RESTRICTEDWORLD TRADE
ORGANIZATIONWT/WGTI/W/17
7 January 1998
(98-0021)
Working Group on the Relatioship
between Trade and InvestmentOriginal:  English
SUBMISSION FROM CUBA
The following communication, dated 1 December 1997, has been received from the
Permanent Mission of the Republic of Cuba with the request that it be circulated to Members.
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The purpose of this document is to contribute to the discussions of the Working Group on the
Relationship between Trade and Investment with th e positive experience of Cuba, where FDI, as a
key element in the long range economic development strategy, has contributed to increase
international trade.  The paper also includes the Cuban point of view regarding one of the questions
raised by one of the Members of the Working Group (Hong Kong, China –
document WT/WGTI/W/10, 24 October 1997).
Nine years after the opening of the Cuban economy to foreign investment, more than
300 joint ventures are operating in Cuba, involvin g investments from 40 countries.  Companies from
Canada, Spain, Mexico, France, Italy, Great Britain and the Netherlands participate in two thirds of
these joint ventures.
A new Foreign Investment Act was enacted in 1995.  This Act compares favourably with
similar laws of other nations, in terms of transpar ency, investment protection and transfers of capital
and profits.  In the last four years, 29 bilateral investment agreements have been signed.  A dozen
more are being negotiated.
Foreign investment has gone to 34 productive branches.  It plays an important role in some of
them, as illustrated by the following figures in the share of economic activity, in particular sectors
accounted for by foreign investment:
- 100 per cent of oil exploration and extraction;
- 100 per cent of metal mining;- 100 per cent of production of lubricants;
- 100 per cent of telephone service;
- 100 per cent of production of soaps, detergents, perfumes, personal and industrial
hygienic and cleaning materials;
- 100 per cent of exports of rum;- 50 per cent of nickel production;
- 50 per cent of cement production;
- 10 per cent of all international tourism hotel rooms are in joint ventures, and another
41 per cent of the rooms are operating through management contracts by international
tourist chains;
- 70 per cent of citrus fruits agro-industrial  production.WT/WGTI/W/17
Page 2
The policy of the Cuban Government regarding foreign investment aims at achieving benefits
for Cuba and for foreign investors.  Foreign investment must contribute with technology, new markets
and capital.  A concrete business opportunity arises when these criteria, or at least one of them, are
met.  Not all associations and joint ventures must be large projects;  they may be small- and
medium-sized projects, as long as they meet one or more of the above three criteria.
In a considerable number of joint ventures, foreign investment may facilitate the
modernization of existing capacities that were origin ally designed for the internal market or for the
former COMECON market.  That is why, in this first stage, it is difficult to compare Cuba with other
countries as to the magnitude of flows of FDI.  Fo r the same reason, in some cases, the rate of return
on investment may be distorted, with very high results.
The financial and economic performance of joint ventures operating in 1996 was
outstandingly good.  The profits to sales ratio reached 32 per cent, while the exports 1 to gross income
ratio was 38 per cent.
For every unit of revenue, 24 per cent remains as net income for the country economy (profits
of the Cuban associate, salaries and taxes paid by joint ventures).
Other tangible and non-tangible benefits have been obtained as the result of economic and
productive association with foreign companies.  For example, one of the metal plants produces an
intermediate product, a sulfate of nickel and cobalt (Ni+Co), with scarce possibilities for internationalmarkets.  Its entire output used to be refined in the Soviet Union.  After 1991, the nickel trade was
suspended by the Russian Government, leaving the Cuban nickel company in a difficult situation to
market its product.  Coincidentally, by that time, a Canadian nickel and copper sulfate refinery ran out
of its own mineral deposits.  In 1992, Cuban nickel and cobalt sulfate started to be delivered to
Canada and in 1994 a triple joint venture was reached.  The Canadian company now owns half of theCuban Ni+Co sulfate plant;  the Cuba n company owns half of the Canadian refinery and both parties
have 50 per cent of the stock in a new trading firm that markets nickel and cobalt internationally.
If, in 1992, Cuba had engaged the investment in a new Ni+Co refinery, it would probably
have been forced to close the existing Ni+Co sulfate plant during the years needed to build the new
capacity.  The same situation would have been confronted by the Canadian nickel refinery.  So thiswas not a zero sum business.  Both parties gained with the association.
A similar role was played by foreign investment in the early 1990s in providing access to
international markets for Cuban citrus fruits, concentrates and juices.  Most citrus exports used to be
sold to COMECON countries, based on a multilateral  long-range programme, oriented to satisfy the
demand of that market from Cuban plantations .  In 1991, COMECON was dissolved and  former
member countries stopped buying Cuban citrus.  This resulted in a decline in exports by 80 per cent.
New markets were needed urgently and several joint ventures and commercial associations were
established with foreign companies that had th e marketing know how a nd the trade networks.
Ten years ago, 250,000 tourists visited Cuba.  By  that time, only 12,000 rooms could be used
for international tourism, most of them needing to be refurbished.  Management skills at resorts were
scarce.  A strategic tourism development programme was launched.  A key element in this programme
was the transfer of administrative skills through hotel management contracts and foreign investmentin new hotels and in non-hotel complementary activities.  It would have been impossible to receive
                                                     
1Tourism joint ventures gross in come is considered as exportsWT/WGTI/W/17
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the flow of 1.2 million tourists this year without th e role played by these associations with foreign
companies.
By the year 2000, the tourism industry will need 50,000 hotel rooms (currently we have
30,000), when 2 million tourists are expected.  Half of the additional 20,000 rooms will belong to
joint ventures.
During 1997, new projects involving foreign investments were started, such as several
projects in electric generation, water supply to tourism resorts, real estate development and the
opening of the first three Free Zones.
The Cuban experience also shows externalities derived from foreign investment.  New
managerial skills, learnt from foreign partners have been swiftly transferred to other sectors and
enterprises.  New methods of bookkeeping and financial planning have been part of those
externalities.  The first tourism training centres were set up with Spanish partners.  New materials and
inputs have been introduced  in manufacturing.  Packaging technologies, brought by foreign partnersof joint ventures have made it possible to meet the quality standards demanded by the export
diversification process.  Joint ventures in the construction industry have opened access for Cuban
enterprises to new techniques improving quality, shortening the erecting period and increasing
productivity.  Considering the high educational level of Cuba's labour force, some of these joint
ventures are expanding their operations to the Caribbean area.
Some reflections concerning a multilateral investment agreement
Cuba is fully on the road to stimulate and promote foreign investment and it is for this reason
why we are following closely the work of this Working Group on the Relationship between Trade and
Investment.  Regarding the structure of a future WTO MAI, we have the following considerations:
• The development dimension must be implicit in the MAI.  Currently, this issue is
absent in most Bilateral Investment Agreements and in the MAI being drafted in the
OECD.
• MAI must have a balance between rights and duties of host countries and foreign
companies investing in their economies.  This was reiterated by many countries in
last years UNCTAD High Level Forum on Foreign Investment.
• Claims to extend deregulation should not lead to a weakening of instruments
necessary for the control of unethical practices, such as excess charging of royalties
and profits transfers through prices of inputs delivered  to affiliates by transnational
corporations.
• MAI must explicitly exclude all forms of extraterritorial measures applied by one
country or a group of countries to other nations.
The paper submitted by Hong Kong, China, at the second meeting of Working Group on the
Relationship between Trade and Investment includes an important question: Can a "stand-alone
investment agreement" among major capital - ex porting countries  and capital-importing economies
serve as an efficient substitute for a multilateral agreement integrating trade, investment and
competition rules and procedures among all WTO Members?   We think that such an approach creates
serious difficulties.  The recent experience with the USA-EU negotiations concerning theHelms-Burton Act, is self-explanatory in this regard.WT/WGTI/W/17
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Based on an Understanding reached between the United States and the EU in April 1997, the
negotiation process relating to the Helms-Burton Act was referred from WTO to the OECD, the
organization where, since 1995, a Multilateral Agreement on Investment is being prepared.
After the above-mentioned Understanding, the United States managed, in its negotiations with
the EU, to divide the OECD.  The other 13 memb ers of the Organization were kept out of the
negotiations, even though some of them have important interests in the issues under discussion.
In fact, what the United States negotiators have been trying to do is to achieve the
internationalization of  Titles III and IV of the Helms-Burton Act, under the umbrella of a multilateral
treaty issued by the OECD.
After 15 October, nobody has been able to know clearly how negotiations have been carried
out.  In October, it was announced that negotia tions should continue in the framework of the OECD
MAI Negotiating Group after that date.  However, on 21 November, bilateral negotiations still
continued in Washington.  The discussions of the last seven months have been marked by a completeabsence of transparency.  If a multilateral agreement should help to develop foreign investment flows,
the way that this has been proposed by the United States Government in OECD and in bilateral
negotiations with the European Commission is, certainly, far from being the best.
The lack of transparency is precisely one of the reasons why we consider that an unbalanced
MAI, drafted unilaterally by a group of countries, cannot serve as an efficient substitute for amultilateral agreement integrating trade, investment and competition rules and procedures among all
WTO Members.
We are also of the view that any arrangement or understanding agreed upon with prejudice to
Cuba within the global framework of the OECD MAI may become a perilous legal precedent likely to
be applied to any country in the future.  Cuba has endured almost four decades of blockade and acts ofaggression.  Other countries could now fall prey to such actions.
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