Exchange Rates Unchanged-1
The Wall Street Journal Provides Peso Exchange Rates-1
American Express Magazine To Publish Article On Golf In Cuba-2
Cuba May Close Up To 50% of 156 Sugar Mills-2
Grain Import Update-2
Cuba Debt Trading At US$.22 Per U.S. Dollar-2
Chile Signs Preferential Trade Agreement-2
Major Oil Spill At The Bay Of Havana-2
Special Report: Foreign Investment And The Republic of Cuba-3 to
7
Foreign Investment History-3
Investment Promotion And Protection Agreements, And Tax Treaties-3
1995 Foreign Investment Law-3
1996 Foreign Investment Asset Protection Law-3
Pending Legislation-4
Free Trade Zones-4
Current Status Of Foreign Investment-5
Value Of Foreign Investment In Cuba-6
Foreign Investment Policy Shift-7
Updated Speaking Schedule-7
Annual Member Luncheon Update-7
EXCHANGE RATES UNCHANGED- Republic of Cuba government-operated
Cajas de Cambio S.A. (CADECA) sold the Convertible Peso, equal to one U.S.
Dollar, for 21 Pesos and purchased the U.S. Dollar for 21 Pesos, as it
has since 15 July 1998. CADECA purchased the U.S. Dollar for 19 Pesos
and sold the U.S. Dollar for 21 Pesos from 1 April 1998 to 14 July 1998.
CADECA purchased the U.S. Dollar for 20 Pesos and sold the U.S. Dollar
for 22 Pesos from 12 March 1998 to 31 March 1998. CADECA purchased
the U.S. Dollar for 21 Pesos and sold the U.S. Dollar for 23 Pesos from
11 February 1998 to 11 March 1998. CADECA purchased and sold the
U.S. Dollar for 23 Pesos from August 1997 through 10 February 1998.
CADECA purchased the U.S. Dollar for 24 Pesos and sold the U.S. Dollar
for 24 Pesos in August 1996. The official international exchange
rate of one Peso to one U.S. Dollar, in effect for more than thirty years,
remained unchanged. The government maintains a fixed exchange rate
for its international dealings and a more flexible exchange rate for domestic
use. The government does not fluctuate the value of the Peso for
commercial transactions regardless of any fluctuation with the value of
the U.S. Dollar or other currencies on the international market.
The Peso and the U.S. Dollar circulate freely in the Republic of Cuba.
THE WALL STREET JOURNAL PROVIDES PESO EXCHANGE RATES- Each day
The Wall Street Journal newspaper publishes the “World Value of the Dollar”
within which is included the value of the Republic of Cuba Peso.
The source of the information is London, United Kingdom-based Bank of America
Global Trading.
AMERICAN EXPRESS MAGAZINE TO PUBLISH ARTICLE ON GOLF IN CUBA-
Boulder, Colorado-based American Express Publishing Corporation, a subsidiary
of New York City-based American Express Company (1997 assets exceed US$120
billion), will publish an article on the development of golf courses within
the Republic of Cuba in the November 1998 issue of Travel & Leisure
Golf magazine.
CUBA MAY CLOSE UP TO 50% OF 156 SUGAR MILLS- Sources at the Ministry
of Sugar of the Republic of Cuba confirmed that with a 1997-1998 sugar
harvest approximately 3.2 million tons (of which 2.387 million tons were
exported between 1 January 1998 and 31 May 1998) versus 4.2 million tons
in 1996-1997 (of which 3.23 million tons were exported between 1 January
1997 and 31 May 1997) and 4.445 million tons in 1995-1996, the government
may permanently close up to 50% of the country’s 156 sugar mills in order
to increase efficiencies, particularly in an effort to reduce costs.
The sugar industry directly provides employment to approximately 400,000
Republic of Cuba nationals and provides income indirectly to approximately
2,000,000 Republic of Cuba nationals. The total workforce of the
Republic of Cuba is approximately 4,500,000. The Republic of Cuba
has a total population of approximately 11,000,000. The government
of the Republic of Cuba has permitted foreign investment and participation
within the sugar derivatives sector, but has yet to permit foreign investment
and participation in the growing and processing of raw sugar, although
this policy is expected to change.
GRAIN IMPORT UPDATE- Republic of Cuba wheat imports from the
French port of Rouen between 1 August 1998 and 12 August 1998 were 23,032
tons.
CUBA DEBT TRADING AT US$.22 PER U.S. DOLLAR- For the last three
months, outstanding Republic of Cuba government debt has been trading on
international financial markets for US$.22 per US$1.00. Republic
of Cuba government debt payable in German Marks has been trading for approximately
22% of face value.
CHILE SIGNS PREFERENTIAL TRADE AGREEMENT- The government of Chile
and the government of the Republic of Cuba signed a five-year preferential
trade agreement covering 750 Chile-produced products and 600 Republic of
Cuba-produced products. The covered products are in healthcare, construction,
agriculture, and sugar. The agreement is to be reviewed and, if necesssary,
revised, on an annual basis.
MAJOR OIL SPILL AT THE BAY OF HAVANA- Although the 100-ton oil
spill happened at the end of July 1998, the government of the Republic
of Cuba only last week confirmed the existence of the oil spill, initially
described by the city of Havana’s Nico Lopez refinery as an oil spill of
21-tons. The oil spill was the result of workers at the Nico Lopez
refinery failing to close oil flow tank values after flushing the oil flow
tank values for water. Mr. Jorge Breto, Director of Republic of Cuba
government-operated SAMARP, which is cleaning-up the oil spill, reported
that the clean-up operation may take several months due to a lack of equipment.
Reportedly, three employees of the Nico Lopez refinery have been disciplined.
The government of the Republic of Cuba has been publicizing efforts to
clean-up the Bay of Havana, Port of Havana, and surrounding areas to address
increasing environmental concerns by Republic of Cuba nationals and tourists.
FOREIGN INVESTMENT HISTORY- The National Assembly of the Republic
of Cuba approved decree Law No. 50 in 1982 which authorized Republic of
Cuba government-operated companies to establish joint ventures and economic
associations with non-Republic of Cuba-based companies. Decree Law
No. 50 authorized a foreign company to have a majority interest in a venture,
but the government of the Republic of Cuba did not encourage such ownership,
thus, none was permitted. In 1988, the first joint venture was established
to construct a hotel in the resort area of Varadero, 140 kilometers east
of the city of Havana. In October 1991, the government authorized
the expansion of foreign investment from the tourism sector to other sectors
of the economy. In 1992, the National Assembly of the Republic of
Cuba amended the Republic of Cuba Constitution to authorize non-Republic
of Cuba nationals to own property. The Fifth Congress of the Communist
Party of the Republic of Cuba, held in October 1997, endorsed the 1) expanding
role of foreign investment in the economy and 2) non-Republic of Cuba nationals
having majority interests in joint ventures and economic associations.
INVESTMENT PROMOTION AND PROTECTION AGREEMENTS, AND TAX TREATIES-
The Republic of Cuba has Investment Protection and Promotion Agreements
with: Italy (May 1993), Russia (July 1993), Spain (May 1994), Colombia
(July 1994), United Kingdom (January 1995), China (April 1995), Ukraine
(May 1995), Bolivia (May 1995), Vietnam (October 1995), Lebanon (October
1995) Argentina (November 1995), South Africa (December 1995), Chile (January
1996), Romania (January 1996), Barbados (February 1996), Germany (May 1996),
Switzerland (June 1996), Greece (June 1996), Venezuela (December 1996),
Hungary (January 1997), Holland (initialed), Belgium (initialed), France
(April 1997), Laos (April 1997), Ecuador (May 1997), Cape Verde (May 1997),
Jamaica (June 1997) Brazil (June 1997), Indonesia (September 1997), Namibia
(June 1997), Malaysia (September 1997), Turkey (December 1997), Belize
(April 1998), Belgium (May 1998), and Portugal (July 1998). The Republic
of Cuba has a tax treaty with Lebanon (February 1998).
1995 FOREIGN INVESTMENT LAW- The National Assembly of the Republic
of Cuba approved a new foreign investment law in September 1995.
The law authorized up to 100% foreign ownership (which had also been authorized
under Decree Law No. 50, but not permitted) in all sectors of the economy
except those pertaining to national defense, national security, education,
and healthcare. The law authorized the creation of free trade zones
and industrial parks, and various forms of ownership including stocks and
bonds, and real estate investment and development. The law authorized
foreign companies to hire Republic of Cuba nationals directly, but continued
to require that foreign companies contract for the Republic of Cuba nationals
through government-operated agencies. The foreign company would pay
the government-operated agency a monthly per employee salary in U.S. Dollars,
while the government-operated agency would, in turn, make a payment to
the Republic of Cuba national in Pesos. For example, if a foreign
company paid the government-operated agency US$300.00, the Republic of
Cuba national would receive 300 Pesos. The law did not change existing
taxes and fees. Foreign investors normally pay a 30% tax on profits,
a 25% payroll tax, and various duties and license fees. There are
no taxes on property, repatriation of profits, and salaries, although there
are substantial tax benefits to be gained by the reinvestment of profits
and by having a Republic of Cuba government-operated entity as a shareholder
in a venture. Taxes and fees can be reduced and/or waived on a case-by-case
basis.
1996 FOREIGN INVESTMENT ASSET PROTECTION LAW- The National Assembly
of People’s Power of the Republic of Cuba adopted Law No. 80 in December
1996, designed to protect investments made by non-Republic of Cuba-based
companies within the Republic of Cuba. Articles Five and Six of Law
No. 80 provide the government of the Republic of Cuba with powers to take
whatever actions are deemed necessary to protect current and potential
investors. One example is authorizing non-Republic of Cuba-based
companies to transfer and maintain secrecy about their investments through
the use of fiduciary companies, financial corporations, and investment
funds.
PENDING LEGISLATION- The government of the Republic of
Cuba is developing two important pieces of legislation that will impact
the investment climate. The first law defines and regulates business
practices within the country. The second law regulates real estate-related
activity. The government of the Republic of Cuba is preparing a decree
law “On the Special Real Estate System,” which will cover foreign investment,
ownership, and rental of business and residential real estate. A final
draft of the decree law is being circulated. The draft decree law
permits foreign investors, in conjunction with Republic of Cuba government-operated
companies, to construct, rent, and purchase office space, homes, condominiums,
and timesharing tourism projects. Under the decree law, non-Republic
of Cuba nationals would, for the first time since the 1959 revolution,
be permitted to purchase up to two dwellings from the government of the
Republic of Cuba or from a joint venture operating within the Republic
of Cuba, one dwelling for use as a residence and one dwelling for recreational
purposes. Non-Republic of Cuba nationals will be permitted to transfer
their dwellings to Republic of Cuba nationals if the Republic of Cuba nationals
are immediate relatives (wife, husband, child). Non-Republic of Cuba
nationals will pay a yearly property tax of 1% of assessed value, the first
property tax since the 1959 revolution. Under the new decree law,
non-Republic of Cuba nationals must first offer their property for sale
to the government of the Republic of Cuba, before being permitted to sell
the dwelling to other non-Republic of Cuba nationals. The decree
law would permit non-Republic of Cuba nationals to sublet rented property,
but not for a profit (which has yet to be defined). Republic of Cuba
law strictly forbids “real estate speculation.” More than 75% of Republic
of Cuba nationals own their dwellings, but they are only permitted to trade,
not sell them, to other Republic of Cuba nationals, although most include
either Pesos, U.S. Dollars, or a combination of currencies in the transaction.
Non-Republic of Cuba nationals working as diplomats within the Republic
of Cuba and non-Republic of Cuba nationals working for Republic of Cuba
government-operated companies or non-Republic of Cuba government-operated
companies within the Republic of Cuba, are only permitted to rent dwellings
and to purchase dwellings through the government of the Republic of Cuba.
Republic of Cuba nationals are only permitted to rent their dwellings to
other Republic of Cuba nationals and to non-Republic of Cuba nationals
who are visiting the Republic of Cuba as tourists.
FREE TRADE ZONES- In June 1996, H.E. Dr. Fidel Castro Ruz, President
of the Republic of Cuba, enacted Decree Law No. 165 which established free
trade zones. Products and materials entering and leaving the zones
are free of duty. Companies producing a product(s) do not pay profit
and payroll taxes for twelve years and are 50% tax exempt for an additional
five years. Service-oriented companies are tax exempt for five years
and 50% tax exempt for an additional three years. Companies producing
within the free trade zones can send 25% of their products to the domestic
market free of duty, though the amount is negotiable. All products
with 50% or more valued-added in the free trade zones can enter the domestic
market free of duty. The government establishes a minimum wage for
the zones. Workers are contracted through government-operated agencies.
However, companies can, on a case-by-case basis, establish their own employment
offices and provide contracted U.S. Dollar bonuses. There are three
Free Trade Zones operating in the city of Havana area within which 200
Republic of Cuba government-operated and non-Republic of Cuba government-operated
companies are located, 30% of which were in manufacturing. Two additional
Free Trade Zones, the first in Cienfuegos, 250 kilometers southeast of
Havana, and the second in Santiago de Cuba, 850 kilometers east of Havana,
are expected to become operational in 1998.
CURRENT STATUS OF FOREIGN INVESTMENT- The Republic of Cuba has,
during the last nine years, developed an ever-expanding means of obtaining
foreign capital, obtaining new technologies, and obtaining new markets.
Joint ventures, economic associations, management contracts, production
cooperation agreements, investment funds, and pre-financing agreements
are some of the means currently in use, while others, including the issuing
of stocks and bonds, are under intense discussion at the highest government
levels. The Ministry for Foreign Investment and Economic Cooperation
(MINVEC) of the Republic of Cuba reported that, as of the end of June 1998,
there were more than 340 joint ventures and economic associations operating
within the Republic of Cuba, including 50 joint ventures and/or economic
asociations operating in other countries. The 340+ joint ventures
had capital commitments of more than US$2.2 billion (of which US$1.2 billion
represented foreign capital that had been invested). [Since 1990, according
to various published sources, announced foreign investment is US$5,651,000,000.00
and committed/delivered foreign investment is US$1,766,900,000.00].
The Republic of Cuba reported sixty three ventures had been established,
and later dissolved, since 1988. The Republic of Cuba reported an
additional sixty joint venture agreements were expected to soon be signed,
while another 100 joint venture agreements were in initial stages of negotiation.
MINVEC reported that most foreign investment was concentrated in basic
industry (mining, oil exploration, oil processing), tourism, light industry,
food processing, agriculture, and construction. Partners from Italy,
France, Spain, and Great Britain accounted for 50% of the existing joint
ventures, partners from Canada 20% of the remainder, although partners
from Canada accounted for approximately 25% of all capital invested within
the Republic of Cuba since 1988. [At the end of June 1998, The Honorable
Keith Christie, Ambassador of Canada to the Republic of Cuba, reported
that Canada-based companies were negotiating joint ventures that would
bring an additional US$1 billion into the Republic of Cuba during the next
two years]. Partners from Mexico, Argentina, Venezuela, and Chile
accounted for 18% of existing joint ventures. In January 1998, H.E.
Jose Luis Rodriguez, Minister of Economy and Planning of the Republic of
Cuba, reported that foreign investment increased 7% in 1997, 3% below government
estimates. Foreign investment is expected to increase 22% in 1998
as a number of joint ventures move from the announced/committed to the
delivered/operational stages. At the end of 1997, MINVEC reported
that more than 300 joint ventures and economic associations had been established.
MINVEC reported that at the end of 1996 it had approved 260 joint ventures
and economic associations, with committed capital of more than US$2.2 billion.
In August 1997, MINVEC reported that there were more than 260 joint ventures
and economic associations and that an additional 140 proposals were being
negotiated. MINVEC reported it had approved joint ventures and economic
associations as follows:
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VALUE OF FOREIGN INVESTMENT IN CUBA- The following figures represent
amounts of announced, committed, and delivered investments since 1990 by
private sector companies and government-controlled companies from various
countries to enterprises within the Republic of Cuba as of 13 July 1998.
Information, which may or may not be in the public domain, compiled through
the media, other public sources, individual discussions with company representatives,
non-Republic of Cuba government officials, and Republic of Cuba-based enterprise
managers and government officials:
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| Australia |
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| Austria |
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| Brazil |
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| Canada |
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| Chile |
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| China |
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| Dominican Republic |
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| France |
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| Germany |
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| Greece |
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| Honduras |
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| Israel |
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| Italy |
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| Jamaica |
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| Japan |
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| Mexico |
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| The Netherlands |
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| Panama |
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| Portugal |
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| Russian Federation |
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| South Africa |
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| Spain |
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| Sweden |
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| United Kingdom |
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| Uruguay |
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| Venezuela |
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| TOTAL |
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NOTE: *At the end of June 1998, The Honorable Keith
Christie, Ambassador of Canada to the Republic of Cuba, reported that Canada-based
companies had delivered investment of US$200 million within the Republic
of Cuba.
FOREIGN INVESTMENT POLICY SHIFT- H.E. Dr. Carlos Lage,
a Vice President of the Council of State of the Republic of Cuba, said
in February 1998 that banking reform and economic recovery had led to a
shift in the foreign investment policy of the government of the Republic
of Cuba, with a new focus toward attracting large investments for development
projects and diminished focus toward small investments. He said that
Republic of Cuba government-operated banks could provide financing small
investments. He said that exceptions to the new policy would include
when a small investment included the introduction of new technology or
provided opportunities to develop export markets. Thus far, the policy
outlined by Vice President Lage in February 1998 has yet to realize results
in terms of foreign investment entering the Republic of Cuba which results
in the creation of substantial new employment opportunities for Republic
of Cuba nationals. Vice President Lage, speaking at a “1998 to 2000”
strategy meeting at the Ministry for Foreign Investment and Economic Cooperation
(MINVEC) of the Republic of Cuba, said that the country should also take
advantage of investment opportunities abroad, and focus attention upon
the control of joint ventures operating within the Republic of Cuba.
UPDATED SPEAKING SCHEDULE On 26 August 1998, Mr. John S. Kavulich II, President of the U.S.-Cuba
Trade and Economic Council, will be a guest lecturer at the City University
of New York (CUNY) School of Law at Queens College in Flushing, New York.
Mr. Kavulich will be speaking on the topic of “International Economic Boycotts:
Cuba” before a class on International Trade & Commercial Transactions
Law.
ANNUAL MEMBER LUNCHEON UPDATE The annual member luncheon of the U.S.-Cuba Trade and Economic Council
is being tentatively-scheduled for September 1998 or October 1998 in New
York City. Guest speakers being considered are a grouping of the
Chairmen, Presidents, and Chief Executive Officers of non-United States-based
healthcare companies which export to, import from, have joint ventures
with, or have economic associations with, the Republic of Cuba. If
members have suggestions, please contact the U.S.-Cuba Trade and Economic
Council.
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