Message to Debaters

7/28/2019 Message to Debaters

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N AT I O N A L C E N T E R F O R P O L I C Y A N A L YS I S

Economics of the 2013-2014 Debate Topic:U.S. Economic Engagement Toward Cuba, Mexico or Venezuela

Resolved: The United States federal government shouldsubstantially increase its economic engagement towardCuba, Mexico or Venezuela.

Economics is the branch of human knowledge concerned with the

satisfaction of human wants through the production of goods andservices, and the exchange of those goods and services between twoor more individuals. Thus, economics encompasses human activitiesfrom simple barter between two individuals to international tradebetween rms or governments. Many of these economic activitiesare regulated by government, and some are outlawed. Trade andother economic activities that cross national borders such assales of goods and services, travel, migration or transfers of money are regulated by the government of the country where theactivity originated and the government of the destination country.The government itself could be an economic actor, buying and

selling from other governments or rms in other countries; orthe government could regulate the private economic activities ofindividuals and rms.

Economic engagement between or among countries can takemany forms, but here let us focus on government-to-governmentengagement through i) international trade agreements designed tolower barriers to trade; and ii) government foreign aid; then, we willcontrast government-to-government economic engagement withprivate economic engagement through iii) international investment,called foreign direct investment; and iv) remittances and migration

by individuals. All of these areas are important with respect to allthe countries mentioned in the debate resolution but, as we shallsee, when discussing economic engagement by the U.S. federalgovernment, some issues are more important with respect to somecountries than to others.

International Trade

Countries trade with each other because trade can make thembetter off. Imagine a country that has decided to isolate itselfeconomically from the rest of the world. In order to survive, thecitizens of this country would need to grow their own food, make

Debate Backgrounder No. 7 by Sergio Daga May 15, 2013

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Economics of the 2013-2014 Debate Topic:U.S. Engagement Toward Cuba, Mexico or Venezuela

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their own clothes and build their own houses.However, if this country decided to open its borderand trade, its citizens would specialize in theactivities they do best and enjoy a greater variety of

goods and services, even at a lower cost.Absolute Advantage and Comparative

Advantage. The reasons why countries gain frominternational trade are usually grouped togetherunder two categories: absolute advantage andcomparative advantage.

The term absolute advantage refers to theability of a country to produce some things cheaperor better than another. For example, some tropicalcountries have absolute advantages over the United

States in the production of bananas. This fruit canbe grown much more cheaply in the tropics than inplaces where greenhouses and other articial meansof maintaining warmth would be necessary. Thisdoes not mean that the United States is completelyincapable of growing bananas. It is just that theamount and quality of bananas that most countriescould produce would not be worth the resourcesit would cost, when bananas can be bought fromCaribbean countries at a lower cost. Foreigners whobuy that countrys products benet from the lower

costs, while the country itself obviously benetsfrom the larger market for its products or services.

Let us suppose we nd a country that is capableof producing anything more cheaply than a

neighboring country. Would this country be stillwilling to trade with its neighbor? The answer isyes. Because, as Thomas Sowell states inBasicEconomics, being able to produce anything mo

cheaply is not the same as being able to produceeverything more cheaply. Let us take Sowellsexample to explain the real driving force behindinternational trade: comparative advantage.

One of the principles of economics is that wheyou produce more of one product you end upproducing less of some other product. This tradeoccurs because resources are scarce and societiewant to get the maximum benet from them. Thcentral question in international trade is not howmuch it costs, in either money or resources, to

produce, for instance, T-shirts or computers, in ocountry compared to another country. The questiis how many T-shirts it costs to produce a compuwhen resources are shifted from producing oneproduct to another. The country that can producemore computers by, say, forgoing production of1,000 T-shirts can benet from trading with thecountry that gets fewer computers in return for nproducing 1,000 T-shirts.

An Example of Gains from Trade: T-shirts

versus Computers. Assume that the averageAmerican worker produces 500 T-shirts a monthwhile the average Chinese worker produces 450the same period of time. Similarly, assume that taverage American worker produces 200 comput

Table I

T-Shirts versus Computers: The Absolute Advantage of the United States over China

ProductsUnited States China

Workers Output Workers Output

T-shirts 200 100,000 200 90,000

Computers 300 60,000 300 30,000


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a month while the averageChinese worker produces 100.n terms of absolute advantage,he United States produces

both goods more efciently,meaning that it produces moreoutput with the same amountof inputs. However, if thecountries trade with one anotherhey would specialize in the

activities they do best, and bothcountries would increase theirconsumption of both goods atower prices.

Assuming a total of 500

workers in each economy 200 producing T-shirts and 300producing computers the totaloutput in each country is 190,000T-shirts and 90,000 computers,as shown in Table I.

Who is more likely to sellwhat to whom? To gure thisout rst we need to ask howmany T-shirts it costs in each

country to produce a computer.f the United States decides toproduce computers, each oneof the 200 workers would, onaverage, stop producing 500

T-shirts per month and produce200 computers instead. Thus,each additional computer wouldcost 2.5 T-shirts. Similarly,

if China decides to producecomputers, each one of the 300workers would stop producing450 T-shirts per month, onaverage, to produce instead 100computers, which mean that eachadditional computer would cost4.5 T-shirts. Therefore, Chinamust give up a greater numberof T-shirts to produce computers,and the United States has a

comparative advantage overChina in producing computers.

Thus, in order to gain fromtrade with China, the UnitedStates will specialize in theproduction of computers. If wedo the same exercise for T-shirts,we will realize that China hascomparative advantage overthe United States in producingT-shirts, and so China should

specialize in T-shirt production.

Now that specialization hastaken place, with the very sameoutput per worker, each country

can now produce a larger grandtotal of the two products fromthe same thousand workers, asshown in Table II.

The great thing about tradeis that now Americans can sell35,000 computers to China,a greater number than the30,000 computers China usedto have in isolation, and alsothe United States can keep65,000 computers for domesticconsumption, a greater numberthan the 60,000 computers theUnited States used to have in

isolation. Similarly, China cansell 125,000 T-shirts to theUnited States, a greater numberthan the 100,000 T-shirts it hadin isolation, and the Chinese nowhave access to 100,000 T-shirts, agreater number than the 90,000 ithad in isolation.

Another way to look at thegains from trade is in terms of

the price that each party paysthe other. China gets 35,000computers from the UnitedStates in exchange for 125,000T-shirts. In other words, citizens

Table II

T-Shirts versus Computers: The Comparative Advantage of China over the United States

Products United States China

Workers Output Workers Output

T-shirts 0 0 500 225,000

Computers 500 100,000 0 0


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in China buy each computer fora price of 3.5 T-shirts. This priceof a computer is lower than thecost of 4.5 T-shirts per computer

Chinese had to pay duringisolation. Similarly, Americanscan buy more T-shirts for fewercomputers than before.

The benets of comparativeadvantage are particularlyimportant to poorer countries,as someone has stated:Comparative advantage meansthere is a place under the free-trade sun for every nation, no

matter how poor, because peopleof every nation can producesome products relatively moreefciently than they produceother products.

Barriers to Trade. Thoughthere are many advantages tointernational trade for the worldas a whole and for countriesindividually and despite

offsetting economic gainsthat typically far outweigh thelosses it is almost inevitablethat there will be loud calls forgovernment protection fromforeign competition throughvarious restrictions on imports.Tariffs are taxes on importswhich serve to raise the prices ofthose imports, and thus enabledomestic producers to charge

higher prices for competingproducts than they could inthe face of cheaper foreigncompetition. Import quotas arelimits on how much of a goodcan be imported, and like tariffs,keep foreign companies fromcompeting on even terms withdomestic producers.

There is only one differencebetween these two types of traderestriction: A tariff raises revenuefor the government, whereas

an import quota creates surplusfor the domestic rms that getthe import licenses. (As theword license implies, it wouldbe illegal for anyone withouta license to import the productsubject to a quota.) The protfor the import license holderis the difference between thedomestic price (at which he sellsthe imported good) and the world

price (at which he buys it).

Trade Agreements

International trade withoutbarriers, such as tariff, orquotas, is calledfree trade.In theory, free trade requiresno governmental action; itsimply requires governmentsnot to discriminate againstproducers from other countries.

However, in practice, becauseofprotectionist (pro-tariff)sentiments and the politicalclout of domestic producers(who are constituents of thecountry with trade barriers),trade liberalization has requiredgovernment-to-governmentagreements, either multilateralagreements among severalcountries or bilateral agreements

between two countries. Examplesof multilateral agreements arethe North American Free TradeAgreement (NAFTA) amongthe United States, Mexico andCanada; the Central AmericanFree Trade Agreement (CAFTA)among the United States andsix other countries, and the

agreements governing theWorld Trade Organization(WTO), an organization of 15countries designed to foster

trade and provide an institutioframework for resolving tradedisputes between countries. TUnited States, Cuba, Mexico aVenezuela are all members ofthe WTO. Examples of bilateragreements with Mexico inclu2006 agreements on trade intequila, sweeteners and cemen

Citizens of countries thatembrace free trade are better o

than citizens of countries thatdo not. However, some speciainterest groups the ones thaaim at protect local producers often complain that unfaforeign competition increasestrade defcit and destroys jobhome. Specically, in the UniStates, the trade defcit (surpof imports over exports) and tunemployment rate usually ha

an inverse relationship: Whenthe trade decit increases, theunemployment rate decreasesand vice versa. For example,in 2009, the U.S. trade decitshrank 46 percent, and theunemployment rate increased60 percent. Additionally,many critics of trade deals,such as NAFTA and the WTOagreement, argue that free

trade benets big multinationacorporations and the rich atthe expense of everyone else.In fact, poverty rates are muchlower in countries with low trbarriers than in those where tris restricted.

Trade freedom is one ofthe indicators in theIndex of


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Economic Freedom that everyyear, since 1995, the HeritageFoundation has published inpartnership with the Wall Street

Journal. The trade freedomndex takes into account tariffand nontariff barriers that affectmports and exports of goods andervices. The index shows that

countries with the lowest barrierso trade enjoy more economic

prosperity, lower poverty ratesand cleaner environments.

While the United Statesanks 37th out of 181 countries

n terms of trade freedomwhich means that U.S. citizenshave some restrictions to buyeverything they want fromoverseas, the countries we areanalyzing on this paper are worseoff, Mexico ranks 68, Cuba 152and Venezuela 163.

Foreign Aid

Foreign aid refers to theransfer of wealth from foreigngovernmental organizations, aswell as international agencies,o the governments of less

developed countries. Becauset is a transfer of wealth to

governments, as distinguishedfrom investments in privateenterprises, foreign aid hasencouraged many countries to set

up government-run enterpriseshat either fail or create palaces,plazas or other things meant tompress rather than produce.

The term aidassumes that suchransfers will in fact aid theecipient countries to develop. Inome cases it does, but in other

cases it simply enables those inpower to enrich them through

graft and to dispense largessin politically strategic ways toothers who help to keep them inpower.

Perhaps the most famousforeign aid program wasthe Marshall Plan, whichtransferred wealth from theUnited States to variouscountries in Western Europeafter World War II. It was farmore successful than many laterattempts to imitate it by sendingforeign aid to less developedcountries. Western Europes

economic distress was causedby the physical devastationsof the war. Once the peoplewere fed and the infrastructurerebuilt, Western Europe simplyresumed the industrial way oflife they had achieved indeed,pioneered before the war.That was wholly different fromtrying to create all the industrialskills that are lacking in poorer,

nonindustrial nations. Whatneeded to be rebuilt in Europewas physical capital. What needsto be created in much of theless developed nations is morehuman capital. The latter hasproved harder to do, just as thevast array of skills needed ina modern economy had takencenturies to develop in Europe.

The vast sums of moneydispensed by multilateralforeign aid agencies, such as theInternational Monetary Fund andthe World Bank, give the ofcialsof these agencies enormousinuence on the governments ofaid-recipients nations, regardlessof the success or failure of theprograms they suggest or impose

as preconditions for receivingmoney.

There are also directgovernment-to-government

grants of money, shipments offree food, and loans which aremade available on terms morelenient than those available innancial markets. Government-to-government loans areperiodically forgiven, allowedto default, or rolled over bybeing repaid from the proceedsof new and larger loans. Foreignaid is often a disguised subsidy

to domestic manufacturing rmsor farms. The Export-ImportBank of the United States, forexample, loans money to foreigngovernments to purchase U.S.goods. Other developed countrieshave similar agencies.

Benecial results of foreignaid are more likely to bepublicized by the national or

international agencies whichnance it, while failures aremore likely to be publicized bycritics, so the net effect is notimmediately obvious. One of theleading development economistsof his time, the late ProfessorPeter Bauer of the LondonSchool of Economics, arguedthat, on the whole, ofcialaid is more likely to retard

development than to promote it.The Untapped Wealth of

Poor Countries. Many poorcountries have already createdsubstantial physical wealth thatis not legally recognized, due toa lack of secure titles to property,including undeveloped land, theminerals that may lie beneath,


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or buildings and houses on theland. The insecurity of titlesmay be due to corruption, theinefciency and inaccessibility

of courts where propertytitles could be protected, orthe possibility of governmentconscation or redistributionthrough land reform. This wealthcannot be used as collateral forloans from banks or other lendersand investors.

Financing the development ofa piece of property is difcultif there is doubt or disputes

or potential claims regardingownership. In nations withbetter functioning propertyrights systems, existing physicalwealth can be used to build morewealth-creating enterprises. Anadequate property right systemhas not been as accessible toordinary people in poor countriesas it has been to ordinarypeople in the United States. An

American bank that is unwillingto invest in a small business maynevertheless be willing to lendmoney to its owner in exchangefor a mortgage on his home but the home must rst be legallyrecognized as the property of theperson seeking the loan. Afterthe business becomes a majorsuccess, other strangers may thenlend money on its growing assets

or invest directly as stockholders.But all of this hinges on a systemof dependable and accessibleproperty rights, which couldmobilize far more wealth withineven a poor country than isever likely to be transferredfrom other nations or frominternational agencies like the

World Bank or the InternationalMonetary Fund.

Nongovernmental Aid. It hasbeen said that an estimated 90

percent of the wealth transfers topoorer nations from the UnitedStates takes the form of privatephilanthropic donations, businessinvestments or remittances fromcitizens from poor countriesliving in the United States [seethe discussion of remittancesunder Foreign Direct Investment,below]. People who measurea donor nations contributions

to poorer countries solely bythe amount of ofcial foreignaid sometimes point out that,although foreign aid fromthe United States is the largestin the world, it is also amongthe smallest as a percentageof Americans income. Butthat ignores the vastly largeramount of American transfers ofwealth to poor countries in non-

governmental forms.

A much larger questionis the extent to which theseinternational transfers ofhundreds of billions of dollarshave actually benetted thecountries receiving them. Thatis a much harder question toanswer. However, given thediffering incentives of those

sending wealth in differentforms, ofcial foreign aidmay have the fewest incentivesto ensure that the wealthreceived will be used to raise thestandard of living of the generalpopulation of the recipientnations.

Foreign Direct Investme

Another way countries engaeconomically is through thetransfer of wealth. Specically

individuals and businesses inone country may transfer weato another country by investinin its business enterprises; thiskind of wealth transfer is calleforeign direct investment.

In 2011 the United Statesreceived a ow of foreigndirect investment of nearly$227 billion, and Americans

invested directly abroad almo$400 billion. The United Statealone is both the source andthe recipient of more foreigndirect investment than any othcountry in the world. In a simway, citizens of a given countmay also put their moneyin another countrys banks,which will in turn make loansto individuals and enterprises,

so that this is indirect foreigninvestment. Yet another optionis to buy the bonds issued bya foreign government. By theend of 2012, 48 percent of thepublicly held bonds issued byUnited States federal governmwere held by people in othercountries.

Barriers in DevelopingCountries Against Foreign

Investment. The reason whyindividuals and businesses invin another country is becausethey can get more benets abrthan inside their countries. In sense, scarcity plays a big roleTheoretically, investments mibe expected to ow from whecapital is abundant to where it


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s in short supply. In a perfectworld, wealthy nations wouldnvest much of their capital in

poorer nations, where capital is

carcer and would therefore offera higher rate of return. However,he fact is that rich countries tendo invest in other rich countries.

The reason for this is the dangerhat you will never get your

money back. Investors are waryof unstable governments, whosechanges of personnel or policiescreate risks that the conditionsunder which the investment

was made can change themost drastic change is outrightconscation by the government,ornationalization, as it is calledpolitically.

Widespreadcorruption isanother deterrent to investment,as it is to economic activityn general. Countries high

up on the international indexof corruption, compiled by

Transparency International, areunlikely to attract internationalnvestments on a scale thatheir natural resources or other

economic potential might justify.Even aside from conscationand corruption, many poorercountries impose controls onhe ow of capital in and/or out

of the country, called capitalcontrols. Where capital cannot

get out easily, it is less likely togo in, in the rst place. In short,most of the time it is not thesecountries poverty, as such, thatdeters investments but theirtructural problems and policies.

As the Heritage Foundationsndex of Economic Freedomtates: A free and open

investment environment providesmaximum entrepreneurialopportunities and incentives forexpanded economic activity,

greater productivity, and jobcreation. The benets of suchan environment ow not onlyto the individual companiesthat take the entrepreneurialrisk in expectation of greaterreturn, but also to society as awhole. An effective investmentframework will be characterizedby transparency and equity,supporting all types of rms

local and foreign ratherthan just large or strategicallyimportant companies (sometimesstate-owned), and will encouragerather than discourage innovationand competition.

Investment freedom, whichis also part of theIndex ofEconomic Freedom, evaluatesa variety of restrictions that aretypically imposed on investment.

Some countries have differentrules for foreign and domesticinvestment; some restrict accessto foreign exchange; someimpose restrictions on payments,transfers and capital transactions.Labor regulations, corruption,red tape, weak infrastructure, andpolitical and security conditionscan also affect the freedom thatinvestors have in a market.

In this sense, with a score of70 of an ideal 100 in the indexof investment freedom, theUnited States along with Mexicoare catalogued as countrieswhere foreign investment hassome restrictions, mainly insome industries, but the levelof investors protection is

relative high. However, thisis not the case for Venezuela,which with a score of 5 iscatalogued as a country where

threats of expropriation andhostility to foreign investmentare permanent. Cuba receives ascore of 0 because governmentis the only allow investing in thecountry.

The whole oil industry inMexico and Venezuela is offlimits to foreign investors. Inboth countries state-ownedenterprises are responsible of

producing and exporting oil, andare reluctant to accept foreigninvestment. This policy has had aclear consequence; a diminishingvolume of oil production inboth countries in recent years.In the United States there is alimit of 25 percent ownershipfor foreign investors in theairline industry and foreignersare banned from owning TV

stations. Several things helpeddevelop the American economyand changed the United Statesfrom a small agriculturalnation to an industrial giant,but one in particular was aninow of capital from WesternEurope in general and fromBritain in particular. These vastresources enabled the UnitedStates to build canals, factoriesand transcontinental railroadsto tie the country togethereconomically. As of the 1890s,for example, foreign investorsowned about one-fth of thestock of the Baltimore & OhioRailroad, more than one-thirdof the stock of the New YorkCentral, more than half the stock


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of the Pennsylvania Railroad,and nearly two-thirds of thestock of the Illinois Central.

The bottom line is that

everyone can win wheninvestments create a growingeconomy. Despite fears in somecountries that foreign investorswould carry off much of theirnational wealth, leaving thelocal population poorer, thereis probably no country inhistory from which foreignershave carried away more wealththan the United States. By that

reasoning, Americans ought tobe some of the poorest people inthe world, instead of consistentlyhaving one of the worldshighest standards of living. Thereason for that prosperity is thateconomic transactions are not azero-sum activity. They createwealth.

Remittances and

MigrationIndividuals have international

economic effects when they, ortheir money, crosses nationalborders. Immigrant workers,who are often from developingcountries, are important todeveloped countries with risingwage rates and labor shortages.Money sent by migrants back to

the old country is an importantsource of income in developingcountries.

Migrant Workers WireMoney Home. Emigrantsworking in foreign countriesoften send money back to theirfamilies to support them. Asof 2007, migrants from poor

countries send home about $300billion a year, according totheNew York Times. That wasmore than three times as much

as total, formal foreign aidglobally, making remittances themain source of outside moneyowing to the developing world.According to the World Bank,in 2011 the global inow ofremittances was $514 billion.For some countries remittancesrepresent an important part oftheir economy. That is the casewith Tajikistan, a Central Asian

country, where remittancesrepresent 47 percent of its totaleconomy. The United States isthe single country where mostof the remittances are sentabroad. In 2011 immigrantsin the United States sent totheir countries more than $51billion, representing more than15 percent of all outows ofremittances that year.

At one time, overseas Chineseliving in Malaysia, Indonesia andother Southeast Asian nationswere noted for sending moneyback to their families in China.Politicians and journalists inthese countries often whippedup hostility against the overseasChinese by claiming that suchremittances were impoverishingtheir countries for the benet of

China. In reality, the Chinesecreated many of the enterprises and sometimes wholeindustries in these SoutheastAsian nations. What they weresending back to China was afraction of the wealth they hadcreated and added to the wealthof the countries where they

were now living. Sometimes thostility generated against sucgroups has led to their leavingthese countries or being expel

often followed by economicdeclines in the countries theyleft.

Migration of Workers.Whole industries have beencreated and economies havebeen transformed by immigraAmong the vital sources ofthe skills and entrepreneurshipbehind the rise of Britain and,later, the United States to the

position of the leading industrand commercial nation in theworld were the numerousimmigrant groups who settledthese countries, often to escappersecution or destitution in thnative lands. Perhaps to an evgreater degree than the UnitedStates, the countries of LatinAmerica have been dependenton immigrants, especially

immigrants from countries oththan the conquering nations oSpain and Portugal. Someoneeven said once that it was thesimmigrants who created modBrazil, modern Argentina andmodern Chile.

Some countries haveexportedhuman capital on alarge scale; for example, when

their educated young peopleemigrate because other countroffer better opportunities. TheEconomist, a respected Britishmagazine, reported that morethan 60 percent of the collegeor university graduates in FijiTrinidad and Tobago, Haiti,Jamaica and Guyana havegone to live in developed


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countries. Although it is noteasy to quantifyhuman capital,emigration of educated peopleon this scale represents a serious

oss of national wealth.It would be misleading,

however, to assess the economicmpact of immigrationolely in terms of its positive

contributions. Immigrants alsobrought diseases in earlierimes, as well as crime, internaltrife and terrorism. Nor can allmmigrants be lumped together.

There are similar disparities in

crime rates and in other bothnegative and positive factorshat immigrants from different

countries bring to the UnitedStates and to other countriesn other parts of the world.

Everything depends on whichmmigrants you are talking

about, which countries you arealking about and which periods

of history.

Labor migration has been ands a major issue with respecto United States relations

with Mexico and other LatinAmerican countries.

Economic Engagementwith Cuba, Mexico or

Venezuela

Let us apply the concepts

discussed above to the speciccircumstances of United Stateselations with the widely

divergent countries of Cuba,Mexico and Venezuela.

Cuba. Cuba is a one-partyCommunist state. A Communistcountry works on the premisehat government ofcials are in

the best position to determine theallocation of scarce economicresources. Government centralplanners decide what goods and

services are produced, how muchis produced, and who producesand consumes these goods andservices. The theory behindcentral planning is that onlythe government can organizeeconomic activity in a way thatpromotes economic well-beingfor the country as a whole. Eventhough this economic systemhas not delivered at least decent

living standards, there are a fewcountries in the world remainunder this economic system. Oneof them is Cuba.

In 1960, a year after the CubanRevolution led by Fidel Castro,his brother Raul, and ArgentineErnesto Che Guevaraoverthrew dictator FulgencioBatista, the new regime reformedthe country along communist

lines, nationalizing the propertyof United States citizens andcorporations. President Kennedydecided to establish prohibitionson commerce and trade to Cuba,known as the embargo. Anembargo is considered a strongdiplomatic measure taken bythe country imposing it to elicita given national-interest resultfrom the country on which it isimposed. Embargoes are similarto economic sanctions andare generally considered legalbarriers to trade.

The U.S. embargo policytoward Cuba remains up to thisday, but some of the restrictionshave been relaxed. For example,in 2009 the federal government

announced the lifting ofrestrictions on family travel andremittances to Cuba. In 2011,the United States announced

regulatory changes that increasepurposeful travel includingreligious, cultural, educational,and people-to-people travel;expand the individuals andgroups eligible to send andreceive remittances; and allowall U.S. international airports toapply to provide charter servicesto Cuba.

The U.S. federal government

strongly believed that bysanctioning Cuba economicallythe regime would be weakened,given the absolute controlgovernment ofcials haveover the economy, and theeconomic cost of the embargowould pressure Cuban rulers toallow free elections, freedomof expression, freedom ofassociation for civil society,

private enterprise and so on.Opponents of the embargo inthe United States say that it isnot fullling its objective andactually is hurting the UnitedStates by denying access to amarket close by. In one wayor another, the fact is that fordecades Cubans have beendeprived of the better qualityof life that free markets and

democracy deliver.

Over these years Cuban regimehas encountered ideologicallyallied governments that havehelped maintain it. During thesecond half of the 20th centurythe former Soviet Union becameCubas major trade partner. Now,more than 20 percent of Cubas


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imports come from China, andmore than 25 percent of itsexports go to China. Cuba getsmostly from China machinery,

boilers, electrical and electronicequipment, iron and steel. Onthe other hand, Cuban exportsto China are mostly nickel andarticles made of nickel, sugar andores, slag and ash.

In other words, Cuba importsfrom its most important tradepartner are technological andcapital goods; meanwhile, Cubasells natural resources and food

to China. Here, once again,comparative advantages playa big role. Even though Chinacan probably extract mineralsand produce sugar cheaperthan in Cuba, both countriesstill benet from trade. Thisproves that no matter how poora country is, international tradecan make every country betteroff, especially poorer countries,

because people of every nationcan produce some productsrelatively more efciently thanthey produce other products.

The United States sendsmedicine and food to Cuba forhumanitarian purposes and hasbecome the second largest foodsupplier to the island, accordingto the U.S. State Department.

In the hypothetical case bothcountries restart trading, wewould probably see the samepattern. The United Stateswould sell technological andmanufactured goods, as well asfood, to Cuba, and Cuba wouldsell natural resources and somebasic foods to the United States.The specic goods would depend

on the output per input ratio forthat good in each country.

Foreign direct investment(FDI) in Cuba is minimal,

but that is not due to the U.S.embargo. Most countries (otherthan the United States) havefew or no restrictions on tradewith Cuba. Even so, the UnitedNations Conference on Tradeand Development (UNCTAD)estimates the inow of FDI toCuba in 2011 was only $110million, one of the lowestamounts of FDI of any country

in the world. It is impossible tosay what country the FDI comesfrom, since Cuban regimesstatistics stopped being crediblea long time ago. Meanwhile, theU.S. foreign aid agency (USAID)designated $20 million lastyear for Humanitarian Supportto Political Prisoners and theirFamilies, Human Rights andDemocracy Promotion and

Facilitating the Free Flow ofInformation in Cuba.

The U.S. embargo includesrestrictions on U.S. residentstravel or remittances to Cuba.The Pew Hispanic Centercalculated the Cuban immigrantpopulation in the United Statesfor 2004 of more than 1.5million, of which only one-

third were native-born. Giventhe restrictions on sendingremittances to the island, there isno ofcial data about how muchmoney Cubans send to theirrelatives.

Mexico. We will let the U.S.Department of State give us abrief summary of U.S.-Mexico

relations: It entails extensivecommercial, cultural, andeducational ties, with morethan $1.35 billion worth of

two-way trade and roughly onmillion legal border crossingseach day. In addition, a millioAmerican citizens live inMexico and approximately 10million Americans visit Mexicevery year. More than 18,000companies with U.S. investmehave operations in Mexico, anU.S. companies have invested$145 billion in Mexico since

2000.Mexico and the United Stat

along with Canada, signed theNorth American Free TradeAgreement (NAFTA) thatcame into force on January1, 1994. NAFTA has servedas an example of how tradeliberalization helps improve thliving standards of all people all countries. As for jobs, befo

the NAFTA went into effect,there were dire predictions thajobs would be sucked out ofthe United States to Mexicobecause of Mexicos lowerwage rates. But low wage ratein one country are generallyan indication of relatively lowproductivity (output per workand do not necessarily conferany advantage on the low-wag

country compared to a relativehigh wage country, whereaverage workers may be moreproductive. In reality, the numof American jobs increasedafter the agreement and theunemployment rate in the UniStates fell over the next sevenyears from more than seven


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percent down to four percent, theowest level seen in decades. In

Canada, the unemployment ratefell from 11 percent to 7 percent

over the same seven years.Exports to Mexico account for

3 percent of total U.S. exports,and imports from Mexicoaccount for 14 percent of allmports. On the other hand, the

United States is the destinationfor almost 78 percent ofMexicos exports and 50 percentof its imports. The UnitedStates is the most important

rade partner of Mexico. It isalso the third most importantcountry in terms of imports, andhe second most important inerms of exports for the United

States. Clearly, the economicies between Mexico and the

United States are very strong.Comparative advantage alsoeems to work here. Accordingo the U.S.-Mexico Chamber

of Commerce, due to NAFTAMexico now has a comparativeadvantage in vegetables, fruitsand beverages, and the UnitedStates has a comparativeadvantage in grain production,animals and animal products,and oilseeds.

Historically, the United Stateshas been the main source of

FDI in Mexico. In the rst ninemonths of 2012, U.S. investorsaccounted for 49 percent of allFDI in Mexico. In 2011, Mexicoeceived a ow of $19.5 billion.

Mexico receives the secondargest amount of FDI in the

whole Latin American region.The industries that receive

the largest amount of FDI areproduction of food, beveragesand tobacco; nance; wholesaleand retail trade; business

activities; and construction.The U.S. foreign aid agency,

USAID, is working withMexican public and private-sector institutions. USAIDsupports Mexicos initiatives toimprove the security and well-being of its citizens. USAIDprograms support Mexicanleadership in specic technicalareas that are high priorities

for both the United Statesand Mexican governments,including: development andtesting of models to mitigatethe impact of community crimeand violence; implementation ofcriminal justice constitutionalreforms that protect citizensrights; Mexicos commitmentto reduce greenhouse gasemissions; and economic

competitiveness to improve itscitizens lives.

In 2011, Mexico receivedan inow of $22.4 billionin remittances, mostly fromthe United States. Mexicoreceives the largest amount ofremittances in Latin America,but in terms of the size of itseconomy, remittances to Mexico

are among the smallest share ofany Latin American economy. InHaiti, for example, remittancesrepresent more than 21 percentof the economy.

Venezuela. The foundationsof Venezuelas economy havebeen severely weakened and thecountry has extensive structural

and institutional problems aswell as rampant ination andcurrency instability since 1999,when the late socialist Hugo

Chavez became President.Venezuelas judicial systemis increasingly vulnerable topolitical interference, corruptionis prevalent, and the rule of lawis weak. The states presence ineconomic activity has increasedthrough nationalization ofindustry. Heavily dependenton the oil sector, the economysuffers from a lack of dynamism.

Inefcient and non-transparentregulatory and judicialframeworks obstruct prospectsfor long-term development. Thelack of rule of law precludesentrepreneurial growth, andthe investment regime lackstransparency and remains undertight state control.

The United States isVenezuelas most important

trading partner. U.S. exports toVenezuela include machinery,organic chemicals, agriculturalproducts, optical and medicalinstruments, autos and auto parts.Oil dominates U.S. importsfrom Venezuela, which is oneof the top four suppliers offoreign oil to the United States.About 500 U.S. companies arestill represented in Venezuela.

Political and economicuncertainty, state interventionin the economy, and a volatilelegal and regulatory frameworkmake Venezuela a difcultclimate for foreign investors.Foreign direct investment inVenezuela is concentratedlargely in the petroleum,


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Message to Debaters

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