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44–837 CC








MARCH 19, 1997

Printed for the use of the Committee on International Relations

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BENJAMIN A. GILMAN, New York, Chairman
HENRY J. HYDE, Illinois
CASS BALLENGER, North Carolina
EDWARD R. ROYCE, California
JAY KIM, California
TOM CAMPBELL, California
JON FOX, Pennsylvania
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LINDSEY GRAHAM, South Carolina
ROY BLUNT, Missouri
SAM GEJDENSON, Connecticut
TOM LANTOS, California
PAT DANNER, Missouri
WALTER CAPPS, California
BRAD SHERMAN, California
BOB CLEMENT, Tennessee
BILL LUTHER, Minnesota
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JIM DAVIS, Florida
RICHARD J. GARON, Chief of Staff
MICHAEL H. VAN DUSEN, Democratic Chief of Staff

Subcommittee on International Economic Policy and Trade
ILEANA ROS-LEHTINEN, Florida, Chairperson
TOM CAMPBELL, California
LINDSEY O. GRAHAM, South Carolina
ROY BLUNT, Missouri
SAM GEJDENSON, Connecticut
PAT DANNER, Missouri
BRAD SHERMAN, California
BOB CLEMENT, Tennessee
TOM LANTOS, California
BILL LUTHER, Minnesota
YLEEM D.S. POBLETE, Professional Staff Member
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AMOS HOCHSTEIN, Democratic Professional Staff Member
JOSE A. FUENTES, Staff Associate


    The Honorable Lincoln Diaz-Balart, a Representative in Congress from Florida
    The Honorable Robert Menendez, a Representative in Congress from New Jersey
    The Honorable Robert Torricelli, a U.S. Senator from New Jersey
    The Honorable Ernest Preeg, William S. Scholl Chair in International Business, Center for Strategic and International Studies
    Mr. Ignacio Sanchez, Esq., Partner, Kelley Drye & Warren LLP
Prepared statements:
The Honorable Lincoln Diaz-Balart
The Honorable Robert Torricelli
The Honorable Ileana Ros-Lehtinen
The Honorable Steven R. Rothman, a Representative in Congress from New Jersey
The Honorable Ernest Preeg
Mr. Ignacio Sanchez Esq.
Additional material submitted for the record:
Co-signed letter to The Honorable Charlene Barshefsky dated February 18, 1997
Co-signed letter to The Honorable Stuart E. Eizenstat dated February 26, 1997
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House of Representatives,
Subcommittee on International Economic Policy and Trade,
Committee on International Relations,
Washington, DC.
    The Subcommittee met, pursuant to notice, at 1:14 p.m. in room 2172, Rayburn House Office Building, Hon. Ileana Ros-Lehtinen (chair of the Subcommittee) presiding.
    Ms. ROS-LEHTINEN. The hearing is called to order.
    I am going to enter a lengthier statement in the record but I will summarize what I was saying in that statement.
    For years, particularly in the last 12 months, the United States has had to endure severe criticism of U.S.-Cuba policy, not exactly from its enemies but rather from our own allies. The countries of the European Union (EU) seem to place a higher degree of emphasis on appeasing pariah States such as the Castro regime than on supporting the United States. They have used the international forum to attack U.S. policy toward the Castro regime as a means of securing a more favorable environment in Cuba which would render them substantial returns on their investment. This animosity within the European Commission (EC) seemed to climax when the U.S. Congress passed and the President signed into law the Cuban Liberty and Democratic Solidarity Act of 1996.
    The majority of the EC countries who did not condemn or respond with any sense of moral fortitude to the murder of four innocent civilians by the Castro Air Force, who did not demonstrate any indignation at the blatant violations of human rights and internal law, instead turned their anger toward the United States and specifically toward our Helms-Burton Law. Two months after the enactment of the law, the 50-member EC formally requested the establishment of a dispute panel objecting to what they termed the extraterritorial implications of the law and submitting their challenge under the 1995 Global Trade Agreement creating the World Trade Organization. Despite the waivers of Title III by President Clinton and despite the ongoing consultations led by Ambassador Stewart Eizenstat, the EU proceeded with its challenge and has refused to withdraw its request for a WTO dispute settlement body to arbitrate between the EC countries and the United States under WTO guidelines.
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    Unfortunately, the EU countries have been unable or, better yet, unwilling to understand two essential points. First, the LIBERTAD Act is one of a political nature. It is a foreign policy instrument of the United States and thus falls beyond the purview and the jurisdiction of the WTO. And, second, there is absolutely no factual basis or substantiating evidence to support the EU challenge and these are the critical issues that we are addressing today.
    With regard to the first issue, to involve the WTO in a dispute over foreign policy is merely a thinly veiled attempt to interfere and dictate the agenda of the United States. I am confident that I speak for most, if not all, of us here today when I say that no U.S. Government leader would, in good conscience, allow the WTO or any other outside entity to determine what the United States can or cannot do to protect our own interest. No outside entity can dictate who can or cannot enter U.S. borders if it is illegally profiting from confiscated American property and that is actually Title IV of the LIBERTAD Act.
    International law has long recognized that each State has the sovereign right to dictate its foreign relations and to protect its citizens. Therefore, the U.S. Government's right to make decisions about our own foreign policy and our national security is absolute and cannot be abrogated or interfered with by any foreign entity.
    On the arguments raised against the LIBERTAD Act and against our 35-year-old trade embargo on Cuba products, it reflects a high level of misunderstanding and misinterpretation on the part of our European allies. First and foremost, the LIBERTAD Act is not extraterritorial. The sanctions imposed in its most contentious portions of the law, which is Title III, only apply if a foreign investor traffics in property stolen from U.S. nationals by the Castro regime. It cannot be made any clearer. The LIBERTAD Act and the 35-year-old trade embargo do not violate free trade nor do they impede GATT provisions, particularly since they are consistent with GATT 1994 and approved under the previous GATT rounds.
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    Furthermore, the LIBERTAD Act does not benefit the United States commercially to the detriment of the EU or other WTO members. As a result, even if WTO did have authority over this dispute, which it does not, the EU challenge fails to meet any of the requirements necessary for a dispute settlement body.
    It must be underscored, the LIBERTAD Act, in no instance, tells our European allies or any others that they cannot invest in Cuba. They can proceed to satisfy their greed by building luxury hotels in Cuba, hotels which, by the way, are banned to the Cuban people. They can build, dig or buy anything in Cuba as long as they do not use property illegally confiscated from U.S. nationals. However, the United States cannot and will not condone the blatant disregard for U.S. claims on such property and must implement mechanisms to defend the rights of American citizens against those who violate them. This is one of the most important responsibilities of a government to its people. Yet the EU persists in its role as Castro's mouthpiece, distorting the facts about the LIBERTAD Act and using political rhetoric and technical maneuvering to interfere with U.S. internal decisions in operating vis-a-vis U.S. foreign policy. Exactly who is guilty of this extraterritorial nature? I suggest to the EU that it first look in the mirror and recall the saying, ''He who lives in a glass house should not throw stones.''
    Although this issue of WTO authority and the EU challenge to the LIBERTAD Act may appear to be clearly defined and not debatable, there are those who would argue that this, in fact, is a trade matter and that the WTO is the appropriate forum for arbitration. Furthermore, even if there was an absolute consensus on the issue, it is still vital for the arguments on both sides to be heard in an attempt to educate and inform the American people, the public and the private sector leaders in the United States, and the Europeans and all other countries battling over this issue. The veracity of contentions must be measured against the facts in order to curtail further misinformation.
    I would like to make sure that we note that we did extend invitations to Ambassador Eizenstat, the Office of U.S. Trade Representatives, and the Department of State. All declined stating that they are in the midst of consultations on this issue.
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    We thank all of the witnesses who will be appearing before us today and, in particular, I would like to welcome our colleague in the House, Congressman Lincoln Diaz-Balart, who was instrumental in writing most of Helms-Burton and who just returned from the Codel Gilman, where he had visited with many European leaders talking precisely about the EU challenge to Helms-Burton before the World Trade Organization. We especially thank Congressman Diaz-Balart for his role in codifying the U.S. embargo into law and we welcome Congressman Diaz-Balart with us today.
    Thank you, Lincoln.
    Mr. DIAZ-BALART. Thank you.
    Ms. ROS-LEHTINEN. I am sorry. Mr. Sherman and Mr. Clement, I would like to recognize you as well.
    Mr. SHERMAN. In my first few months in Congress, I am not wedded to any particular position on these issues. I am entitled to a certain amount of ignorance and indecision. But I do want to comment upon EU's generous contributions to international peace. Peace and security in the world and the free trade routes around the world, are at an all-time high and in order to maintain them, nations need to spend tax dollars. They sometimes need to spend the blood of their soldiers. And they need to moderate their trade positions in order to achieve peace and democracy around the world.
    EU has been willing again and again to do way less than its fair share in all of these areas, whether it is burden sharing where EU is willing to expand NATO as far as the American tax dollar can go or whether it is in the area of sending soldiers in harm's way where when they are getting far more of the oil from a region, they are willing to send far fewer of the soldiers. But it is in the area of trade where the underperformance of some of our European allies is most dramatic. Now, I am not saying that the members of EU are willing to trade everything with everyone. They are only willing to do it if there is a profit.
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    And those who are familiar with Star Trek will notice the Ferengi-esque approach to trade ethics when it comes to those who look at trade first, second and third and democracy somewhere off the list. The United States is a sovereign nation. We have the right to protect property that has been stolen from our nationals and I would think that EU, instead of criticizing us for undertaking this action, would be joining us in trying to put trade pressure on this despicable regime in Havana. Or, if they disagree with our particular policy there, at least point to some other place in the world where Europe has taken the lead in saying no to profit and yes to democracy. Until then, the image of the Ferengi is the one that comes to mind.
    My apologies to those who do not follow Star Trek.
    Ms. ROS-LEHTINEN. Thank you. I will have to see it this weekend.
    Mr. Clement.
    Mr. CLEMENT. Madam Chairman, let's just proceed with the witnesses that we have. That would be fine with me.
    Ms. ROS-LEHTINEN. Thank you so much. And we have also been joined by Congressman Bob Menendez who, along with Congressman Diaz-Balart, was instrumental in writing a good portion of Helms-Burton. Bob's most direct participation was in Title II of Helms-Burton, the hope for the enslaved people of Cuba, post-Castro.
    We welcome both of our witnesses here today.
    Congressman Diaz-Balart.
    Mr. DIAZ-BALART. Thank you, Madam Chairman. I must say that this is the first hearing that I am able to testify at in your new Committee. I feel honored to be here and I congratulate you for assuming this extraordinarily important position leading the congressional efforts in the very important field of international trade. Congratulations to you as well as to the Members of the Subcommittee.
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    I would like to submit for the record, Madam Chairman, with your consent, a written statement.
    Ms. ROS-LEHTINEN. We will submit all of your statements for the record, without objection.
    Mr. DIAZ-BALART. I think you will be pleased to know that I will not read it, in the interest of time.
    I think you touched upon a number of very important aspects, as did Mr. Sherman as well, that we need to be focusing on. The European action is obviously irresponsible, as well as uncalled for, in having brought this challenge at the WTO. I think they are risking support for the WTO among the American people and among the representatives of the American people here and the whole international trade structure, which has been created with so much work and so much diligence.
    But we did witness, in our visits to European capitals with a number of the leaders of EU, their dismal lack of information with regard to what the Helms-Burton Law does and does not do. You pointed out that it is not extraterritorial because it limits itself specifically to property confiscated from U.S. citizens. It was very interesting to see that very few leaders of EU knew that.
    But you pointed out another very important aspect which I think we have to focus in on time and time again—what commercial benefit does our law provide to U.S. businesses in Cuba at this time? Complaints before the WTO are when one country believes that another country, due to certain actions, is providing benefits to its businesses somewhere in an improper manner. We are saying this because of our ethics—and our view, obviously, of Cuban history—and our intimate knowledge of Cuba and its people, we are saying we will not trade at this time with Cuba and we will forego and lose profits at this time that we could obtain by trading with the usurper or the oppressor of the Cuban people and it is inconceivable that someone could allege before a world trade body that we are granting, due to Helms-Burton or any other aspect of our law—which, by the law, is being challenged—our entire law, the Torricelli legislation, the executive orders which began, as you stated, over three decades ago as a consequence of Castro's confiscation of U.S. property—all of that has been challenged at the World Trade Organization by Europe. It is inconceivable for them to say that we are providing undue benefits to U.S. businesses.
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    Now, we do know, Madam Chairman, that by deferring profits for U.S. businesses by not permitting, in effect, U.S. businesses to profit from the oppression of the Cuban people, we do know that in the long run, after Cuba's liberation, the goodwill that will exist for U.S. businesses will be significant. We know that because, as we told our European friends, they talk a lot about history and geography. We know a little bit about history and geography as well and we know a little bit about the Cuban people. And it does not take an expert to know that companies such as Sherritt, the largest publicly held mining company in Canada, that today is not only exploiting the Cuban people in coordination with Castro but dumping chemical waste from the processing of the minerals that it takes from Cuba and processes in Canada and to avoid the costs of Canadian environmental protection disposal regulations, Castro agrees that Sherritt dump on Cuban soil and water that poison. It does not take an expert, Madam Chairman, to know that there will not be goodwill by the Cuban people and its elected representatives in the future toward companies that engage in crimes such as Sherritt.
    So I commend the Chairman for holding this hearing. I am disappointed not to see the Administration here. The emphasis of my written remarks revolved around or was that we must, as soon as possible, invoke national security at the World Trade Organization and I have called forth and brought forth the many, many precedents that exist for us to do so. But I think, and I will simply say that it is very important that we make clear that the American people and the Congress will not tolerate pressure from the World Trade Organization on matters that are not trade-related.
    When we are prohibiting U.S. businesses at this moment in history from profiting from the oppression of the Cuban people, that prohibition on our businesses is not a trade matter. It is a political issue and it is an unacceptable challenge brought forth by the Europeans. So we have to make clear that we are not going to permit the WTO or any other supra-national organization to try to pressure us on matters that are not trade-related and if the WTO seeks, goes forward, should try to have a ruling by the panel to influence the U.S. foreign or national security or immigration policy, then we have to be very clear, I believe, Madam Chairman—we have to be ready, willing and able—to withdraw from the WTO.
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    Thank you.
    Ms. ROS-LEHTINEN. Thank you very much, Mr. Diaz-Balart.
    [The prepared statement of Mr. Diaz-Balart appears in the appendix.]
    Ms. ROS-LEHTINEN. Mr. Menendez.
    Mr. MENENDEZ. Thank you, Madam Chairlady, distinguished Members of the Committee. I am glad to join my colleague in the House and Senator Torricelli here before you today. Let me go over a few points that I think some of which will buttress Mr. Diaz-Balart but also some which are somewhat different.
    First of all, I want to say that I think the U.S. Trade Representative has done an excellent job in this process and is moving forward and I believe the Administration is deeply committed to ensuring that the United States has the right to pursue its interests under GATT and to pursue it through any of the provisions that are within GATT that will give it the ability to pursue its national interests and its national policy. And I believe, from my conversations with the Administration, that is where they are headed. Of course, they would like to try to settle this outside of a WTO process. I do not know what room we have to do that but, nonetheless, that would be desirable as long as it does not diminish that which we have accomplished legislatively and which is the law of the land.
    This is clearly a matter of U.S. foreign policy and national security in which the WTO has no jurisdiction or authority. By proceeding, I think the EU threatens the integrity of the WTO, an organization which many of us have supported and worked hard to create, and they do so for the most part, from my perceptions, to appease domestic constituencies. The fact of the matter is that I think that they are raising very, very strenuous concerns has more to do with the model legislation and the Iran/Iraq sanctions bill that unanimously or overwhelmingly, I should say, passed both Houses.
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    Cuba gets all the attention by the Europeans but I think the real issue is that if you look at the Europeans and what is at stake for them, I think economically to them that bill has a greater significance. And yet the House and the Senate spoke overwhelmingly of their concern about terrorist countries that, in fact, the United States wants to ensure under that legislation that there are certain prohibitions. And that is in the national interest and the national security of the United States.
    Now, if that is not the case, then other than the domestic value that is derived from pursuing this case, the EU really has nothing to gain. The United States is not going to reverse any aspect of its foreign policy as it relates to Cuba. The suspension of Title III was renewed in January, one of the provisions of the Helms-Burton legislation—one of the most objectionable provisions that they constantly raise. The suspension of that was renewed in January of this year and there is no compensation to be granted because there has been no quantifiable damage to any EU country or companies as a result of U.S. policies.
    Now, one of the points I find most interesting is that the security clause in Article 21 of the GATT is self-judging—and let me give you two examples. Great Britain and Canada have used the clause to justify their blockade of Argentina during the Falkland War and Sweden used the clause to justify, of all things, their need to prevent the importation of cheap footwear. If that is the national security interest of Sweden, a country 90 miles to our south that has the potential of finishing a dangerous nuclear power plant, that has the third largest army in the Western Hemisphere per capita after the United States and Brazil, that has had designs throughout the Western Hemisphere and that has only reduced those designs in terms of disrupting other countries because of the necessity created by our legislation on the regime and reducing their ability to promote unrest in other countries, the fact that where do the Tupak Maru rebels get offered refuge? In Cuba, along with several hundred other fugitives, including those from the United States that have killed law enforcement officers in this country, not to mention Mr. Vesco. So, if cheap footwear is a national security question for Sweden, certainly we have more than a fair basis for our determination of the national security of the United States.
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    Now that the clause impeded the EU in their protests in this regard, they want to change the criteria for invoking Article 21 and I think that is very dangerous. If we can let other countries in the world determine what is our national interest and our national security, those detractors of GATT will have an enormous amount of fuel. To argue that Cuba is not potentially a threat to the U.S. national security is ludicrous for all the reasons I said, especially when compared to cheap footwear. And just last month we recognized the 1-year anniversary of the shootdown of four pilots by Cuban Migs in international air space. Now, the EU may have already forgotten that incident. But certainly the American families of those individuals have not.
    Ironically, the EU and others are content to sanction other regimes for their records on human and civil rights but not Cuba. I am confident that the Nigerian military leader, General Sani Abacha, China's Communist party elders, Saddam Hussein and others are carefully watching and wondering how Castro can get off so easy when they are fighting back international sanctions as well.
    At the end of 1996, Canada called for economic sanctions on Nigeria to oppose the ongoing abuses of human rights in that nation and I agree with them. But tell me, how is it that your view is that we should sanction Nigeria? South Africa, in the past, in terms of divestiture; Iraq under the Iran/Iraq sanctions bill; and Cuba, no?
    It has become apparently overt what this policy, I think, is really about. The WTO is an inappropriate forum for the consideration of non-commercial matters and certainly a definition of what is the U.S. security interest and in its national interest. They have the right to disagree with U.S. policy. But they do not have the right to impose their will on the American people or its representatives.
    Thank you, Madam Chairlady, for having this hearing.
    Ms. ROS-LEHTINEN. Thank you so much, Congressman Menendez, for joining us.
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    Ms. ROS-LEHTINEN. We are very pleased to have with us Senator Bob Torricelli, back to his old stomping grounds in the House. We miss you over here, but it is certainly a welcome addition to the Senate. And, as we have pointed out, the EU challenge to Helms-Burton before the WTO not only includes Helms-Burton but it also includes the Torricelli bill, a law that all of us fought so hard to pass and the President signed into law. We welcome your statements here today and look forward to your insight on how we should proceed and what our proper course of action should be.
    Welcome back.
    I notice, Lincoln, that our two colleagues from New Jersey have been to Florida a lot because their tans are much better than ours.
    Mr. DIAZ-BALART. And we welcome them any time.
    Ms. ROS-LEHTINEN. Senator Torricelli.
    Mr. TORRICELLI. Thank you. Clearly, there is a great deal about the weather in New Jersey you still need to learn. It is a very sunny place in March.
    To the Chairman, to Lincoln Diaz-Balart and Bob Menendez, thank you very much and it is a pleasure to be with each of you for what I am told affectionately at the State Department is referred to as the ''Gang of Four''. As one of its proud Members, I am pleased to be with you today to address the question of the policy of some of our European allies with regard to the World Trade Organization and the judgments which we have made throughout the years in this Congress regarding U.S. policy toward Cuba.
    I want to preface my remarks by making clear I consider myself an internationalist in every aspect of the word. I do not think that I have ever opposed American participation in any international organization dedicated to free trade or the peaceful resolution of disputes. I believe the World Trade Organization is a necessary component of maintaining stable, balanced and organized free trade. But as a member of this institution, I was very careful before ever voting for the World Trade Organization to make my satisfaction and belief that this would not interfere with the sovereignty of the U.S. Government or our ability to defend our own national security interest. After testimony by the Administration, I became convinced that acting in good faith we were joining an organization that would promote free trade, would certainly assure ourselves the ability to defend our own vital interests.
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    There is no escaping the conclusion now that if the World Trade Organization is going to define its mandate to preclude the United States from taking a position for freedom in Cuba consistent with our own national security interests, then it raises the larger question about whether the United States can belong to the World Trade Organization. I would urge our European allies to take a moment of quiet reflection to consider whether they really want to continue traveling down this road. They can engage in a debate about their views on Cuban policy, contrasted with our views. But if they are going to challenge our right to defend our national security interests as we interpret them with regard to Cuban policy, they will destroy the World Trade Organization because, while I feel strongly about free trade and believe in a World Trade Organization to help manage that trade, I feel much more strongly about the ability of the United States to defend our security interests. Force the U.S. Congress to choose between our national security interest and the World Trade Organization and that is a choice that every Member of this Congress will make on a bipartisan basis almost immediately and there will be no World Trade Organization.
    Cuban policy has the potential to do to the World Trade Organization what the debates of another time did to the League of Nations. We will end international cooperation in world trade. I greatly regret these circumstances have occurred because, in fact, there is no rationale for European and Canadian arguments. As has been demonstrated by my colleagues, the precedents established previously in defining national security not only permit current American law toward Cuba but indeed those precedents would entertain far broader sanctions on this or other issues because, by any interpretation of national security, remembering both the murder of our citizens last year, the current extent of armament within Cuba, and the potential of a future conflict on that island causing damage to our own people and our interests, one of the greatest migrations in history from Cuba to the United States on an unregulated and uncontrolled basis, much of it engineered by the Cuban Government for political purposes, the fact that the island has become a refuge for convicted felons fleeing justice in the United States and that the Castro Government has been implicated in a conspiracy in narco-trafficking, on any one of those bases the United States would be entitled, unilaterally, to define our policy toward Cuba on a national security basis. But we are not forced to interpret or justify our policy on any one of those bases because all of them are available.
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    I finally want to remind our European friends that laws are written not for any one set of circumstances and precedents do not govern any one crisis, but they remain for all time. I believe that as time passes, future generations of Europeans and Canadians will be embarrassed that at a moment of national struggle for human rights in Cuba their parents remained silent or complicitous. If that is not enough to change the perceptions of this problem, let them remember this—there will be a time when the actions of Qhaddafi in Libya sufficiently threaten the interests or security of Italy in immigration, human rights or armaments, when Italy may come to the United States and ask our assistance. A future fundamentalist Government in Algeria may so threaten the foreign policy and the security interests of the French that they will come to the United States and ask for our acquiescence. Indeed, there are a host of potential crises throughout North Africa and the Subcontinent and around the world that will so involve the foreign nationals, the investments, the human rights interests of our European allies that they will come to the United States. And I want to assure them this—we will look at the rights of their peoples, the security of their countries with the consistency of human rights and national security that is in the great traditions of the United States. I will pretend not to remember what they do on this day when many of those who live in our country find their ancestors in Cuba oppressed, jailed and three decades away from ever experiencing freedom. I hope on that day our European friends can learn to forgive themselves as I intend to forgive them.
    This precedent may, in this instance, be troubling to American foreign policy. But we argue today not simply because it is important for American foreign policy. But if we were to fail, it would complicate the foreign policy and the sovereignty of every nation in the World Trade Organization.
    I thank you very much for this opportunity. I have been proud to be part of this movement in this Congress in restoring a genuine sense of bipartisanship to American policy toward Cuba and I want to assure all of our European allies they have experienced the Cuban Democracy Act. They have witnessed the LIBERTAD Act. But what they do not probably fully understand is those are only downpayments in the continuing struggle for Cuban freedom. They are not ends, by any means.
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    Thank you.
    [The prepared statement of Mr. Torricelli appears in the appendix.]
    Ms. ROS-LEHTINEN. Thank you so much. I thank the three gentlemen for their very eloquent statements. In the interest of time, because I know you have to move elsewhere, we will just have one question on the Republican side and one question from the Democrat side, if we could. And our question is, if the EU complaint proceeds and the dispute settlement body rules in favor of the EU—well, you have addressed this, but—what should the United States response be if that unfortunate act were to happen?
    Mr. TORRICELLI. Well, in my judgment, the Administration is taking the proper position that if the World Trade Organization continues to claim jurisdiction and takes actions against the United States, we should boycott those sessions. But I think the question remains of the U.S. Congress that if the national security exemptions, the World Trade Organization, are uniquely not to apply to the United States, I think this Congress must consider whether or not, consistent with our own national interests, the United States of America can belong to the World Trade Organization.
    Ms. ROS-LEHTINEN. Mr. Diaz-Balart.
    Mr. DIAZ-BALART. I agree with Mr. Torricelli. I think that if the EU should proceed, then the World Trade Organization should actually not only hold but then sanction the United States. In other words, have a ruling that goes against us and then sanction the United States. I think that we would have to be able to—and we must—walk away from the World Trade Organization because this is not a trade case. So I would hope that they would not go that far. But I think they should understand that there will be significant sentiment in the Congress to walk away, not only from this ruling but from the WTO, if they sanction American business in a case that is not related to trade.
    Ms. ROS-LEHTINEN. Mr. Menendez.
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    Mr. MENENDEZ. Well, again, I think that Article 21 of the GATT is self-judging. I do not believe that the WTO can proceed. They set a precedent that they will not want to have, which is that when any other country invokes the national security provisions under Article 21, then they will be judged and I think there is no country in the world that wants to have anyone else or an international body determine what is their national security interest.
    So if they insist on pursuing, they do it to a great risk to their own peril. I think also ultimately the U.S. position should and would be that we have exercised Article 21. We do not recognize jurisdiction in this matter. And we will not accept any further determinations that you have in the matter. I do not think that necessarily means you walk away from the WTO unless they seek to bar you by virtue of such a decision and I think that will be a very difficult proposition for them to do.
    Ms. ROS-LEHTINEN. Thank you.
    And on the Democratic side, I am pleased to recognize Mr. Rothman.
    Thank you, Steve.
    Mr. ROTHMAN. Thank you, Madam Chairwoman.
    Congressman Diaz-Balart, good to see you here.
    Mr. DIAZ-BALART. Good to see you.
    Mr. ROTHMAN. I see the two gentlemen next to you who I have known for a great many years, who I have enormous respect for, who have been friends and leaders in the community I represent and the State I represent for a long time on not only this issue but many issues of importance to the people of my State and my community.
    Good to see you here, Senator, Congressman.
    What role should the Congress play if the decision of this panel goes the wrong way? What can we do as a body? What do you recommend? What action should we take?
    Mr. TORRICELLI. Well, if I could, that is one of the reasons I wanted to congratulate the Chairwoman today because I think we are meeting that responsibility. We make no idle threats, but it would not be responsible to fail to put the EU on notice. If you are going to proceed against the United States of America, you had best conclude that your views on Cuban policy are extremely important because the price is the destruction of the World Trade Organization. This hearing and this honest assessment of the situation is the best fulfillment of our responsibilities in dealing with this problem. The EU is on notice. The ramifications here are extraordinary.
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    There is a different generation that believed that the United States would not dare fail to participate in the League of Nations. We did not participate in the League of Nations because we believed there were consequences for our national sovereignty. There were similar sentiments expressed when the World Trade Organization was formed but we were persuaded that our national sovereignty would be protected consistent with the charter of the WTO. This case raises questions about whether that assessment was accurate and I simply hope that those who are making the judgments in the EU understand the consequences of what they do.
    The United States of America will not have its sovereignty compromised and will not be treated by rules different than other nations apply to themselves or the international communities apply. As it has been demonstrated today, the precedents are replete with cases of far less consequence to the national security of other nations and have been seen as sufficient grounds for an exemption from jurisdiction or actions. We demand no less for the United States and, given our role in assuring international security of other nations, we are probably entitled to a higher, even if others are seeking a lower, standard.
    Mr. DIAZ-BALART. I think, Mr. Rothman, that if the World Trade Organization should sanction the United States not for an unwarranted commercial benefit, which was the concept inherent in the World Trade Organization's ability to listen to complaints, but for the U.S. foregoing profits based on a law that codified a series of sanctions rooted in national security concerns. Then I am fully confident that within this Congress—I do not recall the exact number. I think it was 160 people, Members of the House that voted or 170 that voted against incorporation into the WTO. That number would significantly increase because the concerns, like Senator Torricelli mentioned, that a number of Members in Congress had with regard to the limitation of sovereignty that participation in the WTO would include, that concern would increase significantly. I had such a concern and so much so that I voted against entering the WTO. But I am fully confident that many of our colleagues who did vote to include us in the WTO would then have second thoughts because this is an egregious, unwarranted action that is not trade-related. And so I agree with both of my colleagues here, that the consequences for those, such as the Europeans, would be very far-reaching if they proceed and the WTO were to sanction us on a non-trade matter.
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    Mr. MENENDEZ. Very briefly, Mr. Rothman, let me just say that as someone who supported and voted for GATT, I would urge my colleagues to clearly have one voice because the question is, even for those here in the House or maybe in the Senate who disagreed with our policy vis-a-vis Cuba, even for those who disagreed, this rises above that issue. That is not the issue here. The issue is, will you let another country or group of countries dictate the national security of the United States, interpret it, define it. That is what is at stake. Forget about Cuban policy. That is what is at stake. And, in fact, I believe that no Member of this House who took their oath to uphold the Constitution and to promote the national interests of the United States could permit that such a defining moment to take place, to have an institution, another country, define what is the national security interest of the United States and, furthermore, to, in essence, obliterate an international concept of law which is that if you are in receipt of stolen property, we consider it a crime here, in Canada, in Mexico and in most democratic countries in the world. That is the underpinnings of what the provisions of the LIBERTAD Act are all about. It is standing up for U.S. companies, standing up for U.S. citizens saying, ''You can trade all you want with Cuba. You can even go ahead and invest and buy in those properties. But we're going to protect our citizens and there is a consequence here in the United States.''
    As of now we should be raising our voices very clearly and waving our sabres, as the Europeans are—because a lot of this is posturing—and clearly sending the message that I think that my two colleagues have said, that we cannot under any circumstances, not would you really want to see, the provisions of GATT that apply to national security be defined by someone other than the country.
    Mr. ROTHMAN. Thank you.
    I must just say that I agree with your sense of the Congress on the seriousness with which any such action by EU would be regarded.
    Ms. ROS-LEHTINEN. Thank you. And we thank the best part of the ''Gang of Four'' for being here with us today. Thank you so much, gentlemen.
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    The second panel we will now be hearing from is composed of Ambassador Ernest Preeg, who currently works at the Center for Strategic and International Studies in Washington, DC. Ambassador Preeg has had considerable experience in U.S. trade policy as a career Foreign Service Officer involved in trade issues like the Uruguay rounds of GATT negotiations.
    We will also be hearing from Mr. Ignacio Sanchez, an attorney practicing law in Miami, Florida. Mr. Sanchez is a partner with the Miami office of Kelley Drye and Warren and has been actively involved with analyzing the issues we are discussing at this hearing, has studied the economic forces that exist in a free market as well as the economic issues facing Cuba.
    We thank them both for being here today.
    Mr. PREEG. Thank you, Madam Chair. It is indeed a pleasure for me to appear before this Subcommittee to present my views on the Helms-Burton Law as it relates to U.S. interests in the World Trade Organization and trade policy more generally. I will just highlight a couple of points from my written testimony, which I hope you will be able to put into the record.
    Ms. ROS-LEHTINEN. We will put both of your statements in the record. Thank you.
    Mr. PREEG. My overall assessment is that the Helms-Burton Law is having substantial adverse impact on U.S. interests in the WTO and on U.S. trade policy more broadly. Sanctions applied in this way, extraterritorial to firms in third countries, as under the law, do conflict with the principles underlying the WTO multilateral trading system and possibly violate some specific U.S. commitments, although that is not yet clear, create a bad precedent for future actions by other countries, and undermine respect and support for U.S. leadership in the international economic field.
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    My statement does elaborate my reasoning for each of these four concerns and let me just highlight two points which are particularly relevant to the discussion that went before. The first is the claim that WTO commitments are inapplicable to U.S. trade sanctions because the sanctions are motivated by foreign policy reasons. Stated so broadly, this does run contrary to the basis of the multilateral trading system of rules-based trade relationship because, in fact, many, if not most, trade policy objectives do have foreign policy motivations. I give a number of examples in my statement. And you cannot separate them out. We are using trade actions, trade sanctions, for a foreign policy purpose and to just have a blanket opening for that just would undermine the entire system because so many trade policies are interconnected with foreign policy objectives.
    Which brings me to my second and related point, which is much more specific and it has been raised, that the WTO does provide for security exception under GATT Article 23, I believe, whereby a member country—I think we should be specific here—can take any action, ''which it considers necessary for the protection of its essential security interests taken in time of war or other emergency in international relations''. Now, this exception has been used on a few occasions in the past 50 years, actually, but very few and, just for the record, Congressman Menendez mentioned this Swedish case of 20 years ago where they put forward the security exception to limit imports of cheap shoes. They tried. But everybody, including the United States, came back and said, ''This is unacceptable,'' and Sweden backed down. So the precedent here is of a country abusing this exception clause and backing down. The other example was when Argentina was in a shooting war with the United Kingdom, and that was clearly in time of warfare.
    So, the question is, is it applicable at this stage for us to come forward and claim this clause, this exception, or not? And that certainly is open to us. In any event, it is almost certain we would be upheld if we justified on these grounds. Those are the two points.
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    Now, at the end I do conclude my statement with three suggestions on next steps that the United States should consider, if I might briefly, Madam Chair. No. 1, the preferred resolution of the dispute would be on the basis of agreements reached outside the formal WTO's panel. There is broad agreement on that. This would presumably mean further commitments by the EU and perhaps others to work together more forcefully toward an early and peaceful democratic transition in Cuba. The United States, in turn, would also likely have to take some further actions which might require adjustments in the Helms-Burton Law.
    No. 2, if such a bilateral agreement is not forthcoming, the United States should not boycott the WTO dispute procedure but make its best legal case against the EU charges. The United States should not, in my view, however, claim the security exception since the current U.S.-Cuba foreign policy relationship with all its terrible details from the Cuban side does not substantiate the criteria for an exception, as I just quoted. Rather, the individual charges should be counted each on its own merits and demerits.
    And, finally, No. 3, when and if the final report including a possible appeals procedure is completed, the United States would have an opportunity to reassess its next steps at that point. If the U.S. response to the EU charges prevails, the case will be closed. If the United States is found in violation of the WTO commitments in some instances, possible remedial action to comply with the panel findings should be considered seriously by the President in close consultation with the Congress. In any event, such a point will not be reached for a considerable time and, in the interim, progress toward achieving a democratic transition in Cuba should be re-evaluated with a view toward policy adjustments where the current course is producing less than optimum results, not only for Cuban policy but for overall U.S. foreign policy interests including the trade policy field.
    Thank you, Madam Chair.
    Ms. ROS-LEHTINEN. Thank you so much, Ambassador.
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    [The prepared statement of Mr. Preeg appears in the appendix.]
    Ms. ROS-LEHTINEN. Mr. Sanchez.
    Mr. SANCHEZ. Thank you, Madam Chair, for the opportunity to testify here this afternoon on Helms-Burton and the consequences that it has brought about at the WTO. I think that before addressing the very technical points that I will address independent of the national security arguments that the first panel addressed, we need to place in context that the United States and its citizens were illegally confiscated in Cuba to the tune of $1.8 billion in 1960 dollars. And it was not just the U.S. citizens who were confiscated but so were the citizens of the very member States of EU who now seem to forget that when they address Helms-Burton. Unlike the United States, though, most of the EU member States settled those claims with Cuba.
    The illegality of those confiscations is well-established. I do not think that that is even debatable at this point and I think has been recognized by EU's member States when they espouse the claims of their citizens vis-a-vis the Castro regime. However, they have chosen to assert challenges to Helms-Burton, and particularly to Titles III and IV of Helms-Burton, using very specific provisions of the GATT which are not applicable in this case.
    As Congressman Diaz-Balart stated, no benefit is being provided to U.S. citizens in the trade context. Nowhere in Helms-Burton do we impose any tariffs or duties on products made by the member States of the EU. Nowhere do we provide any type of subsidy to U.S. entities. Therefore, even if you looked at the very specific sections that are being asserted by the EU at the WTO, there does not appear to be any conflict with the Helms-Burton legislation.
    Helms-Burton does not prohibit non-U.S. nationals from doing business in Cuba. It only imposes a consequence within the United States on those entities that are doing business in Cuba if they are doing it on properties that were confiscated from U.S. citizens. It will then be up to those governments to decide in the future whether or not they will, in their own jurisdictions, recognize those judgments that are rendered here.
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    From a legal perspective, I think it is also imprecise to couch the debate on the LIBERTAD legislation as to whether or not it has an extraterritorial effect. Most legislation causes effects in and out of the territory that passes the legislation. For example, many foreign corporations complained that our environmental laws are too rigid and make doing business in the United States too costly, yet no one even discusses the issue of whether this has an extraterritorial impact by making it more difficult for foreign companies to do business in the United States.
    The proper inquiry, therefore, should be whether under international law standards this Congress had a jurisdictional base for legislating on particular issues and there are two recognized bases for legislating. One is what is known as the nationality link, and the other is the territorial link. By the nationality link, what we are saying is that the United States, or any country, would have the right to legislate on issues that affect the interests or concerns of its citizens. By the territorial link, international law recognizes a country's ability to legislate on conduct that causes substantial effects within its territory. And on this territorial link, specifically, I believe that Helms-Burton is justified under international law standards.
    Trafficking in property confiscated from U.S. citizens in Cuba causes a substantial effect in the United States because it reduces the expectation that exists in the United States that the property will be recovered or that the U.S. citizens will obtain indemnity of some form for the confiscation. This expectation is manifested in at least three forms. The first form is the fact that we established the Foreign Claims Settlement Commission. U.S. citizens went before it. They certified their claims. The government has recognized the debt owing to those citizens in 1960 dollars of $1.8 billion. The president of the very same member States of the EU who did the same and who actually obtained some form of indemnity recognizes that there is an expectation that you will recover something.
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    The second place where we can see that an expectation exists is by looking at what happened after the Berlin Wall fell in Eastern Europe. All of those countries, in some form or another, established a system whereby they either provided restitution of property to the legitimate owners of properties that were confiscated by the Communist regimes that had been in power there, not from 1960 but way before that, going back to as far back as pre-World War II. And they either established some sort of system for restitution, indemnity or a hybrid scheme to reimburse or address the property rights of those citizens.
    And third, and probably most important, the U.S. tax code contains an expectation provision in there with regards to the property rights of U.S. citizens. Specifically, when the properties were confiscated in Cuba, the tax code permitted a loss deduction to be had by U.S. citizens and U.S. residents, in fact, on their income taxes for an extended carry-over period of about 20 years. The tax code goes on to state, ''When you recover the property, you will pay back the taxes you would have paid had you not taken that loss deduction.'' So, in essence, the Treasury has a hole in it that was created by the lost deductions that were taken as a result of the confiscations and because the language is in there for the recoupment of that loss, clearly even our tax code has an expectation provision in there.
    I think those three are sufficient in and of themselves to illustrate that the United States has the jurisdictional bases to legislate in the way it did under Helms-Burton. Additionally, I believe that it is important to review that the purpose of the WTO was to protect, preserve international trade and investment. Helms-Burton is consistent with that stated purpose of the WTO.
    It is somewhat incongruous to raise a challenge in the WTO that basically argues for the trampling on the rights of those citizens whose properties were confiscated overseas. It seems to me that the appropriate response of the WTO, or of their member States individually, should have been to enact similar legislation or, at a minimum, that the WTO address the issue of property confiscations and try to work for agreement on protecting those very kinds of international investments and trade that they protect in other forms but that they have not protected from the very basic aspect of the property investor.
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    Ms. ROS-LEHTINEN. Mr. Sanchez, if I could ask you to wrap up just because we just got beeped for a vote and I would hate to not have enough time for questions.
    Mr. SANCHEZ. I am done.
    Ms. ROS-LEHTINEN. I do not usually get such immediate response, but thank you so much.
    [The prepared statement of Mr. Sanchez appears in the appendix.]
    Ms. ROS-LEHTINEN. Gentlemen, as you know, Ambassador Steward Eizenstat, well, at least in my opinion, has done an admirable job of meeting with our Canadian and Mexican neighbors as well as our European trading partners explaining to them the many provisions of Helms-Burton, telling them why it is not extraterritorial, and has put in countless miles and met with many, many government leaders. It is his contention, as the official U.S. spokesperson for our policy, that Helms-Burton is not a trade bill. It is a foreign policy initiative and, in fact, domestic in terms of immigration law. I wanted to ask the Ambassador, is it his contention that provisions for transition to democracy in Cuba, supporting human rights in Cuba, supporting the political opposition in dissident movements, are actually trade policies? Wouldn't you agree that the movement toward democracy, the respect for human rights, judicial reform, all of those which are definitely part of Helms-Burton are foreign policy priorities for the United States and that we should not allow an organization like the WTO to take away our ability to set these foreign policy initiatives?
    Mr. PREEG. Well, Madam Chair, the problem, which goes to much of the dispute across the Atlantic and elsewhere, is that it is both. We are using trade or, more broadly, economic sanctions that affect trade and investment. We are using trade policy as the instrument to support a foreign policy objective. So we have the two inextricably linked. And we have our commitments in the WTO and the procedures in the dispute panel. It is very complicated and we have the whole list of charges from the EU. There are some lawyers who say they will not hold up in court and I am not in a position to say. But the two are linked. And what do you do when they are linked that way?
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    And, unfortunately, we are in a situation and we have heard it today that this dispute, as was predicted 2 years ago, is really doing very serious harm to undermining support in this country for the WTO and abroad. I mean, there has been one line of conversation here today of which I am clearly in a minority. But when you are talking with anybody from other countries, you just get a hundred percent rejection and it has really been, from a U.S.-Cuba relationship, we now have something that is almost global and causing great adverse impact and souring, in effect, support for the WTO and trading relations with friendly countries.
    Ms. ROS-LEHTINEN. Thank you.
    Mr. Manzullo.
    Mr. MANZULLO. I just have a real short comment, Ambassador. Helms-Burton is doing harm to the WTO in whose eyes, the Europeans?
    Mr. PREEG. It is in the eyes of all other members of the WTO who feel that we basically are very critical with using this policy instrument and it is extraterritorial in the sense of——
    Mr. MANZULLO. No, I understand that. But, I mean, we have two lines going here. One is the jurisdictional. And, essentially, Ambassador Eizenstat has put in a special and limited appearance contesting jurisdiction to the WTO.
    Mr. PREEG. Right.
    Mr. MANZULLO. And if he imposes a national security waiver, that concedes jurisdiction. And if it is that damaging and the Europeans are that bent out of shape over the Helms-Burton damage to the WTO, then why don't they just withdraw their complaint?
    Mr. PREEG. Well, they feel that——
    Mr. MANZULLO. Just take it out of the WTO.
    Mr. PREEG. I do not want to speak for them, but they certainly feel that we are using unacceptable policy instruments that conflict with the principles and, in their view, the letter of our commitments in the WTO and they are challenging it as a matter of principle as well as self-interest.
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    Mr. MANZULLO. I can understand that, and I voted for GATT and I believe in the principles of it and the free trade. But I think the argument that it is doing considerable damage to WTO, I do not think that is a valid argument. I think what is happening here is that this is a turf battle on whether or not the WTO can be used as an instrument to take away a nation's sovereignty and the United States essentially is arguing that. That argument came up 2, 3 years ago when GATT was being argued on. And I do not have the answers to any of these questions and neither do you, but the reason I raised that is that, based on your testimony, it is my understanding that if we follow what Ambassador Eizenstat is doing now to resolve this issue outside of the WTO, that he really is on the right course. Would you agree with that?
    Mr. PREEG. Oh, I definitely agree. That is point one.
    Mr. MANZULLO. So that we do not have to face——
    Mr. PREEG. I definitely agree and that is my first point in next steps. And I think the Europeans have come somewhat in the right direction to try to be more responsive. I think the change of Government in Spain helped. I think we have run into a stone wall with Canada and Mexico and others and I think this is the route to go. And the question, though, is if we get more and enough—we may not get everything—might we have to do some more. And the one sentence here is, might we have to do something, might we even have to consider some adjustment in the law. But certainly this is the preferred way and I think the Europeans would very much like to resolve it because they, I think, would agree with us. In trading terms, this is very small and we should not have the tail wagging the dog in trade terms of our Cuban policy and our national security interests in the Cuba relation.
    Mr. MANZULLO. But we have gone from socks to pajamas in Canada now, so I do not know how——
    Mr. PREEG. Well, let me just say one thing about Canada because I have dealt with them for many years and at times they do not always seem totally rational. But the Title IV——
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    Mr. MANZULLO. They do wear pajamas because it is very cold.
    Mr. PREEG. The Title IV, we are now saying on the Title IV, Sherritt—I do not know other companies—that not only corporate officials but their families cannot travel to the United States. Now, doing sanctions and punishment not only to officials but family members, that is what a Stalin or Castro would do. It is not what we do——
    Mr. MANZULLO. There could be——
    Ms. ROS-LEHTINEN. If I could——
    Mr. PREEG. People could lose their jobs——
    Ms. ROS-LEHTINEN. Please. Anyone who compares U.S. policy on anything to Stalin or Castro is a ''no'' here.
    Mr. PREEG. All right.
    Ms. ROS-LEHTINEN. But I would like to point out that that merely tracks existing law for people who are trafficking in narcotics. We took the same legislation, the same language, and applied it to seizure of American property. But continue.
    Mr. PREEG. OK. Well, I think I concluded on that that we hopefully can resolve it through negotiation. I think there is some hope with the Europeans, based on Under Secretary Eizenstat's work. I am less hopeful in this hemisphere.
    Ms. ROS-LEHTINEN. Yes. Well, we certainly encourage Ambassador Eizenstat to continue those talks and we wish him well. We hope that that is resolved, certainly not to the detriment of any of our strong trade relationships that we have enjoyed for so many years. But, certainly, the cause for democracy in Cuba is an overriding concern as well.
    We thank the gentlemen, both of you, for being here with us today and we apologize that we did not have a further time for questions because we have a series of five votes in a row. So the meeting is adjourned. Thank you very much.
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    [Whereupon, at 3:24 p.m., the Subcommittee was adjourned.]


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