Cuba will NOT Gain from a Bilateral Trade Agreement with US

Alfonso Fanjul has been secretly visiting Cuba several times recently and talking quietly with Cuban authorities about moving his sugar business back to Cuba.

The Fanjul Brothers were Cuban born and built up a sugar empire in Cuba around 1900s. The families moved to the United States in 1959 to keep its properties away from Fidel Castro’s seizing during the Marxist Cuban Revolution. The families restarted their business over in Miami and became the owners of leading sugar and real estate companies. Giving their economic statues, the Fanjuls families are also a well-known political allegiances.

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The Domino Company in 1975  VS in 2003

Alfonso Fanjul claimed himself that his intention in returning Cuba was to reunite the Cuban families and recapture his lost properties. However, some US political leaders see Alfanso’s action as betrayal to his political interest as a republican representative, because the premise for Alfonso to do business with Cuba is lifting the embargo and establishing a Bilateral Trade Agreement between US and Cuba. Many exciting articles have studied the gains and losses US could get from the bilateral agreement. However, from Cuba’s perspective, the Bilateral Trade Agreement is more harm than good.

US Ignoring UN’s Advise to End Its Embargo with Cuba
US Ignoring UN’s Advise to End Its Embargo with Cuba

First of all, there are no positive net gains for Cuba in the sectors of agricultural, tourism, and industry. For agricultural sector, US and Cuba have signed an Agricultural Bilateral Trade Agreement in 2000 as a consequence of Trade Sanction Reform and Export Enhancement Act. As a matter of fact, the agreement has been beneficial for US only, since US shared 35% Cuban agriculture imports from 2003 to 2008. On the contrary, according to the US Interests Section, goods or services of Cuban origin are not allowed to be imported into the US either directly or through third countries, leading to a huge amount of trade deficit to Cuba. Moreover, signing a Bilateral Trade Agreement with US could create not only deeper trade deficit, but also potential risks for Cuba’s agricultural sector. Cuba could become more dependent on US for food, as US dominates major food categories. For example, US currently dominates 71% of corn industry, and as trade further opens up, Cuba could be completely dependent on US for corn production, since US has comparative advantages in the production of corn, leading to sluggish to Cuba’s corn production. In addition, 20% of the Cuban workforces who are currently in agriculture industry could loss their jobs, leading to higher unemployment rate for Cuba.

Cuba’s tourism industry is rapidly growing and has highly potential. Even though the Bilateral Trade Agreement would bring more US tourism into Cuba, American tourists are not permitted to bring any Cuban products home, as seeing from the video “Cuba: Open for American Tourists.” Furthermore, the gain would be offset by the necessary increasing imports from US. One example could be the machinery and building materials required to expand the Cuban hotels and restaurant industry, in which Cuban national production is only able to be met 5-10% of the requirement, so Cuba would have to import a lot more materials from US, leading to deeper trade deficit and therefore lower GDP for Cuba.

Similarly, Cuba’s industrial sector is still weak due to internal reasons, such as rampant corruption, systemic inefficiencies, and if Cuba signs the Bilateral Trade Agreement with US, the industry sector would go bankruptcy because they are just not able to compete with US firms. Furthermore, multinational corporations will not invest in Cuba due to low economic gains and high political risks.

Another big negative consequences of signing the Bilateral Trade Agreement with US is the loss of 6-8 billion dollars oil subsidy, which is 11% of Cuba’s GDP, provided by Venezuela. According to Del Aguila’s “Cuban Studies 23,” due to the intense relationship between US and Venezuela, having a trade agreement US means Cuba rejected the huge oil supply, as well as the mega million dollar worth projects that Cuba collaborates with Venezuela, in healthcare, construction, technology, telecommunication and etc. As a whole, Venezuela payments currently accounted to approximately 19% of Cuba’s GDP, and using the multiplier effects 1.85X (Puerto Rico multiplier effect and discount Cuba effects 20 years ago), Cuba will have an opportunity cost of 35% of its GDP by signing the Bilateral Trade agreement with US.

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Cuba will be Controlled By US After the Embargo is Lifted

To conclude, Alfonso Fanjul’s visiting Cuba is in the favor of US, since signing the Bilateral Trade Agreement with US would bring not only potential risks in Cuba’s agriculture, tourism, and industry sectors, but also a tremendous opportunity costs of 35% decrease in Cuba’s GDP, as discussed previously. Instead of signing the Bilateral Trade Agreement with US, what Cuba really needs now is reform, both politically and economically. Just like 200 years ago, when President Washington  decided to give up his wealth and    provide his people with freedom and education, US has become one of the most developed country in the world.

References

Del Aguila. “Cuban Studies 23”

http://www.wilsoncenter.org/sites/default/files/LAP_Cuba_Implications.pdf

http://havana.usint.gov/importing_cuban_goods.html

http://www.economywatch.com/world_economy/cuba/industry-sector-industries.html

http://www.youtube.com/watch?v=332tGOL60us

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