Disappointing month for foreign investment in Cuba
鈥� A version of this post ran on the author's blog, thehavananote.com. The views expressed are the author's own.
It鈥檚 not been a banner week 鈥� or month 鈥� for Cuba on the trade, investment, and economic front.
After its second attempt in 10 years to find commercial quantities of oil in Cuban deep water in the Gulf of Mexico 鈥� its latest well came up dry 鈥� Spain鈥檚 Repsol is 鈥�almost certain鈥� it won鈥檛 try again.听 Repsol has the option to drill again later this year before the Italian-owned Scarabeo rig 鈥� which, due to the US embargo, had to be specially built with no more than 10 percent of American parts for exploration in Cuba 鈥� moves on to Brazil.听 Next up are two Malaysian and Russian firms, whose explorations this summer could be crucial to Cuba鈥檚 near-to-mid-term hopes of accessing undersea reserves it estimates to be as high as 20 billion barrels (the US estimates it to have around 5 billion).听
As Jorge Pinon, a former oil executive and an expert on Cuba鈥檚 oil prospects, , once the only rig in the world that can drill in Cuban waters without violating the US embargo moves on, it could be years before it鈥檚 available and another player is willing to invest millions in the gamble 鈥� especially when larger reserves beckon elsewhere around the world.听 The prospect of an energy-independent Cuba was intriguing from a geopolitical standpoint, and surely a blow to Cuba鈥檚 hopes of digging out of its continuing economic troubles.听听 Just as some wondered if success in the Gulf could derail the economic reforms underway out of necessity, it might soon be time to ask if failure could spur on the painfully slow pace of the reforms.
The pace seems even slower for on the island as of late.听 Cuban officials have cracked down on foreign investors and their domestic partners found to be involved in corruption 鈥� two British executives have recently landed in jail.听 Other partners such as Unilever and a group of Israeli investors in Cuban citrus are on their way out following unsuccessful contract renewal negotiations.听听 It鈥檚 mystifying to watch Cuban officials working harder to chase off investors than to bring them in when, as one western diplomat put it, such concessions are 鈥渋nevitable鈥�.听 With plans to drastically cut government payrolls (that the small domestic private sector can鈥檛 quickly or totally absorb), Cuba鈥檚 main benefactor and trading partner, Venezuela鈥檚 Hugo Chavez鈥檚 health (and hold on power) uncertain, and big bills to pay with not enough hard currency earnings to pay them, it鈥檚 hard to understand what鈥檚 going on.听 And that is exactly the sort of climate that will scare off investors for the time being.
And in perhaps the most for Cuba, the US Supreme Court has rejected a petition over the US trademark rights to the Havana Club rum name.听 Given that the US accounts for 40 percent of the worldwide rum market, CubaExport and its French distributor partner Pernod Ricard, which distribute Cuba鈥檚 flagship rum to more than 80 other countries around the world but not in the US yet, had hoped the US Patent and Trademark Office (USPTO) would hold their seat in the US market until the embargo is eventually lifted.听 That鈥檚 听because CubaExport had registered the US rights to the name in 1976 (after the prior owner, who鈥檚 rum distillery was expropriated by the Cuban government, failed to renew the US trademark rights in 1973), and renewed its rights every ten years thereafter in order to keep its rights current.
Two decades and no US imports from Cuba later, 听Pernod Ricard鈥檚 competitor (and reigning worldwide rum distributor) Bacardi started bottling its own Havana Club rum.听 Pernod Ricard responded by suing Bacardi for the trademark infringement. Then, in 1998, Bacardi triumphed by getting allies in Congress to pass a rider, Section 211 of the 1999 Omnibus Appropriations Act, to block registration and renewal of trademark rights associated with expropriated Cuban properties 听(without 鈥渃onsent鈥� of the 鈥渙riginal owner鈥� of the trademark), and to even block a US court from hearing a complaint on their behalf.听 听听
Pernod would likely have argued in court that the new law didn鈥檛 apply because the original owner of the Havana Club label had failed to renew their trademark rights in the US and thus was no longer considered the original owner, but it never got the chance, since Section 211 forced a Florida court to throw out the pending suit by Pernod Ricard against Bacardi.听 Then, when CubaExport tried to pay for the Havana Club rights renewal in 2006, as it had done for three decades, Section 211 now prevented the USPTO from accepting the payment.
The Havana Club rum dispute remains as obscure as ever to the larger American public. It鈥檚 simply too complicated, and there isn鈥檛 a big enough constituency to care.听 And that鈥檚 the real shame.听 Thanks to a backroom deal on a fast-moving, must-pass bill , the intended targets aren鈥檛 the only losers.听 The United States鈥� sterling reputation for intellectual property rights protection has taken a hit, and if renewed threats of retaliation by Cuba bear out, US businesses that have nothing to do with the row and enjoy trademark protection in Cuba today could lose that protection.听 Whatever one thinks of the Cuban government鈥檚 expropriation of businesses in the early days of the Revolution (and the American business community that overwhelmingly opposes Section 211 is surely no fan), it's hard to see how following Cuba鈥檚 usurping example is really the answer.
鈥� Anya Landau French blogs for , a project of the "US-Cuba Policy Initiative,鈥� directed by Ms. Landau French, at the/.
