Tuesday Talks with Dr. Patterson

January 6, 2015

Cuba, Our Neighbor

In December of 1949, my parents spent their honeymoon in Havana, Cuba.  This was of course before the socialist revolution in 1959, the U.S. economic embargo established in 1960, and the cut in diplomatic relations in 1961.  Before the revolution, American travel to and business in Cuba was common.  Under the embargo, there was no trade with Cuba or U.S. tourist travel to Cuba.  The embargo has been maintained as a means of exerting pressure on the dictatorial, socialist government led first by Fidel Castro and since 2006 by his brother Raul Castro to reform its policies affecting human rights.  A partial lifting of the economic embargo was approved through the Trade Sanctions Reform Act of 2000 (TSRA), which allows U.S. exports of agricultural commodities, medicines, and medical devices to Cuba. 

On December 17, 2014, President Obama announced plans to re-establish diplomatic relations with Cuba and ease the restrictions established under the economic embargo.  This announcement came at the conclusion of a year-long negotiation between Cuba and the United States, which also involved Pope Francis, resulting in the exchange of jailed spies in both countries and release of political prisoners in Cuba (Enoch).  President Obama stated that the U.S. policy of attempting to isolate Cuba has failed to achieve improvements in human rights and argues that direct engagement may achieve a better outcome (Enoch).  Under the president’s plan, the United States will establish diplomatic relations with Cuba, which would include opening an embassy in Havana.  President Obama ordered Secretary of State John Kerry to also begin reviewing Cuba’s designation as a state sponsor of terrorism.  Travel opportunities will be eased by requiring only general licenses for 12 defined travel purposes that current require review on a case by case basis.  These travel categories intended to promote scientific and humanitarian concerns were defined in 2013.  Cuban Americans with relatives in Cuba have been allowed to travel to Cuba since 2009 (Parlapiano).  Tourist travel to Cuba remains restricted.  U.S. travelers to Cuba will be allowed to return home with $400 worth of Cuban goods, including up to $100 worth of alcohol or tobacco products.  Exports of telecommunications equipment which could improve the Cuban people’s ability to communicate with the rest of the world will be allowed.  Also, exports of building materials and agricultural equipment is now authorized under the proposed plan.  The amount of money Americans can send to Cuban nationals will be increased from $500 to $2,000 per calendar quarter.  Since 2009, Cuban Americans can send unlimited amounts of funds to relatives in Cuba (Parlapiano).  Finally, U.S. banks and companies will be allowed to establish accounts with Cuban banks and U.S. credit cards and debit cards will be accepted in Cuba (White House).  Allowing U.S. banks and companies to establish accounts with Cuban banks is expected to help facilitate increased U.S. agricultural exports to Cuba.  

The United States began shipping agricultural products under the authority granted by TSRA in 2000.  Cuban importers were required to pay for U.S. food and agricultural products in advance through deposits at third-country banks.  These third-country banks charged a fee for their services, which made U.S. products more expensive.  Under the proposed plan, payments still must be made in cash (no credit will be extended to Cuba), but it may be transferred at the time title to the good is taken and the transaction may occur through Cuban and U.S. banks (White House).  This will reduce the transactions costs of buying authorized U.S. goods.  

U.S. agricultural exports to Cuba grew from about $26,000 in 2000 to a high of nearly $700 million in 2008.  U.S. export sales to Cuba declined since 2008 due to high commodity and food prices.  At its peak in 2008, U.S. shipments were led by corn ($190 million), poultry meat ($139 million), and wheat ($135 million).  In 2013, U.S. shipments to Cuba summed to only $350 million.  Alabama has been one of the leading suppliers of poultry meat to Cuba with $42 million in shipments in 2012, accounting for nearly one-fourth of all U.S. poultry shipments to Cuba in that year. (FAS)

The impact of the president’s plan will likely take time to evolve.  First, the changes in policies under the control of the Departments and Treasury and Commerce related to banking and trade will be subject to a rule making process that could take many months to complete.  So, the opportunities for agricultural exports presented by the change in banking regulations may not be available for many months.  Second, changes in U.S. diplomatic relations, such as the opening of an embassy, could be slowed by members of congress who oppose the president’s announced plans through either the appropriations process or through the required Senate approval of an appointed ambassador.  Third, expanded trade opportunities for other goods and opportunities for tourist travel will not occur until the economic embargo is lifted, which will literally require an act of Congress.  Fourth, it is not clear Cuba is prepared to expand its purchases of U.S. food and agricultural products.  Cuba is a small country of 11 million people and it has a per capita GDP of only $10,000 per year (CIA).  Furthermore, Cuba may not continue to enjoy the benefits of subsidized trade from its allies Venezuela and Russia, who are now facing new economic downturns, given the large drop in the price of oil, the principal export products of these nations (Higgins).  Finally, some remain skeptical on whether the announced changes by President Obama will bring about improvements in Cuba’s human rights policies.  The Castro regime remains firmly in place and the government does not appear to face any new pressure to adjust its policies affecting human rights in response to the policy changes announced by President Obama.

It is tempting to look to our neighbor, just 90 miles south of Key West, Florida as an expanding or new export market, a new business site, or as a new destination for a beach vacation.  Optimistically, we could also hope that this increased engagement will eventually improve the lives of the Cuban people, including opportunities for greater democratic freedoms.  But, these outcomes will take time to evolve.  As my friends in Latin America like to say, mañana, mañana…  

References

Central Intelligence Agency.  “Central America and Caribbean: Cuba.”  The World Factbook.  (Accessed: January 4, 2015): https://www.cia.gov/library/publications/the-world-factbook/geos/cu.html

Enoch, Daniel.  “Obama Announces Plan to End 50-Year-Old Cuban Embargo.”  Agri-Pulse, December 16, 2014. (Accessed: January 4, 2015): http://www.agri-pulse.com/Obama-announces-plan-to-end-50-year-old-Cuban-embargo-12172014.asp

Foreign Agricultural Service.  Global Agricultural Trade System Online.  U.S. Department of Agriculture.  (Accessed: January 4, 2015): http://apps.fas.usda.gov/gats/default.aspx

Higgins, Andrew.  “Oil’s Swift Fall Raises Fortunes of U.S. Abroad.”  New York Times, December 24, 2014.  (Accessed: January 4, 2015): 

http://www.nytimes.com/2014/12/25/world/europe/oils-swift-fall-raises-fortunes-of-us-abroad.html?module=Search&mabReward=relbias%3As%2C%7B%221%22%3A%22RI%3A10%22%7D

Parlapiano, Alicia.  “How America’s Relationship with Cuba will Change.”  New York Times, December 17, 2014.  (Accessed: January 4, 2015): http://www.nytimes.com/interactive/2014/12/17/world/americas/cuba-sanctions.html?_r=0

The White House.  “Fact Sheet: Charting a New Course on Cuba.”  Office of the Press Secretary, (Accessed: January 4, 2015): http://www.whitehouse.gov/the-press-office/2014/12/17/fact-sheet-charting-new-course-cuba

Dr. Paul Patterson is Associate Dean for Instruction for the College of Agriculture and Professor of Agricultural Economics.