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Posted January 06, 2004 by publisher in Cuba-Canada Trade

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Paul Kedrosky | Financial Post | [url=http://www.canada.com]http://www.canada.com[/url]

Canada seemingly just couldn’t stay out of economic trouble for long in 2003. Admittedly, it was not always Canada’s fault, but too many times it was.

Last spring it was the infectious disease SARS that got Canada into trouble. At first, you wouldn’t have known anything was wrong, with ex-prime minister Chretien eating in Chinese restaurants to show that all was well. Bureaucrats then leaped on the issue, compounding things with expensive, errant thermal scanners in airports, and with yellow “Do you have SARS?” forms still given to surprised tourists at Canadian airports long after the outbreak was over.

Next came mad cow disease. Again, Canada under-reacted initially, and then acted surprised and petulant when the United States imposed beef sanctions. More recently it has been mad cow disease for the second time, with speculation that a diseased cow recently found in Washington state was infected before crossing over from Canada.

What’s next? How about Cuba in 2004.

Unbeknownst to many Canadians, Canada has had an extensive trading relationship with Cuba since 1945. Sure, most Canadians know about Cuba as a tourism destination—almost 400,000 Canadian tourists will have visited Cuba in 2003, making Canada the largest source of Cuba tourists—but far fewer Canadians know the scale and scope of Canada’s trade relationships with the communist country.

Because Canada’s happy times in Cuba could soon be a source of further trade trouble. While trade with communist countries can be a democratizing force, it would be hard to make that case in Cuba. After a brief flirtation with market-oriented reforms in 1994-95, things there have been back-sliding, with many of the small shops and restaurants that appeared now disappearing.

So, how big is Canada’s Cuba trade? According to the Department of Foreign Affairs, Canada is Cuba’s third-largest global trading partner (only exceeded by Venezuela and Spain). In 2001, trade between Cuba and Canada totalled $753-million. Canada’s main exports to Cuba are computers, agricultural products, motor vehicles and parts, electronic equipment, and sulphur. For its part Cuba sells Canada ores, sugar, tobacco, seafood and copper.

Granted, it’s not easy trading with Cuba. The country requires joint ventures if you want an economic presence, and it must maintain majority ownership. But, according to a recent Wall Street Journal article, of the 375 joint-ventures with foreign capital in the Cuba, almost 20% come from Canada—more than all of Latin America combined. At a country level, Canada ranks second in Cuba ventures, behind only Spain.

But agreeing to trade with Cuba comes with acquiescing to things that most Canadians would never accept for themselves. For example, agencies of the Cuban government provide almost all the workers for joint ventures in the country. The state then keeps roughly 95% of what the joint venture companies pay those workers, and the Cuban government pays employees less than $30 per month and keeps the rest.

Even tourism isn’t safe from things that most Canadians would find objectionable. While secret police are endemic in such repressive societies, it extends to the tourism sector itself. Foreign companies that create joint ventures in Cuba’s tourism industry generally must agree to let Cuban secret police enter and search rooms without prior authorization. Try that sort of thing at Whistler/Blackcomb and see how far you get with tourists from California.

Yes, Canada briefly rethought the Cuba relationship in 1999. Because of “deteriorating human rights” in the country, Foreign Affairs decreed that any new or expanded business initiatives would be studied on a case-by-case basis to ensure that programs reinforce areas of positive change in that country.

How many initiatives have been rejected since then? None, as far as I can tell. It seems that Canadian companies are just so darn civics-minded. They just can’t help doing good things in the country. How wonderfully naive.

It is at least as naive is to pretend that relations with Cuba don’t come with risks. For example, while it’s highly unlikely, what better route for terrorists, like al-Qaeda, to launch a hijacked plane against the United States than via a Canada-bound tourist airplane departing Havana. It could be considerable more fuel-laden than anything flying to the United States out of Paris.

For too long Canada has attempted to live quietly at the margins, hoping it can game economic systems profitably while being ignored. That is unlikely to continue, and 2004 may yet be the year when it ends badly on another front.

But Canada need not cut off trade with Cuba. Instead, it could become more adamant about linking joint ventures with improvements in Cuban working conditions, like allowing workers to reclaim more of their wages. Trading blindly with Cuba while hoping for change is a doom-bound game in these dangerous times.

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