump administration targeted agencies such as GAESA and FINCIMEX. “Targeted sanctions” are often touted as surgical measures that tie the hands of individual persons and companies without harming the population at large, particularly vulnerable groups such as the poor, the elderly, and infants and children. But when a military agency is operating a major sector of the economy, placing it on a blacklist is not at all surgical in its effects. On the contrary, doing so inevitably sets off a cascade of difficulties for a country’s whole population. Oxfam estimates that in 2020, remittances to Cuba declined by 30 to 40 percent, due to the withdrawal of Western Union and the extensive restrictions placed on remittances. This decline may or may not have impacted the military. What is clear is the impact on the Cuban population as a whole. In a country where half the population are dependent upon remittances to survive, the abrupt loss of income would have been sufficient to trigger a humanitarian crisis, even without shortages of fuel and other difficulties.

 

The U.S. sanctions are so suffocating that even humanitarian aid is threatened. The Trump and Biden administrations have maintained that the U.S. sanctions include humanitarian exemptions, and that any shortages of food and medicine are due to the failures of the Cuban government. In fact, U.S. sanctions interfere not only with the Cuban state’s efforts to ensure adequate food and medicine, but also with those of international humanitarian organizations. 

In the face of Cuba’s food shortages, the UN’s World Food Programme (WFP) undertook measures to support nutrition and food security. But U.S. sanctions repeatedly undermined its efforts. Because of U.S. penalties on ships that dock in Cuba, cargo ships bringing food are forced to stop over in a neighboring country. The shipments then have to be offloaded and transported to Cuba on a different vessel, all of which causes delays and additional costs. In late 2019, the fuel shortages compromised WFP’s operations, particularly in Cuba’s eastern provinces. The UN’s Food and Agriculture Organization (FAO) reported that U.S. sanctions affect agriculture and food access in many ways. Banks often refuse to handle FAO’s financial transactions for the sale of food to Cuba. Suppliers in third countries cannot provide products to Cuba that were obtained from U.S. companies. Shipping companies will not contract to transport goods to Cuba, or will cancel their contracts.

Oxfam reports that U.S. prohibitions on access to the Zoom video software compromised medical training and telemedicine services. Two Swiss manufacturers of medical equipment, IMT Medical and Acutronic Medical Systems, were acquired by the U.S. company Vyaire Medical Inc., and were then blocked from shipping their products to Cuba. The U.S. sanctions on banking transactions prevented Swiss banks from transferring funds related to two medical collaborations, MediCuba-Suiza and the Suiza-Cuba Association. In March 2020, billionaire Jack Ma, the founder of Alibaba, announced he was sending shipments of urgently needed medical supplies to the Caribbean to respond to the pandemic. Cuba was to receive a hundred thousand medical masks and ten thousand diagnostic kits. But the cargo airline that was to deliver these goods to Cuba refused, citing the U.S. sanctions.

Regardless of its professed concern with human rights, the Biden administration appears to be doing whatever it can to worsen the situation in Cuba, to create chaos and instability, toward the end of regime change. No doubt it, too, is courting the Cuban American community in south Florida. But while the Biden administration is not as grotesque and cartoonish as its predecessor, its Cuba policies are very similar. Former Secretary of State Mike Pompeo said about Venezuela, with unseemly eagerness: “No food. No medicine. Now, no power. Next, no Maduro.” It seems the Biden administration is looking to adopt this strategy with regard to Cuba, however indecent and inhumane the cost may be.

Published in the September 2021 issue: 

Joy Gordon is the Ignacio Ellacuría, S.J. Chair in Social Ethics in the philosophy department at Loyola University Chicago, and the author of Invisible War: The United States and the Iraq Sanctions (Harvard University Press).

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