Sunday, April 20, 2014

A Law with Dark Corners

A Law with Dark Corners / Fernando Damaso
Posted on April 19, 2014

The Foreign Investment Law, debated and approved by the National
Assembly in extraordinary session, has some worrisome aspects, both for
foreign investors as well as for Cuban citizens.

It seems that Cubans living in other countries are not covered under the
law since the definition of a domestic investor applies only to current
legal residents of Cuba and to cooperatives. The latter are legally
recognized non-state administrative entities which may participate as
domestic investors in projects financed with foreign capital but which
remain completely under state control to prevent the accumulation of
excess wealth.

Elsewhere, investment priority is usually given to a country's own
residents, then to its overseas residents and lastly to foreigners. In
Cuba it is the opposite: foreigners get top priority. Afterwards, we
have to listen to authorities tirelessly proclaiming themselves to be
the defenders of national dignity, independence and sovereignty.

The claim that investments "may not be expropriated except for reasons
of public utility or social interest, as previously defined by the
Council of Ministers" should give one pause. This is a well-established
procedure in most countries. Before such actions can be taken, they must
be discussed and approved by legislative bodies (a house of
representatives, senate, parliament or national assembly).

It is a process in which those concerned — governmental authorities as
well as those in the opposition who may hold with differing views —
participate fully. Final implementation is subject to review by the
judicial branch, which makes sure any such actions do not violate the

This is not the case in Cuba where the National Assembly is made up
exclusively of deputies from one party. It is a legislative body without
an opposition in which anything the government proposes is approved
unanimously. The Cuban judiciary, which is nothing more than an appendix
of the government, also has no independence.

In spite of anything that has been stipulated in writing, investors lack
any real protection or legal recourse. They remain subject to decisions
by a centralized authority in the person of the president, who for
political, ideological or circumstantial reasons can act as he pleases
without having to consult anyone, as has happened repeatedly over the
last fifty-six years.

Regarding employment of Cuban citizens, the law stipulates that an
investor must hire workers through an employment agency selected by the
Ministry of Foreign Trade and Foreign Investment and authorized by the
Ministry of Labor and Social Security. Payment to workers would be by
mutual agreement between the investor and the employer. Neither exchange
occurs between the investor and the worker directly but through a state

Though the purported purpose is not to generate revenue, it stipulates
that a portion of the wages paid by the investor will be retained to
cover costs and expenses for services provided.

As one might expect, there is a big difference between what the investor
pays and what the employee receives. The salary paid to the employee
will correspond to a minimum wage set by the employment agency, which it
claims will be higher than that for the country's other workers. Also
factored in will be a coefficient which will allow the agency to adjust
salaries based on a worker's performance.

The unfortunate history of low pay for doctors, teachers, athletes and
other professionals working overseas to fulfill the Cuban government's
contracts with other countries speaks volumes.

It would perhaps have been advantageous to draft an investment law that
also regulated state investments (considering the many examples of bad
investments made over the years). It might also have covered private
investment, differentiating between foreign and domestic investment.

In regards to domestic investment, it might have included both
investment by Cubans living on the island as well as those living
overseas, especially since the latter currently must also possess a
Cuban passport to enter and exit the country, thus confirming their
legal status as Cuban citizens.

This law is not free from the burden of obsolete concepts of failed
socialism, with the objective in ensuring a leading role for the state.
It lacks sufficient transparency to really stimulate foreign investment
and includes some traps into which those who bet on it, without giving
it enough thought, might fall.

7 April 2014

Source: A Law with Dark Corners / Fernando Damaso | Translating Cuba -

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