It’s The Economy, Stupid


(Photo Credit: Jan Paul Yap’s Photostream)
This is a guest note by Anya Landau French. French directs the New America Foundation/U.S.-Cuba Policy Initiative. This post originally appeared at The Havana Note.
Two days before the House Agriculture Committee holds a hearing on U.S. agricultural exports to Cuba (you can follow the hearing live today at 1pm), the U.S. Treasury Department has (coincidentally?) issued a rule that some observers have greeted with enthusiasm:

Today OFAC released a reinterpretation that is very favorable for US Cuba trade, specifically US agricultural companies and farmers. In simple terms, OFAC has amended the Cuban Assets Control Regulations that contains a rewording of the term “payment of cash in advance” for US agricultural sales to Cuba.

The new rule, issued by the Treasury Department office responsible for enforcing sanctions (oh, and tracking terrorist funding networks), seemingly gives Congress and the agriculture community a victory over a 2005 Bush Administration rule which dampened U.S. agriculture exports to the island.
And yet – it does no such thing. Why? Because the rule is limited to contracts entered into during fiscal year 2010, after which, the rule snaps back to where it was. And that makes this new rule virtually meaningless.
Since I’ve lost most readers already at this point in the post, I might as well feel free to “geek out” and explain exactly what this is all about. (If you bore easily, feel free to skip the next couple paragraphs and tune back in to why this all could lead to you booking a ticket to Havana before the year is out.)
Food sales up, food sales down
Back in 2000, Congress passed legislation to limit food export restrictions against any country, including Cuba. Proponents reasoned both that food should never be used as a weapon against a defenseless people, and that the U.S. government should facilitate, not obstruct, U.S. export growth around the world.
For several years, U.S. food sales grew to an average of $300 million per year – until in 2005 the Bush Administration issued a reinterpretation of the law guiding the sales. Congress had mandated that sales to Cuba could either be transacted by cash paid in advance or by foreign letter of credit (U.S. credits – government or private – were expressly prohibited for Cuba sales alone). U.S. exports prospered, many of them sold for cash in advance – of delivery. That is, the goods would be en route to Cuba, or even have arrived in Cuba, but the Cuban buyer could not take possession of the goods until payment had cleared in the U.S.
But the new Bush Administration rule required cash payment in advance of shipment, which Congress and the export community vehemently opposed. If Cuba pays for a cargo hold full of rice while the vessel is still docked in United States jurisdiction, the goods could be considered “Cuban assets” subject to seizure by U.S. courts to satisfy unrelated claims against the Cuban government (I recently wrote about a Florida woman who has twice seized stolen or hijacked Cuban planes landed in the U.S.). Cuban buyers refused to take the risk, and the Bush Administration refused to change the rule, resulting in less market share for American exporters and greater market share for U.S. competitors.
Congress has repeatedly tried to reverse the rule – which many reasoned was designed to halt a warming between the American farm belt and Cuba. Most recently, it passed a provision in the 2010 Omnibus Appropriations Act that would require Treasury to revise the rule at least for the current fiscal year. (So, Treasury complied this week, and nothing more.)
Further dampening U.S. food sales to the island is that in the wake of the global downturn, Cuba has less cash on hand to buy U.S. goods, and has increasingly been buying from Brazil, Vietnam, China and elsewhere on revolving credit – something the United States exporters can’t do.
Bipartisan group pushing Cuba ag, travel reforms in Congress
Five years later, House Agriculture Committee Chairman Collin Peterson, along with his colleagues, Jerry Moran of Kansas and JoAnn Emerson of Missouri, both Republicans, and Rosa DeLauro, a member of the House Democratic Leadership, has introduced a bill to change not only the cash in advance rule but two other policies that dampen U.S. food exports to Cuba. Peterson, whose committee is holding a Cuba hearing today, aims to let U.S. exporters collect their payments directly from the Cuban buyer, rather than routing payments through a third country financial institution (adding time and cost to the transaction). They also aim to end U.S. travel restrictions to Cuba.
Whereas some in Congress want to end U.S. travel restrictions because they imagine doing so will help open Cuban society for the better, and others simply chafe at U.S. government controlling its citizens movements abroad, Peterson and his colleagues see more direct benefits to their own constituents – namely more exports, and more jobs. The U.S. International Trade Commission estimated last year that U.S. food sales to Cuba could grow to more than $1.2 billion annually if we lift restrictions on the transactions and if we lift the travel ban.
Yet U.S. exports to Cuba have dropped – by fully one quarter – since 2008. Cuba is buying slightly less food, yes. But of greater concern to American exporters, it’s turning to allied suppliers who offer credit (which Peterson does not propose for American exports to Cuba). Mr. Peterson hopes that American exporters can still win back the advantage if his bill is passed.
— Anya Landau French


One comment on “It’s The Economy, Stupid

  1. Mr.Murder says:

    Great news.
    Cuba is also a great point to develop offshore oil with so we can limit the shock of peak oil.
    Extremely critical to our economy and world competitiveness.


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