Center for International Policy

European Union - U.S. Understanding

Fails to Resolve Dispute Over Helms-Burton Act

By Wayne S. Smith

This essay is based on the conclusions of a conference on the E.U.-U.S. Understanding organized by the Center for International Policy in Washington, D. C. on October 7 and on panels at a conference in Brussels November 11-13,1998 organized by the European Parliament's Intergroup Against the Cuban Embargo and by the Global Reflexion Foundation.

Summary

Despite announcements to the contrary, the Understanding of May 18,1998 on expropriated property does not end the conflict between the United States and Europe over the extraterritorial provisions of the Helms-Burton Act (i.e., provisions which would exert U.S. jurisdiction over the citizens and companies of third countries; most egregiously, efforts to bring foreign companies into U.S. federal courts over property issues arising in third countries -in this case, Cuba). Though European Union negotiators were criticized in many European capitals for conceding too much, they did not concede nearly enough to win Senator Jesse Helms's support for the understanding in its present form - neither his support nor that of the majority in the Congress. Rather than granting President Clinton the authority to waive Title IV (see below), a European precondition for the understanding to become operative, Congress has demanded the exact opposite - that the administration report periodically on its stringent implementation. At the same time, Congress put forward new legislation which strips Pernod-Ricard, a French company, of treaty rights in protection of a trademark. This goes directly against the U.S. commitment under the E.U.-U.S. Understanding to resist further extraterritorial legislation. Indeed, it would seem that in trying to accommodate U.S. demands, and, in effect, to allow the United States to hold itself above the law, European negotiators have only encouraged the same elements in Congress who gave us Helms-Burton to now come forward with new unilateral measures against European companies, reassured that European reaction will always be soft and ineffective.

Background

The E.U.-U.S. Understanding of May 18, 1998 on Expropriated Property was aimed principally at resolving the dispute over the Helms-Burton Act of 1996 and, as first announced, it seemed a sensible compromise. For their part, the European governments were to warn their companies and citizens that they should not in the future invest in properties in Cuba - or elsewhere for that matter - that had been illegally expropriated. Further, the governments would deny any kind of assistance for such transactions, including loans, subsidies, guarantees, and political- risk insurance.

The United States, in turn, was to commit itself not to implement sanctions against European companies or citizens under Titles III and IV of the Helms-Burton Act - the first of which opens the way to suits in U.S. federal courts against foreign entities accused of "traffcking" in illegally expropriated properties; the second provides for denial of visas to the executives of those entities. President Clinton already has authority to waive implementation of Title III; he was to ask Congress for similar waiver authority for Title IV Crucially, or so it seemed, the understanding was not to become operative unless and until the president had obtained that waiver authority from Congress. Further, there was a commitment from President Clinton (or at least so the Europeans understood) to resist any future legislation along the lines of Helms-Burton, i.e., no more extraterritorial legislation.

The understanding was also said to strengthen the protection of property rights on a global basis and included such new innovations as a registry of illegally expropriated properties. It also spoke of special provisions to be instituted against countries "that have an established record of repeated expropriation in contravention of international law."

As a number of U.S. business representatives summed it up when the understanding was first announced: "Perhaps this offers a reasonable way to manage the conflict resulting from Helms-Burton." And who could not applaud a commitment to resist future legislation of the same ilk?

The Case Against the E.U.-U.S. Understanding

In fact, however, a closer examination of the understanding reveals it to be misleading, so self contradictory as to be unacceptable to all sides, and in the final analysis harmful to U.S.- European relations. What it represents, more than anything else, is an effort to reconcile mutually exclusive positions with smoke and mirrors. Consider, for example, the following statements:

1 ) Secretary of State Albright on May 18,1998: "This Understanding advances in a most significant way the goals of the supporters of the Helms-Burton Act, such as the co-sponsors Senator Helms and Congressman Burton, along with Senator Torricelli, Members of Congress Gilman, Menendez, Ros-Lehtinen and Diaz-Balart, as well as many others."

2) And in a letter to Senator Helms dated August 3,1998, Secretary Albright described the understanding as "an important complement to the Libertad Act" [i.e., Helms-Burton]. It was, she said further, "an extraordinary vindication of the principles underlying the Libertad Act" and offered "a unique historic opportunity to advance [its) goals." "Castro," Albright concluded, "sees this, rightly, as an internationalization of the Libertad Act."

3) In a letter of his own, however, dated July 20,1998 and addressed to Mr. Peter Crampton, a member of the European Parliament, Sir Leon Brittan, the E.U. trade commissioner who had negotiated the understanding, stated flatly, "The deal on investment disciplines is not (emphasis added) a multi-lateraliza- tion of Helms-Burton." Quite the contrary, he insisted, "at no point did the Community acknowledge the legitimacy of these Acts" [i.e., Helms-Burton and the Iran-Libya Sanctions Act).

In another letter, this one dated September 2 and addressed to Mr. Stan Newens, another member of the European Parliament, Brittan insisted that the European Union had "reiterated our opposition to these laws in no uncertain terms" and said there could be "no question of the E.U. `conniving' to U.S. extra-territorial legislation."

In short, Albright says the understanding represents the "internationalization" of Helms-Burton while Brittan says that it most certainly does not, and adds that Helms-Burton itself is illegitimate. To be sure, both are describing the understanding in terms they believe will appeal to their domestic audiences. As Hermengildo Altozano, a Madrid lawyer, put it at the C.I.P conference on October 7: "The U.S. wants to portray the Understanding as strengthening Helms- Burton, while the Europeans want to see it as dismantling that same Act."

The point is that it cannot do both, no matter how disingenuous the language in official explanations.

A Phony Registry of Illegally Expropriated Properties

A case in point has to do with the registry of properties. Press reports have tended to the view that the E.U.-U.S. Understanding would only affect future investments in a small number of properties that were taken from American owners - that is, from those who were U.S. citizens or entities at the time the property was taken. There are some 5,911 of these claims registered with the Federal Claims Commission, but only about half are properties in which there might be some form of investment. The E.U.-U.S. understanding, however, has relevance far beyond those particular properties. For one thing, it calls for the establishment of a registry of illegally expropriated properties - a registry which potential investors in a given country, say Cuba, would be invited to analyze before investing their money. Obviously, the purpose is to discourage investment, and the longer the list of properties on the registry, the more likely that investors will indeed be dissuaded. One would of course assume that there is some means of determining that a given property has been expropriated in contravention of international law before it is placed on the registry. But that is by no means the case. As Undersecretary of State Stuart Eizenstat testified to Congress on June 3,1998: "A Registry of Claims will be established to warn investors. It will be open to any claimant who alleges that his property was expropriated in contravention of international law. If basic information is provided by the claimant, the claim will be included. There will be no screening out of claims." [Emphasis added)

With no screening, anyone could come up with a long list of supposedly illegally confiscated properties - not fewer than five thousand, but perhaps as many as one hundred thousand. The purpose of the U.S. negotiators in structuring this phony registry is clear and understandable: to discourage foreign investment in Cuba. That is U.S. policy. It is more difficult to understand the motive of E.U. negotiators in going along with it. After all, most European governments have bilateral-investment-guarantee agreements with Cuba. While they might be willing to avoid investments in U.S. properties that were in fact illegally confiscated, it is not their policy to discourage investments generally, and certainly not on the basis of a registry of unproved claims! Why then did the European negotiators go along with so obvious a sham?

Perhaps they thought that by giving the Americans something in form which they could not in fact agree to in substance, they might finesse the issue and come out with an agreement. Not likely. Senator Helms quickly made it clear that unless the E.U.-U.S. Understanding recognizes all American properties as having been illegally expropriated and extends protection to the Cuban-American properties as well, he will not support it. More on those issues below.

The Q0uestion of Cuban-American Claims

It has long been a well-established principle of international law that a government cannot espouse or put forward the claims of those who were not its citizens at the time they sustained property or financial losses in a third country. Until Helms-Burton, the United States had usually honored that principle.* Helms-Burton violates it - one of at least eight ways in which it infringes on international law - by adding the Cuban-American claims to the previously registered claims of those who were U. S. citizens or entities when they lost their property in Cuba.

The European Union has not agreed that it is proper to add the Cuban-American claims. In fact, various European observers have acknowledged that if the matter were ever brought to court, the Cuban-American claims would be thrown out. But what the European Union has done is to allow Cuban-American claims to be included in the registry of properties. Since proof of nationality must be presented at registration, one would have assumed that they would be screened out. But there is no screening. And so, even though it is not a violation of international law for a government to seize the properties of its own citizens, whether or not compensation is paid, and thus in most cases the Cuban-American properties were by definition not taken in contravention of international law, they can all be included in the registry anyway. Some argue that this inclusion in itself represents an infringement of international law, and that by agreeing to it, the European Union has placed itself in the position of being an accessory to an illegal act. Whatever the merits of that argument, European agreement to inclusion of Cuban-American properties in the registry of illegally expropriated properties does give some degree of credence to the charge that the European Union was indeed conniving in a U.S. violation of international law.

What Pattern of Illegally Expropriated Properties?

The E.U.-U.S.Understanding provides for special measures to protect property in the cases of countries that have "an established record of repeated expropriations in contravention of international law." The United States considers Cuba to be such a case. And in her letter to Senator Helms dated August 3,1998, Secretary of State Albright suggests that the Europeans agree with us. "For the first time...," she says, "the E.U. has officially recognized the illegality of [Castro's) expropriation of U.S. property." Well, not quite, to any of the above. First of all, where is the pattern of illegal expropriations in the Cuban case? One may deplore Cuba's expropriation of its own citizens' properties, but, as explained above, that was not done in contravention of international law. As for the property of foreign nationals other than U.S. citizens, Cuba worked out compensation agreements with all other nations having claims against it. Thus, its nationalization of those properties was not illegal either and the European governments do not argue that it was.

Only in the case of the United States is there some question. However, from the beginning, Cuba recognized its obligation to compensate U.S. owners.

When it took the properties in 1959 and 1960, it put forward a compensation scheme - which was rejected by the United States as insufficient. But beginning in 1977, when direct communications between the two governments were resumed, Cuba has periodically reiterated its willingness to sit down with the U.S. government to negotiate a compensation agreement. The United States, however, has never responded positively (probably because it feared that would be interpreted as a move toward normalization). Even so, the fact that Cuba was prepared to compensate U.S. owners - and that the United States never explored the possibility of negotiations - undercuts the argument that even the U.S. properties were taken illegally. Compensation must still be paid, but this is not a case of robbery.

Interestingly, a representative of the Cuban Interests Section in Washington confirmed at the October 7 conference that from 1977 until passage of the Helms-Burton Act in 1996, the Cuban government had indeed been prepared to sit down at the negotiating table with the United States to work out a compensation agreement - as it had already done with the other governments that had claims. It had made that offer on a number of occasions. The representative noted, however, that Helms-Burton raised questions about the continued feasibility of such negotiations. The author agreed, pointing out that Helms-Burton, and most specifcally the conditions imposed by Title II, would appear to rule out such negotiations for the time being. "Thus," he noted, "far from advancing an agreement on compensation, Helms-Burton now stands as a barrier to such an agreement.

Albright's contention that the Europeans "have recognized the illegality of [Castro's) expropriation of U.S. property" is of course an exaggeration. What the European negotiators did was to examine several of the 5,911 claims certifed by the Federal Claims Settlement Commission. And then in a side letter (Annex D to the Understanding) they concluded that there were a number of cases "where having regard to the discriminatory provisions of Cuban Law 851, it appears that the expropriations were contrary to international law.

One can only wonder what modalities the E.U. representatives were applying. To say that the expropriations were "discriminatory" is ironic in the extreme. Virtually all property on the island was nationalized. How then discriminatory? If of course one examines only Law 851, which deals exclusively with U.S. property, one might - erroneously - draw that conclusion. But when one looks at the whole picture, one sees things quite differently. There were massive expropriations, yes, but except in a few exceptional cases, they were carried out within the bounds of international law. The case of the U.S. properties remains in a gray area. It might, however, have been resolved years ago had the United States wished to resolve it. As a diplomat in Washington put it recently, "If the U.S. wanted compensation, it should have done what everyone else did: negotiate for it.

That aside, and despite the questionable modalities and the conclusions they produced in the side letter, the Europeans did not, as Albright would suggest, recognize the illegality of all U.S. expropriations. They simply said that some appear to have been illegally taken and that it is reasonable to assume that others were as well. Even that stretches the truth, but it does not go nearly far enough for Senator Helms. As indicated above, he has made it clear that they must recognize the illegality of all U.S. expropriations or he will not accept the understanding.

A "Reviewable" Title IV Waiver

The expectation of the Europeans had been that the understanding would remove the threat of Helms-Burton sanctions against their companies and citizens. Thus, they called on the Clinton administration to try to obtain permanent waiver authority for Title III (rather than the authority to waive for only six months at a time that the president enjoys now), and similar waiver authority for Title IV. The first was only a wish and one it is now clear will not be granted. Congress will not expand Title III waiver authority.

The second, however, was a hard and fast condition. The understanding was not to become operative until the president had the Title IV waiver in hand. But it is now clear that Congress is unlikely to grant that authority. On the contrary, in an amendment inserted in the October 21,1998 spending bill, Congress insisted that Title IV be implemented and put forward the requirement that the administration how this is being done. Only if the Europeans were willing to accept the U.S. position to a far greater extent than they have done so far might Congress give consideration to a Title IV waiver authority. But even if the Europeans threw dignity and integrity entirely aside and accepted the positions demanded by Senator Helms, the most that might win them would be a "reviewable" Title IV waiver authority, one which would be periodically reviewed and would remain in effect only so long as Congress deemed the individual European states to be in full compliance with the terms of the understanding. How precisely the understanding is to be interpreted would be a matter solely for Congress to determine in deciding whether to extend or rescind a previously granted waiver. As Robert Muse, a lawyer who participated in the October 7 conference, put it: "This would leave the European governments on their knees awaiting the decision of the U.S. Congress as to whether or not to continue to grant them dispensation." It is unthinkable that this would be acceptable to the European governments.

No More Extraterritorial Legislation

There is also the matter of the U.S. commitment to resist further extraterntorial legislation as part of the understanding. That was blown apart by the so-called Mack amendment that was also attached to the October 21 U.S. spending bill (the four-thousand-page document of which Senator Robert Byrd said, "Only God knows what's in this monstrosity."). In blatant violation of the 1931 Inter-American Trademarks Convention, this amendment prohibits U.S. courts from recognizing the rights of a "designated national" regarding a registered trademark (a "designated national" being a company with substantial Cuban shareholding). Even further, courts are told they cannot "recognize, enforce or otherwise validate any assertion of treaty rights by a designated national."

Why the Mack amendment? Because a French company, Pernod-Ricard, which is involved in a joint venture with Cuba Rum, had the rights to the Havana Club trademark in the United States. The Bacardi company, however, had begun using that trademark and Pernod-Ricard had sued. The case was to have been heard in January and Pernod-Ricard almost certainly would have won. And thus the Mack amendment to simply strip away Pernod-Ricard's rights in a U.S. court.

Needless to say, a number of other foreign companies will have their trademark rights stripped away as well. So much for any U.S. commitment to resist further extraterritorial legislation!

The E.U.-U.S. Understanding's Underlying Objective

Interestingly, although Senator Jesse Helms has rejected the understanding as now formulated because it does not go far enough to meet his demands, in at least one important context, the administration, the E.U. negotiators, Helms and other ultra-conservatives in the U.S. Congress had common purpose: the advancement of the concepts behind the Multilateral Agreement on Investments (M.A.I.). Indeed, Dan Fisk, former assistant to Senator Helms, reveals that the negotiations leading to the E.U.-U.S. Understanding grew out of an idea put forward by Helms and Senator Paul Coverdell (R-GA) to resolve the European Union's protest against Helms-Burton in the World Trade Organization (W T.O.) by using the M.A.I. "as a forum for the globalization of the Libertad Act's property protections."1

This was accepted by the Administration and apparently by Sir Leon Brittan as well. Thus, in April of 1997, the two sides reached an interim agreement under which the European Union would postpone its call for the W.T.O. to act on its protest, and the United States promised not to impose sanctions against any European companies or citizens for a period of six months. During that time they were to try to negotiate a comprehensive agreement on confiscated properties which they would then take to the October talks on an M.A.I. It took a year rather than six months to hammer out the E.U.-U.S. Understanding. True to the interim agreement, however, it states that as well as applying the disciplines agreed upon to protect property as a matter of policy, the two sides will also make a joint proposal in the M.A.I., "which, upon entry into force, will be an agreement binding under international law."

Clearly, this is part of the broad and ongoing effort to turn the holding of private property into a basic right guaranteed under international law. As Scott Armstrong, an independent American journalist put it at the October 7 conference, "The disciplines in the Understanding anticipate a mechanism of registration and enforcement that puts property rights as preeminent among the human rights recognized by the E.U. and the U.S." Meanwhile, however, the fact is that the M.A.I. has become virtually a dead letter. Various governments - including the French and Canadian - have already said they will not accept it and many others have expressed grave reservations. And no wonder. It would remove from national governments final decisions regarding the disposition of property in the public good. As Xavier de Clerq, of Oxfam Belgium, pointed out at the C.I.P conference on October 7, an M.A.I. would militate against agrarian or urban reforms, would help perpetuate the inequality between the developed world and the underdeveloped, and could deal a serious blow to efforts to protect the environment.

With no M.A.I. likely "to enter into force" any time soon, the E.U.-U.S. Understanding should be seen not as a preparatory step, but as an effort to advance the goals of an M.A.I. through other means - goals against which a number of governments have already taken a strong position. As Gareth Jenkins of Cuba Business put it at hearings on extra-territorial sanctions held in the European Parliament this past June: "Helms was himself the progenitor of the Understanding and aims to negotiate a rewriting of international law under which the principles developed in the Helms-Burton Act for application to Cuba are made universal."2

Where Do We Stand Now?

The E.U.-U.S. understanding of May 18, 1998 is in fact never likely to become operative. There are too many mutually-exclusive positions which cannot be bridged with smoke and mirrors. The effort to do so, however, may have in itself been harmful. As has been pointed out over and over again, the Helms-Burton Act violates international law on at least eight counts. No one wants a conflict between the United States and the European Union. On the other hand, the international system to which they both belong and in which they both cooperate is one based on rule of law and respect for the rules of conduct agreed to by all. If one member, in this case the United States, is allowed to hold itself above the law, then the whole system is weakened - indeed, would eventually be rendered meaningless. What the European Union should be doing is to demand that the Helms-Burton act be repealed. To attempt to live with it and even to connive in some of its more blatantly illegal provisions is simply to encourage those elements in the U.S. Congress and elsewhere in the U.S. body politic who believe that as the only remaining superpower, the United States should ignore international law and do as it deems fit. These same elements scoffed all along at the idea that the international community, and especially the European Union, would react strongly to Helms-Burton and other extraterritorial legislation. They predicted that Europe's reaction would be "toothless." So far, they have been right.

* In Nicaragua during the 1980s a similarly politicized situation led Senator Helms to offer legislation that treated Nicaraguans who had had their properties expropriated in 1979 and later gained U.S. citizenship as if they had been American citizens at the time of the expropriations.

End Notes

1 Dan Fisk, "The E.U.-U.S. Agreement and Protection of American Property Rights in Cuba," Institute for U.S.-Cuba Relations, Occasional Paper Series, Vol.2, No. 2, July 23,1998, pp. 5-6.

2 Presentation by Gareth Jenkins, "The Effects of Extra-Territorial Laws: Their Impact on External Investment in the Case of Cuba," at hearings of the Committee on External Relations of the European Parliament, 24 June,1998.

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