U.S. trade embargo with Cuba keeps broader economic impact at bay for now

U.S. trade embargo with Cuba keeps broader economic impact at bay for now
By Michael A. Fletcher December 18 at 2:02 PM

The biggest opening in U.S. relations with Cuba in more than half a
century could be a boon for farmers, telecommunications firms and
construction suppliers, but any broader economic impact is limited for
now by the trade embargo that remains federal law.

President Obama's action Wednesday relaxes but does not lift
restrictions on travel to Cuba. It also allows larger remittances and
authorizes expanded trade in a small number of goods and services
between the United States and Cuba.

"This has got some limited capabilities," said Jodi Bond, vice president
of the Americas at the U.S. Chamber of Commerce. "The agriculture sector
has some prospects. There are opportunities for communications and
software companies, multilevel marketing companies and construction
supply companies."

Bond took part in a trip to Cuba this year that left U.S. chamber
leaders impressed with the country's long-term business potential. The
group saw the new $1 billion Mariel port aimed at trade with the United
States. They also met with Cuban officials and visited with some of the
estimated 450,000 small-business owners who have started firms since the
communist regime began easing restrictions on private business ownership
in recent years.

For years, the chamber and other corporate interests have urged Congress
to lift the trade embargo. Bill Lane, global government affairs director
for heavy equipment manufacturer Caterpillar, applauded the warming
relationship with Cuba. "The reopening of diplomatic relations between
the U.S. and Cuba is a welcome development, a move which Caterpillar has
been a long-standing proponent," he said in a statement.

Three Cuban agents who had been jailed in Florida returned to Cuba on
Wednesday. President Raul Castro greeted them in Havana. They were
released as the U.S. and Cuba announced a shift in relations. (AP)
Automakers, agricultural conglomerates and telecommunications companies
are among those that have long eyed Cuba as fertile territory. The
country has nickel deposits and offshore oil reserves, and it produces
widely coveted cigars. Only 5 percent of the population has access to
the full Internet.

Meanwhile, its tropical climate and abundant beaches have made it a
popular destination for Canadian and European tourists, just as it was
for Americans before the 1959 revolution. Cruise companies, airlines and
hotel operators are among those poised for the moment that Congress
might lift the embargo.

"We look forward to the day, hopefully soon, when all Americans have the
opportunity to travel to Cuba," said Barney Harford, the chief executive
of Orbitz Worldwide, a travel company. "There are numerous economic,
social and cultural benefits that will flow from free and open access,
and our customers are eager to visit Cuba."

Five years ago, Orbitz launched an online petition urging the Obama
administration to liberalize access to Cuba. The effort generated more
than 100,000 signatures.

Americans are prohibited from traveling and spending money in Cuba
unless they receive a license from the U.S. government. Typically, those
licenses are restricted to journalists, scholars, relatives of Cubans
and people involved in sports and cultural exchanges. Last year, about
170,000 Americans traveled to the island, mainly on charter flights that
regularly leave the United States. Obama's executive action will make
those licenses easier to get, but it will not open up full-scale tourism.

"You no longer have to go through any bureaucratic process on the front
end," said Julia E. Sweig, a senior fellow at the Council on Foreign
Relations. "You just sign a document saying what you're going to be
doing there and you go. And that is a huge difference. It's not the
lifting of the travel ban, because it doesn't permit tourism. But it
pretty much will streamline travel and grow travel, I think, quite
substantially."

Business leaders said the Commerce Department has been discussing a
possible trade mission in the coming months to Cuba to familiarize more
business leaders with the island's economic potential.

Still, obstacles remain when it comes to U.S. investment in Cuba. The
country's economy has been reeling in the 25 years since the breakup of
the Soviet Union, once its biggest benefactor and trading partner. The
vast majority of Cubans work for the government, and the annual salary
is less than $300 a year, limiting the market for many commercial goods.

Earlier this year, for the first time since the embargo was imposed,
Cubans were given the ability to buy cars without special permission
from the government. But the vehicles were marked up several times their
book value by the government, putting them out of reach even for Cubans
who receive generous remittances from relatives living abroad.

European, Russian and Chinese cars can be seen on the streets in Cuba,
but most of them are owned by government officials. Before recent
reforms, ordinary Cubans could buy and sell only cars that were on the
island before the 1959 revolution.

"There is clearly a need for affordable transportation and cars in
Cuba," said Jorge Duany, director of the Cuban Research Institute at
Florida International University. "But the issue is, how many people
would be able to buy them?"

Although the trade embargo has been in place since 1960, there have been
exceptions for certain items, including some agricultural and medical
products. Last year, the U.S. government issued licenses for the sale of
nearly $300 million in medical products and $3 billion in agricultural
exports to Cuba, a senior Commerce Department official said.

But those licenses resulted in just $359 million in actual trade,
according to the U.S. Trade Representative's office. U.S. law requires
the country to pay cash for all imports, making large transactions
difficult. Any change in that policy would come with risks.

"Yes, you could sell to Cuba," said Frank Calzon, executive director of
the pro-sanctions Center for a Free Cuba. "But selling and getting paid
are not the same thing."

Also, even with the country's recent economic reforms, the Cuban
government controls almost every big business on the island, from car
dealerships to hotels. For example, foreign firms doing business there
do not hire workers directly. Instead, they hire them through the
government, which often pays a fraction in wages of what it collects.

The two countries will also have to settle competing claims for property
seized by the Cuban government after the revolution, and Cuba's
contention that the embargo and other actions by the United States have
damaged its economy to the tune of trillions of dollars.

"The most likely scenario I see is that we'll have a kind of
incrementalism that this very big set of announcements will permit,"
Sweig said. "But I don't think that we're going to see broad-scale
American investment on the island the day after tomorrow."

Michael A. Fletcher is a national economics correspondent, writing about
unemployment, state and municipal debt, the evolving job market and the
auto industry.

Source: U.S. trade embargo with Cuba keeps broader economic impact at
bay for now - The Washington Post -
http://www.washingtonpost.com/business/economy/us-trade-embargo-with-cuba-keeps-broader-economic-impact-at-bay-for-now/2014/12/18/7d418a30-86dd-11e4-b9b7-b8632ae73d25_story.html