Obama action opens door to greater trade with Cuba

The White House on Wednesday announced a number of measures to improve diplomatic relations, as well as bilateral trade, with Cuba.    In a surprise move Wednesday, President Obama announced the U.S. government would take several steps towards normalizing relations with Cuba, which eventually could lead to greater trade with the island nation. The action does not lift the existing trade embargo on Cuba.
   Business groups enthusiastically welcomed the opportunity to reach a market of 11 million to 12 million people.
   “It is past time to bring down the walls,” Bill Reinsch, president of the National Foreign Trade Council, said in a statement. “While these changes are essential to promoting democracy in Cuba, they will not promote an immediate bonanza for American exporters. There is much work to be done in rebuilding what has historically been an important market for our manufacturers, farmers and service providers.
   “The NFTC salutes the administration for advancing these measures,” he continued. “We encourage the 114th Congress to support the President’s actions.”
   In a televised address, Obama said the United States was re-establishing diplomatic relations with Cuba and would exchange ambassadors. It also is permitting Cuban Americans to send more remittances to the country, facilitating greater travel to Cuba, and easing restrictions on U.S. companies.
   Businesses will be allowed to open accounts at Cuban banks, and U.S. credit and debit cards will be permitted for use by travelers. The State Department will also reassess its designation of Cuba as a sponsor of terrorism.
   The White House said export of equipment to support Internet and broadcast communications with the rest of the world will be authorized, as will farm equipment and building materials for private residences and entrepreneurs; this will make it easier for Cuban citizens to have access to lower-priced goods, improve their living standards, and gain greater economic independence from the state.
   Obama said the isolation of Cuba for 50 years has not brought the country any closer to an open and democratic society, while impairing U.S. relations with countries in the hemisphere.
   “We cannot keep doing the same thing and expect a different result. It does not serve America’s interests, or the Cuban people, to try to push Cuba toward collapse. We know from hard-learned experience that it is better to encourage and support reform than to impose policies that will render a country a failed state. We should not allow U.S. sanctions to add to the burden of Cuban citizens we seek to help,” the White House said in a statement.
   U.S. policy toward Cuba dates back to the Eisenhower administration, which cut off ties following Fidel Castro’s overthrow of the Batista regime and the nationalization of U.S. corporations there. In 1996, Congress passed the Helms-Burton amendment to codify the trade embargo.
   In a statement, Commerce Secretary Penny Pritzker applauded the move.
   “These historic actions by the president chart a new course for our country’s relationship with Cuba and its people,” she said. “It will improve the lives of millions and will help spur long overdue economic and political reform across the country. Expanding economic engagement between the Cuban people and the American business community will be a powerful catalyst that will strengthen human rights and the rule of law.”
   However, Venable, a Washington law firm, said federal agencies that administer and enforce the Cuban embargo must “update their licensing policies to authorize more transactions that align with President Obama’s significant changes to U.S. foreign policy with respect to Cuba.” These agencies include the Treasury Department’s Office of Foreign Assets Control and Commerce Department’s Bureau of Industry and Security, which have regulatory oversight of exports and imports involving Cuba.
   A key to yesterday’s rapprochement was Cuba’s release of a U.S. prisoner Alan Gross, who has been held for five years on charges that he was a spy.
   The Cuban economy is in tatters and experts say Cuban officials have lost much of the subsidies they counted on from Russia, and more recently Venezuela, both of which heavily depend on oil production and are suffering from the plunge in oil prices.
   Only Congress can remove the trade embargo. House Speaker John Boehner said he would not bring the trade embargo up for a vote, and there remains the possibility that Congress could try to withhold money from the administration to implement the new executive actions. Cuba policy is politically charged, and many Cuban Americans vehemently oppose any relaxation of sanctions until the Cuban government implements human rights reforms.
   Not all trade has been cut off from the United States to Cuba. Since 2000, U.S. firms have been free to sell agricultural commodities to Cuba. Exports peaked at about $750 million, but last year were about $350 million. The value of shipments to Cuba is on track to fall another 18 percent in 2014, according to government data.
   Agribusinesses in the Midwest sell corn, soybeans, beef and other products to Cuba.
   Cargill, the giant Minneapolis-based agriculture services and distribution conglomerate, is the largest exporter to Cuba. Tyson Food ships large quantities of frozen chicken to the country.
   Under U.S. law, Cuba cannot export goods to the United States, which discourages other countries from doing business in Cuba too. U.S. law prohibits foreign-flagged vessels from docking in the United States for six months after calling at Cuban ports. That means a ship that visits Cuba has to head to other destinations before heading to the United States, which makes trade with Cuba more costly.
   The U.S. Chamber of Commerce has been a staunch advocate of opening trade with Cuba. In May, Chamber President Thomas Donohue led a delegation to Cuba that included representatives from Cargill. The Chamber says Cuba has changed some of its economic policies to lessen government control or ownership of Cuban businesses, which has encouraged private sector growth.
   “In countries around the world, where leaders from across the political spectrum have made a concerted effort to liberalize their economy, we have seen a sharp rise in the quality of life of their citizens,” Donohue said in a statement. “There is still work to do, on both sides of this relationship, but the changes outlined today are a substantive and positive step forward. It is imperative that the Cuban government build on today’s positive steps with a more ambitious economic reform agenda at home, while we continue to push for the end of the embargo here in Washington.”
   A big impediment to trade is that most transactions are cash based. A change in the regulatory definition of “cash in advance” is designed to make it easier to finance authorized trade with Cuba, a Communist country where the government still controls the economy and many industries. Restrictions that force companies to conduct transactions in cash are a huge disadvantage for U.S. companies, Devry Boughner, vice president of corporate affairs for Cargill and chair of the U.S. Agriculture Coalition for Cuba, said on Al Jazeera America’s “Real Money” program.
   “U.S. agriculture has had our hands tied behind our back vis-a-vis our competitors. We’ve actually seen our sales go down since 2000,” she said. “We’ve seen competitors such Brazil and the European Union come in and take market. So today’s announcement is an improvement on the financing side. We’ve had to deal with cash up front — now we get an opportunity for cash on delivery and also seeking greater enhancement of the ability to use letters of credit.”
   Public sentiment has swung in recent years toward opening relations with Cuba, and she expressed optimism that Congress would consider ending the embargo.
   “It’s not done. It’s going to take ending the embargo for us to have meaningful commercial trade with Cuba,” she said.
   Paul Johnson, the owner of Chicago Foods International, said on the program that he has to get letters of credit through a bank in Paris, which takes considerable time and effort. His company exports grocery items such as canned food, cereals and peanut butter to Cuba.
   “Cash in advance is onerous. We can’t compete with Canada, Brazil, Argentina and the EU because they can offer credit,” he said. “So this is a step forward to level the playing field and allow U.S. companies and the U.S. agricultural community to be more competitive.”
   The American Soybean Association also cheered Obama’s announcement.
   “Soybean growers are particularly excited about today’s announcement, specifically because of the promise that the Cuban marketplace holds for American beans, but also in the larger scope of trade’s ability to overcome even the most challenging geopolitical barriers,” President Wade Cowan said in a statement.
   Cuba’s demand for pork, poultry, dairy and cooking oils offers opportunity for soybean farmers 90 miles from the U.S. coast, the group noted.
   “While we have been able to sell our products in the country for decades, our Cuban customers were unable to secure the same financing and credit opportunities as other trade partners. Conversely, the restrictions on financing made it difficult for our products to compete in that marketplace. The easing of these restrictions will make it easier for American soy to gain a foothold in the market, but more importantly, it will enable the Cuban people to purchase the products that they need and want as their market develops,” Cowan added.