US TRADE SANCTIONS AND BUSINESS COMPETITVENESS Weyinmi Uranje ITRN 701 George Mason University- School of Public Policy Monday April 16th2012
US Trade Sanctions • Other countries under the OFAC Sanctions Program are: - Somalia- (2010)-Properties and property interest of specific individuals and entities were seized by the U.S. government. Reason: Due to the increase in piracy, armed robbery at sea, and the violation of the arms embargo imposed by the UN. - Libya- (2011)- Properties, and property interests of individuals and entities were seized by the U.S. government. Reason: Due to the human right abuse against the people of Libya.
US Trade Sanctions(Reasons for Economic/Trade Sanctions) • Economic and Trade sanctions are imposed on the target countries in order to persuade or force the target country’s government to change its policies. • Reason behind these sanctions - National Security Issues- Military sensitive issues - Nuclear, Chemical, and Biological Weapons - Missile Technology - Procurement of Specialized Arms - Foreign Policy Issues - Human Right Abuse - Democratization
US Trade Sanctions(Different forms of Economic/ Trade Sanctions) • Economic/ Trade sanctions can be levied in different ways; by - Limiting exports to the target country - Limiting imports of good and services from the target country. - They can prohibit private financial transactions between the U.S (business & citizens), and the target country’s businesses, and government. - They can also restrict U.S government programs like (EX- IM Bank) and (OPIC) from assisting in trade and investment with the target country. Source: The Heritage Foundation “ A Users Guide to Economic Sanctions”. http://thf_media.s3.amazonaws.com/1997/pdf/bg1126.pdf
US Trade Sanctions on CUBA(Cuba’s Economic and Trade Background) • Cuba- located between the Caribbean Island and the Bahamas. Approximately 150km from Florida. • GDP(PPP) (2010)- $114,100 billion. Ranked 68th in the world. • Exports: Sugar, Nickel, Tobacco, Fish, Medical products, coffee and Citrus • Export Partners: China 25.5%, Canada 23.3%, Venezuela 10%, Spain 5.6% • Imports: Petroleum, Food, Machinery, Equipment, and Chemicals • Import Partners: Venezuela 35.2%, China 11.7%, Spain 8.5% Brazil 4.6% Canada 4.2%, U.S. 4.1% (Agriculture). • US – Cuba Relationship - Poor to Non-existent.
U.S Trade Sanctions on CUBA • The U.S. placed a trade embargo on Cuba in 1961, which eventually turned into a comprehensive unilateral economic, trade, and financial sanction. • Reasons behind this sanction: - Castro seized all American properties and industries in Cuba. - A move from communism towards the democratization of Cuba • Freedom of speech and press • Freedom of religion • Freedom of political affiliation
U.S Trade Sanctions on CUBA • Over the past 50 years, the U.S. as extended, adjusted and added to the regulations of the Cuban sanction. • Trading With the Enemy Act of 1917, section 5(b); • Foreign Assistance Act of 1961, section 620(a); • Cuba Assets Control Regulations of 1963; • Cuban Democracy Act of 1992, also known as the Torricelli Act; • Cuban Liberty and Democratic Solidarity (Libertad) Act of 1996, (Helms-Burton Act); • The Trade Sanctions Reform and Export Enhancement Act of 2000.
U.S. Trade Sanction on Cuba(Effect on US Businesses) • Tourism: Cuba’s biggest source of income. • Tourism brings in 2.7 billion into Cuba primarily from Canada and the European Union. • 20,000 Cuban-American now travel every month since the removal of the ban in April 2009. (Note: Only Cuban- Americans can travel to Cuba). American businesses in the travel and tourism market could gain tremendously, if the embargo was completely lifted. The companies below could benefit from entering the Cuban tourism and travel market. • Royal Caribbean • Carnival Cruise Line • Oil- Undiscovered oil in Cuba has led countries like China, Spain, Russia, India, Norway, Malaysia, Vietnam, Angola, BUT not the U.S to partner up with Cuba to drill oil. The U.S geological survey estimates that Cuba has 4.6 billion barrels of undiscovered oil. A Spanish company Repsol will be the first to drill. (HINT: They will drill 80km off the coast of Florida) Senator Lisa Murkowski (R- Alaska ) and Mary Landrieu (D -Louisiana ) worked on a legislature that would lift the trade embargo on US oil companies, by allowing them to do to business with Cuba. However, this legislation never passed. The companies below could benefit from doing business with Cuba. • Chevron Corporation • Exon Mobil Corporation • Conoco Philips
U.S. Trade Sanction on Cuba(Effect on US Businesses) • Nickel- Cuba has the third largest reserves of nickels in the world. In 2007, Cuba exported 2.7 billion worth of nickel, although in recent years, the price has dropped. Cuba mines copper, cobalt, and chromium. The U.S does not have nickels, so they import all their nickels from Canada and Australia. By removing the trade embargo on Cuba, U.S businesses will have the ability to import nickels from Cuba. • Agriculture • The 2000 Trade Sanctions Reform and Export Enhancement Reform. - Aimed at relaxing the enforcement of the economic and trade sanction; by allowing the export and sale of agricultural produce and medicine to Cuba. Produce exported to Cuba • Fish, Forest Product, Fresh fruits and Vegetable, Milk Powder, Processed Foods, Wheat and Dry Beans. Since the implementation of the Trade Sanctions Reform and Export Enhancement Reform, • US export of agricultural food to Cuba in 2008- 710 million • US export of Agricultural food to Cuba by 2009- 2.8 billion
U.S. Trade Sanction on Cuba(Effect on US Businesses) • Problem: Financial transactions between the U.S. exporter and Cuban buyer is problematic and inefficient . Reasons: • Cash-against documentation transaction is the current form of payment . • Transactions have to be processed through a third- countries financial institution. This procedure increases the cost of agricultural product sales to Cuba. • Cuban buyers are also not allowed to take goods on credit. • Solution: Removing the embargo on business travels and financial regulations will increase the sale of agricultural goods, and provide an environment for strong business relationship for both parties. Source: United States International Trade Commission, " U.S. Agricultural Sales to Cuba: Certain Economic Effects of U.S Restrictions". http://www.usitc.gov/publications/332/pub3932.pdf
U.S Trade Sanctions (IRAN)(Economic and Trade Background) • GDP – (PPP)(2011)- 928.9Billion. Ranked 18th compared to other countries in the world. • Exports: Petroleum (80%), Chemical and Petrochemical Products, Fruits and Nuts, and Carpets. • Export Partners: China 19%, India 14.8%, Japan 11.6%, Turkey 8%, South Korea 6.7%, Italy 6.2%, Spain 4.7% • Imports: Industrial Supplies, Capital goods, Foodstuffs and other Consumer goods, Technical Services. • Import Partners: China 17.4% UAE 16.7%, Germany 7.6% South Korea 6.3%, Russia 5.7% Turkey 4.8%, Italy 4.2%. • U.S.-Iran relationship: Terrible-Hostile
U.S. Trade Sanctions on IRAN • On October 29, 1987, President Regan issued an executive order imposing an import embargo on Iranian goods and services. • On March 16, 1995, President Clinton issued an executive order prohibiting U.S involvement with petroleum development in Iran. • On August 19th 1997, President Clinton signed an executive order that clarified previous executive orders, and it prohibited all trade and investment activities with Iran by U.S persons.
U.S. Trade Sanctions on IRAN • On November 10th 2008, U.S. depository institution were prohibited from authorizing transfers that involved Iran and non-Iranian foreign banks. • On September 29th 2010, the authorization that allowed Iranians to import into the U.S commodities like food stuff and carpets was revoked. • Recently, the US and it allies (EU, Japan, and South Korea) placed an embargo on the Iran oil. The US has also frozen the assets of the Iranian Central Bank, and other Iranian firms shipping arms to Syria. For this reason, US persons and businesses can not trade or invest in Iran’s oil or with their banks.
U.S. Trade Sanctions on IRAN(Effect on U.S. businesses) • The recent sanction on Iran has placed a lot of pressure and restraints on US firms that are currently trading with Iran. • U.S. firms are forced to suffer the consequences from the embargo due to the abrupt stop in financial transactions between both parties. • Most U.S. firms can not get their goods, or receive payments for the production of requested goods. U.S. Companies affected by the current embargo are listed below, • Merck & Co - Drug makers • Mr. Harrington’s American Pulp and paper- Outlet Store • Pfizer – Pharmaceutical Maker
Policy Recommendation • US needs to realize that Unilateral Sanctions is a double edge sword. Most times, comprehensive sanctions never get the intended reaction from the target country. • With the economy in due need of job creation and business simulation, lifting the sanctions on Cuba is more of an advantage than a loss. The trade embargo on Cuba makes US businesses less competitive compared to their foreign allies. • The U.S. needs to take into consideration US businesses before imposing sanction on a target country. The loss and gains of US businesses should be weighed heavily. • A grace period of 30-60 days should be given to businesses in the middle of a transaction with the target country, thereby reducing the loss of revenue. OFAC can always monitor these transactions to make sure businesses abide by U.S laws. • A re-evaluation of the comprehensive sanctions is necessary. Throwing a bucket of sanctions on a country is never the appropriate way of getting them to take into consideration your policy suggestions.
Work Cited • United States International Trade Commission, " U.S. Agricultural Sales to Cuba: Certain Economic Effects of U.S Restrictions". http://www.usitc.gov/publications/332/pub3932.pdf • CNBC, "American Businesses Hoping to Cash in on Cuba". http://www.cnbc.com/id/37339627 • US Chamber of Commerce, " Oppose Unilateral Economic Sanctions"http://www.uschamber.com/international/agenda/oppose-unilateral-economic-sanctions-0 • U.S Department of Treasury, OFAC, " What You Need To Know About The U.S Sanction Against Cuba". http://www.treasury.gov/resource-center/sanctions/Programs/Documents/cuba.pdf • Council on Foreign Relations, “U.S.- Cuba Relations”. http://www.cfr.org/cuba/us-cuba-relations/p11113 • Map of Sanctions: http://online.wsj.com/article/SB126256626983914249.html • U.S. Department of Treasury, OFAC, “Sanctions Program and Country Information”. http://www.treasury.gov/resource-center/sanctions/Programs/Pages/Programs.aspx • The Heritage Foundation, “ The User’s Guide to Economic Sanctions”. http://www.heritage.org/research/reports/1997/06/a-users-guide-to-economic-sanctions
Work Cited • Central Intelligence Agency, “IRAN”. https://www.cia.gov/library/publications/the-world-factbook/geos/cu.html • Amnesty International, “ The U.S. Embargo Against Cuba: Its impact on social and economic rights.” http://www.amnesty.org/en/library/asset/AMR25/007/2009/en/51469f8b-73f8-47a2-a5bd-f839adf50488/amr250072009eng.pdf • CNBC, “Who is Doing Business with Cuba, Despite Embargo”. http://www.cnbc.com/id/37256542/Who_s_Doing_Business_with_Cuba_Despite_Embargo • BBC News,- Latin America and Caribbean “ Cuban Oil Project Fuels U.S. Anxieties”. http://www.bbc.co.uk/news/world-latin-america-15737573 • Congressional Research Service, "Iran Sanctions"http://www.fas.org/sgp/crs/mideast/RS20871.pdf • The National, " US Companies at Home Feel the Squeeze of Iran Sanctions"http://www.thenational.ae/news/world/americas/us-companies-at-home-feel-the-squeeze-of-iran-sanctions#full • U.S Department of Treasury, OFAC, " An Overview of O.F.A.C Regulations Involving Sanctions Against Iran". http://www.trade.gov/static/IranSanctions.pdf