Reviving U.S.-Cuba trade, more than cigars

I am currently in Mauritius, and with the news from Washington about the easing of Cold War tensions between the United States and Cuba, I can’t help but think of the differences that political systems and international politics can make on the future and functioning of island states. It’s interesting to consider how two similar-sized countries, both having sugar as the basis of their economies for generations and experiencing similar challenges as islands, can turn out to be such different places.
The similarities, which range from having abundant beaches, sunshine and cyclones to enduring European colonization, bear noting because they also point to significant differences in development.
One of the biggest similarities is that both islands were at one time totally dependent on sugar production. Sugar was king in Cuba until the breakup of the Soviet Union in 1991 ended the country’s long run at having a protected market and a high price. In the 1960s, before Fidel Castro nationalized the industry, Cuba provided 12 percent of the world’s production. It now accounts for only one percent of annual global production. Today the Cuban industry is highly inefficient and it struggles to compete with outdated methods and factories. Mauritius, by contrast, has faced fluctuations in world demand and prices by consolidating and reworking many of  its sugar estates into other purposes.
Cuba has invested heavily in tourism as a result of the drop in sugar production, but the island’s state-owned hotels lack infrastructure and many amenities. European and Canadian tourists are abundant, but Americans, who once came in droves for the horse racing, gambling and beaches before the 1959 revolution, are banned from traveling there. Foreign investment in Cuba is very limited, and foreign firms allowed in can not hire workers directly but through the government, which pays workers a fraction of what is collected in wages. Mauritius, on the other hand, has welcomed many international hotel chains and tourists from around the world, and aggressively promotes itself in emerging markets like India and China. And unlike Cuba, it has diversified its economy so that as world trade evolves it no longer relies on certain countries for special pricing and access privileges.
Cuba was a Spanish colony until the Spanish-American War of 1898. It then was run by America for about four years, during which time many U.S. companies moved in to run businesses, including the sugar industry. After that, the country was ruled by a succession of repressive leaders that were often criticized as puppets of the United States. In 1959, brothers Fidel and Raul Castro, aided by Argentine revolutionary Che Guevara, toppled the ruling Batista regime in a violent revolution and set up the only Communist state in the western hemisphere. The revolution sought to rid Cuba of U.S. economic dominance by nationalizing lands and other economic assets owned by U.S. nationals. The U.S. responded by imposing a trade embargo in 1960 that is still in place today. Tensions heightened when the Soviets installed missiles in Cuba aimed at the United States, which nearly brought the two countries to war and sparked the Cuban Missile Crisis.
While a naval battle determined the handover of Mauritius from French to British control in 1810, peaceful negotiations in 1966 led the way for a smooth transition to independence and creation of a democratic government that has since developed strong institutions, a vibrant public sector and a welcoming policy on foreign investment and trade. The most recent elections that swept out the ruling leaders in a peaceful and democratic way are an excellent example of how a free society can advance, recalibrate to different circumstances and maintain stable relations among its ethnic groups.
Aside from taking opposite political and economic tracks, another key explanation for the development differences is geography. While Mauritius was an important location for Europeans involved in the the East India trade of the 1700s, its remote Indian Ocean location has put it off the map for current trade routes and geopolitical politics (with an exception being the use of Diego Garcia as a U.S. military base – another Cold War story).
This is not the case of Cuba. Geopolitics give this small island an outsized amount of attention. Situated just 90 miles off the coast of Florida, and considered a gateway to Latin America, Cuba occupied a perfect place for Cold War conflict as the United States and the Soviet Union jockeyed for world dominance in the 1960s. The United States feared Communist insurgencies would spread to Latin America, as happened in Southeast Asia, and it was viewed with alarm when Castro supported rebels in Algeria, Angola and Ghana. This desire to contain communism propelled the Cuban Missile Crisis. Communism is less of a concern today, but human rights abuses in Cuba, and the desire of Washington politicians not to upset anti-Castro Cuban-American voters in the politically important state of Florida, explain why the United States has kept a trade embargo in place for more than 50 years against this small, poor island.
There are strong indications that all this might be changing.
On Dec. 17, President Barak Obama announced that America would be opening trade and diplomatic relations with Cuba, and on Friday, Jan. 26, many of the proposed reforms, such as restrictions on travel, trade and remittances, were officially loosened.
Tourism is still banned, but Americans can now travel more freely under 12 categories, such as for religious visits, journalism and family visits, without needing a U.S. license, and they can use their credit cards for purchases up to $400, including up to $100 worth of those coveted Cuban cigars. Trade, which has been limited to medical supplies and humanitarian food supplies, is being expanded to include building materials, agricultural equipment and goods for entrepreneurs.
Diplomatic relations are being restored after more than five decades, and a delegation of U.S. officials was in Cuba last week to work out the details.
For its part, there have been some encouraging signs from Cuba. It just released 53 political prisoners as part of the U.S. deal, and President Raul Castro has proposed loosening the state’s grip on the economy by cutting the number of state workers and encouraging more private business. Critics say these reforms have progressed slowly, however.
In addition, a new, state-of-the-art port opened at Mariel, along the Gulf of Mexico and facing the United States, that was ironically the point of departure for 125,000 Cubans who fled by boat to Florida in the 1980s. Now it is being touted as a super port that will someday be trading directly with America. With the widening of the Panama Canal almost complete, Cuba is hoping to attract some of those large Post-Panamax ships with its deep dredged port, and establish itself as a transshipment hub due to its close proximity to the U.S. coast.
But let’s not get ahead of ourselves. Despite some gains, Cuba remains an authoritarian state, with no free press, rationing of food, no freedom of expression, a predominately state-controlled economy, and a one-party political system. While health care and education are free (and Cuba has one of the world’s lowest infant mortality rates and highest life expectancy rates (age 79), its citizens remain poor, with salaries averaging less than $300 a year.
Despite the new policy offered by Obama, the U.S. embargo will remain in place until it is removed by Congress. And here in lies the rub. Republicans, who will now control the legislative branch, and some Democrats, oppose normalizing relations with Cuba and lifting the embargo. These influential lawmakers include Sen. Marco Rubio, R-FL, who is a possible Republican presidential candidate, Senate Majority Leader Sen. Mitch McConnell, R-KY, House Speaker John Boehner, R-Ohio, and Sen. Robert Menendez, D-N.J. Both Rubio and Menendez are Cuban-American.  They criticize Obama’s new policy as « another in a long line of mindless concessions to a dictatorship that brutalizes its people and schemes with our enemies. »
Press reports indicate that bipartisan resistance will make quick congressional action to end the embargo unlikely. Another complication is that there’s a stipulation in the law that says the embargo will remain in place as long as a Castro is in power.
Supporters of a new course on Cuba are working hard to change minds, however. Last week a letter of support signed by 78 statesmen, including several former top Republican administration officials, policy experts and prominent Cuban-Americans was sent to the White House. « We may disagree on a number of issues, » the writers said, « but we’ve found common ground for a simple reason: our 54-year-old approach intended to promote human rights and democracy in Cuba has failed. »
So lifting the embargo and fully opening economic and political opportunities could be years away. It will take time to build a supportive political base among Cuban-Americans, who generally dislike Castro and don’t want to lift the trade restrictions, for U.S. businesses to make a convincing case to Congress of how a new policy will help the U.S. economy, and for Cuba to make political and economic reforms.
But there may be a quicker way:  things could move a lot faster should Raul Castro step down.