Disappointing month for foreign investment in Cuba

Disappointing month for foreign investment in Cuba

Foreign companies look to be pulling out of oil exploration in Cuba, and
Havana Club rum is fighting to retain its name in US markets, writes a
guest blogger.
By Anya Landau French, Guest blogger
posted June 7, 2012 at 3:53 pm EDT

It's not been a banner week – or month – 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 – its latest well came up
dry – Spain's Repsol is "almost certain" it won't try again. Repsol has
the option to drill again later this year before the Italian-owned
Scarabeo rig – which, due to the US embargo, had to be specially built
with no more than 10 percent of American parts for exploration in Cuba –
moves on to Brazil. Next up are two Malaysian and Russian firms, whose
explorations this summer could be crucial to Cuba's 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).

As Jorge Pinon, a former oil executive and an expert on Cuba's oil
prospects, points out, 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's available and another player is willing to invest
millions in the gamble – especially when larger reserves beckon
elsewhere around the world. The prospect of an energy-independent Cuba
was intriguing from a geopolitical standpoint, and surely a blow to
Cuba's hopes of digging out of its continuing economic troubles. 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 foreign investments on the island as of
late. Cuban officials have cracked down on foreign investors and their
domestic partners found to be involved in corruption – two British
executives have recently landed in jail. Other partners such as
Unilever and a group of Israeli investors in Cuban citrus are on their
way out following unsuccessful contract renewal negotiations. It's
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 "inevitable". With plans to drastically cut
government payrolls (that the small domestic private sector can't
quickly or totally absorb), Cuba's main benefactor and trading partner,
Venezuela's Hugo Chavez's health (and hold on power) uncertain, and big
bills to pay with not enough hard currency earnings to pay them, it's
hard to understand what's going on. And that is exactly the sort of
climate that will scare off investors for the time being.

And in perhaps the most bitter news for Cuba, the US Supreme Court has
rejected a petition over the US trademark rights to the Havana Club rum
name. Given that the US accounts for 40 percent of the worldwide rum
market, CubaExport and its French distributor partner Pernod Ricard,
which distribute Cuba's 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. That's because CubaExport had
registered the US rights to the name in 1976 (after the prior owner,
who's 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, Pernod Ricard's
competitor (and reigning worldwide rum distributor) Bacardi started
bottling its own Havana Club rum. 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 (without
"consent" of the "original owner" of the trademark), and to even block a
US court from hearing a complaint on their behalf.

In pictures: Cuba's economy

Pernod would likely have argued in court that the new law didn't 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. 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's simply too complicated, and there isn't a big
enough constituency to care. And that's the real shame. Thanks to a
backroom deal on a fast-moving, must-pass bill , the intended targets
aren't the only losers. The United States' 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. Whatever one thinks of the Cuban government's
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's usurping example
is really the answer.

– Anya Landau French blogs for The Havana Note, a project of the
"US-Cuba Policy Initiative," directed by Ms. Landau French, at the New
America Foundation/American Strategy Program.

http://www.csmonitor.com/World/Americas/Latin-America-Monitor/2012/0607/Disappointing-month-for-foreign-investment-in-Cuba