New U.S. regulations allow financing of some exports to Cuba

Cuban flag is raised at new embassy in Washington, D.C.

The Cuban embassy in Washington, D.C. reopened on July 20, 2015, after 54 years. Hundreds of onlookers and protestors gathered less than two miles due north from the White House to watch the historic flag raising, the next big step on Obama's ongo
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The Cuban embassy in Washington, D.C. reopened on July 20, 2015, after 54 years. Hundreds of onlookers and protestors gathered less than two miles due north from the White House to watch the historic flag raising, the next big step on Obama's ongo

In the third major release of U.S. regulations designed to expand travel, commerce and engagement with Cuba, the Obama administration announced new rules Tuesday that will remove financing restrictions on authorized exports to the island with the exception of food and agricultural commodities.

The new regulations, which take effect Wednesday, build on other sets of U.S. commercial and travel rules released since the United States and Cuba announced on Dec. 17, 2014 that they were working to normalize relations.

The amendments “send a clear message to the world: the United States is committed to empowering and enabling economic advancements for the Cuban people,” Treasury Secretary Jacob J. Lew said.

In a conference call, a senior administration official said the steps taken by the U.S. government will have a much greater impact and benefit the Cuban people much more if the Cuban government takes steps to match and allow its citizens to take advantage of them.

While trying to support the Cuban people through expanded commercial activities, a senior U.S. official said that the United States continues to be concerned about Cuba’s treatment of dissidents and its human rights record. “We will continue to push them on this issue,” the official said.

Perhaps the most significant rule change is one that removes existing restrictions on payment and financing terms for authorized exports and reexports to Cuba. U.S. business delegations visiting Cuba have been told they are at a disadvantage when competing against products from countries that allow financing of exports.

In disappointing news for agriculture states, which have seen exports to Cuba fall since the rapprochement, the financing of agricultural exports is not included in the new regulations. Through November 2015, U.S. agriculture and food exports to Cuba, which are allowed under exceptions to the embargo, fell 37 percent compared to the previous year. Some of that decline, however, is because of falling commodity prices.

Financing of food and agriculture products is excluded from the new regulations because it is prohibited by the Trade Sanctions Reform and Export Enhancement Act of 2000, said Augusto Maxwell, an international lawyer with Miami’s Akerman law firm.

Most aspects of the embargo also remain in place.

The new regulations, Maxwell said, are essentially two-pronged, allowing new areas of engagement with Cuba and the extension of credit for exports that were authorized last year as well as for a few new export categories.

Regulations that will make it easier to implement a new civil aviation agreement reached between the United States and Cuba in December also were announced. The amendments allow blocked space, code-sharing and leasing arrangements with Cuban airlines. The United States will generally approve licenses for exports and reexports needed to ensure the safe operation of commercial planes.

The regulations also clarify and allow for expanded travel to Cuba within the 12 categories of travel already authorized for Americans who want to visit the island.

But a senior U.S. administration official emphasized that “tourism activities remain prohibited by statute.”

Americans also will be allowed to organize professional meetings or conferences in Cuba without seeking prior approval from Treasury’s Office of Foreign Assets Control. Previously, only attendance at such meetings was allowed.

The new set of regulations follow a visit by Commerce Secretary Penny Pritzker last fall.

“Following the first ever U.S.-Cuba Regulatory Dialogue and my fact-finding trip to Cuba in October, we have been working tirelessly to maximize the beneficial impact of U.S. regulatory changes on the Cuban people,” Pritzker said.

She noted that allowed exports to Cuba will now include those intended to help in disaster preparedness and in support of education and agricultural production, such as pesticides, fertilizers and farm equipment. Exports related to artistic endeavors, food processing and public transportation also will be allowed for the first time since the embargo went into effect more than five decades ago.

Administration officials said U.S. exporters will still have to work through government importing agencies to get these products to the Cuban people but emphasized that exports that might end up in the hands of the Cuban police, military, or intelligence agencies or enterprises that primarily benefit the Cuban state are still prohibited.

The new regulations also provide a clarification on importing products produced by Cuba’s growing private sector. The clarification says that all travelers may carry allowable goods — a list of such imports was released last year — without monetary limitation.

The main way to get goods to and from private entrepreneurs now is through travelers’ accompanied luggage.

“You have this suitcase commerce, or as they call it in Cuba the economía Samsonite,” Maxwell said. “This clarifies that American travelers cannot only take products to Cuba but likewise bring authorized imports in their luggage.”

The new rules change the landscape for performances by U.S. artists in Cuba and those who want to run athletic or other competitions.

Organizers of amateur and semi-professional sports competitions and public performances will no longer need to seek prior approval from OFAC. A requirement that profits from such events be donated to nonprofit groups will be removed.

“That requirement made hosting premiere events on the island difficult,” Maxwell said. “This should promote both performances and competitions in Cuba.”

Analysts say how successful the regulatory changes will be depends on the Cuban government’s uptake on the Obama administration initiatives and willingness to set up a wholesale entity that could handle imports and exports for entrepreneurs.

“Just as the United States is doing its part to remove impediments that have been holding Cubans back, we urge the Cuban government to make it easier for its citizens to start businesses, engage in trade, and access information online,” said Ned Price, a spokesman for the National Security Council.

A senior administration official said other steps the Cubans should take to encourage commerce are allowing foreign companies operating in Cuba to directly hire their workers, unification of Cuba’s two-tiered currency system, and expanding the more than 200 categories of jobs that are permitted for Cuba’s cuentapropistas, the self-employed.

Some analysts think the United States is offering too much to Cuba with little in return.

“These changes were decided upon last fall, and the administration was hoping to announce them last year because doing so meant that the Cuban government was reciprocating,” said John Kavulich, president of the U.S.-Cuba Trade and Economic Council. “Cuba, in fact, hasn’t reciprocated for nearly all the Obama initiatives. The Cubans are looking at how little they can do to get as much as they can.’’

Kavulich said it appears a further opening to Cuba isn’t too dependent on Cuban government actions, but rather “is part of the president’s legacy program. The Cuban government has shrewdly looked at everything the administration has said and done and says that where there is some, there is more, so let’s just wait.”

New Jersey Democratic Sen. Bob Menendez called the new regulations “a contravention of the law — the will of Congress and the people who elected us and a betrayal to those brave Cubans who have raised their voices in support of freedom, only to be silenced by a regime we are now helping.”

He contends that U.S. law says “any administration has the discretion to tighten sanctions, but none have the power to relax them.”

But lawyer Jose W. Fernandez, a former assistant secretary of state for economic, energy and business affairs, said the new regulations further the president’s strategy of increasing contacts with the Cuban private sector and civil society to “help loosen the Castros’ chokehold on power. It is becoming harder for the Cuban government to stand pat in the face of the new American policy and continue to blame the embargo for its economic woes.”

President Barack Obama has said he would like to visit Cuba before the end of his term — but White House officials say that the trip is dependent on Cuba making progress in human rights, allowing more access to information and the Internet on the island and permitting a greater role for the Cuban private sector.