Opinion of the Economic and Social Committee on 'Relations between the European Union and Cuba` (97/C 56/17)

On 23 November 1995 the Economic and Social Committee decided, in accordance with Rule 23(3) of its Rules of Procedure, to draw up an opinion on: 'Relations between the European Union and Cuba`.

The Section for External Relations, Trade and Development Policy, which was instructed to prepare the Committee's work on this matter, adopted its opinion on 15 July 1996. The rapporteur was Mr Baeza Sanjuan.

At its 339th plenary session (meeting of 31 October 1996) the Committee adopted the following Opinion unanimously.

1. Introduction

1.1. Cuba was the last great European colony in Latin America to secure its independence (in 1898). From then until 1909 the country was administered by the United States: the US Government forced Cuba to make provision in its Constitution for the right of the United States to intervene in the island (the Platt Amendment of 1902). Until the revolution in 1959, Cuba's economy and politics remained under a strong US influence.

1.2. After 1959, Cuba attempted to make its foreign relations independent and to pursue its own economic course, which sparked off a confrontation with the United States that was to have far-reaching consequences. It was at this point that Cuba's special relationship with the Soviet Union and the Eastern bloc countries was forged. From 1960 onwards other characteristics peculiar to the Cuban model began to emerge: an absence of political democracy, a centralized economy and high levels of social welfare given the geopolitical environment.

2. The Cuban economic model in crisis

2.1. Cuba's close involvement with the Eastern bloc countries to a great extent determined its specialization at international level and the rate of growth of its economy. Its membership of this bloc enabled it to avoid many of the demands of the international market. Until 1989, therefore, Cuba enjoyed a captive market for its products, high prices for its sugar, trade guarantees, preferential financing and international aid from the COMECON countries.

2.2. On the other hand, the concentration of its foreign trade (roughly 85 % in value terms with the COMECON countries and over 50 % with the Soviet Union), its dependency on foreign industrial and energy inputs, and a heavy specialization - imposed by COMECON - in products for export (mainly sugar, tobacco and nickel and, on a smaller scale, citrus fruit and fish) made the Cuban economy extremely vulnerable. Paradoxically, the aid from the Eastern bloc countries also disguised the lack of efficiency and poor organization in a number of sectors of the economy.

2.3. The current crisis in Cuba stems, to a large extent, from the failure of the international model to which its economy had subscribed since the beginning of the 1960s. The rapid collapse of the Eastern bloc was a severe blow to the Cuban economy, which suddenly and simultaneously lost the international transfers to which it had become accustomed, its export markets, and the suppliers of its basic inputs (in 1992, trade with the former socialist countries was only 7 % of its past levels).

2.4. The shortage of energy supplies, together with the lack of spare parts, seriously affected transport and contributes to the 85 % reduction in Cuba's installed industrial capacity. Export revenue fell from US$ 5 324 million in 1989 to US$ 1 800 million in 1993. Money available to pay for imports fell from US$ 8 000 million (1989) to US$ 2 200 million (1992), and GDP shrank by over 35 % between the same dates. Considerably lower sugarcane harvests (4 million tonnes in 1993/4 compared with 7,1 million tonnes in 1991/2) deprived Cuba of US$500 million of revenue and increased its liquidity crisis.

2.5. The drop in imports that began in 1990 put a squeeze on overall supply, and the resulting lack of intermediate inputs caused a sharp drop in the domestic production of goods and services. Labour productivity plummeted since all Cubans were employed in the state sector, and the government had to ration consumer markets to maintain nominal salaries. As Cubans could not legally use up all their income, a parallel (and illicit) market in goods and services sprang up, fuelled by the dishonest channelling off of part of state production. Official prices were frozen, while prices on the parallel market rose astronomically. For the two-year period 1990-1991 the overall picture was clearly inflationary.

2.6. The tourist industry introduced a note of dynamism into this process. Under the 1982 law governing foreign investment, the expansion of the tourist industry enabled a small part of the workforce to be employed productively and provided the government with hard currency. According to Cuban law, foreign investors could not employ Cuban workers directly. Rather, they had to contract the staff that they needed from the authorities under a 'loan` system. As tourist sector companies were not able to give their workers incentives in the form of money, they gave them payment in kind that was commonly available in their hotels (kitchen utensils, cleaning articles, and so on), on top of goods imported by tourists (clothes, perfume, etc.). This was the beginning of an increasing influx of invisible imports that poured into the parallel market.

2.7. As they were worried about the inflation rate - and in view of the inflexibility of their economic policy instruments - the government maintained tight controls on the money supply. Increased transactions brought about by invisible imports connected with the tourist sector triggered an overall tendency towards deflation. This reached alarming proportions early in 1993 when there was an almost total collapse in buying and selling in cash and widespread use of bartering by Cubans - with extremely high transaction costs - which took up most of their time.

3. Social and labour situation

3.1. Many political experts predicted that the desperate economic situation would before long unleash an uprising in society that would do away with the Cuban regime. Whilst the significance of the occupation of the embassies in 1991 or the 'boat people` crisis of 1994 should not be underestimated, the predictions proved to some extent unfounded because Cubans feared losing the high social welfare standards - particularly in the areas of education and health - which were one of the main hallmarks of the revolution.

3.2. Health care is free of charge, and even cosmetic surgery was free until a year ago. There is a doctor for every 240 people, health facilities cover rural areas, infant mortality stands at 9,4 deaths per 1 000 births, life expectancy is 76 years and 95 % of children are vaccinated. These figures are exceptional among developing countries. The economic crisis has, however, resulted in a considerable reduction in the availability of medicines which has hampered hospital facilities.

3.3. As far as education is concerned, 94 % of Cubans can read and write, 50 % have completed secondary school education, 20 % have vocational qualifications and 10 % have a university degree. Cuban society is thus one of the best educated in the developing world.

3.4. Cuban women participate widely in social, economic and cultural life, thanks to their country's legislation and the high rate of schooling, with children starting school at an early age. Women account for 41 % of the workforce and are in a majority in the education and health sectors. 23 % of the members of the National Assembly of People's Power are women. Nevertheless, the Cuban Women's Federation (FMC) recently condemned the fact that women still mainly take care of the housework, and that it is mostly men who occupy the more responsible positions in enterprises, even in those sectors in which they are a minority of the workforce. The increase in prostitution which has accompanied the rise in the number of visitors is also a matter of concern. The Committee would support Member States' adoption of legislation which enables them to prosecute their nationals who practice sex tourism which involves children. In this connection, the ESC welcomes the declaration of the World Congress against sexual abuse of children for commercial purposes, which was adopted unanimously on 28 August 1996 by 1 301 representatives from 125 countries.

3.5. Another essential factor which makes for political stability is the deep-felt nationalism shared by many Cubans. While being critical of the political regime, they reject any solution that might be seen as diminishing Cuban sovereignty. The impact of the systematic repression of activities that openly oppose government policy should not be underestimated either.

3.6. Unlike the current economic situation, it is difficult to obtain accurate information on employment trends in Cuba. Figures do, however, show that the number of people in employment rose from 2,5 million in 1975 to 4,5 million in 1994. Unemployment officially stands at 3 % of the workforce, although concealed unemployment may affect very many more Cubans.

3.7. The labour market is highly segmented.

3.7.1. Most Cubans working for state enterprises - at a provincial or local level - have low morale because of the long-running crisis that is disrupting production in various sectors. The fact that the Cuban peso is of little use for buying consumer goods is another factor which makes work less attractive, leading highly skilled people to abandon their professions to seek work that will provide a chance to earn hard currency.

3.7.2. Foreign businessmen are unable to contract Cuban workers directly; instead they have to use the services of a dedicated government agency. European investors have criticized this situation on many occasions, and have also expressed their displeasure at having to pay these agencies in dollars while the agency pays its employees in pesos. Cubans working for enterprises backed by foreign capital enjoy a number of advantages (payment partly in hard currency or in kind) but have no right to negotiate with the businessmen concerned or with the agency that contracts them. This situation might worsen if duty-free zones are set up.

3.7.3. Self-employment was authorized in 1993 for almost 200 occupational activities. The result has been significant: the number of self-employed workers increased from 210 000 in 1988 to almost one million in 1995. This highly dynamic group of self-employed workers has taken in many unemployed and under-employed Cubans and has also helped to reduce the public deficit. The independent workers' collective could be the precursor of future SMEs, provided that the legal obstacles that currently prevent activity of this type are removed.

3.8. The Cuban Workers' Confederation (CTC) is the country's only authorized trade union organization. It is closely tied to government and its position on the current reform process is of less relevance than that of the army or the Communist Party. Collective bargaining does not exist and salaries are set by the State Labour and Social Security Committee. Strikes are prohibited under Cuban law.

4. The current reform process

4.1. The break-up of the Eastern bloc prompted the Cuban Government's adoption of a series of economic reforms. The first of these were part of the 'Special Peace-time Plan` - a national emergency programme introduced in 1990, which even foresaw the possibility of breaking off all economic links with other countries. There were three principal areas of action under this programme:

- a reduction in and redistribution of public consumption, with individuals receiving a minimum ration of goods and services, and a drastic reduction in energy use;

- concentrating resources in traditional export sectors (mainly nickel and sugar) and in three work programmes aimed at ensuring that the population was fed and increasing hard-currency earnings, namely the food programme, the programme for biotechnology and the pharmaceutical industry, and the tourism programme;

- streamlining economic relations with other countries, furthering the progressive decentralization of decision-making by the state import and export agencies, searching for new markets, introducing new types of agreements and boosting foreign investment.

These measures produced meagre results, which prompted the Cuban Government to undertake a new series of more radical reforms - detailed below - to counter the extreme internal and external pressure on its economy.

4.2. Domestic convertibility

4.2.1. In August 1993, the government took the first and the most significant of its decisions in the area of economic liberalization when it decriminalized the holding of foreign currencies by Cubans (Decree-law () 140/93). This action was officially justified as the recognition in law of what had become a de facto situation, and was also a means by which the Cuban government could obtain extra hard currency revenue, since it encouraged Cubans who lived abroad to send money to their families on the island. Such money would then be spent in shops for foreign tourists which the Cuban government itself had opened. The effects of this decision, however, went far beyond its modest objectives.

4.2.2. A gradual increase in the money supply was made possible by the tacit official acceptance of foreign currency transactions. From then onwards there was a dual pricing system in Cuban pesos and in dollars. The parallel markets received increasing injections of cash; this revived them and an informal (nevertheless legal) market in hard currency appeared with a dollar-peso (CUP) exchange rate that differed from the official rate (set since the revolution at 1 CUP = 1 US$). This new exchange rate was extremely important in giving businessmen their bearings again. The Cuban people no longer had to spend so much time on bartering and could concentrate on creating wealth, and gradually recovered from their inertia.

4.2.3. Furthermore, the so-called 'dollarization` of the Cuban economy has increased equal opportunities for the Cuban people since they are now all free to trade in hard currency with visitors from abroad. The government has also benefited from the introduction of an economic indicator such as the informal dollar-peso exchange rate, since it gives the government a measure of control over its own actions. The drop in the value of the peso on the informal market (it fell to 120 to the US$ in August 1994) actually gave it the incentive to take measures to halt the slide of CUP against the dollar.

4.2.4. In short, legalizing the holding of hard currency was a turning point in the Cuban economy. The result of this action is that the Cuban government is unable to reverse its free-market reforms without causing a sharp drop in the value of the peso against the dollar. A move to abolish the dual exchange rate would also bring about a deflationary collapse in the economy similar to that which threatened in 1993. Although it is right to issue firm warnings to the Cuban authorities that the temptation to abandon monetary interchangeability before the process of economic liberalization is complete would be a retrograde step, nor should we underestimate the reform that led to Cuba being one of the few economies in the world in which there is what is technically termed full internal currency convertibility. Looking to the future, the mixed use of pesos and dollars is the firmest guarantee to date of liberalization.

4.3. Partial privatization of the economy

4.3.1. The idea that underpins this new economic policy and is at the heart of the liberalization process is that, given the (in the short term relatively inflexible) supply of dollars circulating in the Cuban economy, any increase in domestic transactions will require additional cash that can only be supplied in Cuban pesos (for which supply is more flexible since there is a large amount of pesos saved in bank accounts). It follows that the value of the peso will rise against the dollar as long as the Cuban government keeps a sufficiently tight control on the economy. Given the limitations of state production, the government has had no choice but to encourage private transactions with this macro-economic objective in mind.

4.3.2. Self-employment in a number of occupations in the industrial and service sectors has thus been authorized (DL 141/95). At the same time, agricultural production has been decentralized through the setting-up of 'basic agricultural production units`, i.e. rural cooperatives.

4.3.3. The government has also increased the prices of a number of goods that it supplies to the Cuban people (May 1994). Payment for all services other than education and health - that were previously free of charge - has been introduced (July 1994). A readjustment mechanism has been established for staff in the state sector that provides for surplus personnel to be given unemployment benefit over extended periods (August 1994), encouraging workers to leave the state sector in favour of self-employment in the private sector.

4.3.4. Free markets in agricultural produce ('farmers' markets`) - which were abolished in 1989 - have been reintroduced (DL 191/94).

4.3.5. The farmers' markets were vital to the growth of the 'basic agricultural production units`. The aim was for these rural cooperatives to be given managerial independence by allowing them to farm the land indefinitely, while ownership remained with the state, to which - at the beginning - they were required to sell everything that they produced. As a result of the setting-up of farmers' markets, however, these basic units are contractually bound to provide the state with a given amount of production and can sell surplus produce on the free market. Given this incentive, agriculture in Cuba has become very much more efficient and has brought its products within reach of the population.

4.3.6. As a result of these reforms, which are an - albeit timid and incomplete - move towards 'privatizing` the Cuban economy, the Cuban peso is being used again in private transactions and is in circulation together with the dollar. Its value against the dollar has increased significantly (in early 1996 the parallel exchange rate was 25 CUP = 1 US$; in July of the same year it was 22 CUP = 1 US$).

4.4. Reforms in the State administration

4.4.1. In order to cut back government expenditure, DL 147/95 ordered that the Cuban state apparatus be reorganized and streamlined by reducing the number of departments through mergers.

4.4.2. A number of sectors have been decentralized and state-owned enterprises have been made more independent.

4.5. Other action

4.5.1. The efforts made by the Cuban authorities to attract foreign capital are particularly noteworthy. Joint ventures have been possible since 1990, with no restrictions on the repatriation of earnings by foreign investors, and customs duty and company tax exemptions. In this way Cuba has benefited from new technologies, new markets and roughly 50 % of the profits.

4.5.2. A new law was approved in September 1995 (77/95) setting out rules for foreign business investment, and meeting some of the main aspirations of foreign investors, including the guarantee that property would not be confiscated. Such investors can provide all of the capital for the enterprise operating in Cuba and are only excluded from the defence, health and education sectors.

4.5.3. As indicated above, the Cuban Government has chosen to make the tourist industry one of the main forces behind the island's economic transformation. Recent restructuring and specialization in the sector is enabling it to expand rapidly; it is currently an important hard currency earner (US$ 600 million in 1994) and directly employs 70 000 Cubans. There were over 750 000 visitors in 1995; and in 1994 a total of 145 joint ventures had been set up in the tourism sector with businesses from Europe, Canada and Latin America. Canada has also invested heavily in the nickel sector and Spain in the tobacco industry. In both cases, partnerships with foreign enterprises has resulted in improved distribution and marketing of Cuban products.

4.5.4. Following four years during which annual GDP decreased by over 10 %, there have been the beginnings of a reversal in the trend. Results moved into the black again in 1994 with an increase of 0,7 %, 2,5 % in 1995 and 5 % estimated for 1996.

5. The political and human rights situation

5.1. Since the overthrow of Fulgencio Batista, Fidel Castro has, as commander-in-chief, held absolute power in Cuba. He is president of the Council of State, president of the Council of Ministers, first secretary of the Cuban Communist Party (CCP), and head of the Revolutionary Armed Forces. This accumulation of positions - and the absence of any effective control mechanisms - together with a very high level of political activity and a constant public presence, have enabled him to retain a considerable charisma with the Cuban people.

5.2. Politically, Cuba is a one-party state; the CCP is the only recognized political organization. The main state bodies with political and administrative responsibilities are:

- the National Assembly of People's Power is the highest body representing the Cuban people. It has powers to change the constitution and enact legislation and meets officially twice a year;

- the Council of State is the executive body and is the highest authority both within Cuba and in representing the country internationally. It is elected from members of the National Assembly which it represents between sessions;

- Council of Ministers: its members are appointed by the National Assembly acting on a proposal by the President of the Council of State.

5.3. Up to now, political reform has been considerably less radical than economic reform. Almost all observers agree that the Cuban regime needs to tackle the consequences of the tense social situation and the potential risks in any society that is undergoing change. This crisis is rapidly eroding the regime's credibility within Cuba itself. Nonetheless, since 1991 some important changes have been made in the country's political and institutional system.

5.4. In 1991, discrimination based on religion was abolished and believers were allowed to join the Cuban Communist Party. In 1992, over a half of the articles of the current constitution were amended, providing for elections by secret ballot every five years to the National Assembly of People's Power.

Municipal elections were held in 1995 in which the names of candidates were put forward by district assemblies. All local residents could take part in these elections. In the view of the European Parliament, however, 'this participatory democracy, as Cubans call their political system, does not fully guarantee freedom of association, speech and expression, nor does it give a voice to other strands of opinion not represented under the one-party system` (). The ESC shares this view.

5.5. The election of Ricardo Alarcón Quesada - a former foreign minister and a highly respected figure both in Cuba and on the international stage - as NAPP President is worth noting. Both his appointment and the arrival of young politicians to head the Foreign Ministry and the Vice-Presidency of the Cuban Council of Ministers, give more weight to the idea that moderate reformers are taking the upper hand in both the state and party system. Nevertheless, it cannot be denied that influential groups do exist in the Cuban administration that aim to hamper or set back the process of reform that is already under way. The country's political situation is thus typified by rapid change combined with a number of doubts raised by the hidden struggle between reformists and hardliners.

5.6. Another factor that should be remembered is the internal unity of the armed forces, among the most powerful in Latin America. No split has become apparent until now: they have accepted both a number of significant cut-backs in their budget and the new economic policy which also affects the business concerns that they run.

5.7. Political reform is also determined by the lack of widespread, organized internal opposition. The small opposition movement that does exist mainly calls for a gradual transition to democracy and does not favour violence.

5.8. Most of the regime's political opponents are outside Cuba itself. Many groups opposed to Castro are based in Florida (United States) in particular. They can be split into those in favour of a agreement on political reform with the Cuban authorities, and those advocating radical change and not ruling out armed intervention. In recent years, important channels of communication have been opened up between the Cuban Government and the moderate exiles. In New York in 1993, the Cuban Foreign Minister met 150 members of the US-based Cuban community. This was followed up in 1994 by the Conference on the Nation and Emigration, which took place in Havana and was attended by 225 exiles. In Madrid in 1994, the Foreign Minister also met the leaders of Cambio Cubano, the Cuban Commission for Human Rights and the Cuban Committee for Democracy. Such meetings show that the Cuban Government implicitly recognizes the existence of opposition groups advocating negotiated political reform and which oppose the US embargo. It is worth noting, however, that although the Cuban government has attempted to open up channels of communication with the exiled opponents of the regime, it has not done the same with the internal opposition, which it hounds systematically.

5.9. Cuba has still not ratified the main international agreements on human rights. The Committee very much deplores the fact that the freedoms of association and expression exist at levels far below those in democratic countries. There are also several hundred political prisoners in Cuba who are detained in conditions identical to those of common criminals. There is no proof that they are being physically mistreated, but there have been complaints of psychological pressure and bias in judicial proceedings.

6. Relations between Cuba and NAFTA

6.1. Cuba and the United States

6.1.1. Many of the important decisions taken by the Cuban leadership since the end of the revolution have been influenced by the constant tension which has marked Cuba's relations with the United States. The US embargo, which has been in force for over thirty years, has seriously affected the Cuban economy. Washington's constant attempts to isolate, weaken and overthrow the Cuban Government have been the main argument put forward by the island's authorities against decisive political change and, specifically, the possibility of accepting a multi-party system.

6.1.2. The United States' position regarding Cuba has remained virtually unchanged in content and aims since 1960, when diplomatic relations were cut off, the trade embargo was put in place, aid was cancelled and the US quota for Cuban sugar was terminated. Another important focus of political tension has been the continued presence on the island - and against the will of the Cuban authorities - of the US military base at Guantánamo. Bilateral relations only improved slightly during the Carter presidency.

6.1.3. US punitive action was stepped up with the 1992 Cuban Democracy Act, better known as the Torricelli Act. This empowers the US President to penalize countries which give assistance to Cuba, prohibits subsidiaries of US companies abroad from doing business with Cuba (the value of such business has dropped from US$ 718 million in 1991 to practically nothing) and prevents vessels that dock in Cuba from entering US ports for six months. The last of these measures particularly affects Greek shipping, which is responsible for 85 % of Cuban products transported by sea.

6.1.4. The Clinton Presidency brought some slight changes in relations between Cuba and the United States. Cuban exiles resident in the US who planned armed attacks on Cuban targets began to be harried. There were fewer obstacles in the way of humanitarian aid than during other presidential administrations. The funding of the exiles' radio broadcasts to Cuba was also cut. Even so, the US President did not deem the current set of economic reforms sufficient to relax the embargo.

6.1.5. The US stance is to a great extent determined by the influence of the large Cuban-American community which is mainly opposed to Castro and is politically conservative. Electorally, it is concentrated in Florida and New Jersey, and this - together with the economic and organizational power of some of its associations (particularly the Cuban-American National Foundation) enable it to exert considerable political pressure.

Against this background, the issue of Cuba is dealt with more in Washington as a domestic matter than as a foreign relations problem. This explains why the United States is the only signatory to the NAFTA that maintains punitive action against Cuba, that has clashed with Europe over the application of the Torricelli and Helms-Burton Acts, and that keeps a trade embargo in place when in 1994 it lifted a similar one that applied to Vietnam. Many experts take the view that the embargo is anachronistic now that the Cold War is over, and is also counterproductive, since it has an adverse impact on the Cuban people and legitimizes their leaders' temptation to resist change.

6.1.6. The agreement reached between Cuba and the United States in 1994 to control the number of Cubans leaving the island should not, however, be underestimated. Aside from its actual provisions, the very fact that there has been dialogue between the two countries for the first time in ten years may pave the way for more talks in the future.

6.1.7. The United States' approach to Cuba has recently become ambiguous. While the State Department has made cautious moves indicating that it favoured closer relations (), Congress appeared to take the opposite view. The shooting down of two American civilian aircraft - which the Cuban government justified by claiming that they had violated the island's airspace - suddenly changed the situation. President Clinton finally signed the Cuban Liberty and Democracy Solidarity Act of 1995 (better known as the Helms-Burton Act) which he had previously vetoed.

6.1.8. The Helms-Burton Act internationalizes the embargo since it contains extraterritorial provisions designed to dissuade third-country businesses from trading with Cuba. It also aggravates the dispute over expropriation of US property in Cuba. At its March 1996 plenary session, the European Parliament condemned both the shooting down of the aircraft and the legislation adopted by the US Government. For its part, the EU Council has said that it both deeply regrets and is very disappointed by the Helms-Burton Act which is contrary to international law and harms the rights and interests of the EU in the areas of trade and investment. President Santer also strongly criticized the Act at the EU-US meeting in June 1996, saying that the Union felt that it was neither justifiable nor effective for a country to impose its tactics on others and threaten its friends in order to target its enemies. The Commission has already found that the application of the Act has had a negative impact on European firms, and the US authorities have recently released the first 'blacklist` of European businesses with interests in Cuba.

6.1.9. At its meeting on 15 July 1996, the EU Council of Foreign Ministers unanimously condemned the Helms-Burton Act (condemned again by the informal Council meeting held in Tralee, Ireland, on 8 September 1996) and asked the Commission to draw up a series of possible counter-measures.

This firm response on the part of the Union no doubt contributed to President Clinton's postponement until January 1997 of the entry into force of the most damaging provisions of the Act.

6.1.10. On 29 October 1996 the EU's General Affairs Council agreed unanimously to implement a regulation and a common action regarding the Helms-Burton and D'Amato Acts. At the time of writing the text of the regulation was still being checked by jurist-linguists, and includes a range of counter-measures which aim to give European businesses protection against any possible extraterritorial provisions in US law.

6.1.11. The Committee would add its voice to the unanimous disapproval of the Helms-Burton Act generated in all the EU institutions, and calls for a strong position to be maintained against it or any other similar piece of legislation (the D'Amato Act, for instance). The ESC also doubts whether the Helms-Burton Act is an effective way of achieving the goals which have been set, and takes the view that it is an unnecessary source of tension in relations between the two sides of the Atlantic.

6.2. Cuba's relations with Canada and Mexico

6.2.1. In spite of the mutual hostility that dominates relations between the United States and Cuba, the other two countries which are signatories to NAFTA have increased trade considerably with the island in defiance of the approach that their trading partner is attempting to impose. Canada and Mexico have also stepped up political dialogue with the Havana regime and stated their opposition to the Helms-Burton Act.

6.2.2. Mexico is the only Latin American country which did not break off diplomatic relations with Cuba. The value of Mexican imports from Cuba increased tenfold between 1988 and 1993 and Mexico has invested more than any other foreign country in the oil and telecommunications sectors.

6.2.3. Canada is one of the island's main trading partners and the most important source of tourist revenue (100 000 Canadians visit Cuba annually, which represents 20 % of the total). It is also the biggest investor in the mining, gas and oil prospecting sectors.

7. Cuba and other Latin American countries

7.1. There has been a swift and substantial increase in Cuba's links with other countries in the Americas. This process began in the early 1990s and there has been a significant increase in trade (particularly Cuba's export of vaccines and pharmaceutical products) with Venezuela, Brazil, Colombia, the Caribbean Community (CARICOM) and the Dominican Republic.

7.2. The increase in trade has been accompanied by improved political links. All of these countries have adopted various initiatives to promote Cuba's swift integration into the region's institutional framework, to help it overcome its current serious economic problems and to bring about a peaceful political transition. These countries have also tried to improve US-Cuba relations by advocating the lifting of the trade embargo. It should also be remembered that at its meeting in June 1995, all the members of the Organization of American States - with the obvious exception of the United States - stated their opposition to the Helms-Burton Act. Cuba recently became a full member of the Association of Caribbean States which, with 200 million inhabitants and a combined GDP of US$ 500 000 million is set to be the world's fourth biggest trading bloc, overtaking the Mercosur.

7.3. It is worth mentioning that, beyond the Americas, Cuba has signed agreements to encourage trade with China, Iran and Vietnam.

8. Cuba and the European Union

8.1. Cuba's difficult social and economic circumstances are a growing cause for concern for the EU, which is fearful of the consequences of a future outbreak of political violence. There are historical, cultural and humanitarian reasons for this concern, as well as the interest of some Member States in maintaining stability in the Caribbean where they still have territories (United Kingdom, France and the Netherlands). Cuba is now the only Latin American country which has not signed a cooperation agreement with the European Union, despite the fact that its economic and political ties with most Member states have increased considerably in recent years.

8.2. The EU is Cuba's most important trading partner. The EU exports mainly food products and Cuba's exports are principally tobacco, nickel and fish, which under the Generalized System of Preferences (GSP) benefit to the tune of almost 80 % - one of the highest utilization rates in Latin America.

8.3. The absence of an institutional framework for relations between Cuba and the EU has increased the importance of its links with individual countries. Spain, with its close historical and family ties, is Cuba's biggest trading partner and has the highest level of investment in the island. The three other major European trading partners are France, Italy and the Netherlands, with a volume of trade which varies between 10 and 20 %. The UK merits a special mention as it has increased its political contacts with the Cuban Government significantly since 1994 (). British investment is principally in the tourism, biotechnology, oil prospecting and marketing of agricultural products sectors.

8.4. Until the beginning of the 1990s, the activities of European non-governmental organizations (NGOs) in Cuba were restricted by the widespread conviction that there was little room in that country for NGO action and that other Latin American countries which were in a better position to receive development aid. In the last few years, however, the involvement of European NGOs in development cooperation projects in Cuba has increased dramatically. Most of the projects which have been implemented concern food and agriculture, community development, health, education, the environment and women's affairs. NGO action has encouraged the setting-up of similar associations in Cuba, and has both encouraged civil society to form new types of grouping and strengthened Europe's presence on the island. Since 1993 there have been important meetings between European and Cuban NGOs: as a result of one such meeting, Canadian and US NGOs also decided to join in these activities.

8.5. The EU has been the main (and virtually the only) donor of official development and humanitarian aid. Between 1980 and 1992, the EU and its Member States accounted for 75 % of cooperation with Cuba. This averaged US$ 10 million annually (). As Cuba is, of course, not a member of the Organization of American States it cannot apply for money from the Inter-American Development Bank.

8.6. Starting in 1993, the Commission drew up an humanitarian aid programme - under ECHO - to provide help for the most vulnerable people (the sick, children and the elderly). Aid is channelled directly through European NGOs. Both Parliament and the Commission have stressed this programme's exceptional effectiveness in Cuba, which was worth ECU 14 million in 1994 and ECU 15 million in 1995.

8.7. With the European Commission's support, a number of noteworthy economic cooperation initiatives in support of the current reforms have also been launched. For instance, the programme to train business managers enables 120 Cubans to receive training in the principles of the market economy. Equally, Cuba benefits from the AL-Invest programme for business cooperation and investment promotion and the programmes for academic training (ALFA), rational energy use (Alure) and investment promotion (ECIP). The importance of last December's conference in Havana - which brought together European businessmen, Cuban economic and political leaders, and representatives of the Commission and the European Parliament - has also been particularly noted. Their discussions centred on the speed and extent of the economic reform process, how business cooperation between Europe and Cuba could be boosted, and how the best areas for economic cooperation might be identified.

8.8. In June 1995 (), the Commission drafted a document which argued that, in the interests of a peaceful economic and political transition, Cuba must establish new links with other countries. It also pointed to the leading role that the EU could play in this process. In October of the same year, the EU Council affirmed 'the European Union's aim of encouraging a peaceful transition to democracy and economic liberalization in Cuba by strengthening and expanding its relations with the island`.

8.9. In December 1995, the Madrid European Summit asked the Commission to 'present, in the first half of 1996, draft negotiating directives for a trade and economic cooperation agreement which will be examined by the Council in the light of developments in the political and economic situation in Cuba`.

8.10. In January 1996, the European Parliament approved a resolution supporting the above Commission document, and stressing the important role that the EU can play in political changes in Cuba.

8.11. Dialogue between the European Commission and the Cuban government is continuing, as demonstrated by Commissioner Marín's visit to Havana in March of this year and the visit to Brussels in May of Isabel Allende, the Cuban Deputy Minister for Foreign Affairs. The Commission has, however, decided not to put forward a draft negotiating mandate during the Italian presidency, taking the view that there are still doubts about the future of the Cuban reform process. Both the Commission and the Cuban government stress that cooperation and dialogue are continuing and want to reach agreement at the earliest opportunity, but do not wish to set deadlines which may put a strain on current relations.

9. Conclusions

9.1. Following the disappearance of the Eastern bloc, Cuba has been trying to establish new links at international level. The EU is probably the partner in the best position economically, politically and culturally to make a multi-party Cuba a full member of the international community again. This is a necessary condition to facilitate the process of change. It is quite clear that the attempts to isolate Cuba internationally have not helped to reform the country's structures but have, rather, reinforced its intransigence to change. Closer links between Cuba and the EU could also help to improve the island's relations with the United States and thus ease the political tension which persists.

9.2. Cuba is well situated geographically, being close to the US and the main Caribbean countries. It also has a developed infrastructure - particularly transport - and one of the best-trained workforces in the whole of Latin America. All these factors, together with the still low level of foreign investment and Cuba's position as a growing market in the short and medium term, make it ideally placed for closer trade relations.

9.3. Although the scope of the reforms under way is undeniable, many sectors of the Cuban economy still suffer from major structural problems. The EU could make an effective contribution to the modernization of Cuba's production system, since it is the international player with the most experience in assisting the transformation of highly centralized economies.

9.4. The Commission is assisting European businessmen and investors in their operations in Cuba and is helping to set up channels of communication between them and the Cuban authorities. It is also encouraging the work of European NGOs on the island, with the positive results that have been mentioned above in both humanitarian assistance and development cooperation programmes. The ESC welcomes both initiatives and hopes that they may be extended in the future. The Committee also calls for small businessmen (including members of cooperatives), workers and farmers to be encouraged to take part and thus contribute to Cuba's ongoing switch to a market economy. It is convinced that contact of this type will help to ensure that cooperation has a more direct impact on the beneficiary groups and redounds to Europe's advantage too.

9.5. The European Union can, therefore, play a leading role in the reform process on which Cuba has recently embarked. This would also strengthen the Union's presence in Latin America. Concluding a trade and economic cooperation agreement founded on the reciprocal reduction of import tariffs together with arrangements for development cooperation (that preferably aims to satisfy the basic needs of the most underprivileged sectors of the population) would seem to be the best way of placing EC-Cuba relations on a more systematic and effective footing. Neither the Cuban authorities nor the ACP countries support Cuban membership of the Lomé Convention. The Commission also takes the view that this would not be the most appropriate link between Cuba and the Union.

9.6. In line with the Treaty on European Union and the most recent cooperation agreements with third countries signed by the EU Council, the cooperation agreement between the Union and Cuba should be founded on respect for human rights and democratic principles. This is a clause which should be mutually applicable to both parties.

9.7. The cooperation agreement should aim, among other things, to help bring the island's economy up to date - without cutting back the existing welfare protection - and assist in the country's transformation in accordance with the wishes of the Cuban people and within the general framework of the areas of action envisaged in the Commission's document on 'The European Union and the external dimension of human rights policy: From Rome to Maastricht and beyond` () As the reform process evolves, consideration could also be given to a formal basis for political dialogue.

9.8. The ESC also takes the view that the cooperation agreement should help to bring about the adoption of measures which guarantee both the right to organize free trade unions and freedom of collective bargaining in accordance with ILO Conventions Nos. 87 and 98.

9.9. The Committee considers that it would be desirable for a negotiating mandate to be put forward as soon as possible, since it strongly believes that this would help to strengthen those sectors of the Cuban administration in which most reforms have taken place, and that when completed it would result in the improved welfare of the Cuban people. The potential significance of the signing of a cooperation agreement should not be underestimated, since it could help to consolidate the economic and social changes that are easing the way for a peaceful transition in Cuba - a transition which most experts in this field consider is bound to happen soon. Signing such an agreement could, furthermore, be the most appropriate response to attempts to impose outside legislation on the EU.

9.10. The cooperation agreement could include, inter alia, the following:

- Stepping up trade and easing mutual market access. In the case of farm products, consideration should be given to the compatibility of import tariffs with the CAP and regulations agreed by the WTO. Unprocessed tobacco, hand-rolled cigars, fishery products, rum and tropical products are suitable candidates for inclusion in the agreement. Cane sugar - Cuba's main export - would not be on account of the EU's prior international purchasing agreements.

- Boosting and protecting investment to pave the way for a stable, attractive environment that encourages increased investment to the advantage of both parties by identifying investment opportunities, guaranteeing that property will not be confiscated, regulating the machinery for protecting claims and possible compensation, and setting up a transparent system for the involvement of foreign business partners.

- Fostering contacts and cooperation between the economic and social players with a view to developing economic and social infrastructures. In this connection, incentives should be given to training businessmen - particularly those involved in SMEs - to help them adapt to technological innovation and the socio-economic changes under way. Equally, the economic and social players should be given the opportunity to learn the basic principles of market-economy labour relations.

- Scientific and technical cooperation that includes joint action to simplify the transfer of technologies, cooperation between the sectors of industry concerned and the exchange of researchers. Such cooperation could be especially productive in the areas of biotechnology, the pharmaceutical industry and public health in general.

- Cooperation in the field of education, especially vocational training, with priority given to the newly emerging economic sectors in Cuba. Here, the promotion of agreements between training centres and educational establishments should also be included.

- Collaboration between civil society organizations concerned with training, etc., should be encouraged. This would help to consolidate ongoing vocational training with a view to confronting economic and social change, with particular emphasis on the technological aspects and those resulting from new work organization and management.

- Cooperation on the environment; special attention should be given to protecting the urban environment, protecting the marine environment and its ecological systems, the prevention of industrial pollution and the fight against pollution caused by tourism. The agreement should stipulate that all productive activities supported by the Union include an element of sustainable development.

- Cooperation in the energy sector, particularly on the development on a new regulatory framework for this sector, on renewable energies (sugar cane pulp), supplying energy to rural areas, and giving encouragement to the transfer of technology and the participation of economic and social players from both the EU and Cuba in joint energy production and distribution infrastructure projects.

- Promotion of joint ventures in the shipping sector.

- Cooperation in the transformation of Cuba's agricultural structures - providing training and technical and material assistance to help diversify production and increase land productivity - with the aim of guaranteeing food security.

- Promoting joint action and programmes in the fisheries and aquaculture sector, to include research, new technologies and marketing, with a view both to guaranteeing food security in Cuba and encouraging exports.

- Encouraging tourism and more comparing of notes in this area.

- Customs cooperation, particularly in programmes to fight drug trafficking.

- Membership of the Food Security Assistance Scheme to include food assistance initiatives through counterpart funds.

9.11. As political change in Cuba permits, there will no doubt be closer contacts between European economic and social representatives and the socio-economic players who are beginning to emerge on the island. The Committee can play an important role in this process and can lend its experience to strengthening Cuban civil society as well as forging links to extend Europe's presence in a region with clear development prospects.

Brussels, 31 October 1996.

The President of the Economic and Social Committee

Tom JENKINS

() Hereafter, DL.

() EP Resolution on relations between the EU and Cuba, January 1996 (explanatory statement).

() According to an article - which has received some comment - that appeared in the New York Times of 17 May 1995, this approach reflects the conclusions of a report drawn up by the Pentagon. The report states that Cuba has entered a transitional phase in which Fidel Castro is a key player, and that American strategic interests call for support for the economic and political reforms rather than punitive action.

() On 12 October 1992 the UK passed a law which prevented the provisions of the Torricelli Act from being applied to subsidiaries of US companies registered in the United Kingdom.

() This pre-1995 figure is for EU 12. If Austrian, Swedish and Finnish cooperation is included, the total is above 90 %.

() Communication from the Commission to the Council and the European Parliament on relations between the EU and Cuba, 28. 6. 1995, COM(95) 306.

() Communication from the Commission to the Council and the European Parliament, COM(95) 597 final, 22. 11. 1995.