Deciphering new Cuba regulations: 5 changes that could prove significant

A restaurant franchisor or a U.S. distributor of tires could negotiate a future contract in Cuba. A U.S. engineering or architecture firm could work on a public transportation project or new Cuban hospital. An American traveler to Cuba can load up on premium cigars and bottles of high-end Santiago or Havana Club rum.

All these scenarios are theoretically possible under Obama administration regulatory changes — now in effect — as part of Washington’s continuing rapprochement with Cuba.

“These latest changes are not just technical in nature,” said Andy Fernandez, a Miami lawyer who is the head of Holland & Knight’s Cuba Action Team. “They grant additional authorities and are designed to increase commercial activity with Cuba.”

The most important, he said, is a change that allows U.S. businesses to sign contingent contracts or a binding memorandum of understanding.

Now American executives can go to Cuba, discuss business transactions currently prohibited by the embargo and even enter into binding contracts — contingent on getting future authorization from the U.S. Office of Foreign Assets Control or contingent on the day when the U.S. embargo is lifted.

Previously U.S. companies that wanted to negotiate deals that are exceptions to the embargo needed to get prior approval from OFAC. That process takes about nine months, and some executives have hesitated to spend the time and energy the process requires.

“Before they could go to Cuba and kick the tires and get the lay of the land but they couldn’t enter into any contract without prior approval,” Fernandez said.

John Kavulich, president of the U.S.-Cuba Trade and Economic Council, calculates that 3,000 representatives of U.S. companies have been to Cuba, but he said most didn’t travel with a business visa or meet with Cuban officials.

The change, said Fernandez, could make Cuba a more attractive proposition to big corporate players.

Deep within the bureaucratic language of the latest round of regulatory changes are four other rules that could prove significant.

▪ Modification of 180-day ship rule: Previously, foreign vessels couldn’t load or unload nonsensitive cargo in a U.S. port for 180 days after calling on a Cuban port.

Kavulich called modifying the 180-day rule “immensely helpful” to Cuba’s Port of Mariel but said it also benefits shippers, U.S. ports and ports within the Caribbean.

The Mariel port is already deep enough to handle vessels traversing the original Panama Canal and it is dredging its channels so that by 2017 it will be able to accommodate the neo-Panamax ships that now transit the expanded canal. Eventually Mariel hopes to become a trans-shipment port where cargo from neo-Panamax vessels is offloaded to smaller ships heading to U.S. Gulf and East Coast ports that don’t have deep water.

The rule change, said Kavulich, “begins to reestablish normal commercial competition” and makes it more likely that shipping lines will include Cuba in their itineraries. Some day, he said, there will also be a lot of smaller shipments heading south to Cuba from the United States to rebuild family homes and businesses.

▪ Health sector: These changes expand opportunities for Americans to do joint medical research with Cubans, allow Americans to obtain FDA approval of Cuban-origin pharmaceuticals and to market and sell them.

Preclinical studies of a Cuban lung cancer vaccine, CIMAvax, are currently underway at Roswell Park Cancer Institute in Buffalo, New York, and Cuba has developed other pharmaceuticals and treatments that are regarded as promising.

The rule change, however, “does not authorize U.S. persons to establish a business or physical presence in Cuba or hire Cuban nationals as part of their research activities,” said the Akin Gump law firm in an analysis of the regulatory changes.

▪ Services: Now companies that provide services — think engineering or architectural design — are allowed to provide services related to the development, repair, maintenance and enhancement of Cuban infrastructure projects as long as they directly benefit the Cuban people.

That theoretically means American companies could provide services for projects such as public transportation improvements, water and waste management, hospitals, primary and secondary schools, non-nuclear electricity production and those that would protect the environment.

But Kavulich notes that the foreign companies that get those design and engineering contracts are generally ones from the country that is supplying financing and guarantees for Cuban infrastructure projects.

▪ No more limits on alcohol and tobacco products brought back from the island for personal use: Prior to the change, there was a combined limit of $100 on these products. It meant that a traveler couldn’t even buy an entire box of fine Cuban cigars.

Although Cuban rum can be purchased quite economically, higher-end bottles of aged Santiago and Havana Club rum are in the $50 to $55 range, and a bottle of a Havana Club super-premium rum can cost as much as $350.

Travelers will have to pay any applicable duties and taxes.

“This change will likely promote the sale of high-end rum and cigars,” said Augusto Maxwell, a Miami lawyer whose clients include a number of companies that currently do business with Cuba or are trying to.

However, there was one change that some U.S. executives and bankers were hoping for that wasn’t forthcoming in what could be the final round of regulatory changes before President Barack Obama leaves office.

Although analysts say it could ease commerce between the United States and Cuba, there was no provision allowing financial institutions operated by the Cuban government to have correspondent accounts in U.S.-based financial institutions. That means payments for permissible U.S. exports still must be transferred through banks in third countries.

That the change wasn’t made is “absurd,” Kavulich said. “It amounts to commercial malpractice. The foundation of a market economy is the efficient movement of goods and services and the means to make and receive payments for those goods and services. It’s remarkable that the president continues to leave such decisions on the table.”

And even with the latest changes, Akin Gump points out: “The U.S. embargo against Cuba continues to broadly restrict trade, financial services and travel between the two countries.”

Follow Mimi Whitefield on Twitter: @HeraldMimi

This story was originally published October 21, 2016 at 12:19 PM with the headline "Deciphering new Cuba regulations: 5 changes that could prove significant."