U.S.-Cuba diplomatic thaw puts Mariel port back in spotlight

U.S.-Cuba diplomatic thaw puts Mariel port back in spotlight
BY TIM JOHNSONMCCLATCHY FOREIGN STAFF
01/21/2015 1:11 PM 01/21/2015 1:11 PM

MARIEL, CUBA
The deepwater port of Mariel, once the site of a massive exodus of
refugees to the United States, may soon be the stage for a new chapter
in Cuba's history, one that flirts gently with global trade and free
markets.

A $1 billion project to modernize the port and create a special economic
zone will add Mariel as a stop on a global maritime highway that
stretches from Asia to Europe.

And the outlook for Mariel's natural harbor might grow brighter, if the
United States and Cuba mend a diplomatic rupture that started more than
half a century ago. That's why the talks that began Wednesday in Havana
have sent ripples as far away as Brazil, which is financing most of the
Mariel port project, as well as China and Vietnam, whose similar
experiments in free-trade zones four decades ago led to a trade boom.

The U.S. trade embargo remains the major stumbling block to the Mariel
project. As long as the embargo, imposed in 1962, remains in effect, any
ship that docks in Cuba cannot enter the United States for six months
unless it has a U.S. waiver.

But there are several factors that befog the outlook for the deepwater
port and free-trade zone. Cuba faces competition as a maritime
transshipment hub. Moreover, Cuba faces new risks. For the second time
in a generation, Cubans are watching with trepidation as a major patron
stumbles. Before, it was the Soviet Union, whose collapse sent the
socialist island into a tailspin in the early 1990s. Now it's Venezuela,
which totters as the price of oil, its major source of income, plummets.

Still, experts hail the Port of Mariel expansion and free-trade zone as
an important step toward open markets, if not a break from the country's
one-party socialist system.

"It's an intermediate step," said Omar Everleny Perez, a researcher at
the Center for the Study of the Cuban Economy at the University of Havana.

Perez noted the range of benefits for investors in the 180-square-mile
special economic zone abutting the port, such as 50-year contracts, 100
percent ownership of assets and tax reductions, largely unprecedented in
Cuba.

"There are a lot of incentives for the foreign investor, such as
operating tax-free for 10 years and paying no tariffs on machinery,"
Perez said.

Advocates say the Mariel special economic zone, 30 miles west of Havana,
will be like the Colon Free Zone operated by Panama and has the
potential to be a cheap alternative for companies looking to manufacture
and ship products into the United States from an offshore location, in
this case only 120 miles from Florida.

Cuba is finishing up the dredging of Mariel Bay to a depth of 58 feet,
allowing new mega-ships to dock with an eye toward events in Panama and
Nicaragua. In early 2016, Panama will complete a third set of locks on
its canal, permitting much larger vessels to transit the isthmus,
carrying up to 13,000 containers each. Nicaragua, for its part, has
granted a 50-year concession to a Hong Kong-based company to dig a
massive canal across Central America that would allow still larger
ships, including supertankers, a shortcut passage.

"When these two canals are done, the one in Panama and Nicaragua, the
Port of Mariel will be on the axis between Asia and Europe," Perez said.

Mariel will largely replace the port of Havana, which couldn't be
deepened. A vehicle tunnel under the mouth of Havana Bay bars dredging
there, and the port will eventually be left for cruise ships and tourists.

Brazil financed $682 million of the $1 billion price tag on the Mariel
port, container terminal and free-trade zone, and President Dilma
Rousseff faced criticism during her re-election campaign last fall for
helping Cuba improve Mariel while leaving some Brazilian ports in disrepair.

Rousseff sounded triumphant with news of the U.S.-Cuban diplomatic thaw.
"It clearly shows that Brazil was right to finance the Port of Mariel,"
she said.

Cuban officials voice optimism that even if the U.S. embargo stays in
place, the special economic zone will attract Chinese, Vietnamese,
Japanese, Brazilian and European companies in food products, biotech,
photovoltaic panels, logistics, packaging and glass manufacture, and
telecommunications.

Four huge gantry cranes tower over the container terminal, which can
handle 1 million containers a year. Huge refrigerated chambers,
necessary for meat shipments, were installed in the economic zone this
month. Last summer, Cuba completed its first new rail line in two
decades, connecting the port with Havana, the capital.

Hundreds of projects are under consideration, Perez said, and the first
will be approved in the first half of this year.

When completed, the special economic zone is expected to generate some
3,000 direct jobs and 5,000 indirect ones.

In some ways, the project smells and looks like an experiment in
capitalism, but Cuban officials blanch at any description tainted with
the "C" word.

"It's difficult for a government official to talk about market reforms,"
said Cuban economist Arturo Lopez-Levy, who resides in the New York City
area. "They talk about 'actualization' or 'updating' the idea of a
socialist economy."

"They want to make absolutely sure that this won't get out of hand,"
added Diego Moya-Ocampos, a London-based senior Latin America analyst
for IHS Country Risk, a consultancy, noting that party leaders resist
demands for political reform.

Yet to be seen is how many multinational companies will come into the
special economic zone. Moya-Ocampos noted that investors won't be able
to hire workers directly. Instead, they must pay the Cuban government in
hard currency to provide workers, who'd earn salaries in nonconvertible
Cuban pesos.

"There is no international investment arbitration process in place,"
Moya-Ocampos added.

It's still unclear how much cash the Port of Mariel project will inject
into the feeble Cuban economy or whether it can surpass Kingston,
Jamaica, and Freeport in the Bahamas as the largest industrial port in
the Caribbean in terms of size and volume of activity.

"The dynamics of the shipping industry are such that when you come out
of the (Panama) Canal, you don't want to stop in Cuba. You want to get
to the East Coast of the United States," said Rafael Romeu, former
president of the nonprofit Association for the Study of the Cuban
Economy in Washington and a onetime economist at the International
Monetary Fund.

Romeu said Cuba offered little to multinational corporations that wasn't
available elsewhere along the edges of the huge U.S. market.

"Unless you want to create a plastic surgery hospital for visiting
Americans, I don't see how they really compete against what you have
along the Mexican border or in the Dominican Republic," Romeu said.

In another era, Cubans desperate to leave the island made Mariel famous.

For six months in 1980, Mariel harbor drew world attention as
Cuban-Americans in Miami dispatched boats to the harbor to pick up
Cubans who suddenly found their government was letting them go. Before
the two governments agreed to stop the boatlift, more than 120,000
people had left for the United States, including several hundred who'd
been released from Cuban jails and mental hospitals.

Yoan Ulloa, a driver idling on a bench in Mariel, is too young to
remember the boatlift. But he hopes that Mariel will become famous for a
different reason now.

"It's the highest-priority project in the whole country," Ulloa said.
"There are people from all over working here."

Email: tjohnson@mcclatchydc.com; Twitter: @timjohnson4

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