Requirements For Lifting the U.S. Trade Embargo Against Cuba

Matias F. Travieso-Díaz, Esq., Shaw Pittman, Potts & Trowbridge

Part I

I. Overview

Anyone familiar with the history of relations between the U.S. and Cuba in the last thirty years knows that the U.S. has in place a strict embargo on trade with and economic assistance to Cuba. Many people are not aware, however, of the full reach of the embargo and the way in which it operates to exclude Cuba from programs that the U.S. has instituted or in which it participates, and which provide economic benefits to other Latin American and Caribbean nations. It is also not generally known that lifting the embargo could require multiple actions by the Executive and Congress. Some of these actions are capable of swift implementation, while others may involve a process that could extend for months or years.

The purpose of this paper is to describe the actions that the U.S. government would need to take to lift the Cuban trade embargo. The paper is divided in three parts. Part I presents a summary of the U.S. laws and regulations that impose the embargo, and describes the conditions that must be met before the embargo can be lifted, as well as the actions that the United States would need to take to remove the embargo's prohibitions. Part II identifies the indirect consequences of the embargo in excluding Cuba from a number of U.S. assistance programs for which Cuba would qualify but for the existence of the embargo. This is followed by a brief accounting of the actions that would be necessary to remedy the indirect effects of the embargo. Part III offers some conclusions and recommendations.

This paper is not intended to express any views on whether the embargo should be lifted or modified under current conditions.

PART I -- THE DIRECT EMBARGO

A. Express Embargo Provisions

The U.S. has in place a comprehensive embargo against trade and other economic transactions involving Cuba. The embargo is expressly founded on three major statutes, and is implemented by detailed regulations, the Cuban Assets Control Regulations, issued and administered by the U.S. Department of the Treasury ("Treasury").

This section describes the genesis, purpose and effect of the main statutes and regulations that impose economic sanctions against Cuba.[1]

1. The Trading with the Enemy Act

The Trading With The Enemy Act of 1917 (the "TWEA"), 50 U.S.C. App. [[section]] 1 et seq., was enacted as the U.S. entered World War I. It was intended to give the President authority to prohibit, limit or regulate trade with hostile countries in times of war.[2]

Section 5(b) of the TWEA was amended in 1933 to grant the President authority to exercise the powers of the Act during periods of national emergency. Section 2, Emergency Banking Relief Act of March 9, 1933, 48 Stat. 1, 50 U.S.C. App. [[section]] 5, also codified at 12 U.S.C. [[section]]95a. As amended, Section 5(b) of the TWEA read:

During time of war or any other period of national emergency declared by the President, the President may, through any agency that he may designate, or otherwise, investigate, regulate, or prohibit, under such rules and regulations as he may prescribe, by means of licenses or otherwise, any transactions in foreign exchange, transfers of credit between or payments by banking institutions as defined by the President, and export, hoarding, melting, or earmarking of gold or silver coin or bullion or currency, by any person within the United States or any place subject to the jurisdiction thereof; and the President may require any person engaged in any transaction referred to in this subdivision to furnish under oath, complete information relative thereto, including the production of any books of account, contracts, letters or other papers, in connection therewith in the custody or control of such person, either before or after such transaction is completed. Whoever willfully violates any of the provisions of this subdivision or of any license, order, rule or regulation issued thereunder, shall, upon conviction, be fined not more than $10,000, or, if a natural person, may be imprisoned for not more than ten years, or both; and any officer, director, or agent of any corporation who knowingly participates in such violation may be punished by a like fine, imprisonment, or both. As used in this subdivision the term "person" means an individual, partnership, association, or corporation.

The legislative history is again vague about the purposes behind the 1933 amendment to Section 5(b) of the TWEA.[3] Interpretations of the intent of the legislation have been provided after the fact by the courts and legal scholars. In 1971, for example, the Second Circuit noted:

That policy [behind the TWEA] is to deny hard currency to blocked countries and their nationals. However, as the Secretary points out, the purpose behind the Act is not only that but also to preserve the assets of such countries and their nationals for possible vesting and use in the future settlement of American claims against those governments and their citizens.

Cheng Yih-Chun v. Federal Reserve Bank of New York, 442 F.2d 460, 465 (2d Cir. 1971). In a later case, the Ninth Circuit articulated the purpose behind Section 5(b) as follows:

The governmental interests which arguably justify the blocking provisions of the TWEA and the Regulations are threefold: (1) to prevent designated countries from acquiring dollars; (2) to provide a fund from which United States citizens could be compensated for injury occasioned them by designated countries; (3) and to use the blocked funds as a negotiating tool with the designated country.

Tran Qui Than v. Regan, 658 F.2d 1296, 1305 (9th Cir. 1981), cert. denied, 459 U.S. 1069 (1982). The statements by the courts in these two cases (and a number of others) reflect the historical fact that the TWEA has been used as a political, as well as an economic, tool to further the U.S. government's positions in its dealings with unfriendly nations.

The 1933 amendment to Section 5(b) was enacted in response to an economic emergency, but its authority was later invoked in connection with a military emergency, the Korean War. On December 16, 1950, President Truman issued Proclamation No. 2914, 15 Fed. Reg. 9029, reprinted in 1950 U.S. Code Cong. Service, Vol. 1 at 1557-58. The Proclamation took note of "recent events in Korea and elsewhere" and referred to "the increasing menace of the forces of communist aggression" as requiring the declaration of a state of national emergency.[4] At the time, Section 5(b) of the TWEA read in relevant part as follows:

(1) During the time of war or during any other period of national emergency declared by the President, the President may, through any agency that he may designate, or otherwise, and under such rules and regulations as he may prescribe, by means of instructions, licenses, or otherwise --

(A) investigate, regulate, or prohibit, any transactions in foreign exchange, transfers of credit or payments between, by, through or to any banking institution and the importing, exporting, hoarding, melting, or earmarking of gold or silver coin or bullion, currency or securities, and

(B) investigate, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest,

by any person, or with respect to any property, subject to the jurisdiction of the United States.

Immediately following President Truman's proclamation, the Secretary of the Treasury issued a set of regulations imposing a total embargo on unlicensed financial and commercial transactions between U.S. nationals and Communist China and North Korea.[5] These regulations, known as the Foreign Assets Control Regulations ("FACR") were published on December 17, 1950 and codified at 31 C.F.R. Part 500.

The FACR were the first detailed regulations promulgated to impose a trade embargo on a foreign country under Section 5(b) of the TWEA. The FACR later served as the model for similar regulations issued in 1963 imposing a trade embargo on Cuba. When Treasury issued the Cuban embargo regulations (further described below), it invoked Section 5(b) of the TWEA as a basis for imposing the trade embargo.[6]

U.S. courts have upheld the President's exercise of the powers granted by the TWEA and the promulgation of regulations by Treasury under the President's delegation of those powers. The U.S. Supreme Court has recognized that Section 5(b) of the TWEA gave the President broad authority to impose comprehensive embargoes on foreign countries, such as Cuba, both during peacetime emergencies and in time of war. Regan v. Wald, 468 U.S. 222, 225-26, 104 S.Ct. 3026, 3029-30 (1984).

This broad presidential authority was limited in 1977 by Congress, which amended Section 5(b) of the TWEA by striking out "during any other period of national emergency declared by the President" in the text preceding subparagraph (A). Pub. L. 95-223, 91 Stat. 1625. By doing so, Congress removed the President's ability to invoke the existence of a national emergency and impose a trade embargo against a foreign country pursuant to the TWEA.[7] However, instead of requiring the President to declare a new national emergency in order to continue embargoes such as that in place against Cuba, Congress grandfathered existing exercises of the President's "national emergency" authority. Pub. L. 95-223, Section 101(b), 91 Stat. 1625, note following 50 U.S.C. App. [[section]] 5.[8] Continued applicability of this "grandfathering" provision requires annual determinations by the President that the exercise of such authority with respect to each affected country is in the national interest of the United States.

Thus, the authority under the TWEA to maintain a trade embargo on Cuba is predicated on the annual determination by the President that continued exercise of TWEA authority with respect to Cuba is in the national interest. Presidents Carter, Reagan and Bush issued annual Determinations that extended the state of emergency with respect to Cuba since the imposition of this requirement. 50 U.S.C. [[section]] 5 App., notes (1993). The most recent Presidential Determination extends the state of emergency until September 14, 1993. Presidential Determination No. 92-45, Aug. 28, 1992, 57 Fed. Reg. 43125, reprinted in 50 U.S.C. [[section]] 5 App., notes (1993). Therefore, President Clinton must issue a Determination by that date that continued exercise of his authority under Section 5(b) of the TWEA with respect to Cuba is in the national interest if the TWEA is to continue to provide authority for the Cuban embargo.

2. The Foreign Assistance Act of 1961

The Foreign Assistance Act of 1961 ("the FAA"), 22 U.S.C. [[section]] 2151 et seq., was enacted "to give vigor, purpose, and new direction to the foreign aid program." S.R. No. 612, 87th Cong., 1st. Sess. (1961), reprinted in 1961 U.S.C.C.A.N. 2472, 2473. Congress viewed the FAA as an integral part of the U.S. foreign policy of promoting the development of the "southern continents." Id., at 2475-76. Through the FAA, Congress undertook to give continuity and direction to the many aid programs already operating in this area. Id., at 2475-2478.

At the same time Congress set out to provide assistance to other nations by enacting the FAA, it also sought to deny assistance to Cuba, and gave the President specific authority to impose a trade embargo on Cuba. Section 620(a) of the FAA, 22 U.S.C. [[section]] 2370(a), which has been part of the FAA since its original enactment, provides:

(1) No assistance shall be furnished under this chapter to the present government of Cuba. As an additional means of implementing and carrying into effect the policy of the preceding sentence, the President is authorized to establish and maintain a total embargo upon all trade between the United States and Cuba.

(2) Except as may be deemed necessary by the President in the interest of the United States, no assistance shall be furnished under this chapter to any government of Cuba, nor shall Cuba be entitled to receive any quota authorizing the importation of Cuban sugar into the United States or to receive any other benefits under any law of the United States, until the President determines that such government has taken appropriate steps according to international law standards to return to United States citizens, and to entities not less than 50 per centum beneficially owned by United States citizens, or to provide equitable compensation to such citizens and entities for property taken from such citizens and entities on or after January 1, 1959, by the government of Cuba.

The legislative history of Section 620(a) is sketchy. This provision apparently arose from a desire in Congress to respond to Cuba's expropriation of the assets of U.S. citizens.[9] Remarks about fighting the spread of Communism are also scattered throughout the debate on the FAA, often including references to Section 620(a). For example, Senator Kuchel, addressing the worldwide threat of Communism, stated (87th Cong., 1st Sess., 107 Cong. Rec., S17705-06 (August 31, 1961)):

Mr. President, the bill is designed also, as I have indicated in reading the language in the first section of the bill, that the aid and assistance from the people of the United States will be confined to free peoples, to those countries which are not Communist dominated nor subject to Communist influence. I ask unanimous consent that the text of the report at page 22 with respect to section 620 be set forth in full at this point in my remarks.

[Text of section 620 follows]

Thus the language of the report prevents any assistance under this act to the present government of Cuba. It provides, in the words which the Senate previously approved that, unless the President determines a country is not dominated or controlled by international communism, no assistance of any kind shall be furnished to the government of any such country.

President Kennedy availed himself of the authority granted by the Foreign Assistance Act of 1961 to declare a trade embargo against Cuba. He did this in Proclamation 3447 of February 3, 1962, which cited the FAA as authority for prohibiting "the importation into the United States of all goods of Cuban origin and all goods imported from and through Cuba," and directed the Secretary of Commerce "to continue to carry out the prohibition of all exports from the United States to Cuba." Proclamation 3447, 27 Fed. Reg. 1085, 3 C.F.R., 1059-63 Comp., p. 157.[10]

Section 620(a) of the FAA is still in effect and provides an alternative source of authority for the Department of the Treasury's regulations implementing the Cuban embargo. In fact, early cases cite the FAA as the statutory authority for the Cuban embargo regulations. See, American Documentary Films, Inc. v. Secretary of the Treasury, 344 F.Supp. 703, 707-8 (1972); R.C.W., Supervisor, Inc. v. Cuban Tobacco Company, Inc., 220 F.Supp. 453, 463 (1963).

In 1962, Congress reinforced the denial of assistance to Cuba by adding a Sub-section (f) to Section 2370 of the FAA, in which it denies assistance to all communist countries. Foreign Assistance Act of 1962, Pub. L. No. 87-565, 76 Stat. 255 (1962) reprinted in 1962 U.S.C.C.A.N. 312, 319-20. The new provision states in relevant part:

(1) No assistance shall be furnished under this chapter, (except section 2174(b) of this title) to any Communist country. This restriction may not be waived pursuant to any authority contained in this chapter unless the President finds and promptly reports to Congress that: (A) such assistance is vital to the security of the United States; (B) the recipient country is not controlled by the international Communist conspiracy; and (C) such assistance will further promote the independence of the recipient country from international communism.

The provision also contains a list of Communist countries to which the Act applies. While the list has been amended over the years, Cuba has always been on it.

A new Sub-section (h), also added to 22 U.S.C. [[section]] 2370 by the 1962 amendment to the FAA, complements Sub-section (f) by providing that:

The President shall adopt regulations and establish procedures to insure that United States foreign aid is not used in a manner which, contrary to the best interests of the United States, promotes or assists the foreign aid projects or activities of the Communist-bloc countries.

Similarly, Sub-section (e) (22 U.S.C. [[section]] 2370(e)) covers countries that have nationalized or expropriated United States property, reinforces the specific sanctions imposed against Cuba in Sub-section (a), and provides requirements that reproduce essentially those included in Sub-section (a)(2).

Taken as a whole, the various provisions in Section 620 of the FAA evidence a strong Congressional resolve to deny any form of U.S. assistance to foreign countries, including Cuba, as long as they remain under Communist rule. There has been no recent indication of a change in this position by Congress.

3. The Cuban Democracy Act of 1992

Last year, Congress enacted legislation intended to promote a peaceful transition to democracy in Cuba. This legislation was signed into law by President Bush on October 23, 1992, and is known as the Cuban Democracy Act of 1992, Pub. L. 102-484, 106 Stat. 2575, 22 U.S.C. [[section]] 6001 et seq. ("the CDA").

The CDA contains a statement of United States policy towards Cuba that announces, among others, policies "to seek a peaceful transition to democracy and a resumption of economic growth in Cuba through the careful application of sanctions directed at the Castro government and support for the Cuban people" and "to maintain sanctions on the Castro regime so long as it continues to refuse to move toward democratization and greater respect for human rights." Section 1703 of the CDA, 22 U.S.C. [[section]] 6002.

In pursuit of these policies, the CDA imposes additional limitations on trade with Cuba, contained in Sections 1704 through 1708. 22 U.S.C. [[section]][[section]] 6003-6007. Section 1704 is directed at countries receiving assistance from the U.S., such as the republics of the former Soviet Union. It authorizes the President to impose economic sanctions (in the form of denial of economic assistance and ineligibility for debt reduction or forgiveness) against countries that provide economic assistance to Cuba. 22 U.S.C. [[section]]6003.

Section 1705 of the CDA authorizes the donation of food, medicines and medical supplies to nongovernmental organizations or individuals in Cuba, and the export of medicines and medical supplies to Cuba, the latter subject to certain limitations (no export is allowed where there is reasonable expectation that the items will be used for purposes of torture, for the production of biotechnological products, or for re-export), and also subject to verification by the U.S. government that the exported items are to be used for the purposes for which they were intended and only for the use and benefit of the Cuban people. 22 U.S.C. [[section]]6004. This section also permits telecommunications services between the United States and Cuba subject to certain limitations, and direct mail service to and from Cuba.

Section 1706 (22 U.S.C. [[section]]6005) terminates the ability of foreign subsidiaries of U.S. companies to trade with Cuba. It also prohibits entry into the U.S. to vessels that have entered Cuba to engage in trade in goods or services within the preceding 180 days, and bans altogether the entry of vessels carrying Cuban goods or passengers. The section also instructs the President to establish strict limits on remittances to Cuba for the purpose of financing the travel of Cubans to the United States.

Section 1707, U.S.C. [[section]]6006, allows the provision of food, medicine and medical supplies to Cuba for humanitarian purposes if the President "determines and certifies to the Committee on Foreign Affairs of the House of Representatives and the Committee on Foreign Relations of the Senate that the government in power in Cuba --

(1) has made a public commitment to hold free and fair elections for a new government within 6 months and is proceeding to implement that decision;

(2) has made a public commitment to respect, and is respecting, internationally recognized human rights and basic democratic freedoms; and

(3) is not providing weapons or funds to any group, in any other country, that seeks the violent overthrow of the government of that country.

Finally, Section 1708(a) of the CDA, 22 U.S.C. [[section]] 6007(a), permits waiver of the sanctions listed in Section 1706 should the President determine and report to Congress that the government of Cuba:

(1) has held free and fair elections conducted under internationally recognized observers;

(2) has permitted opposition parties ample time to organize and campaign for such elections, and has permitted full access to the media to all candidates in the elections;

(3) is showing respect for the basic civil liberties and human rights of the citizens of Cuba;

(4) is moving toward establishing a free market economic system; and

(5) has committed itself to constitutional change that would ensure regular free and fair elections that meet the requirements of paragraph (2).

Section 1708(b) further provides that, if the President makes the above determinations, he shall take the following actions "with respect to a Cuban government elected pursuant to elections described in subsection (a)":

(1) To encourage the admission or reentry of such government to international organizations and international financial institutions.

(2) To provide emergency relief during Cuba's transition to a viable economic system.

(3) To take steps to end the United States trade embargo of Cuba.

The conditions listed in Sections 1708(a) and (b) of the CDA appear to provide specific requirements and timetables for the President's lifting of all or part of the Cuban trade embargo. Those requirements are examined in SectionB below.[11]

4. Cuban Assets Control Regulations

As indicated earlier, President Roosevelt delegated to the Secretary of the Treasury the powers granted to him by [[section]]5(b) of the TWEA. The Secretary in turn delegated his authority to the Treasury's Office of Foreign Assets Control ("OFAC"). Treasury Department Order No. 128 (Rev. 1, Oct. 15, 1962). OFAC has since that time been the office responsible for issuing, interpreting and applying the embargo regulations. See, 31 C.F.R. [[section]][[section]]515.801-515.809.

OFAC published in 1963 a comprehensive set of regulations implementing the Cuban trade embargo. 28 Fed. Reg. 6974, July 9, 1963. The regulations, known as the Cuban Assets Control Regulations ("CACR"), are codified in 31 C.F.R. Part 515, and have been amended a number of times, including very recently.[12]

The CACR have been challenged a number of times, and have been in most instances upheld by the courts. See, e.g., Regan v. Wald, supra; Miranda v. Secretary of Treasury, 766 F.2d 1 (1st Cir. 1985); Sardino v. Federal Reserve Bank of New York, 361 F.2d 106 (2d Cir.), cert. denied, 385 U.S. 898 (1966).[13]

The CACR parallel the Foreign Assets Control Regulations, on which they are modeled. In essence, they prohibit all unlicensed financial and commercial transactions by Americans with Cuba or its citizens. They serve the functions of isolating Cuba; protecting Cubans from having their assets in the United States confiscated by Cuban authorities; preserving Cuban assets for future disposition; and denying Cuba access to dollar earnings, and to dollar financial facilities. S.L. Sommerfield, Treasury Regulations Affecting Trade with the Sino-Soviet Bloc and Cuba, 79 Bus. Law. 861, 868 (1964). A brief summary of the CACR provisions follows.

The regulations prohibit the export to Cuba --either directly or through third countries-- of any U.S. products, technology or services except for publications and other informational materials, and telecommunications services and attendant equipment.[14] 31 C.F.R. [[section]][[section]] 515.201, 515.206. Likewise, goods or services of Cuban origin may not be imported directly or through third countries into the United States, except for up to $100 worth of Cuban merchandise which may be brought into the U.S. by authorized travelers, publications or other informational materials, and paintings, drawings and sculptures less than $25,000 in value. 31 C.F.R. [[section]][[section]] 515.204, 515.560, 515.570. The CACR also prohibit buying from or selling to Cuban nationals whether they are physically located in Cuba or doing business elsewhere on behalf of Cuba. The prohibition also extends to individuals or organizations anywhere in the world who act on behalf of Cuba.

The CACR impose a total freeze on Cuban assets, both government and private, and on financial dealings with Cuba. All property of Cuba and Cuban nationals in the possession of U.S. persons is blocked. Blocking imposes a complete prohibition against transfers or transactions of any kind involving blocked assets. No payments, transfers, withdrawals, or other dealings may take place with regard to blocked property unless authorized by Treasury. 31 C.F.R. [[section]] 515.205.

U.S. persons may send up to $300 every three months to the household of a close relative in Cuba and up to $500, on a one time basis, to enable a close relative to emigrate from Cuba to the United States. Persons in the U.S. may also send up to $500 to Cuba to pay for travel expenses for any Cuban national who has received an entry visa from the U.S. Department of State. 31 C.F.R. [[section]] 515.563.[15] Gifts or parcels may be sent to Cuba, or carried by an authorized traveler, for the use of the recipient or the recipients' immediate family, provided the total value of the items in the parcel does not exceed $200, only one parcel is sent per month by the same person to the same recipient in Cuba, and only items normally sent as gifts (such as food, medicines, clothing, and toiletries) are included.

The CACR prohibit spending money in connection with tourist, business or recreational trips to Cuba, whether travelers go directly to Cuba from the U.S. or proceed via a third country. The categories of persons who may spend money related to travel to Cuba (after obtaining specific licenses from Treasury) include individuals traveling for clearly defined educational or religious activities, for activities of recognized human rights organizations, for purposes of public performances or exhibitions, for purposes related to the export, import, or transmission of information or informational materials, and for purpose of negotiating contractual arrangements for telecommunications services. Expenditure of money related to travel to Cuba is authorized without a specific license for travel by U.S. government and foreign officials, professional researchers whose research is specifically related to Cuba, members of the news media, and persons traveling to visit close relatives in Cuba. 31 C.F.R. [[section]] 515.560; see also, 58 Fed. Reg. 34711 (June 29, 1993).

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