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Posted February 16, 2006 by publisher in Cuba-US Trade

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Philip Peters | Lexington Institute

The Bush Administration voiced not a word of disapproval, but it sent an unmistakable signal to a recent conference held in Mexico City where American executives and Cuban officials discussed business opportunities in Cuba’s energy sector. It found a way to use U.S. sanctions against Cuba to have the Cuban delegates thrown out of their hotel, the Sheraton Maria Isabel.

This action barely affected the conference, which covered a topic of increasing interest to both Cuba and the United States. It caused a large reaction in Mexico that continues to make news in Mexico and beyond. The press coverage is drawing attention to U.S. policy toward Cuba, highlighting not the Administration’s grievances against Cuba, but rather its own “Three Stooges school of diplomacy,” in the words of a Miami Herald editorial. “A friendly nation has been insulted,” the editorial said, “U.S. businesses in Mexico are alarmed, and Cuba can once again paint itself as the aggrieved party in its dispute with the United States.”

# # # # #

Maybe the U.S. government would have banned the conference altogether, but American law does not block speech between Americans and Cubans, least of all on foreign territory.

However, U.S. law does control transactions between Americans and Cubans. Since the conference was held in a hotel owned by a U.S. corporation, and since U.S. subsidiaries have been banned from trading with Cuba since 1992, the Administration had a basis for threatening penalties for providing a service to Cubans in violation of U.S. law.

So on that Friday evening after the day’s conference sessions had ended, Sheraton managers told the 16 Cuban attendees that due to an order from Washington, they had to leave the hotel immediately, they could consume no food or drink on the way out, and the money they had pre-paid for the final two nights of their stay would not be refunded.

This action was an unusual application of the 1992 law; we have found no other case where it has been used to block a sale of retail services such as a hotel stay in a third country. It is not known whether other U.S.-owned establishments in Mexico City – Dunkin Donuts, Dr. Scholl’s, KFC, 7-Eleven, Baskin-Robbins, and others – were warned not to accept the wandering Cubans’ money had they decided to go shopping.

The results of the U.S. action were varied and are still unfolding.

The conference itself went on and enjoyed increased press coverage. The Saturday sessions were moved to the Colon Mision Reforma hotel, a short ride past the American embassy. The Saturday sessions started 40 minutes late but otherwise proceeded as planned.

The Cuban delegates were forced to miss the Sheraton’s Friday night cocktails and snacks involving guacamole and ceviche. Unanimously, they reacted to their eviction more in sorrow than in anger. If they enjoyed the opportunity to wage a new battle with Washington to get their refund – the Sheraton had sent their money to the U.S. Treasury – they kept their delight well hidden.

Initially, the Mexican official reaction was mild. In the first day’s press reports, Mexican officials said that the dispute was to be settled “between the private parties,” i.e. the Cubans and the Sheraton. But some were irked that a business in the heart of Mexico’s capital city carried out an order from the U.S. government.

With the issue thus cast as one of infringement on Mexican sovereignty, and with Mexico in the early stages of a tight, three-way presidential race, politicians soon crowded the stage and proceeded to apply the rule of law.

Mexico’s foreign minister Luis Ernesto Derbez, while traveling in Europe, promised an inquiry into the hotel’s conduct but resisted the idea of taking the dispute to the U.S. government. President Vicente Fox, through his spokesman, also called for an investigation. Felipe Calderon, the conservative candidate of Fox’s party, opposed the application of U.S. law inside Mexican territory.

Local officials, elected on the same party slate as Mexico City’s leftist mayor who is running for President, inspected the hotel and discovered construction violations and other irregularities – including the lack of Braille menus for blind customers – that “imply the immediate closure and the revocation of the license” of the hotel. The hotel went straight to court and won a temporary injunction.

The tourism ministry is investigating possible violations of the tourism law. The foreign ministry announced an investigation of the hotel for possible violations of a consumer protection law and another law that prohibits Mexican businesses from complying with laws and directives issued by foreign governments.

The foreign minister later said that the hotel could be fined approximately $500,000.

The Mexican Senate passed a resolution protesting discriminatory treatment of the Cuban delegation and the U.S. government’s application of its law inside Mexican territory. The Chamber of Deputies called on the executive to penalize the hotel and to send a formal diplomatic protest to the U.S. government.

Cuba’s communist party daily Granma joined the fray with an editorial chiding the “amazing indolence” of Mexico’s foreign minister for admitting that the U.S. Treasury Department “can give orders to businesses constituted and operating in Mexico.” “We feel great sadness,” the editorial continued, that the United States “claims the right to ignore the government and people of Mexico and to act with impunity and absolute disrespect for the greatness of that dear sister nation.”

After more than one week, the dispute continues to receive coverage in the Mexican and Latin American press. The U.S. government has reacted mainly by having Treasury spokesmen explain their regulatory rationale. The State Department spokesman deflected questions to Treasury; “We view this as a matter of asset control,” he said.

# # # # #

U.S. sanctions would have been the backdrop to the energy industry conference even if the Sheraton dispute had not occurred. Looking to the long term, the Americans had come to learn about business opportunities that they cannot realize today, despite their competitive advantages, because of the U.S. embargo.

If the energy sector were exempted from the embargo, American companies could attempt to do business in oil and gas exploration, production, refining, and marketing; power generation and transmission; infrastructure; equipment sales; and technical assistance.

The Cuban delegates came from the ministry of basic industries, the Cuban oil and electricity companies, and other organizations. They explained their energy sector in detail, including many projects where foreign investors are involved. They responded to questions about the energy business, about how business is done in Cuba, and whether foreign investors in Cuba are treated predictably and fairly in commercial and legal matters.

By far, the topic of greatest interest was offshore oil exploration.

Domestic oil and gas production currently covers about half Cuba’s needs. Heavy, sulfurous, difficult-to-refine crude oil is extracted along the island’s northern coast in areas east of Havana. Through a Cuban-Canadian joint venture, the natural gas that accompanies this oil is used to produce electricity. Exploration closer to Havana yielded oil of slightly better quality in 2004.

The question mark hanging over Cuba’s energy sector is whether the “light, sweet” crude oil found elsewhere in the Gulf of Mexico will be found in Cuba’s barely explored Gulf waters.

The Cubans made detailed graphic presentations of the geology of this zone; one U.S. expert commented that while the geological formations do not indicate quantities of oil, he had no doubt that there is oil to be exploited. Another said the formations looked exactly like the geology of the Texas Gulf coast.

Cuba is selling exploration and production rights in 59 offshore blocs and 45 onshore; companies from Canada, Spain, France, Brazil, China, and other countries have different degrees of interest and involvement. The most promising sign is that the Spanish company Repsol, which in 2004 found offshore oil in quantities too small to exploit commercially, plans to risk its capital to drill again in Cuba’s deep Gulf waters.

In the coming years, if Cubans’ most far-reaching dreams come true, oil rigs in the Gulf of Mexico could turn Cuba into an oil exporter. The Cuban flag would fly on those rigs alongside the flags of the world’s major oil producers – including communist China and excluding the United States. That would be another irony of U.S. economic sanctions. It would overshadow today’s dispute that threatens to put a 750-room hotel in Mexico City out of business.

Information about Cuba, American policy, and U.S.-Cuba relations from the Lexington Institute. .(JavaScript must be enabled to view this email address), Vice President and Director, Cuba Program.

  1. Follow up post #1 added on February 17, 2006 by YoungUrbanCuban

    “It is not known whether other U.S.-owned establishments in Mexico City – Dunkin Donuts, Dr. Scholls, KFC, 7-Eleven, Baskin-Robbins, and others – were warned not to accept the wandering Cubans money had they decided to go shopping.”

    This line says it all.

    Can these US based companies sell their products to Cubans visiting Mexico?

    This is a prime example on how silly the US embargo law is!

    Any country who bows down to the US and are forced to call them “master”,might as well just allow the US to govern their nation.

  2. Follow up post #2 added on March 06, 2006 by stanley

    How low can the U.S govt get by their interference at the Hotel Sheraton in Mexico city this is a case of the Bush government Arrogance !

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