Trade Embargo In and Castro Out

December 12, 1996 • Commentary
This article originally appeared in the Journal of Commerce.

The World Trade Organization meeting in Singapore will be the scene of some intense discussions about whether the Helms‐​Burton Act — which tightens the U.S. embargo on Cuba — violates international trading rules. U.S. officials should use the opportunity to reconsider the impact of Washington’s overall policy toward Cuba.

The Helms‐​Burton Act seeks to discourage investment in Cuba by imposing sanctions on foreign companies profiting from property confiscated by the Castro regime. But fears that foreign investment there, which is much lower than official Cuban figures claim, will save the communist system from its inherent flaws are unfounded; significant capital flows to Cuba will not occur unless and until the country introduces market reforms. While the Helms‐​Burton Act may slow investment in Cuba, U.S. allies (in particular, Canada, Mexico, and members of the European Union) have not welcomed that coercive attempt to influence their foreign policy. Not surprisingly, the European Union is contemplating retaliatory sanctions.

That confrontation risks poisoning U.S. relations with otherwise friendly countries that are far more important than Cuba to the economic well‐​being and security of the United States. The stalemate also diverts attention, both inside and outside Cuba, from the island’s internal crisis.

Perhaps the biggest shortcoming of U.S. policy toward Cuba is its false assumption that democratic capitalism can somehow be forcibly exported from Washington to Havana. That assumption is explicitly stated in the Helms‐​Burton law, whose first purpose is “to assist the Cuban people in regaining their freedom and prosperity, as well as in joining the community of democratic countries that are flourishing in the Western Hemisphere.”

But the revolution in democratic capitalism that has swept the Western Hemisphere has had little to do with Washington’s efforts to export democracy. Rather, it has had to do with Latin America’s hard‐​earned realization that the free‐​enterprise system is the only system capable of providing self‐​sustaining growth and increasing prosperity.

Even though Cuba — unlike other communist countries, such as China or Vietnam, with which the United States actively trades — has not undertaken meaningful market reforms, an open U.S. trade policy is more likely to subvert its system than is an embargo. Proponents of the Cuban embargo vastly underestimate the extent to which increased foreign trade and investment can undermine Cuban communism even if that business is conducted with state entities.

Cuban officials appear to be well aware of the danger. For example, Cuba’s opening of its tourism industry to foreign investment has been accompanied by measures that restrict ordinary Cubans from visiting foreign hotels and tourist facilities. As a result, Cubans have come to resent their government for what has become known as “tourism apartheid.” In recent years, Cuban officials have also issued increasing warnings against corruption, indicating the regime’s fear that unofficial business dealings, especially with foreigners, may weaken allegiance to the government and even create vested interests that favor more extensive market openings.

Further undercutting the regime’s authority is the widespread dollar economy that has emerged as a consequence of the foreign presence and remittances from abroad (those from the United States now banned by the Helms‐​Burton bill). The dollarization of the Cuban economy — which the Cuban government has been forced to legalize as a result of its inability to control it — has essentially eliminated the regime’s authority to dictate the country’s monetary policy.

Replacing the all‐​encompassing state with one that allows greater space for voluntary interaction requires strengthening elements of civil society, that is, groups not dependent on the state. That development is more likely to come about in an environment of increased interaction with outside groups than in an environment of isolation and state control.

Supporters of the embargo casually assume that Castro wants an end to the embargo because he believes that step would solve his economic problems. Despite his rhetoric, Castro more likely fears the lifting of the U.S. sanctions. It is difficult to believe, for example, that he did not calculate a strong U.S. response when he ordered the attack on two planes flown by Cuban‐​Americans in early 1996. But as long as Castro can point to the United States as an external enemy, he will be successful in barring dissent, justifying control over the economy, and stirring up nationalist and anti-U.S. sentiments in Cuba. It is time for Washington to stop playing into Castro’s hands and instead pull the rug out from under him by ending the embargo.

About the Authors