HOUSE OF REPRESENTATIVES,
COMMITTEE ON FOREIGN AFFAIRS,
SUBCOMMITTEES ON INTERNATIONAL ECONOMIC POLICY AND TRADE, AND ON INTER-AMERICAN AFFAIRS,
Washington, D.C.

The subcommittees met at 2:10 p.m., in room 2200, Rayburn House Office Building, Hon. Gus Yatron (chairman of the Subcommittee on Inter-American Affairs) presiding.

Mr. YATRON. Good afternoon.

The subcommittees will now come to order.

It is a pleasure for the Subcommittee on Inter-American Affairs today to join with our colleagues on the Subcommittee on International Economic Policy and Trade for a hearing on outstanding claims against Cuba.

The subject has been raised anew by the introduction of House Joint Resolution 355 by Representatives Andy Ireland. The scope of the hearing has been limited to the claims, hopefully, without getting into a discussion on the merits of lifting the embargo and normalization of relations with Cuba.

I want to join in welcoming our distinguished guests, led by Hon. Andy Ireland, Representative of Florida. Th e other witnesses are Robert W. Hutton, Chairman of the Joint Corporate Committee on Cuban Claims, and John A. Cypher, Jr., a member of the Executive Committee of the Joint Corporate Committee on Cuban Claims.

Congressman Ireland, if you would like to begin, we will reserve the questioning until the other gentlemen have summarized their statements but before we do this I would like to call on Congressman Bingham, the Chairman of the Subcommittee on International Economic Policy and Trade.

Mr. BINGHAM. Thank you, Chairman Yatron.

I would like to join you in welcoming our colleague and the witnesses here today. Unfortunately, I am in charge of legislation on the floor this afternoon dealing with the Export Administration Act and I am not sure how long I will be able to stay. I wanted to appear briefly at least to register my keen interest in this hearing and also to say a few things about the resolution.

In brief, I have very grave doubts about the resolution; I think it presents a number of questions that I believe should be given very serious thought and doubtless further discussion, perhaps with other witnesses, before the subcommittees take action on it.

The Subcommittee on International Economic Policy and Trade, which I have the honor to chair, held extensive hearings in 1975 on economic relations with Cuba, including the claims question. Testimony was heard from a wide variety of witnesses both for and against normalization of relations. In subsequent hearings on claims questions the subcommittee has received updated reports from the administration on the status of the Cuban claims problem.

I believe at that time that the Joint Corporate Committee on Cuban Claims was only in the formative stage. Mr. Hutton, who is appearing here today on behalf of that group of companies, appeared on his own behalf at those 1975 hearings. Let me mention briefly some of the specific things that concern me about House Joint Resolution 355.

First, I am concerned about the use of the term "normalization." Normalization is not a single act but a process or a series of steps. For example, the release just last week of four Americans who had served long terms in Cuban prisons could be regarded as a part of a normalization process in that it removes a major source of disagreement between the Cuban and American governments, and I am sure it would not be the intent of the sponsors of this resolution to preclude such steps from taking place until there is a claims settlement.

The resumption of an agreement on air piracy, to give another example, between the United States and Cuba would be a step toward normalization and surely that should not be precluded pending a claims settlement. Similarly, the departure of Russian troops or their combat capability from Cuba, which we are trying now to negotiate, would certainly constitute a step toward normalization. In short, virtually any action that might be taken that in any way improves United States-Cuban relations could be regarded as part of the process of normalization, so the bill needs certainly to be clarified in that respect.

Second, not only is action by the President toward normalization precluded, but even consideration of such action. I don't know as a practical matter how the Congress can prohibit a President from considering the normalization of relations. As the old song says, "You can't go to jail for what you're thinking."

Third, I have serious question about the feasibility and appropriateness of using tax credits and a fund administered by the International Monetary Fund as a means of carrying out a claims settlement agreement.

Finally, and most profoundly, I am concerned about the logic of this resolution. It seems to me not advisable, and I am thinking now of the interests of the United States and the interests of the claimants themselves, to put a claims settlement agreement ahead of the many developments that could take place in United States-Cuban relations that would be very much to our advantage, such as the things I have mentioned, especially when it is clearly not feasible to discuss a claims settlement until relations have improved further.

This resolution would seem tome to set up a kind of "Catch 22" situation. We cannot normalize until we have a claims agreement, but we cannot reach a claims agreement until we have taken some steps toward normalization. Anyone who adheres to such a formula seems to me to be achieving neither normalization nor a claims settlement.

Now I certainly believe that a claims settlement must become a precondition for further progress at some point in our normalization of relations with Cuba. With virtually every other country with which we have had to normalize relations, the claims question has been dealt with prior to any granting of most-favored-nation status and establishment of full diplomatic relations. In many cases of claim: settlements, of course, we have never employed total embargoes or severed diplomatic relations.

In view of the unprecedented size of our claims against Cuba, there might be grounds for placing a claims settlement somewhat higher on the list of priorities than we have in the past, but at just what point in the normalization process we raise the claims issue and make it a precondition for further developments is very difficult to specify precisely in advance. It certainly is not made clear by House Joint Resolution 355. It is a matter which, in my judgment, should probably be left to the discretion of the President.

I trust, Mr. Chairman, that the witnesses today and in future hearings on this measure will respond to these and other questions about the measure and I will certainly be most interested to study carefully their position.

Thank you.

Mr. YATRON. Thank you very much, Chairman Bingham, for your statement.

At this time, Congressman Ireland, if you would like to begin. We will reserve the remainder of time for questioning after the two gentlemen have summarized their statements.

Mr. IRELAND. Thank you, Joint Chairmen Yatron and Bingham.

I am pleased to be able to be here this afternoon and to have the opportunity to speak briefly in behalf of my bill, House Joint Resolution 355.

This legislation deals with claims by U.S. Nationals for property seized by the Cuban Government and expresses the sense of Congress in this matter as a guide to the President if and when he proceeds toward diplomatic recognition and normalization of trade relations with Cuba.

Given the recent history of Cuban behavior in Africa, and the current crisis over Russian troops on the island, it is, of course, unlikely that normalization of relations between our two countries is an immediate likelihood.

However, events have a way of moving rapidly and situations of changing dramatically in this complex world; our own rapprochement with China being one of the best examples of this phenomenon.

And, inasmuch as the question of Cuban troops in Africa and the Russian troops in Cuba have received the worldwide attention that they deserve, thanks in large part to the efforts of my good friend and colleague, Senator Dick Stone of Florida, I believe that it is important to focus some attention on another, less well known but equally important impediment to normalization, the expropriated property and the resultant unsettled claims.

The troops issue, both in Africa and in Cuba, can be resolved almost overnight if the Soviets and the Cubans wish them resolved. This problem is a function of an aggressive and adventuristic foreign policy.

The claims issue is a longer standing and more fundamental problem in terms of the normal community and relations between sovereign nations. This is, of course, the whole question-the respect and guarantee of foreign investment and property rights. To permit these claims to go unsettled, would be to ignore the whole legal foundation upon which all commercial intercourse is based. It is difficult to see how trade can be normal, or even exist, without respect for property rights.

And, or course, the resolution of these claims has implications for us even beyond the Cuban situation because it will be difficult, if not impossible, for us to sustain this principle of respect for property rights in developing nations if we are to normalize our relations with Cuba without first settling these claims fairly and equitably.

House Joint Resolution 355 is quite clear and unambiguous toward this end. It supports the administration's clearly articulated position that the certified property claims must be satisfied as part of any normalization of Cuban-American relations. It also provides the President with some guidance as to how this can be best achieved in view of Cuba's limited resources and the likelihood that counterclaims will be presented.

It is my hope that the language of the resolution, calling as it does, for payment in full plus interest as a firm precondition for normalization, will encourage our State Department to secure the best possible deal, coming as close as possible to the legal and moral objective of full restitution for illegal seizure.

Too often in the past our Government has, in my opinion, been willing to turn a position of strength into one of weakness and accept a bad bargain almost as a matter of principle, as if to appear weak and irresolute was a sign of virtue.

Cuba needs normalization with us far more than we do with Cuba.

We ought to use that leverage to obtain the best possible deal and not,. as we have done so often in the past, trade our position away for a wish and a promise.

Thank you, Mr. Chairman.

Mr. YATRON. Thank you very much, Congressman Ireland, for a very precise statement.

We understand that Senator Stone submitted a statement for the record.

[Senator Stone's statement follows:]

Mr. Chairman, I appreciate the opportunity to be able to testify before your subcommittee in behalf of Congressman Ireland's bill, House Joint Resolution 355. This legislation, in expressing the sense of the Congress, would require payment in full plus interest on claims of U.S. Nationals for properties seized by the Castro regime. As you know, I have introduced similar legislation-Senate Joint Resolution 87-in the Senate.

With Cuban troops involved in military adventures in Africa, not to mention heightened Cuban activity in Central America and the Caribbean, it is highly unlikely that the U.S. could justifiably discuss normalizing relations with the Castro regime at this time.

And certainly the weight of moral imperatives leaves no room for future debate on the issue of full repayment plus interest on claims held by U.S. citizens. Those claims have been certified by the U.S. Foreign Claims Settlement Commission in excess of $1.8 billion, plus 6 percent annual interest as allowed by law. This is the largest seizure of U.S. property in history. In fact, they are greater than the value of U.S. property expropriated by all other Communist governments combined.

These seizures have not only affected the larger corporate property owners, but have hurt many small owners as well. For although corporate holdings doubtlessly constitute the largest dollar amount, 66 percent of the 7,740 claims certified by the Claims Commission are for $10,000 or less; 87 percent are for $50,000 or less.

However unlikely a change of heart on the part of the Castro regime seems at this point, should Cuba decide to reverse its adventuristic policies, release its political prisoners and press for genuine reconciliations, I believe it is important that this Government be on record in support of full payment plus interest on these certified claims.

All too often it seems as if U.S. negotiators sit down at the bargaining table after having modified their bargaining position to such an extent as to leave us with no leverage at all. If the economic embargo against the Cuban regime is lifted without satisfactory arrangements in place for the settlement of certified U.S. claims, I fear there is little chance these claims will ever be paid.

That is why I am convinced that Congress must impress on the President our strong conviction that these just, certified claims must be settled as a central prior issue to substantive discussions. Thank you.

Mr. YATRON. How do you define normalization as used in your bill?

Mr. IRELAND. Well, Mr. Chairman, our colleague Mr. Bingham has brought up the definition of normalization as a process. I think we can also look at normalization as the whole as well as the process. I would like to take up this point, as I agree with Mr. Bingham to a certain extent. I think the important thing is that if we are going to call normalization it process we can't hold out to some point in that process and then raise a precondition. I think our thrust and the thrust of this whole resolution is to get out on the table what some of these conditions are and, if you want to define normalization as a process, what conditions will be part of that process. To hold that back would be to defeat, in my opinion, the definition of the word normalization.

Mr. YATRON. I just wanted to get that part in the record.

At this time we will have Mr. Hutton's statement.

MR. HUTTON. Thank you, Chairman Yatron and Chairman Bingham.

I am Robert Y. Hutton, vice chairman of Lone Star Industries, and chairman of the Joint Corporate Committee on Cuban Claims.

Also with me today I have Tom McManus with Lone Star Industries who is manager of our tax group in case a tax question comes up 1 am not able to answer because the last time I was here-I am not au expert on taxes-as Congressman Bingham knows we got into a rather lengthy tax discussion.

I also noticed in the audience Seymour Milstein who is chairman of United Brands and who is also a member of the executive committee of the Joint Corporate Committee on Cuban Claims.

I welcome the opportunity to appear before this subcommittee to testify on behalf of our Joint Corporate Committee in support of House Joint Resolution 355.

The Joint Corporate Committee on Cuban Claims represents a group of 54 companies, including such major American corporations as General Motors, United Brands, Borden, International Paper, Amstar, and many others. (See list of members, attachment A). Properties of these companies in Cuba were illegally seized by the Castro regime in 1959 and 1960, without compensation.

The total amount of all Cuban claims certified by the U.S. Foreign Claims Settlement Commission was $1.8 billion. The Commission also ruled, in accordance with international law, that American claimants were entitled to interest on their certified claims at the rate of 6 percent per annum from the date of seizure. As of June 30 of this year the aggregate amount of the claims, including interest, is in excess of $4 billion.

This committee was formed in 1975 in response to the introduction of legislation in Congress which would have directed the President to remove the trade embargo and normalize trade relations with Cuba, without requiring prior settlement of the certified claims.

It was then and is now the position of the Joint Corporate Committee on Cuban Claims that such relations should not be resumed until the Cuban Government has recognized the validity of the claims and has agreed to bilateral negotiations toward a settlement.

To do otherwise, we believe, would weaken the U.S. bargaining position with respect to settlement of the claims and would establish a dangerous precedent, which would have severe repercussions on U.S. investment abroad.

Inherent in House Joint Resolution 355 is a basic principle on which our Nation's laws were founded-that private property cannot be seized without just compensation. We take our stand on this very basic principle of la«r and order which has been at the very foundation of our society since the beginning of the Republic. If we fail to defend this principle, if we equivocate or vacillate or negotiate away any of its validity, then we are surely creating a dangerous precedent. The private property of our members has been taken, their claims have been certified by the Foreign Claims Commission and just compensation is due.

Therefore, Mr. Chairman and members of the subcommittee, with due respect to the first provision of House Joint Resolution 355, our Joint Corporate Committee is in full accord that the issue of the claims be fully resolved before there is recognition and reestablishment of trade relations with Cuba.

The second provision of the joint resolution recognizes the distinction between public and private claims, and the fact that we as private citizens are barred from direct negotiations with the Cuban Government.

Any counterclaims that might be presented by the Cuban Government against the U.S. Government would have no relationship to the certified value of our own private claims against that government. There is no connection between the property that was seized 19 years ago and any subsequent actions taken by the United States against the Cuban Government.

If, in the process of negotiations, the President recognizes any counterclaim as an offset to our certified claims, our committee feels strongly that the holders of certified claims should receive negotiable tax credits in full settlement of these obligations. Assuming that no counterclaims are recognized, the final provision of the resolution seems to our committee entirely reasonable as a means of facilitating proper payment of the certified private claims by the Castro regime.

It is generally acknowledged that the Cuban gross national product is insufficient to support the payment of the total amount of the certified claims without a more practical approach and there are only relatively minor Cuban assets frozen in this country. The only practical basis for payment of the claims appears to be royalties on Cuban products once trade relations are normalized.

Therefore, a broad based royalty program which includes Cuba's natural resources in nickel, copper, iron ore, petroleum, and other economic values is needed to provide the necessary funding against these claims. And, of course, we concur that such a fund should be administered by a recognized international agency.

There is one final point I would like to touch upon. When I appeared before Congress 4 years ago on this subject, I received several questions as to the amount of taxes written off by U.S. corporations suffering expropriation. Since the formation of our Joint Corporate Committee, we have determined that the tax benefits received by our member companies averaged only 12 percent of their outstanding claims.

This occurred because there is truly no relationship between the actual, certified value of property seized in Cuba and the U.S. tax basis of that property. One of the principal reasons for this is that, unlike other countries which recognize inflation in computing the tax basis of property, the United States does not.

As an illustration of this fact, assume two companies which have identical certified claims of $10 million each. Company A has a tax basis of $4 million and Company B a tax basis of $2 million. Assuming a tax rate of 48 percent, Company A would receive a tax benefit of $1,920,000 and Company B would receive a tax benefit of only $960,000. Company A, with the largest tax basis, thus receives the largest tax benefit, and this represents only a fraction of the company's claim.

As a further illustration, let me talk about the Lone Star cement plant which was seized by the Castro regime in 1960. The value of this property was certified by the Foreign Claims Settlement Commission at $24.8 million. However, Lone Star's tax basis for the Cuban investment in 1960 was only $1.6 million. As a result, our actual tax benefit, at the 48 percent corporate tax rate, was $801,000-or 3 percent of our certified claim.

The fact is that our Cuban subsidiary paid for all its own capital improvements out of its current cash flow each year. Unfortunately, under U.S. tax laws, the tax basis did not increase in spite of substantial capital improvements made over a period of 40 years.

Let me add, Mr. Chairman, as you and your subcommittee members recognize, any payment received for the claims would be subject to income taxes which would be recovered by the U.S. Treasury.

Mr. Chairman, on behalf of the individual members of the Joint Corporate Committee, I thank you for this opportunity to appear in support of House Joint Resolution 355 which recognizes an all important principle of both domestic and international law-that private property cannot be seized without just compensation.

I would be glad to answer any questions.

[Attachment "A" to Mr. Mutton's statement follows:]

1. Allied Chemical Corp.
2. Amstar Corp.
3. Arnold Industries, Inc.
4. Atlantic Richfield Corp.
5. Atlantica Del Golfo
6. Avon Products, Inc.
7. Bangor Punta Corp.
8. Berwind Corp.
9. Borden, Inc.
10. Braga Brothers, Inc.
11. Burford Distributing Co.
12. Burlington Industries, Inc.
13. Burrus Mills, Inc.
14. Castle & Cooke, Inc.
15. Claflin, Helen A.
16. Colgate Palmolive Co.
17. The Continental Group, Inc.
18. Cuban Claims Association
19. Duys Liquidation Trust
20. Escambia Treating Co.
21. Esmark, Inc.
22. Firestone International
23. First National Bank of Boston
24. Francisco Sugar Co.
25. Fryer, Matthew A. (Estate of)
26. General Dynamics Corp.
27. General Motors Corp.
28. B. F. Goodrich Co.
29. Goodyear International
30. The Greyhound Corp.
31. Hilton International
32. International Paper Co.
33. King Ranch, Inc.
34. Lone Star Industries, Inc.
35. Lykes Brothers, Inc.
36. Manati Industries
37. Martin Marietta Corp.
38. Moa Bay Mining
39. The New Tuinucu Sugar Co.
40. Owens Illinois, Inc.
41. Perfecto Garcia & Brothers Inc.
42. Phelps Dodge Corp.
43. The Procter & Gamble Co.
44. Protane Corp.
45. Reynolds Metals Co.
46. The Charles Shapiro Group
47. The Sherwin Williams Co.
48. Shuford, Alex A. (Estate of)
49. Siboney Corp.
50. E. R. Squibb & Sons, Inc.
51. Standard Brands, Inc.
52. Tecon Corp.
53. United Brands Co.
54. Uniroyal International
55. University of Chicago
56. Vertientes-Camaguey Sugar Co.
57. West Indies Sugar Co.
58. F. W. Woolworth Co.

Mr. YATRON. Thank you very much, Mr. Hutton, for an excellent statement.

Now we will hear from Mr. Cypher.

STATEMENT OF JOHN A. CYPHER, JR., ASSISTANT TO THE PRESIDENT, KING RANCH, INC., AND MEMBER, JOINT CORPORATE COMMITTEE ON CUBAN CLAIMS

Mr. CYPHER. I am John A. Cypher, Jr. I live on the King Ranch in Kingsville, Tex.

I serve my company as assistant to the president and have been charged with representing King Ranch in the Joint Corporate Committee on Cuban Claims. I have been a member of the executive committee of that organization from its founding in 1975.

The King Ranch headquarters in Texas operates cattle and horse breeding properties in four other States. We also ranch in six foreign countries where we are sole property owners or have entered into joint ventures.

In 1952 we set up one of these joint ventures in Cuba, a 40,000-acre ranch, one of our first foreign undertakings and early on one of our most promising. By stocking Santa Gertrudis breeding cattle on the property, a breed developed on the headquarter ranch in Texas that is particularly adapted to semitropical and tropical environments, we were able to expand Cuban beef production, offer the local market higher quality cut, and interest the Cuban authorities in setting up a beef grading system that would give local producers the incentive to breed and fatten a better meat product.

Beginning in 1959 our land was seized by the Castro regime, our American manager detained, later released, our losses total. The U.S. Foreign Claims Settlement Commission certified the King Ranch 50 percent of the joint venture at $3,216,084.

Our concerns since that time have been twofold. The right to just compensation for private property seized is a tenet as ancient as the foundation of our western law, as has been so ably pointed out in Mr. Hutton's statement. It is not only the right but the duty of every American citizen, speaking through his elected government, to urge redress when U.S. property is confiscated anywhere, for any reason.

I and my organization, involved as we are in the direct losses we have sustained, want to do our part to support the various branches of our government in pursuing this goal.

Further, the precedent we face here is far-reaching and ominous. If the Cuban regime is recognized without a just settlement of the claims against it, then other foreign states will be encouraged in the illusion that they can seize private property owned by American citizens and then eventually be forgiven by the government representing those Americans.

There are two incidents connected with the Cuban confiscations that have come to our attention and might be of interest to this subcommittee.

One of our neighboring ranchers in Cuba was Senor Gustavo de los Reyes, a leading cattleman in his country. He is presently the president of King Ranch majority owned companies in Venezuela. De Los Reyes was an early Castro opponent. Shortly after the takeover, on August 7, 1959, he was arrested, tried in one of the revolutionary shown trials, and sentenced to 10 years imprisonment on the Isle of Pines. He served 4.5 years in prison and was paroled.

In 1964 the Swiss Ambassador to Cuba, Mr. Emil Staddlehofer, acting as intermediary for Castro, offered De Los Reyes his freedom if he would carry a message to the American State Department. The message was that Castro would pay $1 billion compensation for expropriated U.S. properties and would release those being held as political prisoners in exchange for the United States restoring the Cuban sugar quota. Castro also tried to elicit from De Los Reyes a promise to travel over the United States soliciting public support for the offer. De Los Reyes agreed to the first proposal and declined the second.

Ambassador Staddlehofer completed the negotiation and saw De Los Reyes onto a plane to Mexico in February 1964. On March 1, 1964, he arrived in Miami and went on to Washington that same month to deliver his message to the State Department. He pursued the matter no further after that time.

While nothing came of this proposal, I find it interesting that as early as 1964 Castro placed a value on seized U.S. property at $1 billion.

The second incident, while more difficult to verify, has been detailed to us from so many sources that we accept it as substantially correct.

At the time expropriation commenced on our Cuban ranch, we had 1,500 head of purebred Santa Gertrudis breeding cattle on it. These were the multiplication of the 834 imported animals that were sent over from Texas beginning in 1952.

Shortly after the Castro takeover, the revolutionary government, as part of their agrarian reform program, set up production centers for each of the various livestock breeds in different parts of the country. The Santa Gertrudis center is on the Island of Turiguano. Our 1,500 head of purebreds were loaded at the ranch and the locals were told they were bound for the center; they never reached their destination.

Instead they were diverted to a nearby port where they were loaded and transported to southern Russia. They and their descendants have for some years been grazing on a communal farm in Georgia, having been seen there by South Americans on tours in the area who have identified them by our Texas and Cuban brands.

Accepting this version of the disappearance of our purebred cattle as we do, I feel this is an illustration of the far-reaching ramifications an illegal seizure, such as the one we have experienced, can have. Beef is a basic commodity in the food chain, one of the most universally desirable sources of high quality protein in the human diet. The Castro government has been instrumental in placing an efficient protein producer, the first breed of beef cattle to be developed in the United States, in the hands of the world's most powerful Communist State.

For the reasons outlined here, I add my support to the resolution before you and both personally and as a member of the Joint Corporate Committee on Cuban Claims urge its adoption.

I thank the honorable members for the time you have given me. I am, of course, available for any questions I might be able to answer.

Mr. YATRON. Thank you very much, Mr. Cypher, for an excellent statement.

I would like to suggest that we take a recess for about 10 minutes because there is a recorded vote on a live quorum on the floor of the House. I believe if we go over and come back in about 10 minutes we can resume the hearing and start the questioning.

[Whereupon, at 2:40 p.m., the subcommittees recessed until 3 p.m.]

Mr. YATRON. The subcommittees will resume the hearing.

As I understand the claim of Lone Star Industries, Mr. Hutton, it is the frozen asset value of 1959 and not today's value. What is the estimated cost of constructing a similar cement plant today?

Mr. HUTTON. Today to replace that same facility you would be looking at a cost in excess of-we are building two or three plants around the world right now, one in Brazil, one in California and one in Texas. The Brazilian plant is a 600,000-ton plant so $65 million, $70 million minimum. Probably closer to $80 million to $90 million if you figure the quarry and the loading facilities and all that.

Mr. YATRON. $80 or $90 million?

Mr. HUTTON. Yes, Sir.

Mr. YATRON. You operated the plant for 40 years and invested income in material, supplies, new equipment and new facilities. Am I correct that this claim represents the established value of tangible assets only, excluding business reputation, goodwill and marketing position?

Mr. HUTTON. This is correct, Mr. Chairman. At the time the Foreign Claims Commission was established, as you are aware, a very formal procedure was established where we had outside appraisals of asset values, plant buildings, machinery and equipment and the claim that was certified was that established by the Foreign Claims Commission and represented only the assets. The claim does not provide for goodwill and trade names. It was just the land which had a low value placed on it, the buildings, the machinery and the equipment.

Mr. YATRON. Would it also exclude the actual amount of earnings and dividends which would reasonably be expected from 1960 plus the inflation on the asset values?

Mr. HUTTON. You are absolutely correct. If you took in inflation or potential earnings, the number would be astronomical compared to $28 million.

Mr. YATRON. $24.8 million.

Mr. HUTTON. $24.8 million was then the established market value of that plant.

Mr. YATRON. What is your understanding of the U.S. position on the total claims?

Mr. HUTTON. I am sorry, I don't quite understand your question. The U.S. position on the claims?

Mr. YATRON. Well, I understand that in 1964 the State Department at that time said it would insist upon the payment of adequate and effective compensation for all American nationals who suffered property losses in Cuba. Is this correct?

Mr. HUTTON. That is correct. It is our contention that the procedure you stated should be followed before relations are reestablished with Cuba.

Mr. YATRON. Isn't it usually the pattern of negotiations for settling claims that it follows the establishment of relations with the Government?

Mr. HUTTON. That is probably true but we think it should be a part of the procedure before there is final formal diplomatic relations and formal trade reestablished. You have lost your bargaining position, in our opinion, if you establish formal relations first and then come back and sit down at the bargaining table. Cuba needs reestablishment of relations with the United States far more than the United States needs it with Cuba.

Mr. YATRON. Would you care to comment on the position that was expressed in 1975 at a hearing at that time that as long as the trade embargo remains in effect you won't get a nickel and you might get something else if the embargo is lifted because of a better atmosphere?

Mr. HUTTON. We still think that the trade embargo should not be be lifted until this whole procedure on reestablishing relations with Cuba is settled because you are in a much better position to bargain with Castro with the embargo on than with it off.

Mr. YATRON. I see. Thank you.

I was interested in your testimony, Mr. Cypher. Are you saying that in 1964 Castro admitted debt of $1 billion for expropriated U.S. property?

Mr. CYPHER. He made the offer of $1 billion for the expropriated property. This was the term that De Los Reyes used to me that he was carrying an offer from Castro to the State Department for a payment of $1 billion in return for the reestablisment of the sugar crop.

Mr. YATRON. To my knowledge has he not since said that his counterclaims would surpass that figure?

Mr. CYPHER. I have never heard, Mr. Chairman, a figure put on what these counterclaims are. I really don't know. We discussed this, Bob, and I think you had heard a figure.

Mr. HUTTON. I have nothing official.

There are references to the Bay of Pigs and the damages caused by the embargo.

Mr. YATRON. I heard figures like $8 billion.

Mr. HUTTON. I have heard figures in a range from $3 to $10 billion.

Mr. CYPHER. Withholding medical supplies, for instance, how do you put a dollar value on this?

Mr. YATRON. Thank you. Mr. Lagomarsino?

Mr. LAGOMARSINO. Mr. Hutton, on page 5 you say that we do recognize that any payment received for claims would be subject to income taxes which would be recovered by the U.S. Treasury.

Would they be subject to ordinary or to capital gains treatment?

Mr. HUTTON. I am not the tax expert.

Mr. MCMANUS. The combination of both rates. In our case $24 million.

Mr. YATRON. Please identify yourself for the record.

Mr. MCMANUS. Tom McManus. I have been identified already by Mr. Hutton.

Mr. YATRON. You are an associate of Mr. Hutton.

Mr. HUTTON. I identified him for the record to help me with this line of questioning.

Mr. LAGOMARSINO. Do you know, Mr. Hutton, what Cuba's position on the validity of the claims is?

Mr. HUTTON. All I can say is that back in the days prior to the Bay of Pigs we know that legislation was passed in Cuba by their government in which they had established some type of a payment procedure. They were proceeding along to issue bonds. To the best of our knowledge that proposal ended with the Bay of Pigs. That is about the time it ceased but Castro had made comments in speeches that legislation was enacted regarding the claims.

Mr. LAGOMARSINO. Mr. Cypher, your story about Mr. De Los Reyes was after the Bay of Pigs was it not, 1964?

Mr. CYPHER. What date was the Bay of Pigs? His release was in 1964.

Mr. LAGOMARSINO. The early 1960's, I believe.

Mr. CYPHER. I think you are right but I really don't know the date of the Bay of Pigs.

Mr. LAGOMARSINO. Apparently, at least indirectly, Castro has at least for purposes of negotiations admitted that there is some liability. Do you know, either one of you, if the United States has ever normalized relations with a country without settling the claims first?

Mr. HUTTON. We have just normalized relations and then paid the claims as in China recently. To my knowledge, I think there are other countries. We tried to research this, however, nothing of the magnitude of Cuba but I believe Czechoslovakia, at the end of World War II, was not paid because of some problem. In most countries they were settled.

Mr. LAGOMARSINO. In the case of China it was.

Mr. HUTTON. All I know is what I have read in the press. Cuba actually came out and made a settlement, sort of simultaneous.

Mr. LAGOMARSINO. We have been part of the deal although it was never said.

This would be my comment on the chairman's question. I would suggest that there is at least one difference between the China situation and the Cuban situation and that is that we, our Government, as well as many Members of Congress have publicly stated that that was a pre-condition to normalization and in the case of China I don't believe that was the case. There might have been some talk about it but there was no talk by the administration that these things had to be done. So there is a substantial difference.

Mr. HUTTON. In the press releases at the time that China was being recognized the claim settlement was mentioned within 1 day or 2 of each other.

Mr. LAGOMARSINO. Of course the amount was much smaller also.

Mr. HUTTON. The total dollar amount was much smaller.

Mr. LAGOMARSINO. You refer to the payment of royalties. How would that work?

Mr. HUTTON. It would have to be over some long period of time, obviously not as one cash payment. It has to be over a long period of time, some type of security issued with evidence of debt, and that is why we thought it would have to be administered or supervised by some international agency such as the International Monetary Fund or some agency or subcommittee of the UN or something with an international context to it.

Mr. LAGOMARSINO. I am not quite sure I understand the mechanism in the bill for handling offsetting claims. Obviously you are not interested in Cuba saying, well, you owe more money. That does not take care of your problem.

Mr. HUTTON. This is one of our main beliefs, that any public or government claims if recognized by our Government for whatever claim Mr. Castro might have should not get intermingled in the same hat with the private claims. Therefore, if our Government is going to recognize any claim with Cuba-we don't know if they will or not, but if they do, then we think our Government should not get these public and private claims commingled. Payment for the private claims could be made by some type of negotiable certificate because there are some people that really have no taxable income.

Mr. LAGOMARSINO. Have we ever used such a plan in the past?

Mr. HUTTON. Not to my knowledge. The magnitude of the money I don't think has been the same.

Mr. LAGOMARSINO. I gather also that you are not particularly concerned about how it is done, what organization handled it?

Mr. HUTTON. W e suggest the International Monetary Fund as one agency.

Mr. LAGOMARSINO. Mr. Cypher, do you know if the sugar quota for compensation offer has ever been verified by either Castro or the U.S. Government?

Mr. CYPHER. There is no follow-up on it at all.

Mr. LAGOMARSINO. I think the committee should ask about that.

Mr. YATRON. Without objection.

Mr. LAGOMARSINO. Also with regard to the diversion of your previous cattle from Cuba to southern Russia, follow up on that, too.

Mr. YATRON. Without objection.

Mr. LAGONIARSINO. I might say, Mr. Chairman, and to the witnesses also that although there may be a need to clarify some of the language in the resolution as per Mr. Bingham's comments, I think it is also a very good idea, especially at this time to take action on this resolution. Now we have precedent in China which we have been discussing where we went ahead without doing that. I don't know whether the people are satisfied with the settlement that was made or not. It would seem to me that that should be an element in deciding whether or not to normalize. We can say yes we will settle it later and settle for 1 cent on the dollar.

I think these things should be ironed out ahead of time. Also, it may well be that if the Soviets withdraw their troops from Cuba, which I don't see happening, but make some change in status of the troops, the euphoria might be so great that your concern might be dropped by the wayside. If the committee believes that way, and I think they do, it is for us to proceed.

Mr. YATRON. Thank you Mr. Lagomarsino.

Chairman Bingham.

Mr. BINGHAM. Thank you, Mr. Chairman.

One point I would like to note is the language you use on page 2 of your statement, the second full paragraph:

It was then and is now the position of the Joint Corporate Committee on Cuban Claims that such relations should not be resumed until the Cuban Government has recognized the validity of the claims and has agreed to bilateral negotiations toward a settlement.

That to my mind is a very different statement and a much more practical statement than the one that appears in paragraph 1 of the resolution. I think something like that, recognizing that there is a connection between the two, would be advantageous to your interests but let me point out a couple of things as per your comments.

You have said, and this was interesting to me, that your committee was established in response to the introduction of legislation lifting the embargo. That was my bill. That bill has not gone anywhere, never has, and as a matter of fact I have stated on various occasions that there was no chance that the Congress would move on that subject unless the administration took the lead and pushed for it so that is no secret. I was simply in that bill expressing my view that the continuance of the embargo didn't serve the U.S. interests and I still feel that way. I have not reintroduced that. bill in this session, and in any event such a bill would not go any where.

Mr. HUTTON. I think the word "response" means as a result of, in connection with or timely. It raises the subject.

Mr. BINGHAM. I don't take offense at all, I think it was a natural reaction. My goodness, if the Congress is moving in that direction, we better do something to protect our interests.

The question of timing is one that it seems to me we cannot decide in advance. You mention there has been discussion about the Chinese case. There the exchange of full recognition took place before the settlement was arrived at. We have had diplomatic relations with Czechoslovakia for years and those claims still have not been settled. We have been able to negotiate them twice with the Czechoslovakian Government, but we have had difficulty with the other body in the Congress and that is why that settlement has never materialized. There are objections on the Senate side. I think it is very difficult to say in advance what the schedule is going to be.

The point I would like to emphasize to you is that your chances of getting recovery, and I certainly want to see you get fair recovery - your chances of accomplishing that depend on normalization being at least imminent because if normalization is not imminent, there is no reason why Castro is going to negotiate with your people. At the moment normalization is not by any means imminent. I think the climate is all the other way.

The President has said on various occasions that he is not going to move further toward normalization until Fidel Castro greatly reduces the activity of his troops in Africa. I don't believe he is going to do that as a price for normalization so I think any real action is quite remote. What I am suggesting to you as a committee is that it would be in your interest to try to push things closer to normalization so that you have a chance to have a recovery rather than take action which to put normalization further away. Do you follow me?

Mr. HUTTON. I follow you but 1 am afraid I don't agree with you, Mr. Chairman, because, No. 1, you are in a much better position than I am to know how close our Government and the President would be to any normalization with Cuba. However, as your learned colleague down the table mentioned, if the Russians suddenly pulled their brigade out-and that could happen-things could turn very, very quickly. The Chinese thing, 6 months before it happened I don't think too many members of the press were aware that the President would suddenly one morning say, "We are going to establish relations with China," but there it was right around Christmastime, it happened.

I still maintain that your bargaining position with someone else-in this case Mr. Castro-is much better before relations are reestablished than after you reestablish it. I would much rather play poker with you with my chips here before you won the hand, and it is just as simple I think as playing a card game. If there is going to be some bargaining, I would rather bargain before the hand is over.

Mr. BINGHAM. I can certainly understand that. You notice I said in my opening statement, "With virtually every other country with which we have had to normalize relations the claims question has been dealt with prior to any granting of most favored nations status and establishment of full diplomatic relations." You have to be somewhat close to negotiation is my point, and at this point 1 don't think we are anywhere near there.

Well, I don't want to take up the time of the subcommittee. Let me just point out one other thing about the language of the resolution. It says, "payment in full plus interest." Now I am sure you know that none of these claim settlements have been 100 percent paid in full and in fact it is because of the interests of one or two claimants in the Czechoslovakian case trying to insist on 100 percent payment that has held up the payment for years now of what was negotiable. I think that is a hardship on many of the claimants, many of whom are elderly people and getting older and having to wait and not getting a cent. I just think that again your statement of agreeing to bilateral negotiations toward a settlement is a much more realistic way of referring to it. There is no way that you can expect to get 100 percent payment plus interest, it is just not in the cards.

Mr. HUTTON. Mr. Chairman, you say 100-percent payment. The claims in no way would come to 100-percent payment. Chairman Yatron alluded to this in his question. The value that was certified back 19, 20 years ago is nowhere near what that value would be today or should be today so even at 100 percent of the then certified value plus interest you are a long ways from what the true market value is of those facilities are.

Mr. BINGHAM. I think legally speaking your claim would be for the value of the claim at the time plus interest, would it not?

Mr. HUTTON. Yes.

Mr. BINGHAM. Of course interest can mount up tremendously.

Thank you.

Mr. YATRON. Mr. Ireland.

Mr. IRELAND. Thank you, Mr. Chairman. I will take only a few moments to compliment these gentlemen on their testimony.

In pursuing just for a moment what I think is a discussion of how you go about "horse trading", if, Mr. Hutton, I could ask you to elaborate somewhat on the paragraph that my colleague Mr. Bingham has asked about on page 2. I did not understand from the whole testimony that you are suggesting that you stop on the agreement to conduct bilateral negotiations toward a settlement.

Mr. HUTTON. By no means. We are willing to go with the bilateral process method of payment-over what period of time it would be paid, tax credits, bonds, all this type of thing.

Mr. IRELAND. In other words, that is not the total agreement, just agreeing to sit around and talk a little.

Mr. HUTTON. No, you would have to have terms.

Mr. IRELAND. I think, too, if I could semi-interject a view here, what worries me about a lot of transactions we have, particularly in the international community, if we are to approach every bargaining operation in open forum here saying that to our opponent in the negotiations, and in this case it is an opponent, in the negotiations, that we have already compromised our view of what we think we are entitled to, we start at the lowest common denominator. As a view I think that we should at this stage be stating the equity of what has been lost by these people, again not only for corporations but, widows, estates and such that they are truly entitled to this and not just in our actions bargain away a portion of it by letting negotiators on the other side have an idea that we are willing to agree to less.

I believe that the basic points are covered here, Mr. Chairman. I again thank the gentlemen for testifying and give back the balance of my time.

Mr. YATRON. Thank you, Mr. Ireland.

Mr. Cypher, if Castro has agreed to pay $1 billion for expropriated property, has he not met the first condition; namely, that Cuba recognized the validity of U.S. claims?

Mr. CYPHER. Yes.

Mr. YATRON. On page 3 of your testimony, Mr. Hutton, you cite the possibility of Cuban counterclaims. Could you identify some of these counterclaims for the subcommittees?

Mr. HUTTON. I can only identify them in what I have heard various people say here and there. I certainly can't say whether they are valid or invalid but we know that the Cuban Government has alluded to counterclaim for action during the pay of Bay of Pigs operation. We know that the Cuban Government has claimed that the arrangements with regard to Guantanamo Naval Base are not yet what they would like to see them. We know that the Cuban Government is claiming that our Government's embargo has damaged them by lack of medical supplies and lack of other things that they need for their economy. How the dollar amounts will ever be placed on them I don't know but certainly any of these things could be recognized by the administration or the President in negotiations. Our main contention is they should not be intermingled with private claims.

Mr. YATRON. I yield to Chairman Bingham.

Mr. BINGHAM. Thank you.

I just would like to say I think your position is sound on that. Whether this is the method to be used I don't know but it seems to me that it would not be fair or just to say that the claims against the United States as such are properly offsets against claims by private companies or private individuals for property taken by the Cuban Government.

Mr. YATRON. Thank you.

Mr. Hutton, you state that relatively minor Cuban assets are frozen in this country. Could you identify some of those assets and comment on their value?

Mr. HUTTON. To the best of our knowledge, and of course we don't have all the ability of the U.S. Government to check this out, it is our understanding that the frozen assets-bank deposits, this type of thing-are more in the magnitude of $25 million to $50 million but we may be way off in our arithmetic. That is the best number we could come up with.

Mr. YATRON. $25 million to $50 million.

Mr. HUTTON. Mr. McManus says it is about $30 million so it is in the ball park.

Mr. YATRON. On page 3 you realize that the President might offset your private claims with counterclaims. Would you care to comment why the President would offset private claims as opposed to public claims with any Cuban counterclaims?

Mr. HUTTON. Well, in any negotiation it is pretty easy if someone says you owe me $3 and I owe you $2.50 that we balance that ledger before we flip the coin for 50 cents. I owe you something/you owe me something can get mixed up. References have been made by Cuban representatives, not to us directly, but indirectly that the Cuban claims against the U.S. Government, in their opinion, should be offset so they don't pay until they get paid.

Mr. YATRON. Thank you. Mr. Lagomarsino?

Mr. LAGOMARSINO. Just a comment. When Chairman Bingham and I and others were in Cuba in January, the Cubans made a claim to us that that is exactly their position. They didn't say they didn't owe us anything but they said they were not going to discuss it until the embargo was lifted, number one; and, number two, that we owed them more than they owed us anyway. They didn't give any figures as I recall.

Mr. YATRON. Does anybody else have anything?

Chairman Bingham, do you have anything else?

I have just about two questions here and I will go ahead on them.

Mr. Hutton, considering the size of the private claims, do you think it is fair for you to be excluded from the negotiations process?

Mr. HUTTON. Yes, I really do. I am not saying we should not be consulted to discuss this type of thing. Really you are asking me as an individual now, not as Chairman of the Claims Commission. It is the position of the U.S. Government to negotiate, not the private citizens.

Mr. YATRON. What kind of participation would you like to see for your group?

Mr. HUTTON. I think our group should certainly have communication with whoever is negotiating for the State Department and administration. We should be consulted and have the opportunity to discuss the situation. As for as sitting down at the table, I think it should be left to the Government.

Now my associates may not all agree with me, but that is a matter of opinion.

Mr. CYPHER. We have a lot of experience in Cuba putting all the companies together and you can put that to use.

Mr. HUTTON. No question.

Mr. YATRON. Thank you.

If the Government were to offer the private claims the full tax credit for their losses and assume the private claims as public, would the dramatic increase in public claims improve the Government's position in the negotiations process?

Mr. HUTTON. I lost you a little bit.

Mr. YATRON. If the Government were to offer the private claims a full tax credit for their losses and assume the private claims as public, would the dramatic increase in public claims improve the Government's position in the negotiation process?

Mr. HUTTON. I really don't think so. I would have to put a pencil to that. I really don't think so.

Mr. CYPHER. We have one group of people, members of the Joint Corporate Committee, who have no way of offsetting these tax credits; they lost everything.

Mr. HUTTON. Some of the sugar companies have no income today and many individuals now are retired. One member of our committee, the University of Chicago, has a claim of over $1 million and I have a hunch that their taxable income is rather small.

Mr. YATRON. Given Mr. Cypher's assertion that the Cubans have recognized the validity of U.S. claims, do you oppose proceeding with normalization; for example, lifting the embargo if Cuba also agreed to bilateral negotiations aimed at settlement?

Mr. HUTTON. If the agreement to negotiate was firm, backed up by our Government, I would say yes, however, there has to be some kind of a firm proposition.

Mr. YATRON. Well, I have no further questions. Perhaps some of the subcommittee members of both subcommittees may have some additional questions they would like to submit in writing which we will send to you.

Mr. HUTTON. I will be very happy to respond.

Mr. YATRON. I want to thank both of you gentlemen and also Congressman Ireland and your associates for appearing here today

Thank you very much. The subcommittees stand adjourned.

[Whereupon, at 3:30 p.m. the subcommittees adjourned.]
 

APPENDIX

STATEMENT OF THE EXECUTIVE BRANCH REGARDING HOUSE JOINT RESOLUTION 355

Mr. Chairman:

Aug. 15 1980

In reply to your letter of July 25, the following are the Executive Branch's coordinated comments on H.J. Res. 355, "Expressing the determination of the

United States with respect to claims by United States nationals for property seized by the Cuban Government."

The same comments were sent to Senator Frank Church on October 16, 1979, in response to his request for the Executive Branch's position on a similar resolution, S.J. Res. 87, which was also introduced on June 7, 1979. The comments below apply to both resolutions.

Sub-paragraph (1) of the operative part of the two resolutions calls for payment of U.S. claims in full plus interest. The Executive Branch believes that limiting the flexibility of our negotiators in such a way would dramatically reduce the chances of reaching any settlement and is an unrealistic approach to the matter.

The Executive Branch regards the resolution of the expropriation claims as an essential element in normalizing relations with Cuba. While we have not yet entered into negotiations on the claims, we have made it known to Cuba that a claims settlement must be on any agenda for negotiating the differences between the two countries.

Our embargo against almost all financial and commercial transactions between the U.S. and Cuba

is maintained in part to give us leverage in negotiating a settlement of our expropriation claims against Cuba. We have made it clear that the embargo will not be lifted until a formula for settling these claims has been agreed to.

The Honorable Gus Yatron,

Chairman,
Subcommittee on Inter-American Affairs,
Committee on Foreign Affairs,
House of Representatives.

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In moving to normalize relations with Communist countries, we have often, but not always, been able to negotiate a settlement of our expropriation claims in the process. In the most recent case, that of the People's Republic of China, we were able to negotiate a settlement of our claims. on the other hand, we established full diplomatic relations with the Democratic Republic of Germany (East Germany), but we have not yet been able to make a settlement of our expropriation claims. In an earlier case, that of Czechoslovakia, we have full diplomatic relations but negotiated a settlement which was rejected later by the Congress. In sum, while our policy is to try to settle our expropriation claims prior to, or in conjunction with, normalization of relations with a given country, we do not always succeed in reaching a settlement prior to full diplomatic relations.

In the case of the People's Republic of China, a settlement was negotiated at approximately 41 cents on the dollar. The settlement reflected the fact that Chinese assets frozen in this country amounted to approximately 40 percent of our claims against China.

Our Foreign Claims Settlement Commission has certified claims against Cuba in excess of $1.8 billion. In addition to these private claims, the Federal Government has claims of approximately $200 million. Cuban assets frozen in this country come to only $33 million, or about 1.65 percent of our claims against Cuba.

In regard to Sub-paragraph (2) of the operative part of the two resolutions, the Executive Branch is opposed to translating claims into tax credits. It is not clear from the bill how the proposed mechanism would work, but in any event it would not be appropriate for the U.S. Government to provide tax credits to U.S. claimants.

Sub-paragraph (3) of the operative part of the two resolutions calls for Cuba to establish a fund to be administered by the International Monetary Fund (IMF) or a similar international agency for the purpose of paying the claims. Cuba withdrew from the IMF and other institutions of the World Bank Group shortly after Castro came to power. It is very doubtful that the Cuban government would agree either to the establish

ment of such a fund or to its being administered by the IMF or a similar institution. Moreover, it is also doubtful that the IMF membership would consider the administration of such a fund by the IMF to be appropriate.

Consequently, the Executive Branch's view of S.J. Res. 87 and H.J. Res. 355 is that they should not be acted upon.

The office of Management and Budget advised that from the standpoint of the Administration's program there is no objection to the submission of this report.

If you have any further questions, please do not hesitate to contact Myles Frechette of our InterAmerican Affairs Bureau at (202) 632-9272.

Sincerely,

Walter L. Cutler Acting Assistant Secretary for Congressional Relations