Toward the Termination of Licensed U.S. Foreign Subsidiary Trade with Cuba: The Legal and Political Obstacles

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The legislative proposal advanced in this Note to eliminate licensed U.S. foreign subsidiary trading with Cuba was enacted October 23, 1992. With the passage of the legislation, the legal and diplomatic questions raised in this Note move from theoretical to practical application. While these developments make the Note timely, certain references to the legislative debate were written prior to the Bill's enactment.

I. U.S. Foreign Subsidiary Trade With Cuba

Despite a direct ban on trade with Cuba implemented through the regulatory process,(1) foreign subsidiaries of U.S. corporations are currently circumventing the embargo because of a loophole in the regulations.(2) The regulations allow American foreign subsidiaries to apply for specific licenses from the Treasury Department's Office of Foreign Assets Control (OFAC) if they wish to conduct trade with Cuba.(3) Licenses are only granted to U.S. foreign subsidiaries that are incorporated in host nations whose law or policy "favors trade with Cuba."(4)

As the economic situation in Cuba continues to deteriorate, more foreign subsidiaries are applying for licenses in order to fill the void left by Cuba's reduced trade with the former Soviet Union and its satellites.(5) In reaction to this dramatic increase in U.S. foreign subsidiary trade, some members of Congress have proposed to eliminate the provision in the Cuban Assets Control Regulations (CACR) that grants OFAC the authority to issue licenses to U.S. foreign subsidiaries wishing to export to Cuba and meeting minimal application requirements.(6)

Foreign governments have objected to the legislation as an intrusion on their national sovereignty and as a violation of international law.(7) President Bush, while insisting upon his opposition to Fidel Castro's regime, also opposes legislative attempts to limit U.S. foreign subsidiary trade. President Bush believes that those subsidiary corporations would then be forced to "choose between violating U.S. or host country laws."(8)

This Note argues that the United States should enact legislation preventing foreign subsidiaries of U.S. corporations from exporting goods to Cuba. The United States has never had a better opportunity to effectuate substantive political reform in Cuba. This opportunity, however, will be missed if Cuba's totalitarian regime finds a ready alternative to the reduction in trading brought on by the fall of communism in Eastern Europe. Foreign subsidiaries of U.S. corporations should not fill the void that has left Cuba on the brink of economic collapse.

Although in the past Congress has had little difficulty in directing the executive branch to regulate U.S. foreign subsidiaries, attempts by the United States to limit the exporting activity of American foreign subsidiaries have been perceived by American allies, such as the United Kingdom and Canada, as violations of their sovereignty. Despite this disapproval, however, there is no consensus in the international legal community regarding whether a nation can regulate foreign subsidiaries that are owned or controlled by citizens of the regulating nation.(9)

The extraterritorial application of U.S. law to U.S.-owned or controlled foreign subsidiaries is premised on the nationality principle of international law.(10) Under the nationality principle, a nation can regulate the conduct of its citizens anywhere in the world.(11) As applied to corporations, which are artificial entities created by states, the nationality principle has been more difficult to apply.(12) Those opposed to the U.S. position argue that the place of incorporation is the only factor necessary to the determination of which nation has jurisdiction over a corporation.(13)

Those favoring the place of incorporation test point to the 1982 decision in Compagnie Europeene de Petroles S.A. v. Sensor Nederland B.V.(14) as determinative. In Sensor, a Dutch court rejected the U. …