TABLE 65.-United States exports to Cuba, 1936-40

1

2 Exclusive of hides, skins, and leathers.

1 Does not include reexports. Official United States trade statistics.

3 Including grain, cereal products, and starch.

Including pickles and relishes.

TABLE 66.-United States imports from Cuba, 1936-40

1 Less than 500.

2 Including fresh, canned, and in brine.

Official United States trade statistics.

Cuba normally exports more goods to the United States than it imports from the United States; the difference averaged about 30 million dollars annually in 1938-40. The value of imports from the United States during this period equaled only 72 percent of the value of Cuba's exports to the United States. However, the same situation holds true for Cuba's total foreign trade. The proportion of Cuba's imports obtained from the United States has steadily and rapidly increased since 1932 to over 87 percent in 1941. This was the highest percentage on record and was approximately equal to the percentage of Cuban exports going to the United States.

The balance of the tangible or material foreign trade in Cuba's favor is necessitated by the fact that Cuba is a debtor nation and must service its debt by repaying other nations both interest and principal on the debt. The largest portion of the foreign investments in Cuba is held by interests in the United States, 55 and naturally the disparity between the value of goods imported and exported is greater in the case of the United States than for most other countries. United States direct investments in Cuba exceed those in any other country in the world, except Canada, and at the end of 1936 were estimated at 666 million dollars.56

Payment to the United States for the service on investments in Cuba is the most important single intangible item in the balance of trade between the two countries, but there are no reliable estimates as to the total amount of money involved in such payments. Other items of payments to the United States are about 4 million dollars of expenditures by Cuban travelers in the United States and about 3 million dollars (considerably higher since the war) for freight, insurance, and other shipping expenses on United States ships. The most important intangible item on the other side, payment to Cuba, is about 15 million dollars spent by United States travelers in Cuba.

TRADE POLICY

With no other country does the United States have as close economic relations as with Cuba.57 Cuba is the only country with which the United States has a reciprocity treaty involving exclusive preferential tariff treatment. For nearly four decades trade betweeen the two countries has received such special tariff treatment; each country accords lower rates to the products of the other than it accords imports from other countries. Under the Treaty of Commercial Reciprocity of 1902 the United States granted Cuba on all dutiable commodities exclusive reductions of 20 percent below the rates to other countries. Reductions of 30 percent were granted on wheat flour from the United States and 40 percent on rice (16).

55 The greater part of the United States investments in Cuba date back to the World War period, 1914-18. 56 United States investments in Cuba in 1936 were estimated by the U. S. Department of Commerce as follows (11):

7 For further discussion of the commercial relationships between the two countries see The Foreign Trade of Latin America (14).

This exclusive preferential treatment of trade between Cuba and the United States is the outstanding element of trade policy between the two countries. It is generally recognized as an exception to the most-favored-nation policy under which concessions are made applicable to all countries alike except those that militate against the United States. It is largely as a result of the close commercial relations that Cuba now obtains from the United States a higher proportion of its import requirements than does any other Latin American country and exports to the United States a larger percentage of its products than any except Honduras and Panama.

The second vital factor in Cuban trade policy was the increase in tariff rates beginning in 1927 to protect and encourage domestic industries. Following the sharp decline in the value of sugar exports and the introduction of nationalistic policies in many other countries, Cuba was forced to look to other sources of income and to reduce imports. This it endeavored to accomplish by diversifying production particularly of products formerly imported. Consequently, from 1927 on, tariffs were raised generally on all imported foreign goods that might be produced in the country. The efficacy of these measures with respect to individual products has already been discussed.

Trade with the United States was greatly improved as a result of the trade agreement of September 3, 1934. This was the first agreement negotiated after the enactment of the United States Trade Agreements Act and greatly extended the scope of the preferential treatment between Cuba and the United States. Under this agreement Cuba granted concessions to the United States on more than 400 items, with preferences ranging from 20 to 60 percent. The United States in turn, granted concessions to Cuba on 35 items, increasing the guaranteed preference in some cases to 50 percent. This agreement was modified by additional concessions through supplementary agreements effective December 23, 1939, and January 5,

1942.

Another important step in Cuba's general foreign-trade policy was the establishment of a policy of differential tariff treatment for different countries, based on Cuba's trade balances with such countries. This became effective on March 29, 1935, under the so-called Import Control Law. It effected a far-reaching change in Cuban tariff policy and was designed to encourage exports by granting lower duty rates to those countries that imported heavily from Cuba. A maximum tariff rate, equal to double the minimum rate, became applicable on imports from those countries that according to official statistics purchased from Cuba less than 25 percent as much as Cuba purchased from them. An intermediate rate, plus an overcharge of 25 percent, became applicable on imports from those countries that purchased 25 to 50 percent as much as Cuba purchased from such countries. The minimum tariff rate is applicable only to those countries whose purchases from Cuba exceed 50 percent of Čuba's purchases from them.

This law, however, provides that exceptions may be made and the minimum rates applied to raw materials and articles of prime necessity that cannot be obtained from those countries that observe commercial reciprocity. Several commercial treaties and agreements have been negotiated with other countries. Most-favored-nation treatment has been extended to Spain and France since 1927 and 1929, respec

tively, and to the United Kingdom since 1938. Some agreements with other countries are of a more limited scope, and some have been abrogated.

Cuban foreign trade is also affected by certain nontariff controls, such as special taxes, import and export controls, and exchange controls. Trade control was authorized under a Cuban tariff law of 1927, but the principal measures taken under this law were quota limitations on the importation of condensed and evaporated milk since May 1937 and on imports of henequen and sisal fiber since 1939. A form of exchange control has also been in effect since June 15, 1939. Cuban exporters of sugar and sirup are required to deliver to the Government 30 percent of the dollars obtained from such exports in return for Cuban silver pesos at par.

EFFECT OF THE WAR

The volume of foreign trade has been fairly well maintained since the outbreak of hostilities in Europe in 1939, primarily because of the relatively small value of Cuba's trade with European countries. The United States share in Cuba's trade and that of other American countries has increased as a result of Cuba's effort to find alternative markets for those lost in Europe and as a result of not being able to obtain needed import supplies from Europe or the Far East.

During the first year of the war it was possible to continue much of the trade with European countries; exports to Europe in 1940 amounted to nearly 18 million dollars as compared with about 30 million dollars during previous years. Shipments to the United Kingdom were reduced to about one-half and those to continental European countries were reduced only about one-fourth, with fairly large shipments to Spain, France, and the Scandinavian countries. Imports from Europe also dropped to about one-half, while those from the United States were maintained at near the previous level. During the second year of the war Cuba's exports to continental Europe declined from a level of about 11 million dollars before the war to only 2.5 million in 1941 and was limited almost entirely to Spain and the other unoccupied countries. On the other hand, exports to the United States and other American countries, notably Mexico and Canada, increased sharply from a pre-war level of 126 million to 190 million in 1941, thus more than offsetting the losses in Europe. Part of the increase in value of trade, however, was due to rising prices rather than actual quantity of goods. In general, during the first year, the war affected exports of sugar and cigars more adversely than other products because these constituted a large part of the former trade with Europe. During 1941, however, the entry of the United States into the war and the scarcity of ships greatly increased Cuba's outlet for sugar and molasses in the United States and caused Cuba to look there for the major portion of its rice imports. By the spring of 1942 the restriction of shipping was curtailing the movement of sugar, fruit, vegetables, and meat even to the United States.

DEGREE OF AGRICULTURAL SELF-SUFFICIENCY

Much progress has already been made in the past 15 years in the diversification of Cuba's agriculture and in increasing the degree of