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4.- DAMAGES TO EXPORTS AND SERVICES

The unjust economic, commercial and financial blockade imposed by the U.S. government against Cuba has an ever greater negative impact on Cuban foreign trade.

The arbitrary regulations and legislations that make up this pernicious policy against our country continue to affect the economic development and social wellbeing of the Cuban people, causing significant losses in resources and hard currency. It is estimated that in the year 2002, the U.S. blockade caused 685 million dollars in damages to Cuban foreign trade, a figure that is 41.8 million dollars higher than in 2001.

In 2002, the losses incurred by Cuba through purchases at higher prices than those it would have received under normal conditions totaled 403.5 million dollars. As a result of more unfavorable financing conditions, the country lost 62.3 million dollars, along with an additional 65.8 million due to higher transportation and freight costs.
Moreover, as a result of lost income, Cuban exports suffered 119.2 million dollars in damages. These resources could have been used by Cuba to purchase 100,000 metric tons of chicken, plus an equal amount of corn and bread flour, half a metric ton of paddy rice and 20,000 metric tons of soy beans.

Among the elements that most seriously affect Cuban exports are the cost of maritime transportation (freight); currency exchange rates (due to the fact that prices are quoted, billed and paid in different currencies); insurance premiums on cargo and transportation; banking operations; the increase in risks and damage to merchandise owing to the distance it must travel; the storage of products until there are sufficient amounts for large shipments; and additional premiums for insurance on ships 20 years of age or older.

All sectors of the Cuban economy are affected by the blockade.
It is estimated that damages to exports of Cuban raw sugar totaled around 182.9 million dollars in 2002. Of this amount, 179.3 million dollars were lost as a result of the lack of access to the U.S. market, where Cuba should have been able to export more than 800,000 metric tons of sugar at preferential prices in accordance with the country quota system established in 1982 by the U.S. Agriculture Department, from which Cuba is excluded.

The restrictions imposed by the Torricelli Act and consequent increase in freight costs led to nearly a million dollars in losses in the import of fuel in the year 2002.
At the same time, oil companies that have contracts for drilling operations in Cuba are obliged to contract products and services at a cost 25% higher than normal. In 2002, this represented 157.7 million dollars in surplus payments.

Nickel exports incurred 6.56 million dollars in additional costs due to the use of intermediaries to place the product on the world market, obstacles to carrying out regular shipments through international shipping lines, and the distance of markets, among other causes.

It would suffice to mention the damages caused by the blockade to the Cuban company Pedro Sotto Alba-Moa Nickel S.A. to demonstrate the major losses suffered by this branch of the economy. In the year 2002 alone, this company was obliged to make 9.76 million dollars in additional expenditures on freight due to the distance of its export markets.

The telecommunications sector has suffered millions in losses, in the areas of basic and wireless telephone service, alarm systems, electronic commerce and postal communications, among others. In the area of telephone service alone, losses have totaled 21.7 million dollars in the last 12 months.

One of the Cuban companies in this sector, CUBACEL, has been adversely affected by the impossibility of reaching automatic roaming agreements with cellular operators on the American continent. This is because all of the companies that provide the signaling between TDMA standard operators and the formats established for the exchange of billing files are U.S.-owned, and have been denied authorization from the Treasury Department to facilitate these services. The resulting damages are estimated at two million dollars.

The blockade against Cuba has had a negative impact on the export and import of steel. In the case of stainless steel, which contains nickel among its components, exports have been severely damaged due to the prohibition on the entry into the United States of products containing Cuban nickel. In total, the Cuban steel industry loses 10 million dollars annually as a consequence of the restrictions of the blockade.

As a result of the prohibition on using the U.S. dollar in its foreign commercial and financial transactions, Cuba is obliged to carry out these operations in the currencies of third countries, despite the fact that most of the products it imports and exports are traded on the world market in U.S. dollars. This has led to considerable economic losses, due to the rise and fall in the dollar in relation to the currencies of the country's main trading partners, since exports are contracted in U.S. currency but payments are made in other currencies.

This signifies increased exposure to foreign exchange risks, leading to a greater climate of uncertainty around economic planning and management, which inevitably translates into higher operational costs.

Damages to the tobacco sector, one of the country's key exports, were estimated at 61 million dollars last year. The company Habanos S.A. alone suffered losses of some 18 million dollars.

The hotel industry has not escaped the negative effects of the policy of blockade, which have an even greater impact when one considers that this industry is the main source of income for the national economy.

Two examples effectively illustrate the damages caused to the Cuban hotel industry:

- Utell International is a global reservations system, which had contracted its services to the Cubanacán corporation since 1993. The Utell head office is in Omaha, U.S.A., but the company's offices in Mexico and the United Kingdom dealt with all operations related to Cuba. The contract was signed directly with the office in the United Kingdom. Reservations were made primarily in two ways: on the Internet or by e-mail. Over the last three years, some three million dollars in hotel reservations were sold.

Utell was bought by the U.S. company Pegasus Solution, and from that moment on, the number of reservations began to drop in comparison with other years. In September of 2002, as a result of ongoing pressure, Utell informed its Cuban counterpart that because it was a subsidiary of a U.S. company and on the recommendation of its legal department, it was obliged to terminate all dealings with hotels in Cuba, effectively immediately. As a result, between January of 2002 and April of this year, Cubanacán hotels lost 1.4 million dollars solely as a consequence of the breaking of this contract.

- In March of 2002, the London office of the Jardines Hotel Group expressed interest in exploring the Cuban market. This led one of its partners in the United States to express its "concern" with regard to operations in Cuba, a clear allusion to the blockade and its potential implications.

As a consequence, the hotel group informed the Cuban embassy in the United Kingdom that it would only follow up on its interest in the Cuban market after the normalization of relations between Cuba and the United States.

In addition to the restrictions already addressed, the U.S. blockade legislation prohibits U.S. citizens from traveling to Cuba, a measure that violates their constitutional right to freely travel anywhere in the world.

This measure has a considerable negative impact on the Cuban tourism industry. Studies carried out by the University of Colorado in Denver and the Brattle Group consulting firm indicate that if the restrictions on travel to Cuba were lifted, the Cuban tourism sector would take in close to 576 million dollars in earnings in the first year alone.

Moreover, the above-mentioned studies stated that if these sanctions were lifted, the number of tourists who would travel to Cuba on cruiseships could total around half a million annually, and they would spend roughly 70 million dollars in the country.
Cuban civil aviation has also suffered millions of dollars in losses over the past year.
The U.S. blockade violates the norms and precepts of the Convention on International Civil Aviation (Chicago Convention), and particularly the provisions of Article 44, regarding the aims and objectives of the convention, thus demonstrating the attempt to isolate Cuba from the international system.

Losses in this sector over the last year totaled 142.6 million dollars, for the same reasons as those outlined in the report submitted to the Secretary General in 2002. Foremost among these is the impossibility of acquiring and leasing high-performance planes.

The restrictions of the blockade, prohibiting Cuba from operating in the U.S. market, make it impossible for Cuba to purchase aircraft manufactured in the United States, obliging it to lease aircraft from other suppliers, with a consequent increase in cost. Cubana Airlines was forced to make additional payments of around 10 million dollars for the leasing of A-320 and DC-10 planes.

The total amount of damages outlined above includes only those that could be quantified; the true figure is therefore considerably higher.

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