Remarks of The Hon. Otto J. Reich President, US-Cuba Business Council

Before the American Chamber of Commerce of Cuba in the United States Washington, D.C. November 13, 2000 Is Cuba a commercial opportunity or a risk? The answer is yes. To both questions.

As you can see from the table prepared by Tom Cox, US-Cuba Business Council Vice President, a free-market Cuba would once again be a great opportunity for US business, as it was once. By the way, I am indebted to Tom Cox for the research and drafting of this presentation.

We can review this table later, but the bottom line is that the US Cuba Business Council believes that the foreign economic potential of a free-market Cuba represents over $15 and a half billion within five years after a democratic transition. Even in the first year, we estimate that economic activity will double from today's. If anyone thinks this is an exaggeration, keep in mind that using Cuba's 1958 trade and investment figures and projecting only population growth and average GDP growth rates for Latin America, Cuba would have foreign exchange receipts of $16 billion, almost exactly our five year projection. Or, as an example, in 1958 Cuba's exports were roughly equal to Argentina's. And you know where Argentina is today.

Those of you who know me know my position on doing business with Castro. I believe it is not only a commercial mistake, but it is a moral error. While I have been told by a Canadian executive doing business in Cuba that morality is not a factor in his decisions, I would like to think that most business executives avoid immoral ways of making money. Doing business with a regime which does not respect any human right is immoral, as well as commercially short-sighted. Nevertheless, since this is a Chamber of Commerce, I will concentrate my remarks today on commercial topics, including:

. Measuring trade opportunities in Cuba. . Measuring Foreign Investment in Cuba. . What are US Corporate Perspectives on Cuba. . Perils of US Government-Sponsored trade with Cuba. . How would lifting the US trade embargo on Cuba under current conditions alter Cuba's bleak commercial environment? . Potential Costs of US-Cuba Trade Normalization Preceding Reform in Cuba.

First, let me say that while popular in some circles, blaming US policy for Cuba's ills is simply wrong. US policy does not determine whether US commercial interests can benefit Cuban citizens or foster economic development in Castro's Cuba. The Castro regime controls and directs the nature and scale of all foreign interaction with Cuban citizens.

And more than any other regime in the world, with the possible exception of North Korea, the Cuban government has sought to destroy the purchasing power of its citizens and to obstruct their efforts to produce goods and services for the domestic economy.

It is the policy of the Cuban government to curtail the development of Cuba' s domestic economy in both production and consumption, and to limit the scope of joint venture involvement in the Cuban economy.

It is not difficult to observe how pervasive and effective the Castro regime has been in implementing its policy of deliberate economic implosion. Let me give you some examples:

1. Limiting legal self-employment to obscure job categories - including categories such as spark-plug cleaner and doll repairer - while placing draconian tax and regulatory burdens on the handful of meaningful self-employment enterprises. Home-based restaurants are limited to 12-seats, denied the right to sell beef or seafood and face tax rates of up to 400 pesos per month (twice the average monthly state wage) and $400 per month for dollar-based trade (three times the average monthly self-employed income). Fines and fees for improper commercial activity outlined under Decree Law 186 provide a ready pretext for arbitrary termination of enterprises.

The Cuban government prohibits the sale of raw materials necessary for the production of goods to self-employed workers. Thus, it severely limits such production and ensures that large-scale production of any goods on the island must involve illegal actions. Such measures illustrate the government's hostility to Cuban enterprise and accumulation of disposable income.

As if to prove that Cuba remains light years behind other communist dinosaurs such as Vietnam in economic reform and development, Havana's economic czar Carlos Lage noted recently with pride that the total of self-employed enterprises in Cuba has been reduced by 15 percent to the economically marginal total of 150,000.

2. Prohibiting the creation of small business and permission to hire employees . While the number of self-employed enterprises in Cuba has been reduced to largely symbolic levels, small and medium sized enterprises [SMEs], as the term is understood in the US or even most developing nations, simply do not exist. Cuba will not develop a consumer market with any significant purchasing power or spur a substantial economic revival without taking the first small step of permitting the formation of such commercial enterprises. And that is precisely why the Cuban government has blocked their creation.

3. Eliminating or dismantling productive agricultural enterprises that threaten to generate significant income or significantly expand production. Inefficient, money-losing state "cooperatives" [UBPCs] are given priority for resources while the small cadre of independent agricultural workers producing a disproportionate share of food staples is precluded from forming associations, sharing resources or hiring employees.

4. Confiscating wages of workers in foreign joint ventures. When foreign joint venture partners pay the Cuban government US$400 per month for a worker, the government pays workers in pesos at the official exchange rate of one peso to one dollar. Thus that worker receives 400 pesos, or the equivalent of $20 for one month's work. The government confiscates the remaining 95%.

5. Precluding private Cuban participation in joint ventures. As with Cuban government prohibitions on the creation of small domestic enterprises, the prospect of Cuban citizens boosting economic production and personal income through joint ventures is non-existent.

6. Discouraging large-scale international commerce and economic development by utilizing constitutional prerogatives to undermine contracts and destroy trust in relationships with foreign investors. Despite a handful of well-publicized investment promises by foreign investors, the Cuban government has precluded significant capital inflows to the island - and those who have ventured into this hotbed political and commercial risk have been frequently burned. Unlike other Latin American countries competing for global investment capital, Cuba's constitution authorizes the government to expropriate property of foreign investors without due process and ensures government control of all economic activity.

Article 10 to the Cuban constitution authorizes the Cuban government to compromise confidential business information on all joint venture and association contracts. Cuba's government-run registry of foreign joint ventures is not the only means available to the Cuban government to steal business information.

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