Implications for Europe and the world of the "Cuban Democracy Act" (Helms-Burton Bill) of the United States Congress

Report

Doc. 7881

11 July 1997

Rapporteur: Mr Fernando Gonzalez Laxe, Spain, Socialist Group

 


 

Summary

 

The report takes strong issue with the so-called "Cuban Liberty and Democratic Solidarity Act" (CDA) of the United States. It particularly deplores the law's extraterritorial character, affecting also non-US companies and individuals. The report expresses the firm hope that the law can be either revoked or modified in a satisfactory manner.

 

I. Draft resolution

 

1. In March 1996 the "Cuban Liberty and Democratic Solidarity Act" (CDA) was signed into law by the President of the United States of America. The law promises legal action against any companies, including foreign ones, which make use of US property expropriated following the Cuban revolution in 1959, and bars foreign executives and their families from entering the United States.

 

2. The Assembly strongly deplores the extraterritorial character of the CDA, which runs counter to basic principles of public international law. In addition, the CDA risks harming not only the friendly relations between the United States and many other nations, but also the efforts of the international community as a whole to ensure continued progress toward democracy, human rights, the rule of law, economic reform and prosperity for the long-suffering Cuban people.

 

3. The Assembly expresses the firm hope that the CDA can be, if not revoked, then at least modified in such a way as to free it of its unacceptable extraterritorial character. Meanwhile, all efforts must be deployed by the United States and all other countries and institutions concerned - including the European Union, the North American Free Trade Association and the World Trade Organisation (WTO) - to ensure that current divergencies do not weaken the newly created WTO, envenom the world economic climate, or delay the day when Cuba can again find its rightful place in the world community as a country of democracy, free and fair elections, human rights and the rule of law.

 

4. The Assembly urges the OECD to ensure that the Multilateral Agreement on Investment currently being negotiated includes a clause ruling out in the future any form of unilateral, extraterritorial action.

 

5. The Assembly underlines the importance of the conflict-resolving capacity of the WTO panels, and calls on the Government of the United States to accept the decision of any such panel.

 

 

II. Explanatory Memorandum by Mr Gonzalez Laxe

 

Contents

I. Background

II. What is the "Cuban Democracy Act"?

III. The Cuban Economy: "Economic Opening". The Beginning of Democratisation?

IV. Concluding Remarks

Appendix

 


 

I. BACKGROUND

 

1. On 29 October 1996, Mr Carvalho and several of his colleagues in the Parliamentary Assembly presented a motion for a Resolution on the "Cuban Democracy Act" popularly known as the Helms Burton Bill (Doc. 7673). The authors of the motion termed the "Cuban Democracy Act", henceforth referred to as the CDA, as a "new and serious step in the blockade imposed on Cuba by the US government more than 35 years ago". The text also called the Bill a "clear interference in the state's sovereignty" and said that it "harms the international trade agreements signed ... within ... the World Trade Organisation".

 

2. The motion went on to deplore that "the USA claim the right to apply their own internal legislation to companies and citizens not submitted to US law and order" and that "the law unilaterally provides for the application of sanctions to companies and citizens from other countries with economic relations with Cuba". Finally, the motion "condemn[ed] the 'Helms Burton Bill' and in particular measures adopted unilaterally by the USA involving extra-territorial application of the Bill" and "exhort[ed] the United States government and Congress to render that Bill null and void". Finally, the motion defended "the strengthening of the political dialogue with Cuba".

 

3. The Assembly's Standing Committee in November 1996 referred this motion for a report by the Committee on Economic Affairs and Development, which had the benefit of the presence of parliamentary delegations from Canada and Mexico as it considered the present report in June 1997 and unanimously adopted the preceding draft Resolution.

 

II. WHAT IS THE "CUBAN DEMOCRACY ACT"?

 

4. The "Cuban Liberty and Democratic Solidarity Act" - also known as the Helms Burton Act - was signed by President Clinton in March 1996. The CDA seeks to inhibit third country investment in Cuba - where US economic activity has long been banned - by promising legal action against foreign companies that make use of expropriated US property. The CDA includes not only property that belonged to US citizens when Fidel Castro took over following the revolution in 1959, but also property belonging to Cubans who had become US citizens during the intervening decades. The extraterritorial dimension of the legislation manifests itself in the fact that third country companies can be sued in US courts, and their executives, along with their families, barred from entering the United States. Canadian, European and Latin American companies and citizens would be the most concerned.

 

5. The reasons for the CDA are largely to be found in US relations - or rather non-relations - with Cuba and its leader Fidel Castro, ever since the latter's overthrow of the Batista regime in 1959. At first perceived as a threat to US security (culminating in the Cuban missile crisis of October 1962) a,d subsequently seen as an exporter of communism to the rest of Latin America, Cuba has been subjected to a strict US trade and investment embargo up until the present time. For a long time it depended critically on trade with, and financial support from, the Soviet Union and Soviet allies. In the meantime, economic mismanagement and the absence of democracy made Cuba increasingly poor (even though whatever resources the country had were more equitably spread among the people than in most other Latin American countries).

 

6. The tension between Cuba and the United States was kept high by a large Cuban emigr� community, in particular in Florida. The tension escalated dramatically in March 1996 when the Cuban air force brought down two small civilian aircraft. The tragic incident led to international protests, to an even more pronounced isolation of Cuba and to a fall in newly emerging tourism. President Clinton, already preparing his re-election campaign, in March 1996 signed the Helms Burton Bill into law, only to postpone its entry into effect for six months in July 1996. In January 1997 the coming into effect was postponed for another six months, ie not until July 1997.

 

7. Many nations, allies and friends of the United States as well as others, protested vigorously at what they saw as an American effort to impose US policy and laws on them. The strongest protests have come from European nations with the European Union in the breach, Canada, Mexico and a score of Latin American countries. In November 1996 the Ibero-American Summit held in Vi�a del Mar in Chile concluded that the CDA "ignores the fundamental principles of respect for the sovereignty of states". At the same time it considered, in clear reference to the absence of democracy in Cuba, "political plurality essential for a democratic system" and "free, periodical and transparent elections as essential elements for democracy".

 

8. The European Union for its part vowed to work toward democracy in Cuba but at the same time brought a complaint against the CDA before the World Trade Organisation. As these lines are being written (June 1997) the issue has not yet been formally taken up by the WTO in one of its panels of mediation and adjudication, the EU having agreed to wait for six months (until 31 October 1997) before formally registering the complaint. Both sides hope that the issue may be resolved before such a potentially damaging step taken, for any of the possible outcomes could cause serious harm to the newly created WTO and hurt all sides.

 

9. On the one hand, if the WTO finds for Europe, it could undermine US support for global trading rules. Indeed, the United States has declared that whatever the WTO says or does, it will not bring the United States to change its laws. If a WTO panel were convened, no US representative would appear. We Europeans needless to say do not take easily to such declarations.

 

10. Furthermore, a WTO decision unfavourable to the US could cause the latter to invoke a WTO "national security" provision which in Washington's view would leave any WTO pronouncement without effect. However, a US boycott of the procedure, or its invoking the national security exemption, would seriously undermine the universal application of WTO work - a trade legislation which more often than not serves US interests. Indeed, the United States makes more frequent calls on the WTO to take action against practices of non-US firms, than it receives complaints against those of US companies. Invoking the national security clause could have other undesirable consequences. For instance, Japan justifies its restrictions on rice imports with the need to maintain food security and the Republic of Korea argues similarly on behalf of its automobile industry. Finally, concerning its trade relations with China, the United States argues that they further progress towards democracy and human rights in that country; when Europeans, however, call for an easing or a lifting of the US embargo on Cuba on the same grounds, then the United States says 'no'.

 

11. On the other hand, in the unlikely event that the WTO were to find for the US, then the principle of extraterritoriality would risk envenoming the entire international trading environment, as more and more nations would invoke it.

 

12. President Clinton has indicated that he will continue, until the end of his term in January 2001, to waive Title III of the CDA as far as European companies are concerned. (This provision permits the introduction court cases seeking punitive damages against foreign investors who are seen to be "trafficking" in assets in Cuba confiscated from US owners by the Cuban government.)

 

13. Central to any US-EU agreement is the resolution of the dispute over Title IV of the CDA. It entitles the US to deny entry visas to executives, directors and their families, as well as shareholders, of foreign companies profiting from expropriated assets in Cuba. Under this Title the US is monitoring transactions between an Italian communications firm and the Cuban government, and is reviewing a new French trade agreement with the country. Meanwhile, a Canadian raw sugar refiner has decided to stop importing Cuban sugar, presumably fearing the consequences of going against the CDA.

 

14. Apart from the effects of the CDA on third countries, it serves to tighten the economic and political isolation of Cuba, thus permitting the r�gime to argue before the Cuban people that all their misfortunes are due not to mistakes by the government or the lack of democracy, but to US-led actions.

 

15. The Rapporteur is the first to call for the earliest possible return to democracy in Cuba. Indeed, the European Union on 2 December 1996 made its cooperation with Havana conditional on the improvement of the situation as regards human rights and political freedoms. However, it is impossible to accept that one country forbids and threatens to penalise commercial or other relations between third countries. Representatives of the Canadian company Sherritt International and the Mexican firm Grupo Domos have, together with their families, already been refused entry on American soil on the grounds of Helms-Burton. (To make matters worse, the CDA is not the only law of its kind: the so-called Amato-Kennedy legislation, likewise enacted in 1996, foresees sanctions against companies, including foreign ones, which invest more than 40 million dollars in oil projects in Iran and Libya.)

 

16. The CDA also suffers from a lack of logic. If the United States considers that Cuba, in nationalising American property, has violated international law, then the natural thing to do would be to take legal action against the Cuban government. By contrast, in sanctioning persons who can in no way be held responsible for actions of the Cuban government - especially retroactively - the CDA disregards most elementary rules of international law.

 

17. In conclusion, the Rapporteur fervently hopes that this unfortunate conflict, which pits otherwise closely cooperating countries against another, can be resolved in informal negotiations before it reaches the point of no return through a WTO verdict which as we have seen would risk causing great damage to all parties and to the world trading system itself. It would of course be better still if the US Congress and President were to change their mind and revoke or modify the legislation to the extent desired. Meanwhile, the world community must do its utmost to ensure that Cuba, whose population has suffered so much for so long, can introduce democracy as quickly as possible.

 

III. THE CUBAN ECONOMY: "ECONOMIC OPENING". THE BEGINNINGS OF DEMOCRATISATION?

 

18. As a result of its particular experiences, Cuban society feels strongly about social justice and about its national identity. The r�gime, for these and other reasons, is unlikely to collapse as readily as some might think. The Rapporteur believes that economic reforms in Cuba must take these factors into account, and that they should be the driving force on the road to pluralist democracy.

 

19. Since the mid-1980s Cuba has tried hard to gain access to new markets and to international sources of finance, while attempting to make the most of its more traditional assets. There has been improvement in the tourism, nickel, seafood and exchange earning sectors. However, the sugar sector has experienced stagnation over several years due to slackening world demand and falling prices. The 1994-1995 harvest was the lowest in fifty years. The harvest in 1996 was slightly better as a result of large purchases of fertilizers and weed killers. However, most of the export earnings have had to be used to cover debt payments. Economic reforms could help the sugar industry to become more modern and more linked to food-processing. But beyond that, Cuba's economy needs to become far less dependent on sugar production, which is at the mercy of capricious world markets and in competition with highly protected beet-sugar production in Europe, for example.

 

20. In the 1990-1993 period the only significant effort at economic reform was in the export sector, the aim being to remedy what had become, in the wake of the collapse in Cuban-Soviet (and then Russian) trade, an acute shortage of foreign exchange. But reforms here did not spread to other areas of the economy.

 

21. 1993 saw the start of a measure of economic reform in Cuba - known as the "apertura" - undertaken in response to the worst economic crisis experienced by the country since the overthrow of the Batista r�gime. The project has three main components: promotion of tourism from abroad; a reorientation of Cuban foreign trade and the exposure of the economy to foreign investment. It is likely to have effects going beyond economic life as such, affecting also the social and political fabric of the nation.

 

22. In 1995 the Cuban government began to try to implement the "apertura". The budget deficit was further pruned, from 33% of GDP in 1993, to 8% in 1994 and about 5% in 1995. This was achieved through further cuts in government subsidies, price rises and a reduction in the public sector work force. For the first time since 1989 there was, in 1994, a slight increase in GDP of 0.7%, which accelerated to around 2% in 1995. Both the tourist trade and foreign investment brought increased inflows of foreign currency, and the exchange rate of the peso increased from a low of 150 to the dollar in 1994 to about 25 to the dollar in 1995.

 

23. In September 1995 the National Assembly passed a new investment law allowing 100% foreign ownership of enterprises in Cuba. Investment was allowed in real estate, trading businesses and export-manufacturing zones, but not in education, health and defense. Cuban exiles were assured that they would not be discriminated against if they wished to invest in Cuba. The banking system was also reformed in order to cope with increasing numbers of Cubans using foreign exchange but having to operate with cash. Plans are under way to transform the National Bank of Cuba into the country's central bank, with its commercial and other banking activities spun off. Parallel to this gradual opening of the Cuban economy, many US companies show growing frustration at their inability to do business with the country.

 

24. Cuban economic recovery continued in the first half of 1996, with a growth of 9.6% in GDP. Productivity was reported to have risen by 8% and average wages by 2.5%, while prices remained stable. The budget deficit for 1996 fell to around 3% of GDP. In spite of significant increases in the production of nickel, cement, tobacco and vegetables, the Cuban economy continues to suffer from a shortage of hard currency, making it difficult for the country to meet its financial obligations.

 

25. Meanwhile, free-trade zones were established in Havana and on the southern coast. Licence holders are exempted from customs duties and taxes on profits and can repatriate profits freely while having access to the Cuban domestic market. Finally, the tourism industry continued to show rapid growth, with Canadian companies joining Spanish investors in building hotels throughout the country. Canada also agreed to finance the construction by Canadian companies of a third terminal at Havana International Airport.

 

26. Institutional changes include new ways of doing business and a reorganisation of the Cuban state structure. Decentralisation of the management of foreign trade and new areas of such trade, as well as the development of a commercial and financial infrastructure form part of the reform programme. In addition, the legislation is being reviewed in such areas as foreign investment, joint ventures, financing, accounting, prices, fiscal rules, customs and trade. Efforts are also being made to make domestic companies more export-oriented and to adapt costs and prices to the requirements of international competition. So far, however, this has not led to any sizeable reduction in the role of the government in the Cuban economy. The state still regulates and manages, even though it tries to do so more in line with market requirements.

 

27. Meanwhile, the domestic economy remains almost exclusively state-controlled, if one excepts the rapidly growing informal economy. The latter, though officially illegal, is tolerated by the government only because it serves as a safety-valve for increasingly desperate Cuban consumers throughout the island.

 

28. The country's difficult economic situation would really need more profound and wide-ranging reforms. If successful, these could in turn lead to political, institutional changes of the kind sought by Cuba's European and other partners.

 

29. At present, the major challenges are:

  1. introducing democracy, a process which includes the drafting of a democratic constitution; respecting human rights and rule of law; the freeing of all political prisoners, allowing political parties to form and assemble, and the holding of free and fair parliamentary elections;
  2. reorganising the economy to meet the population's basic needs, and to secure economic growth;

 

IV. CONCLUDING REMARKS

 

30. Cuban efforts to become more integrated into the world economy take place in a period of rapid globalisation and change, not least in neighbouring Latin American countries which are growing rapidly. They will depend critically on future economic and political relations with the country's big neighbour to the North, the United States. Time would appear to be more than ripe for an end to the United States' isolation of Cuba which only adds to the hardship of the general population, and for the international community to press for the country's democratisation. There are now certain encouraging signs of a lessening of tensions between the two countries, such as when the United States permits certain humanitarian assistance to reach the island from its shores.

 

31. The US Administration has taken a softer approach to Cuba than has the House of Representatives through measures such as the CDA. In May 1995 a joint US-Cuban Declaration was issued, in which Cuba agreed to the admission to the US of Cubans held at the US base at Guantanamo since the massive emigration in 1994. Cuba, for its part, ratified the International Convention against torture and other degrading treatment and released several political prisoners.

 

32. For less developed countries to achieve growth in today's global economy they must embrace private, rather than state, ownership of business. They must also be open to foreign trade and investment, new technology and ideas in general, and they must have political systems that respect democracy, human rights and the rule of law. If Cuba needs to ensure democracy and human rights and thereby pave the way for international, including European, assistance in many areas, then the United States for its part must encourage this process by lifting its embargo on the island and cease punishing the relations of third countries with it, through laws such as the CDA. If reformers in Cuba are cut off from international contacts as they press for liberalisation and democratisation, this will not further long-term US interests.

 

33. The two sides should search for reconciliation, mutual compensation and reciprocal forgiveness. On the one hand Cuba has suffered extensive damage to its economy during decades of a US embargo, severely limiting its capacity to compensate foreign claimants financially for confiscated or nationalised assets. On the other hand, such claimants could perhaps benefit from tax reductions when investing anew in the island.

 


 

APPENDIX

 

Since the overthrow of the Batista regime by Fidel Castro in 1959, the United States has imposed a strict embargo on foreign trade with and investment in the island. Motivated by concern for American security and the threat of communism spreading to the rest of Latin America, the United States set in motion a process of economic asphyxiation and political ostracism of Cuba.

 

In March 1996, after the Cuban Air Force brought down two civilian aircraft, causing the death of U.S. citizens, President Clinton signed the "Cuban Liberty and Democratic Solidarity Act" (CDA), also known as the Helms-Burton Act. The CDA threatens sanctions against any person or company engaging in dealings with Cuba which involve property nationalised without compensation by the Castro regime after the revolution. In the eyes of the international community, particularly the European Union and Canada, which is very active in the region, what is most unacceptable about the CDA is its extra-territorial character, ie the fact that in the event of violation of the Act legal action may be taken against citizens of third countries who trade with or invest in Cuba.

 

The European Union voiced strong protest at the unilateral imposition by the United States of rules of conduct on third countries, and in particular the European Union, which, in a petition dated 3 May 1996, expressed its desire to have talks with the U.S. Government on the rules and procedures of the recently established World Trade Organisation (WTO) for the settlement of disputes. The European Union reiterated its objection to the CDA on 1 October 1996, when its Council on general affairs adopted measures designed to protect it from the unilateral actions of states. And in November 1996, the Council introduced joint regulations and measures at Community level to provide effective legal protection for Union residents - individuals and corporate entities - that are threatened economically or financially by the extra-territorial measures of the United States.

 

Finally, on 16 October 1996 in Geneva, the European Union referred the matter to the WTO's dispute settlement body and, in keeping with the procedure for submitting complaints, requested that a panel be formed. The United States refused this request but, in keeping with the dispute settlement procedure, the request was confirmed and became final one month later, on 20 November 1996. The European Union, free to choose the date on which the panel would be convened, waited until early February 1997 before asking the Director General of the WTO to appoint the three members of the panel. It also delayed lodging the complaint with the WTO until 1 November 1997, in the hope that the United States would see reason and help to find a more peaceable solution to the dispute. However, since submitting the dispute to the panel has proved insufficient and fruitless, and the United States seems to have no intention of reconsidering its position, it appears that the Union will have to voice its convictions in firmer tones.

 

The Rapporteur fears that Cuba's economic development, after picking up thanks to considerable efforts to promote democracy and major reforms designed to make the economy more dynamic, will be stalled by the CDA, which goes against the liberal spirit of the WTO in any event. He also protests strongly against the extra-territorial character of the Act. He hopes that a solution will be found - by repealing or amending the CDA - and that it will be possible to give every third country concerned by the Act a fair and satisfactory answer. He would also like to see the WTO take a harder line on the restriction of investment in and trade with the island, which will have a chance of finding its feet again only with outside help.

 

In conclusion, the Rapporteur calls for the WTO to review and strengthen its procedures for settling disputes, so that no country is able in future to ban the discussion of a law which does not have the unanimous support of the international community. He further requests the WTO to draw up simpler, firmer rules for settling disputes, so that this type of difficulty does not arise again.

 


Report committee: Committee on Economic Affairs and Development

Budgetary implications for the Assembly: none

Reference to committee: Doc. 7679 and Reference No. 2134 of 6 November 1996.

Draft resolution unanimously adopted by the committee on 19 June 1997.

Members of the committee: Mr Davis (Chairman), Mrs Degn (Vice-Chairperson), MM. Bloetzer, Valleix (Vice-Chairmen), Andreoli, Behrendt, Bilinski, Billing, Mrs Blattmann, MM. Bog�r, Bonet Casas, Mrs Bribosia-Picard, Mr Brunhart, Mrs Calner, MM. Cusimano (Alternate: Turini), Dumitrescu, Mrs Durrieu, MM. Elo, Eyskens, Dame Peggy Fenner, MM Figel, Frey, Mrs Frimannsdottir, MM. Galanos, Galv�o Lucas, Mrs Gatterer, MM. Gonzalez Laxe, Gusenbauer, Gylys, Jelenkovic, Kamhi, Kiratlioglu, Kirilov, Kopliku, Koucky, Kuznetsov, Lambergs, Le Grand, Leers, Liapis, Malinowski, Merkushov, Minkov, Muravschi, Pereira Coelho, Poppe, Puche, Rigo (Alternate: de Carolis), Rippinger, Rutskoy, Sceberras Trigona, Siebert, Mrs Squarcialupi, Mrs Stepova, MM. Szalay (Alternate: B�rsony), Telgmaa, Thaler, Townend (Alternate: Lord Kirkhill), Tripunovski, Vasile, Verivakis, Mrs Verspaget, MM. Wallace, Yavorivsky.

 

N.B. The names of those members present at the meeting are printed in italics.

Secretaries to the committee: MM. Torbi�rn, Bertozzi and Ms Ramanauskaite.