Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4 25X1 ECONOMIC SANCTIONS AN HISTORICAL AND CONCEPTUAL ANALYSIS - Information available as of 1 October 1982 was used in the preparation of this report This memorandum was prepared by Economics Division Office of-0 1-ob al I ss_u_e_s_ - with contributions from the Offices of European Analysis African and Latin American Analysis Near East and South Asian Analysis Soviet Analysis East Asian Analysis and Global Issues Comments may be addressed to Chief Economics Division - - - - 25X1 25X1 • Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4 25X1 Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4' ' 5 X 1 - U - QA - SANC'f'ION' ON' CU8A tct6 -Presentl Background to the Sanctions Almost from the dav Castro took power in January 1959 Havana and Washington embarked on courses of action that inevitably led to conflict The United States was first shocked by the circus-like executions of Batista supporters and then alarmed at Cuban provocations directed against US citizens property and policies The antagonism grew as Cuba became viewed as the vehicle for Soviet encroachment into the hemisphere 25X1 - - - - - The turning point came with the visit to Cuba of Soviet First Deputy Premier Anastas Mikoyan who signed a trade agreement with the Cubans on February 15 1960 The agreement was the first of a series of political military and economic understandin that tied Cuba to the USSR Furthermore jt b8$ an the basic reorientation of Cuba awav from its traditional US relationship On Mav 7 19RO Cuba and the USSR re-established full diplomatic relations 25X1 - - - - - With these actions and the attacks against US propertv and interests US policvmakers decided to impose economic sanctions A contingency order had already been given in March 1960 for Cuban refugees to be organized trained and equipped for possible action o In June in consultation with high-level US Government officials the American and British-owned oil refineries in Cuba refused to process crude oil sent from the Soviet Union Cuba retaliated by seizing the installations o In July President Eisenhower suspended the remainder of the Cuban sugar quota for 1960 which amounted to 900 000 tons out of a total of The aoplication of economic sanctions was only one set of measures used by Washin on in its relationship with the Castro regime Other measures included military action covert activities political pressure and prooaganda which are not addressed in this paper ---- • E-1 25X1 25X1 Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4 Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4 5 X 1 3 t million tons worth aporoximatelv $92 million The Cubans reacted bv confiscatirtJ oroperties of US citizens and comoanies - o DurirtJ the same two-month period a coordinated decision was made by the vernment and US comoanies to remove key personnel from American plants in Cuba a measure designed to put the squeeze on Cuba's productive capacity and output Despite disM l tions this technical manpower ap was filled by Cubans or foreign specialists By August the Castro regime had seized all American properties on the island I 25X1 · _ Following the unsuccessful Bag of Pigs invasion in April 1961 US policy toward Cuba entered a new phase - o On February 3 1962 the Kennedy administration imposed a total prohibition on exports to Cuba except for foodstuffs medicines and medical equipment for humanitarian reasons o On March 23 Washington prohibited imports of merchandise made or derived in whole or oart of products of Cuban origin 25X1 L__------- Under the Johnson administration the anti-Cuban measures already instituted by the United 3tates were multilateralized throu h hemispheric approval and support In Julv HHl4 the Ore anization of American tates OAS voted to establish the followin sanctions ap ainst Cuba o The severin of diplomatic and commercial relations o The suspension of all trade direct and indirect except for foodstuffs medicines and medical equipment o The susoension of all sea and air service to and from Cuba o The establishment of passport restrictions on travel to and from Cuba L _ __ _ _ _ _ 25X1 Additional sanctions were imposed by the OAS in 1967 o The recommendation that government-owned or financed cargoes not be shipped on vessels sailing to Cuba o 'l'he i eneral call to West em allies to restrict their trade and financial ties with Cuba Most OAS members adopted the sanctions but many did not rigorously enforce them See Annex for a listine of the soecific sanctions imposed • E- 25X 1 L___ 25X1 25X1 Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4 Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4L 5 X 1 - Objectives of the Sanctions The initial primary objective of the US sanctions was to remove Castro from power demonstrated most visibly by the abortive Bay· of Pigs invasion Subsequently US policy shifted to a combination of economic and political pressures designed to at least neutralize Castro and at best cause bis downfall The 1962 missile crisis did not change this thrust US officials publicly and privately stated their belief that Cuba posed a potentially grave security threat to the United States directly because of its ties with the international Communist movement and indirectly because of its support for subversive groups elsewhere in Latin America c____ __ _ _ _ 25X1 The basic structure of the Eisenhower-Kennedy Cuban policy changed little during the Johnson administration The Johnson administration followed the example of its predecessors by treating the Castro regime as temporary The United States publicly - portrayed the overall goal of its policies to be the establishment of a truly free and independent Cuba which under a government democratically chosen by the people will live in peace with is neighbors US officials also publicly identified four specific goals indicating that US objectives had become more diverse over time 1 to weaken the Castro regime 2 to discredit the Cuban economic model and make Cuba pay a high economic price for its conduct 3 to contain the spread of Castroism and 4 to make Soviet support of the Castro regime so costly in political and economic terms that the Soviets would realize the futility of continuing their burdensome commitment there or of assuming similar commitments elsewhere in the hemisphere 25X1 L _ __ _ _ __ US policy goals toward Cuba did not change significantly during the Nixon Robert M Sayre Deputy Assistant Secretary of State for Inter-American Affairs Review of Movement of Cuban Refugees and Hemispheric Policy Toward Cuba Department of State Bulletin May 3 1966 p 712 I I • E-3 25X1 25X1 Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4 Declassified in Pa _ Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R 00200470001-4LSX - administration Nevertheless enforcement of the economic sanctions became increasingly difficult The onset of the Vietnam war had revised Washington's foreign policy priorities and efforts to enforce the embargo became less aggressive over time The Castro regime not only had demonstrated its staying power but had gradually abandoned its support for· revolutionary movement in the hemisphere Indeed Havana launched a broad campaign to normalize its economic and political relations with other nations in the hemisphere as well as in Africa Asia and Europe Moreover the Nixon administration launched its overture to China 25X1 ---- As a result of these events pressures began to build against continuation of the policy of isolation In the early 1970s a number of US Congressmen began urging normalized relations with Cuba In 1972 five hemispheric nations recognized Cuba in the face of the OAS ban on relations In 1974 the United States agreed to permit the first major exception to US embargo regulations by permitting sales to Cuba by US subsidiaries in third countries Other exceptions followed - 25X1 --- By the mid-l 970s therefore it had become apparent that the broad application of economic sanctions and other measures aimed at the isolation of Cuba was no longer possible In August 1975 the OAS passed a resolution that allowed each member to determine for itself the nature of its economic and diplomatic relations with Cuba The United States voted in favor of the resolution 25X1 ----- Economic Impact of the Sanctions In our judgment the Cuban embargo in its early years was significantly damaging to Cuba's growth and general development Prior to the embargo Havana was extremely See Congressional testimony by administration spokesmen in U S Congress House of Representatives Cuba and the Caribbean Hearings Before the Sub-Committee on InterAmerican Affairs Committee on Foreign Affairs Washington D C Government Printing Office 1970 U S Congress House of Representatives Soviet Naval Activities Hearings Before the Sub-Committee on Inter-American Affairs Committee on Foreign Affairs Washington D C Government Printing Office 1971 U S Congress Senate United States Policy Towards Cuba Hearing Before the Committee on Foreign Relations Washington D C Government Printing Office 1971 • E-4 25X1 25X1 Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4 Declassifi d i P rt- Sa-nit·i d Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4-5X1 dependent on trade with the United tates see Fi re - 1 The loss of this natural tradin« partner caused serious dislocations throughout the economy - - - - - 25X 1 Havana's hard currencv earnings suffered greatly from the loss of the US market for sugar-its major export Since most large sugar importers had long-established contracts with sugar producing nations Cuba could not make sizable sales to other hard currency purchasers With low export revenues from its major crop Cuba was forced to reduce drastically its imports from the West Havana turned to the socialist bloc for trade and by 1965 this group of countries accounted for 76 percent of Cuban trade up from less than 3 percent in 1957 see Figure 2 - - - - - - 25X1 1'he rapid shift in the direction of trade caused a multitude of domestic production problems Probably the single most damaging effect of the embargo was Cuba's inability to obtain the needed spare parts and raw material inouts for its almost entirelv 90 Percentl US-produced capital stock Other problems emanated from a lack of complementaritv between Cuba's imoort needs and Bloc exPort capabilities Often the kinds of machinery and raw material imports that Cuba needed most were in short suppl'v within the Bloc Not infrequently the quality of Bloc imports was unsuitable either due to ooor production processes or because products were unsuitable to the Cuban climate technological orientations or methods of use Hundreds of pieces of Soviet farm equipment were junked because they were designed for continental crops planted in rows 25X1 of different widths than the Cubans used While it is not possible to quantify the cost of the embargo to Cuba we believe it was at least partially responsible for the decreases in production experienced by Havana during the 1960s see 'l'able 1 • Other factors included irrational and inefficient planning systems and the flight of skilled technicians In addition the embarl 'o had a significant impact on the Cuban lifestlve since the Cuban people were overwhelmimdy dependent on • llecentlv Cuba has publiclv claimed that the embarg o has caused total losses to its economv of t9 billion • E-5 25X 1 25X1 Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4 • Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4 fLgure 1 - Cuban Trade wLth the US 100 90 60 Pe ' _ ¥ r PM __ _ 18 • I t T W D11iat - - ·· ·•·•·• • • ··•····••···•····• •• •·• • • 70 60 ···• ······················ • • ·• • C I 0 ' I 50 Q _ iO 20 ················ 10 0- ------------------- ---- -----------y----------------- 1956 1957 1958 1959 1960 1961 Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4 1962 • Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4 fl gure 2 Total Trade b Major Area 100----------------------- ---- -- --- - -- -- - -- - -- -- a 1 a a au a ss 1 as u o •·• at s a 7 il i •·• 11 1 •·• a 7 80 60 - C I 0 ' I CL 40 20 o a 1- i L j Q L ' - 1 ' - 'l '--' __ '- f-rl __ ' 65 1957 10 71 72 16 11 78 79 80 73 7t 75 Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4 - ·-- - Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4 25X1 TABLE 1 Cuba Production of Major Agricultural and Industrial Products Indices adjusted for population growth 1957 100 • 1961 1962 1963 1964 1965 Sugar 111 0 77 8 60 4 68 7 93 2 Rice 76 3 72 9 70 3 41 3 16 3 Beans 169 8 156 2 89 6 71 9 55 0 Citrus 47 2 59 8 65 7 69 2 65 7 Beef and Veal 98 1 49 5 54 7 R4 6 69 4 Whole Milk 83 6 70 4 68 9 72 7 64 3 Pork 33 2 26 2 25 6 33 2 36 4 Cigars 40 3 70 5 80 8 131 4 136 6 Leather Footwear 21 5 49 3 82 7 87 3 71 9 Detergents Q3 1 119 7 89 6 120 8 78 5 Cotton Textiles 155 2 179 3 112 o 156 3 114 7 Paper and Cardboard 217 2 226 4 214 0 227 8 200 8 Canent 124 6 109 6 111 8 108 0 104 6 Nickel 60 9 112 7 96 5 110 7 134 1 25X1 Declassified in Part- Sanitized Copy Ai proved for Release 2012 09 12 CIA-RDP08S01350RQ00200470001-4 Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4 5X1 U consumer ' 'oods and fooctstuffs - Domestic production was oriented toward export goods and after the implementation of the embargo imports of consumer goods were severely limited due to reduced forei exchange earnings - - - - - - 25X 1 The effects of the embargo have diminished considerably over time however Cuba's capital base now consists largely of Soviet East and West European and Japanese machinery and equipment Consumer goods are more readily available from both the East and from improved domestic production capabilities In addition Havana has opened several front companies which enable it to obtain various types of US products particularly consumer goods Industrial agricultural and transportation activities are all now relatively U 'affected by the disruptions and diversions of resources originally associated with the embargo - - - - 25X 1 The costs of the embargo to the Uniterl States were minimal Washin on readilv obtained alternate suppliers for Cuban sue ar In addition U exports to Cuba were small-2 8 percent of total U exoorts in 1957 - - - - - - 25X1 Political Impact of the anctions The imposition of sanctions in the 1960s did little to weaken then-Prime Minister Castro's internal political position disadvantages Indeed the benefits probably outweighed the Sanctions implied a grave external threat which Castro exploited to carry out the radicalization of all Cuban political economic and social institutions In an atmosphere of national peril most Cubans were ready to accept radical change in a spirit of sacrifice - - - - - 25X 1 Those on whom the economic weight of the sanctions would ordinarily fall directlywere no longer of economic or political importance-having either fied the country or been discredited and forced from active political life-or had cast their lot with the revolutionary government and suooorted its policies Lone after the sanctions had lost their economic imoact the Castro ree ime continued to extract political caoital bv hlamine virtuallv everv economic problem on them Even todav Cuba is attributing its • E-6 25X1 Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4 Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4 5X1 need for debt rescheduliJU ' to the economic damage allegedly wrought by the US - sanctions 25X1 - - - - - Results of the Sanctions In our judgment the US and OAS economic sanctions by themselves or in conjunction with other measures have not met n'l of their objectives We also believe that Western economic sanctions have almost no chance of compelling the present Cuban leadership-mostly guerrilla warfare veterans in power since the late 1970s-to abandon its policy of exportiJU ' revolution Not only are these veterans deeply committed to armed stru le but they also see revolution abroad as protective of Cuba by redirecting US attention toward regional hot soots This is the basis for Che Guevara's theory of creatinsr manv Vietnams 25X1 - - - - - We believe the current Cuhan leadership reacts to sanctions and other external pressures not bv reducin forei subversive adventures but h'l steppiJU ' up such activitv Unless Western pressures coincide with Soviet pressures on Havana sanctions are not likelv to have the desired limiting effect on Cuban policy until the errilla elite now in control in Havana passes from the scene 25X1 Conclusions The outcome of the US economic sanctions against Cuba in many ways parallels that of the USSR's sanctions against China o The Castro regime was so committed to its revolutionary policies that it was willing to bear the considerable economic cost of the sanctions o The sanctions provided Castro with a scapegoat for all kinds of domestic problems in fact he exploited the threat they posed to gain acceptance of radical changes in all aspects of Cuban society o Cuban adjustment to the impact of the sanctions left the United States with limited economic means to influence Havana's bettavior 25X1 In addition o • OAS participation in the sanctions did not chan' e the results because their additional economic impact was minimal and enforcement hecame increasin' lV lax• 'R-7 25X1 Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4 Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4 25X1 o The economic cost to the Soviets of backstopping Cuba were great but not great enough to force their withdrawal of support for Castro - I • I 25X1 Lv 1 E-8 Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4 25X1 Declassified i -Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4 - - 25X1 ANNEX-Economic Sanctions Applied Against Cuba as of 1975 1 The OAS Sanctions None of these has effect by itself all need support by laws and regulations of the individual states Member states are called upon to suspend all trade with Cuba except for foodstuffs medicines and medical equipment and to suspend all sea transportation between their countries and Cuba except that necessary for humanitarian reasons under Authority of the Rio Treaty Resolution 3 of the Ninth Meeting of Consultation of Ministers of Foreign Affairs 1964 Recommendation is made that OAS member states deny bunkers and government cargoes to ships in the Cuba trade under OAS charter Resolution m 10 of the Twelfth Meeting of Consultation of Ministers of Foreign Affairs 1967 - Recommendation is made that friendly non-member governments restrict their commercial and financial operations with Cuba as well as sea and air transport with that country especially transactions and transport conducted by state entities recommendation under OAS charter Resolution m 2 of The Twelfth Meeting of Consultation of Ministers of Foreign Affairs 1967 2 Restrictions on US Citizens and Entities Section 620 a of the Foreign Assistance Act of 1961 as amended authorizes the President to establish and maintain a total embargo upon all trade between the United States and Cuba Although in actual practice provision is made for exceptions for humanitarian purposes a near-total embargo on such trade is maintained under regulations which include Export Control Regulations Issued under the authority contained in the Export Administration Act of 1969 previously the Export control of 1949 and other laws these regulations prohibit any unlicensed direct or indirect export from the United States to Cuba except for humanitarian shipments of certain foodstuffs medical supplies and inexpensive gift parcels This includes parts and components exported from the United States for use in the manufacture of a product for export to Cuba Licenses are normally not issued Cuban Assets Control Regulations Issued under the authority contained in Section 5 b of the 1917 Trading with the Enemy Act and other laws these regulations Prohibit the direct or indirect import or export of any property in which Cuba or a Cuban national has any interest • E-9 Declassified in Part- Sanitized Copy Approved_ _ r Release 012 09 12 CIA-RDP08S01350R000200470001-4 25X1 Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4-5X1 Prohibit without a license from the US Treasury any vessel under the control of US citizens or their foreign subsidiaries from engagi in the Cuba trade - Prohibit American companies that own foreign petroleum installations in their own name from bunkering or having any dealing with vessels registered in or under charter or lease to Cuba Block Cuban assets in the United States prevent use of US financial facilities by Cuba or Cuban nationals and prohibit Americans including those who are officers and directors of foreign subsidiaries of US companies from engaging in any financial or commercial transaction with Cuba without Treasury license Where there are no American officers and directors the American company is asked to support US foreign policy by prewnting its foreign subsidiary from en aging in such transactions This moral suasion has been successful 'T'ransportation Order 1'-1 Issued under the authoritv contained in the Defense Production Act this order prohibits US r stered vessels and aircraft from carrvi to Cuba anv commoditv on the United States Positive List the United Hates Munitions List or under the control of the Atomic Energv Commission without approoriate authorization - - Restrictions on Foreirm Citizens and Entities Under Section 620 a 1 of the Foreign Assistance Act of 1961 as amended US assistance under the Act is prohibited to the present Government of Cuba and to countries that furnish assistance to that Govemment This can be waived if the President determines such assistance is in the national interest Under Section 620 a 3 of the Foreign Assistance Act of 1961 as amended US assistance under the Act shall be terminated to countries that fail to take appropriate steps to prevent ships or aircraft under their registry from carrying any goods to or from Cuba This can be waived if the President determines it important to national interests Under the Mutual Defense Assistance Control Act of 1951 The Battle Act US assistance is prohibited to any country that permits strategic exports to any nation threatening the security of the United States Cuba was included within the terms of the Battle Act as of November 1962 Under Section 103 of the Agricultural 1'rade Development and Assistance Act of 1954 as amended Public Law 480l U8 sales of agricultural commodities under 'T'itle I of the Act are prohibited to countries ttiat sell fumish or permit their shios or aircraft to carrv any eQuipment materials or commodities to or from f uba except that with respect to the selling fumishinl ' or transportinl ' of medical supplies non-strate c raw materials for agriculture and non-strategic am-icultural or food commodities sales am-eements mav be entered into if the resident finds with respect to each such country that such • E-10 Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200470001-4 25X1 Declassified in Part- Sanitized Copy Approved for Release 2012 09 12 CIA-RDP08S01350R000200 70001-4_5x1 sale is in the national interest informs the Congress of his reasons for such finding and publishes his reasons and findings in the Federal Register - Under NSAM-220 Shipments owned or financed by the US Government should not be shipped from US ports on a foreign fiag vessel that has called in Cuba since January 1 1963 unless the persons controlling the vessel give satisfactory assurance that no ships under their control will henceforth be employed in the Cuba trade so long as it remains the policy of the US Government to discourage such trade Under the Export Administration Act of 1969 Department of Commerce regulations issued under the authority contained in this Act prohibit the unlicensed bunkering or servicing in US ports of vessels of Communist countries including Cuba or vessels that have been denied access to US Government cargoes by reason of their having been eng ed in the Cuba trade since Januarv 1 1963 In accordance with the recommendation of the Twelfth Meeti of Consultation of Foreign Ministers of the American States licenses for bunkers are denied to ships that have called in Cuba since September 24 19R7 Additionallv resale bv foreign firms of US commodities includin ship stores plane stores and bunkers to Cuba is prohibited unless specificallv authorized by the Department of Commerce 4 'l'he Following is 'R elated to Cuba Directly No aM shall be given under the Foreign Assistance Act or any sugar quota given to any government of Cuba except as deemed necessary by the President in the interest of the United States until ·cuba pays compensation for expropriated American property Under Section 301 b of the Foreign Assitance Act of 1961 as amended The President shall seek to assure that no US contribution to the United Nations Development Program shall be used for projects for economic or technical assistance to Cuba as long as it is governed by the Castro regime US assistance to Cuba is also restricted under Section 620 f of the Foreign Assistance Act of 1961 as amended which circumscribes aid to Communist countries specifically including Cuba unless the President finds and reports to Congress that 1 such assistance is vital to US security 2 the country is not controlled by the international Communist conspiracy and 3 such assistance will promote the recipient country's indeoendence from international Communism - 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