Home » Political Economy Corner » Should the US Lift the ‘Embargo’? by Roger R. Betancourt

Should the US Lift the ‘Embargo’? by Roger R. Betancourt

Since the embargo has three different economic aspects in terms of the restrictions involved, one can partition the answer in terms of which set of restrictions are lifted: the ones on transactions of goods and services; the ones on labor flows and the ones on capital flows.  With respect to restrictions on transactions of goods and services, the changes would matter little economically to both sides.  After so many years Cuba has adjusted to the additional costs of the ‘embargo’ by switching to next best available alternatives. 

This is even more applicable in the case of the US, which has more alternatives due to its higher level of wealth.  With respect to restrictions motivated by national security, selective restrictions that apply to all countries, including China, would be more than sufficient to satisfy these objectives.  While Cuba would benefit more economically than the US from the lifting of these restrictions, the US would benefit more in terms of improving its international relations with almost every other country in the world.  They vote against the US embargo every year at the UN.

With respect to labor flows, in many significant ways the embargo is already lifted by the US through the Immigration Accord of 1994 that allows at least 20,000 legal immigrants every year. Yet the US receives no credit for this step by ignoring that it is a lifting of embargo restrictions.  More recently, the lifting of travel restrictions on Cuban –Americans is a further softening of the embargo.  What is left in this realm is the formal lifting of travel restrictions on other American citizens.  Even on this dimension some lifting has already taken place trough expansion of people to people programs.  For instance, the Havana Consulting Group reports 41K other American residents visited Cuba in 2007 and estimates of 103K for 2012. Cuban –American visitors residing in the US went from 204K in 2007 to 475K in 2012.  This is happening despite incidents such as the detention and treatment of Alan Gross since 2009.

Last but not least are restrictions on capital flows.  Except for limits on remittances by Cuban-Americans most of these remain in place, have substantial impacts on both sides and face a variety of economic , legal and political obstacles to their elimination.   Some of the more difficult and important ones are not usually associated with the embargo and it is not in the US interest to emphasize this association. For instance, requiring US Directors to oppose admission of Cuba to the IFI’s can be easily changed to requiring that Cuba meets normal standards and conditions in obtaining grants and loans from these institutions.  Direct prohibitions against giving credit can also be easily changed to refusal to provide subsidized insurance for risky loans by the US government. Similarly, instead of straight prohibitions against foreign investment a refusal to insure investors for incurring high levels of sovereign risk would suffice to prevent most investments.  Embargo provisions designed to obtain compensation for expropriated property would be more difficult to lift, since they involve complex legal issues.

In reply to the title question: Yes, but… 1) It should happen easily with respect to transactions on goods and services, by expanding on the exemptions which already exist for food and medicines; 2) it has already happened with respect to most labor flows, although provisions for A. Gross type of cases and similar ones for Cuban-American residents of the US are needed and should be negotiated; 3) finally,  it should happen  slowly with respect to capital flows and in return for concessions on other issues, including progress on human rights.


3 Comments

  1. Roger R. Betancourt says:

    Felipe,

    Thanks for your thoughtful comments.

    On your first point that remittances are an important benefit for Cuba and that one might even argue that the flows of remittances have been helped by the embargo, including the Accord as part of it, I agree.

    On your second point that there are dynamic benefits from international trade, which have benefited other Caribbean countries and the DR, that Cuba has lost as a result of the embargo I also agree.

    Finally, on how long the legacy of the embargo lasts for Cuba, and to a lesser extent for the US, I have no strong opinions. It is a far more speculative issue than the previous two.

    • Felipe P. Manteiga says:

      the lingering effects of the “embargo” on future Cuban capacity to compete in the global arena is one of my key concerns. Any rigorous research, (e.g. any econometric analysis) measuring how the transition economies coped with global challenges –or accession to the EU–could be useful.

      I fear the massive damage caused by the regime’s resilience justifying the continuation of this anti-trade policy by a pro-trade nation will weaken the island’s economic future, and might lead to a collapse where the failed heroes of yesterday might be welcome. This has happened in former soviet republics, as you well know.

      Should we ponder? Why has this dictatorship lasted so long? why has it survived shock after shock? For the sake of counterfactual [?] analysis, if one refuses to give credit to Castro as a super politico ( Hasn’t Castro failed as a leader, staying in power propped up by circumstances–a circumstantial dictator-then only the embargo gains significance as a truly instrumental –or perhaps shift–variable differentiating the process from those found in other countries. Castro’s circumstances are the embargo?

  2. Felipe P. Manteiga says:

    Roger, excellent and well reasoned series. A point for your consideration.

    During my work in the countries currently comprising DR-CAFTA there was a discrepancy between our USAID strategy and “counterpart” objectives. The latter wanted larger migration quotas and did everything possible to keep their migrants welcome in our country, and their remittances flowing. In this respect, the embargo has not hurt Cuba. The case could even be made that the peculiar dry feet wet feet policy actually helped Cuba and the all important remittance flow.

    The U.S. strategy, as embodied in the CBI first, and currently on DR-CAFTA, centered on increasing higher value exports (e.g. winter vegetables, flowers) to the U.S. And it worked well.

    All countries in the Caribbean Basin covet access to the U.S., That is where the embargo has hurt the most, by blocking the U.S. market to Cuban production and services. This element, by the way, may have also provided an unintended prop to the regime.

    With exports competing in the international arena servicing the U.S. technology and the financial products created by their needs, must be continuously improved. Eventually, these flows of innovation drive changes along the supply lines. Those changes are not only technical or financial, governance counts.

    Yes, the embargo hurt Cuba’s capacity to earn hard currency, but in so doing, it also isolated the island from change and protected the regime. As Cuban leaders attempt, at glacial speed, to open the economy to the global ecology, many failures will ensue. The legacy from the embargo will last many years.

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