Source: https://www.ascecuba.org/asce_proceedings/a-survey-of-significant-legal-changes-during-cubas-special-period-setting-parameters-for-change/
Timestamp: 2019-04-21 02:33:19+00:00

Document:
When Cuba lost the former Soviet Union’s economic support, the island entered what is commonly called the Special Period. Stretching now for over a decade, the Special Period has been marked by material deprivation, ongoing legal and illegal emigration, societal malaise, and government efforts to prop up revolutionary fervor.
But the Special Period has also featured domestic legal changes1 aimed at implementing economic recovery and long-term development strategies based on diversified foreign and domestic investment in capitalistic ventures. While the efficacy of these legal developments and the goals and planning behind them remain hotly debated, Cuba has indeed formed significant legal structures that are fomenting economic (and perhaps, ultimately, political) change within closely guarded parameters. This paper will summarize some of the more significant of these legal developments, emphasize how they interrelate to set limits for change, and briefly explore those limits’ implications and consequences.
This is hardly an exhaustive list, and it by no means intends to give short shrift to laws affecting civil and political rights. Rather, its length acknowledges this paper’s limits in discussing what even multiple volumes could not completely cover. Secondly, it reflects an admittedly subjective (and perhaps jaundiced) view that, to a large extent, economics, finance, and money flows are and will continue to be key foundational factors in Cuba’s development. According to this perspective, the strong arm of corporate investment, rather than human rights campaigns, will do far more to bring structural change. Thirdly, and in any case, most laws enacted during the Special Period that touch on civil, human, and political rights have done little to advance the cause of democracy and individual liberty. In addition, such laws’ reach, viability, practical application, and developmental effects are, at present, unclear.
The Constitution of 1992 (a reformed version of the 1976 document) sets the framework for economic change within government parameters. It sets the stage for a tension — a push and pull, as it were — that has existed over the last decade between the need for economic opening and private capital on the one hand and, on the other, the desire to maintain centralized, socialist control; Cuban national sovereignty; and the sanctity of the environment and public health. Thus, while the Constitution envisions joint ventures and establishes a rationale for later-enacted laws governing limited private enterprise and wholly foreign-owned property, it lays strict ground rules and establishes the tough tone and approach Cuba has taken toward economic reforms. The result is like a scale that balances, however unevenly at times, legal and economic reforms and absolute government control.
None of these commercial provisions constitutes a government concession. Those would come later. Rather, the Constitution establishes a vision of controlled growth and leaves for more specific laws the task of rolling out economic reforms. The latter would open the door to foreign capital and the influence of foreign economic power.
• Requirement that all three types of approved investment entities establish “accounts in freely convertible currency”25 through the Cuban National Banking System.
• Strict labor requirements obligating joint ventures, international economic-association contract parties, and totally foreign capital companies to hire their Cuban employees through a Cuban “employing entity” specified by the Cuban government.26 The investing company pays wages to the employing entity in “convertible foreign currency”27 (typically U.S. dollars), while the employees receive their wages from that entity in Cuban pesos.28 (The rub here is that employees receive the official one-to-one exchange rate. This significantly lowers their purchasing power and their ability to accumulate wealth.).
This process [i.e., opening the economy to foreign investment] has been carried forward in an orderly way, with negotiations examined one by one, based on the criterion of what is beneficial for the country, without permitting the interests of sectors, territories or institutions to take precedence over those of the nation. In every phase of the process, the economic and social development of the country is present and holds first place.
We speak with complete clarity to the entrepreneurs of other countries with whom we associate. We are a socialist country that has been and is respectful of the agreements to which we have committed and will commit ourselves.
The creation and development of Free Zones and Industrial Parks in the national territory offer new opportunities for foreign investment, as the investors established therein enjoy a special regime as to customs, banking, taxation, labor, migration, public order, capital investment and foreign trade, and this will mean the generation of new jobs, a source of hard currency and technological, economic and social progress for the country.
The Constitution, the Foreign Investment Act, and the laws establishing free-trade zones and the Central Bank registry system are but a few of the important legal developments during the Special Period that have facilitated foreign investment and economic development. Others include laws governing taxation, real estate, and intellectual property. Yet the four covered in this paper have been highlighted because they are the structural building blocks that form a broad and deep foundation upon which tax, real estate, and other laws and regulations are built. In addition, they form a natural progression both chronologically and in terms of increasing specificity. Thus, while the Constitution quite rightly sets out broad provisions, the other three laws proceed from and are built upon that document. They provide the details and rubrics that aim to execute and make real the government’s development vision and goals.
These four laws, however, also set parameters for — and limits on — such development in the near and far term. They and other laws, including the Law of the Environment and the Law of Mines, form a matrix of legal requirements, policy, and centralized control that moderate and modulate the pace, scope, quantity, and quality of foreign investment. The goal seems to be to allow foreign capital inflows without compromising certain national interests — in particular, government supremacy, the environment (the protection of which ensures the viability of tourism, among other things), and public health.
These goals and the built-in restrictions designed to achieve them raise serious and as-yet unanswered questions. For example, what effect will these laws have on foreign companies’ willingness to invest seriously in Cuba? Furthermore, what concessions might Cuba be forced to make to attract and retain qualified investors? After all, making investment proposals’ approval contingent on assurances of minimal environmental harm may dismay important sources of capital. As some companies are turned away, others will opt not to apply at all. In addition, companies face the disincentive of being barred from paying employees directly in U.S. dollars (or other freely convertible currency) and instead of having to pay workers’ dollar salaries to the Cuban government. This not only stands to demoralize employees and make them resentful but also removes an important incentive for ensuring productivity and quality. Companies also confront the hurdle of financial oversight by the Central Bank. Not only must investors contribute to a risk fund, but they are also subject to forcible intervention and liquidation.
These and many other concerns raise the risk that Cuba is discouraging rather than fostering healthy investment and capital flows. Such circumstances also increase the likelihood that the most determined investors will be able to buy flexibility or nonenforcement through bribes or other perks extended to military or civilian gatekeepers of foreign investment. In addition, it is unclear whether and to what extent Cuba is prepared to resist pressure (from corporations and other sources) to make concessions in exchange for corporate willingness to invest. Cuba is a hungry and needy country; the prospect of money, jobs, and economic growth are hard to forgo on an empty stomach.
Finally, since the military is the primary shareholder in Cuban corporations investing in Cuban tourism, and since tourism is an economic staple, there is concern that Cuba’s future rests in a capitalist military dictatorship. Under this scenario, the military would be the principle shareholder in and key beneficiary of key economic growth sectors. A Pinochet-style government is therefore not beyond the pale. Others speculate that even if a civilian government assumes control, the military will maintain the greatest hold on Cuba’s purse strings.
All of these questions, along with reports of Cuba’s recent retreat from economic reforms, raise significant concerns about the country’s willingness to travel the necessary road to recovery, growth, and prosperity. The four structural legal changes discussed above were a hopeful first sign of evolution. It remains to be seen what positive, specific, and effective steps will come next.
1. This paper will not explore Cuba’s entry into bilateral or multilateral agreements during the Special Period. Though such agreements are certainly important, this paper looks at how domestic laws are laying the groundwork — and setting the limits — for change.
2. Constitución de la República de Cuba [hereinafter Constitution of 1992]. The full text is available on the Internet at http:// www2.cuba.cu/gobierno/cuba.htm, accessible through Cuba’s official website, http://www.cubaweb.cu. The Constitution was originally published in the Gaceta Oficial de la República de Cuba, no. 7, Aug. 1, 1992, and was printed in book format by Editora Política (1992). The 1992 Constitution is a revised version of the Constitution of 1976 and contains reforms approved by the Asamblea Nacional del Poder Popular in July 1992.
3. Ley No. 77 Sobre las Inversiones Extranjeras [Law No. 77: Foreign Investments] (1995) [hereinafter Foreign Investment Act], translated at http://www.geo.unipr.it/~davide/cuba/economy/LAW95/law1.html.
4. Decreto-Ley Número 165 de las Zonas Francas y Parques Industriales [Decree-Law 165: Duty-Free Zones and Industrial Parks] (1996) [hereinafter Duty-Free Zones and Industrial Parks Law], translated at http://www.giraldilla.com/lawsDL165.htm).
5. Decreto-Ley Numero 173 Sobre los Bancos e Instituciones Financieras no Bancarias [Decree-Law 173: Banks and Non-Banking Financial Institutions] (1997) [hereinafter Banks and Non-Banking Financial Institutions Law].
6. Constitution of 1992, supra note 2, at pmbl. (“Nosotros, ciudadanos cubanos, herederos y continuadores del trabajo creador y de las tradiciones de combatividad, firmeza, heroismo y sacrificio forjadas por nuestros antecesores; por los aborígenes que prefirieron muchas veces el exterminio a la sumisión; por los esclavos que se rebelaron contra sus amos; … [d]eclaramos nuestra voluntad de que la ley de leyes de la República este presidida por este profundo anhelo, al fin logrado, de José Martí: ‘Yo quiero que la ley primera de nuestra República sea el culto de los cubanos a la dignidad plena del hombre.’”).
7. Id. at art. 5.
8. Id. at art.11 (a)-(b).
9. Id. at art. 12 (“La República de Cuba hace suyos los principios antiimperialistas e internacionalistas …”).
10. Id. at art. 15.
11. Id. at art. 16 (“Artículo 16o.- El Estado organiza, dirige y controla la actividad económica nacional conforme a un plan que garantice el desarrollo programado del país …”) (translation in main text by author).
13. Id. at art. 23 (“El Estado reconoce la propiedad de las empresas mixtas, sociedades y asociaciones económicas que se constituyen conforme a la ley.”).
14. Id. at art. 18 (“El Estado dirige y controla el comercio exterior. La ley establece las instituciones y autoridades estatales facultadas para: —crear empresas de comercio exterior; —normar y regular las operaciones de exportación e importación; y —determinar las personas naturales o jurídicas con capacidad legal para realizar dichas operaciones de exportación e importación y concertar convenios comerciales.”).
15. Id. at art. 27 (“El Estado protege el medio ambiente y los recursos naturales del país. Reconoce su estrecha vinculación con el de sarrollo económico y social sostenible para hacer más racional la vida humana y asegurar la supervivencia, el bienestar y la seguridad de las generaciones actuales y futuras.”).
16. Foreign Investment Act, supra note 3.
17. Id. at ch. IV, art. 10.
18. Id. at ch. III, art. 3.
19. Id. at ch. V, art. 13.
21. Id. at ch. V, art. 14.
22. Id. at ch. V, art. 15.
23. Id. at ch. VI, art. 16.
24. Id. at ch. VIII, art. 20-25.
25. Id. at ch. IX, art. 26.
26. Id. at ch. XI, art. 33. It is important to note that article 31 provides that “workers in activities corresponding to foreign investments shall be, as a rule, Cubans or foreigners permanently residing in Cuba.”); see also Id. at ch. XI, art. 34 (1) (“The employing entity … individually contracts and directly hires Cuban workers and permanent residents. This employing entity pays those workers their wages.”).
27. Id. at ch. XI, art. 33 (4).
28. Foreign Investment Act, supra note 3, at ch. XI, art. 33 (4).
29. Id. at ch. XII, art. 39(a).
30. Id. at ch. XII, art. 39(b).
31. Id. at ch. XII, art. 39(c)(1).
32. Id. at ch. XII, art. 39(c)(2).
33. Id. at ch. XII, art. 38(c).
34. Id. at ch. XII, art. 38(d).
35. Id. at ch. XII, art. 38(e).
36. Id. at ch. XV, art. 50.
37. Id. at ch. XV, art. 51(1).
39. Id. at ch. XV, art. 51(2).
40. Id. at ch. XVI, art. 55.
41. Id. at ch. XVI, art. 56(1).
42. Id. at ch. XVI, art. 56(2).
43. Constitution of 1992, supra note 2, at ch. I, art. 23 (“El Estado reconoce la propiedad de las empresas mixtas, sociedades y asociaciones económicas …”) (translation in main text by author).
44. Foreign Investment Act, supra note 3, at introductory text (The Aim of the Law Is to Promote and Provide Incentives for Foreign Investment Within our National Territory.).
45. Constitution of 1992, supra note 2, at ch. I, art. 18 (“El Estado dirige y controla el comercio exterior.”).
46. Id. at ch. I, art. 23 (“El Estado reconoce la propiedad de las empresas mixtas, sociedades y asociaciones económicas …”).
47. Id. at ch. I, art. 16 (“El Estado organiza, dirige y controla la actividad económica nacional …”).
48. Presentation of the Draft of a Law on Foreign Investment, 5th Ordinary Period of Sessions, National Assembly of the People´s Power (Sept. 4, 1995), translated at http://www.geo.unipr.it/~davide/cuba/economy/ LAW95/ intro1.html.
49. Foreign Investment Act, supra note 3, at introductory text (The Aim of the Law Is to Promote and Provide Incentives for Foreign Investment Within our National Territory.).
50. Id. at ch. I, art. 1 (1).
51. Id. at ch. XI, art. 30-37.
52. Id. at ch. XVI, art. 54-56.
53. Duty-Free Zones and Industrial Parks Law, supra note 4.
54. Foreign Investment Act, supra note 3, at ch. XV, art. 53.
55. Id. at ch. XV, art. 50.
56. Duty-Free Zones and Industrial Parks Law, supra note 4, at introductory text.
57. Id. at ch. I, art. 1.3 (a)-(c).
58. Id. at ch. I, art. 1.4.
59. Id. at ch. II, art. 2.2.
65. Id. at ch. III, art. 3.
66. Id. at ch. III, art. 4.1.
67. Id. at ch. III, art. 4.2(a).
68. Id. at ch. III, art. 5.1.
69. Id. at ch. IV, art. 6.1.
70. Id. at ch. IV, art. 6.2.
71. Id. at ch. V, art. 7-16.
72. Id. at ch. VI, art. 17-27.
73. Id. at ch. VIII, §§ 1-6.
74. Id. at ch. VIII, § 1, art. 31.1.
75. Id. at ch. VIII, § 2, art. 32.1.
76. Duty-Free Zones and Industrial Parks Law, supra note 4, at ch. VIII, § 3, art. 35.1-35.2 (Note specifications in how exemptions are granted depending on the grantor’s or operator’s activities.).
77. Id. at ch. VIII, § 4, art. 38.1.
79. Id. at ch. VIII, § 5, art. 43.1.
80. Id. at ch. VIII, § 5, art. 44.
81. Id. at ch. VIII, § 5, art. 45.1.
82. Id. at ch. VIII, § 5, art. 45.4.
83. Foreign Investment Act, supra note 2, at ch. XI, art. 33 (4).
85. Banks and Non-Banking Financial Institutions Law, supra note 5.
86. Decreto-Ley Número 172 Sobre el Banco Central de Cuba [Decree-Law 172: The Central Bank of Cuba] (1997).
87. Banks and Non-Banking Financial Institutions Law, supra note 5, at ch. II, § 1, art. 11.
88. Id. at ch. II, § 1, art. 2.
89. Id. at ch. II, § 1, art. 3.
91. Id. at ch. II, § 1, art. 4.
92. Id. at ch. II, § 2, art. 6.
93. Id. at ch. II, § 1, art. 7-8.
94. Id. at ch. II, § 1, art. 9.
95. Id. at ch. II, § 1, art. 10.
96. Id. at ch. II, § 3, art. 13.
97. Id. at ch. II, § 4, art. 20.
98. Id. at ch. II, § 4, art. 21.
99. Id. at ch. II, § 4, art. 22.
100. Id. at ch. II, § 4, art. 23.
101. Id. at ch. III, § 1, art. 24.
102. Id. at ch. III, § 1, art. 26.
103. Id. at ch. III, § 1, art. 27.
104. Id. at ch. III, § 1, art. 29.
105. Id. at ch. III, § 2, art. 33.
106. Id. at ch. III, § 2, art. 38.
107. Id. at ch. III, § 2, art. 40.
108. Id. at ch. IV, art. 45.
109. Id. at ch. V, § 1, art. 46.
110. Id. at ch. V, § 1, art. 47.
111. Id. at ch. V, § 2, art. 49.
112. Id. at ch. VI, art. 54.
114. Id. at ch. VI, art. 56.
115. Id. at ch. VI, art. 57.
116. Id. at ch. VI, art. 58.
117. Id. at ch. VII, art. 60.
118. Id. at ch. VII, § 1, art. 61.
119. Id. at ch. VII, § 2, art. 68.
120. Id. at ch. VII, § 2, art. 71.
121. Id. at ch. VII, § 3, art. 78-79.
Stephen J. Kimmerling, an attorney, is a business development consultant for Morgan, Lewis & Bockius LLP. He served Senator Bob Kerrey as Director of Public Programming in the Office of the President at the New School. Mr. Kimmerling was also the New York University School of Law’s Cuba Conferences Director, where he organized symposia on vanguard legal issues in U.S.-Cuban affairs.

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