Research: Commentary

Giving Mexico the Business

South Florida Sun-Sentinel, February 24, 2006 | Letter

By Wayne Smith

The South Florida Sun-Sentinel's Feb. 13 editorial on the incident in Mexico was right on the mark. The U.S. Treasury Department had ordered the Maria Isabel Sheraton Hotel to expel the members of a Cuban delegation there to attend an international conference. And yet, having the Cuban delegation kicked out of the hotel and confiscating their deposits (to be turned over to the Treasury Department) was, as the editorial indicated, totally counterproductive. It didn't prevent the conference from being held; the organizers moved it to another hotel. It simply made the U.S. look petty, inflamed Mexican nationalism against us, and, in the final analysis, was illegal.

In some ways, the incident is even more depressing than suggested by the Sun-Sentinel's editorial. For one thing, the regulations on which Treasury based its demands to the hotel far pre-date the Helms-Burton Act of 1996. Indeed, as I read of the incident, I had a deep sense of déjà vu. We've been through all this before and haven't learned a thing.

From 1960 until 1975, it was against U.S. regulations for any American subsidiary abroad to trade with or have any financial transactions with Cuba. But then, in 1974, the newly elected Peronist government in Argentina signed a trade agreement with Cuba. Under the terms of that agreement, American subsidiaries in Argentina, such as Ford of Argentina, General Motors of Argentina and a whole series of others, were instructed by the Argentine government to make cars and other products available for shipment to Cuba -- for excellent prices set by the agreement.

The U.S. Treasury Department said that would be a violation of the regulations under the Cuban embargo and that if the companies did so, they would face heavy fines and their executives possibly even arrest upon return to the U.S. But the Argentine government responded that while the U.S. might consider these subsidiaries to be subject to U.S. law, they were incorporated in Argentina, and as far as the Argentine government was concerned, they were Argentine and fully subject to the laws and trading policies of Argentina. If they did not provide the products, as ordered, the executives would be subject to arrest and the companies to nationalization.

I was political officer at the U.S. Embassy in Buenos Aires at that point and well remember the painful dilemma in which we were placed. The Argentines were right. The companies were incorporated in Argentina and were subject to Argentine law. And under international law, a government cannot impose its laws on the entities of a second country, and certainly not when those entities are within the borders of the second country.

Fortunately, we had a very competent U.S. ambassador in Buenos Aires -- Robert C. Hill. A staunch Republican, he believed in what was good for business -- and this obviously was not. As he noted, "We don't have international norms on our side here; this can only cause us extreme embarrassment and place our companies in needless jeopardy."

And so, he sent up strong recommendations that the regulations be brought into line with international law. In those years, the embargo regulations were entirely in the hands of the executive power and could be changed without congressional action. And so, the regulations were changed, in 1975.

For the next 18 years, we respected international law; it was legal for U.S. subsidiaries to sell to Cuba, and many did. But then, in 1992, came the Cuban Democracy Act, which again prohibited subsidiary trade (with the pertinent regulations changed to accomplish that in 1993).

I well remember U.S. Rep. Robert Torricelli, the act's principal sponsor, saying that his bill had restored the prohibition which had been removed as the result of an "oversight" in 1975. Oversight indeed! It was as though the 1974 crisis with Argentina had never happened.

The regulations prohibiting American subsidiaries abroad from selling to or having any financial transactions with Cuba have not always been enforced over the ensuing 13 years. When they have been, they've caused problems. Now, in Mexico, we have a serious one.

With the hotel in Mexico City, as with the American subsidiaries in Argentina, it is incorporated in another country, in this case Mexico, and has all the duties and obligations under the law that a Mexican-owned hotel would have. The U.S. Treasury Department has no right whatever to order a Mexican entity to go against the laws and trading practices of Mexico, and certainly not to confiscate funds paid to it by foreign guests. But the Treasury Department did exactly that, thus flagrantly violating Mexican sovereignty.

What surprises me most is the rather passive response of the Mexican government. It has taken the position that its problem is with the hotel, not the U.S. government.

Really! Was it not the U.S. government that ordered the hotel to kick the delegation out and turn the money over? If that isn't a violation of Mexican sovereignty, I don't know what it is.

Wayne S. Smith is a senior fellow at the Center for International Policy in Washington, D.C. A diplomat for 25 years, he served in Argentina and Cuba, among other posts.

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