Trump Could Give Cuba An $8 Billion Interest-Free Loan

Only through diplomacy can the U.S. and Cuba resolve all of these issues as part of a grand bargain.
12/02/2016 12:03 pm ET Updated Dec 05, 2016

This is not fake news.

A decision by the incoming Trump administration to reverse President Obama’s opening to Cuba would likely smack some marquee names in the U.S. corporate community – not to mention thousands of Cuban-American families – right in the pocketbook. It would add delays to the settlement of property claims dating back to the nationalization of their assets after Cuba’s revolution, inflict economic pain on Cuba’s people, and float the equivalent of an interest-free loan of as much as $8 billion to the Cuban government.

This is not anyone’s definition of a better deal.

Starting in 1959, Cuba’s government seized property owned by U.S. companies and individuals, and assets owned by its trading partners, on the way to nationalizing the country’s economy. A host of U.S. companies, U.S. citizens, and a range of Cuban nationals suffered significant financial losses.

The losses for valid claims, originally valued at $1.8 billion, translate to about $8 billion once 6 percent simple interest is added to the calculation. Beyond families and named individuals, you can find familiar corporate brands on the list – Exxon, Coca-Cola, General Electric, and General Motors – with legally valid claims to settlements paid by Cuba’s government. In total, the list of U.S. national claimants certified by the U.S. Foreign Claims Settlement Commission runs 109 pages long.

Over time, Cuba resolved outstanding Canadian, French, Spanish, British, and Swiss claims. But there was no progress whatsoever on ours. Affected companies on the list went out of business, got bought out, changed brands or identities or waited patiently, and still got nothing. Countless individual claimants passed away without being paid. U.S. sanctions simply got tighter, and U.S. policy ruled out lifting our trade embargo against Cuba until a settlement of outstanding property claims took place. This policy gave Cuba no chance – and no incentive – to negotiate.

Suddenly, two years ago, things started to change. By agreeing to restore diplomatic relations, and by acknowledging Cuba’s sovereignty, it finally became possible for our countries’ diplomats to sit at the negotiating table and discuss our differences on issues like human rights for the first time in 56 years. Negotiations – on issues ranging from protecting the environment and restoring commercial air service to fighting narcotics traffickers – have already borne fruit.

Since 2015, negotiators from the U.S. State Department and Cuba’s Foreign Ministry have met twice for talks aimed at resolving property claims; a senior State Department official called the last encounter in July “substantive in nature.” A third meeting is likely to take place before the end of President Obama’s term.

“This is huge compared to where we were,” Timothy J. Feighery, a partner at Arent Fox LLP and a former chairman of the U.S. Foreign Claims Settlement Commission told us. “We are sitting around a table with them putting these issues on that table. Also, the fact that US companies are seeking ways back into Cuba has provided ideas and possibilities about an overall settlement that simply did not exist before.”

This problem will be both easier and more complicated to resolve than it may seem on its face. Cuba’s government accepts the principle of paying compensation, it has made bilateral settlements with other nations to do so, and legal mechanisms exist under Cuban law to facilitate a resolution of U.S. claims. In 1964, according to Peter Kornbluh and Bill LeoGrande’s superb “Back Channel to Cuba: The Hidden History of Negotiations between Washington and Havana,” Fidel Castro himself offered a deal that included the release of political prisoners and a pledge to “eventually indemnify U.S. corporations for expropriated properties,” in exchange for normalized relations (the offer went nowhere).

At the same time, Cuba has made counterclaims against the United States, valued in excess of $130 billion, for damages caused by the embargo and paramilitary attacks by the CIA. It contests what legal experts say is the normal practice of assessing simple interest on the existing balance, and faces numerous expensive financial awards by state courts in cases alleging acts of Cuban state terrorism.

There are other extremely difficult issues – for example, what to do about Cubans who lost their homes and businesses and emigrated to the U.S. and are not qualified for settlements under U.S. law. Scholars at Creighton University School of Law and the Brookings Institution, among others, have put forward creative ideas to wrap this all up; enabling Cuba to pay U.S. claimants in an affordable way while also contributing to economic growth and structural reform on the island.

Only through diplomacy can the U.S. and Cuba resolve all of these issues as part of a grand bargain, a settlement that gets the economics right while speaking to the larger need for reconciliation that Cubans on both sides of the Florida Strait feel so deeply.

Unless President-elect Trump elects to spin the reel of history in reverse. During the campaign, he promised to repeal all of President Obama’s normalization policies unless Cuba’s government acceded to all of his demands. Law Professor Michael J. Kelly of Creighton University has an optimistic take on this threat. He believes the President-elect is “positioning himself to leverage a ‘better deal’ with Cuba by reminding them publicly that he can undo whatever deal President Obama has put in place. While he may be our new president, this doesn’t change the fact that, at the end of the day, Mr. Trump is a businessman. As a businessman, he is well aware that there is significant business opportunity tied to opening Cuba completely.”

But, if President Trump follows through by shutting the door, Tim Feighery says, “I don’t see any incentive for Cuba to continue negotiations.” But, if President Trump follows through, Tim Feighery says, “I don’t see any incentive for Cuba to continue negotiations.” We’d be back into a Cold War-style faceoff with Cuba, with no prospect of any claimants being paid, and $8 billion of their money sitting in a Cuban account, interest-free, thanks to Donald J. Trump.

How this ends will depend on whether our new president implements his Cuba policy as a Cold Warrior or a New York developer. We’ll either be getting a tweet from Cuba’s Foreign Ministry saying, “Woo-hoo – an $8 eight billion windfall!” or one from the White House reading, “I told you I’d get a better deal.”

 

Sarah Stephens is Director of the Center for Democracy in the Americas

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