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The international market is an ever evolving and increasingly complex arena. Every nation has domestic and foreign policies based on a combination of theoretical, religious, political, or economic beliefs. Although a nations goal is to benefit its peoples, often times the domestic and foreign policies of one nation will not agree with the policies of another nation. Sanctions and embargos are punitive economic tools in which nations use in hopes of influencing changes in unfavorable domestic and foreign policies of an adversarial nation. Reasons for sanctions vary; they can also cause economic harm to the issuer as well as targeted nations.
However complicated situations may be, there can still be opportunities to be take advantage of, as well as risks. Cuba, Iran, and North Korea are three of the countries that are targets of U.S restrictive trade measures. Business opportunities exist in Cuba and Iran, but are almost nonexistent in North Korea. One reason why American companies should do business with Cuba is that the embargo has shown little to no effect. Proficient in: Economy
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The embargo against Cuba started in 1962 during President John F. Kennedy's time in office.
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The embargo was signed in response to conflict between rebel forces lead by Fidel Castro and the Fulgencio Batista regime, Cuba's elected president and dictator. When Castro's forces overtook the Batista regime, Castro began to seize and nationalize all American properties without compensation. The embargo was a US attempt to undermine the Castro regime by economically isolating Cuba. 50 years later, Cuba is still controlled by the Communist party.
Reasons for the sanctions ineffectiveness could be significantly attributed to its unilateral nature. Countries other than the United States do not impose restrictive policies against Cuba. Cuba's other trading partners include the Netherlands, which receives 24% of Cuban exports, and Canada receiving 22% of Cuban exports. Venezuela is Cuba's primary import partner. The Japanese are able to freely travel to Cuba and conduct business as well. Furthermore, The nature of the embargo today is not "complete" whereas trade regulations with Cuba have been altered. In 2000, former President Bill Clinton signed the Trade Sanction Reform and Export Enhancement Act. The bill produced $3.5 billion in trade with Cuba making the United States Cuba's largest food supplier.
In 2009, President Obama lifted travel bans to Cuba for Cuban-Americans who want to travel and send money to their homeland. The amount that it costs both Cuba and the United States is beginning to weigh heavily on a policy that has not been working for over 50 years. The Cuban government estimates that the embargo costs the island $685 million annually. The U.S. Chamber of Commerce "estimates the sanctions annual cost to the U.S. economy range from $1.2 to $3.6 billion" in lost sales of exports (Hanson). That is a lot of trade-off for policies that aren't working. Unless a multilateral effort is made, the US sanctions have little influence.
There would be potential gains of trade through restoring relations with Cuba in the infrastructure, tourism, automobile, shipping, and agriculture industries. Research by The Cuba Policy Foundation shows that trade with Cuba could produce 31,262 jobs in America with most jobs created in agriculture (Rosson).
Cuba's infrastructure is incredibly outdated and needs to be completely overhauled, Cuba could once again be a cruise destination and stop-off destination for shipping vessels, the hotel and tourist industry could stabilize, and Cuban's would finally be able to update their classic 1950's era cars to more modern makes and models. These gains from trade would undoubtedly create jobs for both Cubans and Americans. Floridian seaports would experience a boon in job creation for increased shipping activity supplying Cuba with the materials and products needed to update and upgrade their island. With the market coming out of the recession, lifting trade restrictions with Cuba would certainly help invigorate the American economy.
Cuba is not without risks, however. According to The Heritage Foundation's index on Cuba, they have one of the most restricted economic freedoms. Tight state controls, lack of open-market policies, and lack of competition stifle economic diversity. Their government makes foreign trade and investment difficult; there are large amounts of corruption among officials despite anti-corruption efforts. Foreigners risk their finances doing business in Cuba. A 2012 Minyanville article reported, "the global financial crisis sparked a shortage of hard currency on the island and led Castro to freeze the bank accounts of joint ventures operating there,” (Rohrlich).
Castro eventually unfroze those accounts, albeit slowly. The one-party Communist government controls everything; then leader Fidel Castro exercised his authority to freeze foreign assets of joint ventures to keep hard currency from escaping his island. However, Fidel Castro's brother Raul Castro has recently implemented "more than 300 economic reforms designed to encourage enterprise, and restrictions have been lifted on property use, travel, farming municipal governance, electronics access, and more” (Hanson). These new reforms are a step in the right direction and could pave the way for a safer and more profitable Cuba.
Considering the given evidence, American companies appear to have ample opportunities in Cuba for the future. The embargo is having little influence on undermining Cuba's government. Even if US sanctions are in place, it is a unilateral effort yielding no results. Furthermore, American businesses are losing out on $1.2 to $3.6 billion annually in export sales that could create over 31,000 jobs.
Other areas of opportunity are in improving Cuba's infrastructure, stabilizing their tourist industry, sale of newer more modern cars, and increasing Floridian seaport activity. Since the U.S. is largely alone in sanctions against Cuba, American companies would need to move quickly to establish a footing in Cuba due to the long-time presence of other foreign business ventures.
Another country that the United States currently has economic measures against is Iran. The primary reason for sanctions against Iran is nuclear proliferation. The U.S. Department of State says on their website, "in response to Iran's continued illicit nuclear activities, the United States and other countries have imposed unprecedented sanctions to censure Iran and prevent its further progress in prohibited nuclear activities..." Unlike the nature of the United States' embargo against Cuba, the economic restrictions against Iran are a multilateral effort with the European Union, Australia, India, Israel, Japan, South Korea, and Switzerland imposing sanctions on Iran as well.
To date, sanctions have taken their desired effect and Iran opened up to negotiations about nuclear proliferation. According to U.S. Treasury estimates "sanctions have cost Iran $120 billion in lost revenue since the U.S. and European Union started imposing strict penalties on energy, ports, insurance, shipping, banking and other Iran- related transactions in 2010," In 2011, Iran was exporting 2.5 million barrels of crude oil a day. Due to sanctions, by 2013 that number has decreased by 60 percent to 715,000 barrels a day. (Lakshmanan).
In recent events, the Obama administration provided sanction reliefs to allow Iran to export up to 1 million barrels of crude oil a day. Since then, the effects of the sanctions appear to be wearing thin. According to Keith Johnson of The Week, "Iran's crude oil exports jumped to 1.65 million barrels per day in February (2014), thanks to increased purchases by China, India, and South Korea." However, sanctions against Iran have taken their toll forcing them to reconsider their actions.
Iran is a large country rich with resources and with a well-educated population. There are opportunities in energy production and opportunities to reduce the prices of oil in the United States. Social trends may be changing as well with the potential to bring unprecedented economic growth. American companies should do business with Iran, and they will need to move fast to gain advantage over foreign competitors.
One reason American companies should do business with Iran is the wealth of economic opportunity. Some key facts to consider: Iran has a population of 76.6 million with 65% of the population under the age of 35; since the 1970's the populations has nearly tripled. Their GDP is $411.9 billion, with GDP per capita of $12,800.
Iran's population is well educated from elementary to university level, as well as being comfortable with new technologies with around 56 million mobile phones in use. The large, young, and very well educated population "comprise(s) the perfect entrepreneurial opportunity, within Iran's borders and for foreign countries looking for a new market," (Avampato). There is also sufficient demand for American products, particularly technology oriented merchandise. "Despite the sanctions...there was no shortage of business because of Iranians' love for the latest technology," (George).
Secondly, Iran is a country rich in energy resources that could help our economy, as well as theirs. Iran's economy is dominated by oil: Iran "holds the world's fourth- largest proven oil reserves, the world's second-second largest natural gas reserves," (U.S. Energy Information Administration) as well as ranking among the top four Organization of the Petroleum Exporting Countries (OPEC) producers. According to a study by the National Foreign Trade Council, "increased oil production by Iran could reduce the world price of crude petroleum by 10 percent, saving the United States annually between $38 billion (at the 2005 world oil price of $50/bbl) and $76 billion (at the proximate 2008 world oil price of $100/bbl)," (DeRosa).
Lastly, American companies should do business with Iran because of the potential opportunities that may surface due to a possible shift in their culture. Recent social changes to Iran's traditional norm can have dramatic affects on their future economy that American business should note. In a recent article, Iran's President Rouhani denounced discrimination against women and urged for equality. Mr Rouhani said: "We will not accept the culture of sexual discrimination... Women must enjoy equal opportunity, equal protection and equal social rights," (BBC). Throughout the history of civilization, one identifiable trend is the relationship between the treatment of women and a country's economy.
According to an article in The Economic Times, "there is a high correlation between measures of women's rights and GDP per capita income. Contemporary cross- country data shows women's rights and development are highly correlated," (Bhusnurmath). Iran's direction to possibly move towards equal rights for women can be a signal of the start of major economic growth. It would be advisable for American companies to establish themselves early in Iran to acquire an advantageous position against potential competitors from other nations.
The decision on whether to do business with North Korea is clearer than it is for the previous countries mentioned above. In fact, doing business with North Korea is near impossible for American companies due to the nature of that country's leadership. Dictator Kim Jong Un has intentionally isolated North Korea from most of the world with few external trading partners, if any. After the fall of the Soviet Union, China remains as North Korea's primary trading partner.
Sanctions against North Korea are a result of North Korean nuclear weapons development and testing. In recent news North Korea has warned of an upcoming fourth nuclear test. President Obama is threatening even more sanctions against North Korea, although they most likely will have little to no influence on any decision by Kin Jong Un. One reason American companies should not do business with North Korea is that it is the most economically repressed country in the world.
The Communist government controls everything, allowing nearly no private ownership. Because it is closed dictatorial state, accurate concrete information is near impossible to obtain; most data collected on North Korea is speculative. The Central Intelligence Agency's (CIA) World Factbook reports that the purchasing power parity (PPP) GDP of North Korea is $40 billion with GDP per capita (PPP) at $1800. It is safe to assume that North Korean citizens cannot afford American products or anything outside of absolute physiological necessities.
American companies would be taking a tremendous financial, and most importantly, personal risk by trying to do business with North Korea. Although Cuba and Iran have varying degrees of distaste towards America, it pales in comparison to North Korea. Kim Jong Un loathes America like his predecessors before him, while calling the U.S. the "arch criminal threatening peace," (Frieder). It is well known that North Korea has widespread propaganda promoting their "glorious leader" and damning the "evil nation” that is the United States.
Business managers seeking a venture with North Korea must be prepared for any unpredictable circumstances such as being detained. In recent news, a 24-year-old American tourist was arrested in North Korea for being "disrespectful," (Peralta). The government is hostile towards its own family as well. In the beginning of 2014, Kim Jong Un made headlines for ordering the execution of his own uncle, as well as "all relatives of Jang have been put to death, including even children," (DeJohn). The hostility of Kim Jong Un is clear, and companies must understand that a business venture equates to putting lives and finances at tremendous risk.
Another reason that American companies should not do business with North Korea is their crimes against humanity. Human rights abuse occurs at an atrocious level in North Korea. According to the Human Rights Watch, "More than 200,000 North Koreans, including children, are imprisoned in camps where many perish from forced labor, inadequate food, and abuse by guards. Arbitrary arrest, lack of due process, and torture are pervasive problems." Those who are convicted have their whole family thrown in prison along with them. North Korea also practices generational sentencing, where even descendants of prisoners must serve time in order to make up for an alleged "crime" of their parents.
Also, as a result of North Korea's isolationist policies, North Korea must rely heavily on self-sufficiency; this is incredibly difficult for a country to achieve. The result was a famine from 1994 through 1998. Since then, "large-scale international food aid deliveries have allowed the people of North Korea to escape widespread starvation... but the population continues to suffer from prolonged malnutrition and poor living conditions," (CIA). Companies should do business with a country that treats human life so horrendously. Doing business with such a country may only promote the abuse being done to its citizens.
The international marketplace can exhibit a hostile environment with immense business opportunities. Sanctions and embargos are just one way of dealing with unfavorable practices of and adversarial nation. However, although some measures may seem appropriate, there will always be tradeoffs in all areas, especially economic. Sanctions and embargos prevent countries from doing business with each other and cost individuals and governments billions of dollars in lost potential imports/exports. Cuba, Iran, and North Korea are just small examples of the endless interactions and consequences of international business.
The Many Reasons Why American Companies Should Do Business with Cuba and Iran. (2023, Mar 21). Retrieved from https://studymoose.com/the-many-reasons-why-american-companies-should-do-business-with-cuba-and-iran-essay
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