Debating Economic Engagement in Latin America

Debating Economic Engagement in Latin America Background Information on the 3 Topic Countries: Cuba, Mexico, and Venezuela

Dallas Urban Debate Alliance

1 Editor’s Note

This topic summary has been adapted for Dallas Urban Debaters (to better reflect the arguments provided in their Core Files) from Stefan Bauschard’s “Cuba, Mexico, and Venezuela: Is Economic Engagement Best?,” which was published in the May 2013 issue of Rostrum.

If you have any questions, concerns, or comments about this summary, please email Derek Liles at: [email protected]. We hope this helps you prepare for the upcoming season!

Table of Contents

2 1. Cuba Cuba is a small island country located a mere 90 miles from the US coastline. Almost any debate about Cuba will involve a discussion of the 50+ year-old embargo, which began when Fidel Castro instigated a revolution that resulted in the overthrow of the Batista government. Once in power, Castro used his power to nationalize foreign companies (including US companies and their property) – meaning he had their assets seized and turned into property of the Cuban government.

2 This move was seen as theft on a grand scale, and Castro’s Socialist orientation and alliance with Russia (which nearly escalated to the point of nuclear conflict during the infamous Cuban Missile Crisis) only exacerbated the perception that Cuba had become a major threat to US national security. In response, the US developed a comprehensive economic embargo on Cuba. Under the authority granted by the Foreign Assistance Act of 1961, President Kennedy established a total economic embargo on Cuba. Since then, the US has continued to legislate a variety of restrictions on economic engagement with Cuba (as well as a series of loopholes) – affecting areas such as the flow of imports and exports, financial transactions between US citizens and Cubans, and travel to and from Cuba.

In 1991, the George H.W. Bush Administration passed the Cuban Democracy Act in an attempt to hasten the collapse of the Castro regime by banning US foreign subsidiaries from trading with Cuba and prohibiting vessels from unloading or loading freight in the US if they have engaged in trade with Cuba within 180 days. The Cuban Democracy Act did allow for donations of food and medical supplies to be sent to Cuba – however, these transfers were only allowed under strict supervision which, combined with Cuba’s own restrictions on trade with the US, severely limited the amount of aid that was delivered.

In 1996, after Cuban military jets shot down two US civilian planes, Congress passed the LIBERTAD Act (also known as Helms-Burton), which strengthened sanctions until the President determines a democratic transition is underway.

In 2000, Congress passed the Trade Sanctions Reform and Export Enhancement Act of 2000 (TRSA), which directed the President to end unilateral medical and agricultural sanctions against Cuba - however, this legislation does not allow for US government or private actors to finance these exports. This has led to a drastic rise in agricultural trade between US and Cuba – to the magnitude of $700+ million dollars a year.

2 In April 2009, the Obama administration expanded travel opportunities for those with family in Cuba and increased the value of remittances that US citizens could send back to Cuban families. In 2010, an estimated 1,000 people per day traveled to Cuba. As of October 1, 2010, journalists and support personnel; full-time professionals to conduct research or to attend professional meetings and conferences; those involved in the production or distribution of agricultural products, medicines and medical devices; and US telecommunications service providers can all travel to Cuba.

This all goes to show that, while the US has a substantial embargo on Cuba, it is certainly not the case that the US has no commercial or diplomatic interaction with the country. The sale of food items, medical items, and some telecommunication services is permitted. US citizens are welcome to send remittances to family members in Cuba.

While it originally was Cuba that closed its economy to trade with most of the outside world and nationalized foreign companies, Cuba began liberalizing its economy and seeking trade and investment opportunities in the early 1990s. This shift was driven by necessity: when the Soviet Union dissolved in 1991, Cuba’s economy suffered a period of economic depression because it could no longer rely on aid from the Soviet Union for support. In order to fend off the effects of depression, Cuba prioritized food production, reduced consumption, and began to allow some foreign investment. It also focused on developing its tourism, biotechnology, and pharmaceutical industries. Since then, Cuba has allowed limited foreign investment and for the growth of non-state-owned enterprises.

In February 2008, Castro’s declining health caused him to turn over control of the Presidency of Cuba to his brother, Raul. Raul has further reduced restrictions on Cubans owning their own businesses and more-freely traveling to the United States.

Today, Cuba’s economy is at-risk of another shock in the wake of the death of Venezuela’s President Hugo Chavez. After the fall of the Soviet Union, Chavez supplied Cuba with billions of dollars of low cost oil and paid a lot of money for Cuban medical care. With the death of Chavez, Cuba could lose this key pillar of support – making the small island nation susceptible to international pressure at the hands of further economic isolation or a new policy of economic engagement.

2 2. Mexico The Institutional Revolutionary Party (PRI) ruled Mexico for 30 years and substantially closed off its economy to the outside world by protecting domestic industries with high tariffs, domestic subsidies, and export and production quotas. These policies limited trade, with primarily machinery, chemicals, and metals coming in, and oil, which accounted for three out of every four dollars of Mexico’s exports, going out. The Mexican government controlled several industries, including: telecommunications, sugar, airlines, hotels, steel, and textiles. The inefficiencies of this centrally-controlled economy substantially reduced economic growth and made Mexico weak to economic booms and busts.

2 Today, Mexico’s economy is vastly different. It is one of the more globalized economies in the world, maintaining free trade agreements with more than 40 countries. Trade makes up 69% of Mexico’s Gross Domestic Product (GDP) – compared to 59% for China and 32% for the US. Its economy is driven by manufacturing and exports.

Like Cuba, Mexico’s economy underwent drastic changes when an economic crisis hit. Mexico’s economic crisis began in the early 1980s when oil prices declined – substantially reducing the value of the country’s main export. In response, Mexico’s leaders were forced to take steps towards liberalizing its economy: they cut public spending, reduced government subsidies for various goods, and lowered trade barriers (among many other things). The next President, Carlos Salinas, eradicated the communal land-holding system, privatized hundreds of public companies, and entered into the North American Free Trade Agreement (NAFTA) with the United States and Canada. In 1994, Mexico faced another economic downturn (this time a result of a national financial & banking crisis), and responded by reforming their banking system and creating a ministry in charge of keeping the national budget in check. Over the next decade, Mexican businesses became globally competitive, leading to a fourfold increase in exports between 1990 and 2000. Today, US/Mexico relations are strong, and more than $1 billion of goods cross the border every single day.

In spite of this surge in economic growth, Mexico still suffers from high levels of poverty and a bloody conflict between the government and drug-trafficking organizations. Many of the rural farmers in Mexico have been left behind under the North American Free Trade Agreement, which has flooded Mexico’s markets with cheap American crops. This has driven many families out of business, forcing them to find new ways to make money – such as joining logging operations (which have increased deforestation rates) and growing illicit crops like marijuana (which has intensified the drug trade in Mexico). To this end, many argue that the United States should shift its foreign aid away from supporting Mexico’s War on Drugs towards efforts to improve farming efficiency and poverty reduction.

2 On the other hand, some argue that the existing poverty in Mexico is a symptom of inadequate economic growth through trade. Trade between Mexico and the US has been hitting a plateau since border crossings between the US and Mexico have crumbling infrastructure and outdated, time-consuming security measures that slow down the flow of cargo. To remedy this problem, many suggest that that the US should invest in efforts to facilitate a more efficient system for trade along the US/Mexico border. This could help generate more revenue for Mexico’s economy, which would solidify a trend of economic growth and help fund the fight against drug cartels as well as poverty reduction programs.

Today the country is led by President Enrique Nieto – a member of the Institutional Revolutionary Party (which generally opposes economic liberalization) – but his authority to repeal free-trade agreements and pro-market reforms is hampered by the fact that the PRI doesn’t have a majority in the legislative branch or the judicial branches of government. Given the momentum behind trade and economic investment, as well as the limits on any individual who opposes reforms, it is likely that market liberalization will remain a defining feature for the population of Mexico – all that remains to be seen is how the United States chooses to involve itself in that process.

3. Venezuela The United States enjoyed relatively normal trade and investment relations until 1999, when Hugo Chavez (a member of the Socialist Party) assumed the presidency. After that, relations quickly fell apart. In 2002, Chavez accused the Bush administration of attempting a coup against him when he was briefly ousted from power. In 2005, President Bush certified that Venezuela “failed demonstrably during the previous 12 months to adhere to their obligations under international counter-narcotics agreement,” though the President waived the economic sanctions that were to accompany that decision. Since May 2006, the Department of State has prohibited the sale of defense articles and services to Venezuela due to a lack of cooperation on anti-terrorism efforts. In 2008, Venezuela cut off diplomatic relations with the US after accusing a US ambassador of cooperating with anti-government groups in Bolivia.

Formal relations were re-established in 2009 after Obama was elected, but significant tensions remain in the relationship. There are a number of Venezuelan politicians who

2 believe that the US essentially assassinated Chavez by exposing him to a dangerous form of cancer. In March 2013, Venezuela expelled two US diplomats from the US and the US then expelled two of Venezuela’s diplomats. Venezuela then cut off contact with the U.S., claiming that the US sought to interfere with the upcoming presidential election.

A number of actions by Venezuela, including only a limited willingness to cooperate in the war on terror and the war on drugs and its strong relations with Cuba and Iran, have alienated it from US policy-makers. The election of Nicolas Maduro (Chavez’s hand- picked successor) has further secured Venezuela’s position as a perceived enemy of the United States – and has been the cause of internal turmoil as opposition groups have questioned the legitimacy of the election.

Although relations are poor, the US does have a substantial trade relationship with Venezuela and continues to import oil from the country. The US trade deficit with Venezuela was $30.9 billion in 2011, up $8.8 billion from 2010. Since Venezuela is a major supplier of foreign oil to the United States, providing 9.7% of US crude oil imports in 2011, a key US interest has been ensuring the continued flow of oil exports. Venezuela’s oil exports to the United States amounted to about $42 billion in 2011, accounting for 97% of Venezuela’s total exports to the United States.

One difficulty with expanding trade and investment is Venezuela’s nationalization of industry. Much like Cuba, the government continues to control key sectors of the economy, including oil, petrochemicals, and much of the mining and aluminum industries. Venezuela began an ambitious program of privatization under the Caldera administration (1994 to 1999), but under President Chavez (since 2000) privatization has been halted and the government has re-nationalized certain key sectors of the economy. In 2007, the government nationalized certain electricity and telecommunications providers. In 2009, the government nationalized a food production plant and 76 oil field services companies. In 2010, the government nationalized a number of companies involved in the agricultural sector, drilling rigs belonging to a US company, and a number of housing projects.

The United States has imposed sanctions: on several Venezuelan government and military officials for helping the Revolutionary Armed Forces of Colombia (FARC) with drug and weapons trafficking; on three Venezuelan companies for providing support to Iran; and on several Venezuelan individuals for providing support to Hezbollah. In October 2008, the Treasury Department froze the assets of an Iranian-owned bank based in Caracas linked to an Iranian export bank that allegedly provided or attempted

2 to provide services to Iran’s ministry of defense. On May 24, 2011, the State Department also sanctioned the Venezuelan oil company, Petróleos de Venezuela (PdVSA), for providing two shipments of reformate, an additive used in gasoline, to Iran, between December 2010 and March 2011. The shipments were valued at around $50 million. Under the sanctions, PdVSA is prohibited from competing for US government procurement contracts, securing financing from the Export-Import Bank, and obtaining US export licenses.

Given Venezuela’s substantial oil wealth, many argue that engagement should promote the flow of oil exports from Venezuela to the US. Given the recent wave of political instability, Maduro is in desperate need of money to improve social services and bolster his support among the general population. Proponents of engagement argue that in the absence of economic engagement with the US, Maduro might turn to states like Cuba or Iran for support, which could upset the international balance of power that favors the US. Either way, Venezuela remains one of the most volatile topic countries, and the literature base will rapidly evolve as events unfold throughout the year.