Administration Moving To Further Liberalize Rules on Trade with Cuba

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The Obama administration is working to finalize a change in U.S.-Cuba trade rules that experts called a major development that would significantly open the door to expanded business on the island.

Secretary of State John Kerry shakes hands with Cuban Foreign Minister Bruno Rodriguez prior to their meeting at the Foreign Ministry in Havana, Cuba, Friday, Aug. 14, 2015. Kerry traveled to the Cuban capital to raise the U.S. flag and formally reopen the long-closed U.S. Embassy. Pablo Martinez Monsivais/AP

Secretary of State John Kerry shakes hands with Cuban Foreign Minister Bruno Rodriguez prior to their meeting at the Foreign Ministry in Havana, Cuba, Friday,
Aug. 14, 2015. Kerry traveled to the Cuban capital to raise the U.S. flag and formally reopen the long-closed U.S. Embassy. Pablo Martinez Monsivais/AP
The regulation has not yet been released, although a 27-page document, dated Sept. 7 and marked to be reviewed by the White House’s Office of Management and Budget, was provided to McClatchy.

It couldn’t be determined if the version that is ultimately released will match the Sept. 7 version. The Department of Commerce didn’t respond to a request for comment about it.

As indicated in the document, the rules could amend existing ones to boost engagement between American and Cuban people, accelerate the free flow of information to and from Cubans, and ramp up independent economic activity generated by Cubans.

In many ways, the rule would merely be a continuation of the process begun Dec. 17, when President Barack Obama announced that the U.S. was seeking to thaw the five-decade freeze in its relations with the island nation 90 miles from Florida.

After that momentous December announcement, the Commerce and Treasury departments in January took steps to put in place parts of the president’s policy. The new rules, which could be announced as early as Friday, could amend the terms of existing license exceptions available for Cuba, create new licensing policies, and take other steps to further promote economic activity in Cuba.

Robert L. Muse, a Washington-based lawyer and expert on Cuba trade who reviewed the Commerce document Thursday, said the moves could be significant.

“They’re greater than the ones in January,” he said in an interview. “The rules in January were important – they established the precedent. But it was more of a beachhead, and it was a bit murky. Now they are engaging the business community in a way that’s going to be interesting and important to them. It begins to give them some real commercial traction.”

Among the key changes, Muse said, was that companies engaged in exporting authorized items to Cuba will be able to establish, maintain and operate physical premises in Cuba.

That, he said, is significant.

“Maintaining a presence is brand new – that’s the big further step they have taken here,” Muse said. “The intention is to bring American businesses to the island.”

An example, he said, would be an agricultural commodity company allowed to export to Cuba that would now be able to establish a sales office – or possibly even a warehouse – on the island, thus furthering its prospects.

Several other types of businesses could also be affected, including aircraft; telecommunications equipment; medicine; and materials, equipment, tools and supplies.

According to John S. Kavulich, president of the U.S.-Cuba Trade and Economic Council, the new regulations could permit a U.S. company to open a distribution center within the Mariel free trade zone; or shipping companies such as FedEx to have drop-off locations; U.S. airlines to have a ticket office; home renovation chains to sell building materials and supplies; or rice companies to have a sales office.

“And the companies can hire Republic of Cuba nationals as employees,” he said.

He added that regulations “would permit the most comprehensive trade and investment changes to the United States relationship with the Republic of Cuba in decades.”

However, just because the U.S. is authorizing such activity doesn’t mean the Cuban government will allow it.

“This is the U.S. saying to U.S. companies and individuals: You can do these things,” Kavulich said. “You will now have to convince the Cuban government to let you do them.”

U.S. Eases Some Limits on Cuban Travel and Commerce

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The White House on Friday announced wide-ranging changes to loosen travel, commerce and investment restrictions on Cuba, moving to fulfill President Obama’s goal of breaking down barriers between Washington and Havana even as the American embargo remains in place.

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Cuban-Americans arriving from Miami and their Cuban relatives reunited Friday at José Martí International Airport in Havana. Credit Desmond Boylan/Associated Press

The rules will allow American companies, including telecommunications and Internet providers, to open locations and hire workers in Cuba, facilitate financial transactions between the two nations and remove limits on the sums that can be taken to the island nation. They are to take effect on Monday on the eve of the visit to Washington by Pope Francis, a proponent of the reconciliation who quietly helped broker the agreement between Mr. Obama and President Raúl Castro last year.

Mr. Obama spoke to Mr. Castro by telephone on Friday to discuss the normalization process before the pope traveled to Cuba on Saturday and then to the United States on Tuesday, the White House said. In addition to praising the pope’s role in their rapprochement, the two presidents “discussed steps that the United States and Cuba can take, together and individually, to advance bilateral cooperation,” an official said, even as they continue to have differences on important issues and “will address those differences candidly.”

Administration officials said Mr. Obama was still hoping that Congress would take action to lift the travel and trade embargo, although senior aides to the president offered a grim assessment of the chances that it would happen in the short term.

“I don’t think we’ve seen a whole lot of evidence to indicate that those prospects have significantly improved,” said Josh Earnest, the White House press secretary. Still, he said, the rules would deepen connections among Cubans and Americans in the interim and expose Cuba’s citizens to American values while helping United States businesses.

Jacob J. Lew, the Treasury secretary, said the rules, issued by his agency and the Commerce Department, could lead to “constructive change for the Cuban people.”

“A stronger, more open U.S.-Cuba relationship has the potential to create economic opportunities for both Americans and Cubans alike,” Mr. Lew said in a statement. “By further easing these sanctions, the United States is helping to support the Cuban people in their effort to achieve the political and economic freedom necessary to build a democratic, prosperous, and stable Cuba.”

They also hold out the prospect of new business opportunities for American companies in Cuba, which some observers said was intended to increase pressure on Havana to take corresponding action to open its economy.

The White House is working to show momentum in the rapprochement with Cuba before Dec. 17, the first anniversary of when it was announced.

“In addition to expanding our commercial engagement with the Cuban people, these additional adjustments have the potential to stimulate long overdue economic reform across the country,” Penny Pritzker, the secretary of commerce, said in a statement.

American corporations have been working behind the scenes with the Obama administration for months to bring about the normalization the president promised, which began with an initial set of regulatory changes in January. But the new rules exceeded the expectations of some business leaders, who said they had sent a clear message to Cuba that it must do more on its end.

Administration officials acknowledged on Friday that the scope of the changes that can be brought about by lifting sanctions and loosening commercial rules would depend to a degree on Cuba’s willingness to facilitate the new cooperation and make reforms in its state-run economy.

“In part, this depends on the government of Cuba,” said a senior official who worked on the rules, “and we don’t have control there.”

For example, the lifting of some United States export restrictions, such as those on certain electronic equipment and civilian aviation safety goods, may have limited effect if Cuba does not change the way it handles imports, which now must go through a government agency.

But officials said they foresaw many potential areas of cooperation, including a venture between Etecsa, Cuba’s government-owned telecommunications provider, and an American firm that could improve service on the island.

The regulations will for the first time in decades allow United States companies to do business directly in Cuba, setting up subsidiaries or opening offices or warehouses there, and allowing Americans to have bank accounts and Cubans to maintain bank accounts outside of their country. Cruise ships will be able to travel between the United States and Cuba without making a stop in a third nation. And close relatives will be able to visit family members in Cuba for a wider array of purposes.

They will also allow American telecommunications and Internet companies to locate in Cuba and market their services there, as well as to import mobile applications made in Cuba for development in the United States.

Senator Amy Klobuchar, Democrat of Minnesota, said allowing companies to have a physical presence in Cuba was a major step, making it far easier, for example, for the agricultural exporters from her state that provide $20 million in food aid to streamline their operations.

“All of the machinations that they had to go through to get to these provisions just shows the crying need for lifting the embargo, because while all of this is really good, it is so obvious that it would be so much simpler to lift the embargo,” Ms. Klobuchar, a sponsor of legislation that would remove the trade and travel ban, said in an interview. “While it is a very positive step, it just shows the absurdity” of keeping the embargo in place, she added.

James A. Williams, the president of Engage Cuba, a bipartisan public policy group pushing for normalization, cheered the changes but said there was “more the Obama Administration can and should do, such as allowing individuals to participate in people-to-people travel without third-party brokers.” He also said Congress must “do its job” and lift the embargo.

Opponents of Mr. Obama’s policy argued that the rules were one-sided concessions to a brutal government that has done nothing to change its behavior.

“The Obama policy of pouring more American money into the Castro regime’s coffers won’t make America safer or the Cuban people freer,” said Senator Marco Rubio, a Florida Republican and presidential hopeful of Cuban descent. “Not only do these measures harm the cause of a free Cuba, they also raise serious questions about the legality of the Obama administration’s regulations.”

Mr. Earnest said the administration would “continue to press the Cuban government to implement the kinds of reforms that we believe are long overdue.”

In the meantime, he said, relaxing commerce and travel rules would give leaders there “an incentive that they didn’t have before to start implementing those reforms, so that they can take advantage of the opportunity that the United States has extended to them.”

A New-style Cuban Cooperative Hopes Road to Success Is Paved with Spices

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When Carlos Fernández-Aballí and his fellow Cuban entrepreneurs were hatching a business plan, they knew they wanted their product to be sustainable, technology-driven and a substitute for something the island currently imports.

To the group behind Sazón Purita, the road to riches seemed to be paved with garlic — specifically garlic grown in Cuba and then dehydrated and sold in small packets. Garlic finds its way into most Cuban dishes, and the spice is so coveted that some garlic farmers have become millionaires.

“Garlic is a big business in Cuba. It is like white gold,” said Fernández-Aballí, who got a degree in engineering design from the University of Bristol in the United Kingdom and then, after returning to Cuba in 2006, earned a Ph.D. A head of garlic that costs 20 to 30 cents at harvest can rise to 10 pesos by the end of the year, he said, so dehydration made sense.

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The young entrepreneurs designed the dehydrating equipment themselves, and in 2013, Sazón Purita became Cooperativa Industrias Purita. The enterprise is now run by 14 cooperative members.

In Cuba, there have been agricultural cooperatives for decades. Although their numbers have been falling, there are still more than 6,000. More recently, the government has been turning over beauty salons, barber shops, restaurants and other service businesses to workers to run privately as cooperatives because they’re considered a drag on the government’s limited resources.

Most non-agriculture co-ops are conversions of former state enterprises, said Ted Henken, a Baruch College sociology professor who studies Cuban entrepreneurship. The number of cooperatives is still tiny: Only about 500 have been approved, and at mid-year, 347 were in operation.

500 estimated cooperatives that have been approved

About 23 percent of cooperatives are start-ups like Purita, Henken said. Fifty-nine percent of non-agricultural cooperatives fall into the commerce and food, technical and personal services categories, and about 10 percent, including Purita, are categorized as light industries, he said.

It turns out the Purita entrepreneurs were on the right track with dehydrated spices, but they couldn’t get enough garlic at certain times of the year to make the business feasible. “Everyone wants to keep garlic in storage” until later in the year and speculate, said Fernández-Aballí.

Sourcing its produce from organic farms and small urban agriculture producers, the co-op branched out last year to 14 products — including dehydrated parsley, chives, coriander, tarragon, basil, rosemary and oregano, and even dehydrated peanuts, bread crumbs and fruit. They also process garlic when they can get it.

Currently, the cooperative is producing 18 tons of dried peanuts and 1.4 tons of dehydrated spices, but it has the capacity to become far larger and produce up to 100 tons of dried garlic annually. It’s in the process of ramping up to produce 20 tons of dried fruit and spices.

The cooperative received a business loan from a Cuban bank for 985,000 Cuban pesos, the equivalent of about $41,042, and it has a small organic farm that produces some of its spices.

Purita has been selling its spices in small cafes and cafeterias around Havana, but in late July, it made a breakthrough: The government agreed to stock Sazón Purita-brand products in five Mercado Ideales, peso retail stores in Havana.

But the cooperative has even bigger plans. Eventually, it would like to sell its 100 percent natural dehydrated products in the United States. “We believe it’s possible,” said Fernández-Aballí.

Under the commercial opening to Cuba outlined by the Obama administration, independent Cuban entrepreneurs are allowed to sell some products in the United States, but at the moment, the list of permitted products doesn’t include prepared foods.

Fernández-Aballí said the Cuban government is preparing a packet of laws that will help private enterprise, including making it easier for cooperatives to link to companies abroad. “The goal is not to put the brakes on the process,” he said.

Organizing the co-op and working through the many obstacles a private entrepreneur faces in Cuba hasn’t been easy, acknowledged Fernández-Aballí. “We just put our heads down and smiled,” he said, “but now we have friends assisting us with the process.”

“He’s a highly educated guy,” said Henken. “He’s also well connected and perhaps well protected.”

Among the problems the cooperative members have had to work through are overestimating their capacity, which necessitated a renegotiation of their loan. Cuba’s unwieldy dual currency system where 24 Cuban pesos equal one Cuban convertible peso has been difficult, as has finding professional packaging for the spices. Packaging spices can be tricky, said Fernández-Aballí. If not done properly, the spices can rehydrate.

“All this slowed us to a point where we have a cash deficit problem,” said Fernández-Aballí. But the cooperative is slowly digging out. Next year, he said, Purita products will be professionally packaged.

Fernández-Aballí presented the Purita case study during an Association for the Study of the Cuban Economy meeting in Miami on July 30. Afterward, Arch Ritter, a Carleton University economist and co-author with Henken of the book Entrepreneurial Cuba: The Changing Policy Landscape, said, “I’m worried about your cash deficit.” But at the same time he praised the Purita group as “confirmed entrepreneurs.”

Talent and entrepreneurship are abundant in Cuba, Ritter said. There are currently about 500,000 privately employed Cubans.

The current wave of entrepreneurship, Ritter said, began to take root in the early 1990s during the special period, a time of economic crisis in Cuba after the collapse of the Soviet bloc. Cubans had to begin to come up with their own income and start small side businesses to survive. They began selling what they didn’t need or want from their ration books or engaged in black market activities.

Fernández-Aballí, 31, missed most of that era. When he was eight, his family left Cuba to live in Caracas, where his father held a post in UNESCO. From there, he went to England to study engineering before returning to Cuba in 2006. Fascinated by renewable energy technology, he got his Ph.D. and began teaching at CUJAE, Havana’s technical university.

He was always attracted to entrepreneurship and technology, he said. The first venture Fernández-Aballí was involved in was a transnational cooperative based in Barcelona that included Cuban, Spanish and Belgian associates. Founded with international prize money, its goal was to create low-cost, technologically appropriate housing with local materials for the homeless and low-income people.

“The taxes in Spain ate us away,” he said. “Thirty-thousand euros in prize money was not enough. We didn’t understand that then, but we do now. You probably need three times that amount to start something in Spain.” Also, trying to manage a transnational concept with Cuba’s poor Internet access was too hard, he said.

Before hitting on the garlic idea, he and his associates thought about starting a catering enterprise but realized there were too many holes in the Cuban supply chain to make it feasible. “Garlic is everywhere,” said Fernández-Aballí. They started the business after coming up with a prototype dehydration machine in early 2012.

The cooperative members meet once a month to make group decisions and vote. Each has a vote regardless of their contribution to the co-op. Profits are supposed to be shared according to the complexity, quality and quantity of work by each individual.

“We’re not pretending to be a company,” Fernández-Aballí said.

Cuba, the Most Desired Destination for U.S. Celebrities and Politicians

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Since Obama announced the normalization of relations, the flow of Americans visiting the island has not stopped

Before leaving Lair, one of Havana’s most famous paladares, the American comedian Conan O’Brien stopped at the many photos of celebrities hanging on the walls.

Beyonce and Jay Z, Kevin Spacey, Naomi Campbell, Jack Nicholson … The list of American stars who have posed in the restaurant is long. And that data, in large part, is from long before US President Obama announced the normalization of relations with Cuba on December 17

O’Brien, a few days ago issued the first US late night recorded on the island in half a century , took a picture of himself and hung it in the middle of the photo collection.

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“I cannot wait to return to Havana,” O’Brien said. He’s not alone. Several companies have already begun, or are actively preparing for it, like increasing charter flights to the island from various parts of the US, including New York. It is also expected that commercial  airlines will soon begin to offer regular flights to Cuba.

The Cubans, the visitors say,  are excited about the policy change after half a century of tension and hope that this will improve their conditions.

“I was impressed with the overwhelmingly positive reaction among Cubans we saw, including some openly critical of the Cuban Government, the decision of President Obama to restore diplomatic relations with Cuba,” Senator  Patrick Lehay told a local newspaper.

Two months later, Nydia Velázquez also traveled to Havana along with half a dozen other Democrats, including former President of the House of Representatives Nancy Pelosi. They were received by Foreign Minister Bruno Rodriguez, and vice president Miguel Díaz-Canel, possible successor Raul Castro. But what most impressed Velazquez, like Leahy, was the popular welcome she received.

“Seeing the face of joy in Cuban, that face, that sense of welcome us with open arms was an amazing, spectacular thing,” said Velazquez, who 21 years ago introduced the first bill to end the embargo on Cuba.

Both Leahy as Velázquez are aware that, until the embargo is lifted, most Americans cannot see with their own eyes that joy. None dares to predict the end of a measure considered a “failure” by Obama but which hold more than a few congressmen, in whose hand is lifting.

While programs like O’Brien will whet your appetite for an imagined and desired by many Americans travel. The comedian was defined as part of a “first wave” of American travelers. Few doubt that sooner or later will come again.

Politics and Prose, one of the most iconic libraries Washington, is ready for it. “Cuba! Read this before you go, “reads the sign on the table dedicated to books on the island, from Hemingway to Padura. And, of course, several guidebooks.

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