CubaNews / August 2007
By Larry Luxner
For years, U.S. food exporters and anti-embargo crusaders have complained that trade and travel restrictions aimed at bringing the Castro regime to its knees were hurting the American economy as well.
Now they have some hard data to back up their arguments.
A study just concluded by the International Trade Commission found that seven years after passage of the 2000 Trade Sanctions Reform and Export Enhancement Act (TSRA) and nearly $1 billion in agricultural sales to Cuba, a 2005 Treasury Department ruling reinterpreting the law has impeded trade — causing a 15% drop in U.S. exports to the island.
The study suggests that lifting restrictions on agricultural trade with Cuba as well as ending the travel ban would boost the annual U.S. share of Cuba’s food imports to 70%, up from the current 32%. This would represent a yearly jump of up to $300 million in U.S. agricultural exports.
But as CubaNews predicted in June, even with the Democrats running Congress any change in U.S. policy is unlikely to happen soon — especially in light of Washington’s Jul. 27 rejection of an initiative to ease those very restrictions.
By a 245-182 margin, the House of Representatives voted down an amendment by Rep. Charles Rangel (D-NY) that would have allowed Cuban officials to travel to the United States to inspect U.S. export facilities, and let state-run purchasing agency Alimport make direct payments to U.S banks instead of to third parties.
The Rangel bill would have also allowed Cuba to pay for U.S. food commodities after they’re shipped from an American port, rather than before as is now required under TSRA.
Few observers were surprised at the result, coming so soon before the 2008 elections.
“It was a last-minute initiative. There wasn’t any preparation done for it, and the vote was pretty lopsided,” said veteran Cuba-watcher Phil Peters, vice-president of the Lexington Institute in Arlington, Va. “It’s probably a sign that the agricultural lobby didn’t get involved, be-cause I don’t think you’d have a vote like that if they had gotten involved.”
The ITC’s exhaustive, 180-page report is entitled “U.S. Agricultural Sales to Cuba: Certain Economic Effects of U.S. Restrictions.”
Available online at http://hotdocs.usitc.gov/-docs/pubs/332/pub3932.pdf, it’s crammed with charts, maps and tables, containing a wealth of information on the Cuban economy and its food import requirements.
“It’s a good piece of work,” Peters said of the ITC study, “and it confirms what normal businessmen have been saying all along: that if we subject the customer to a Rube Goldberg payment system where they can’t use dollars or wire money to a vendor in the U.S., it’s going to raise the costs of buying American, and will make us a less attractive vendor.”
The report was conducted at the behest of Senate Finance Committee Chairman Max Baucus (D-MT), who in late June introduced a billl — co-sponsored by Sen. Mike Crapo (R-ID) — to remove those restrictions (see CubaNews, July 2007, page 1).
“Common sense tells us that barring agricultural producers from doing business with the largest market in the Caribbean is hurting American interests,” Baucus said Jul. 19, the day the ITC went public with its study.
“Now this study gives us hard proof that the Cuban market holds real promise for America’s farmers and ranchers. It’s clearly time for Congress to curb the overzealous trade embargo on Cuba, so that American ranchers and farmers can benefit to the tune of over $300 million a year.”
The Baucus bill would allow Cuba to make direct payments to U.S. banks for purchases of American food and agricultural products.
Currently, Cuba may import U.S. food products, but it must pay in cash to third-country banks before a shipment leaves a U.S. port. The legislation would also end the embargo’s ban on spending money to travel to Cuba, among other things.
Back in March, the Senate Finance Committee asked the ITC to evaluate three scenarios: 1) lifting all financing restrictions; 2) lifting travel restrictions, and 3) lifting both financing and travel restrictions jointly.
Among the ITC report’s major findings:
Of the 16 commodity groups examined, the largest gains in U.S. exports to Cuba if financing restrictions were removed would be for other food products, including fresh fruits and vegetables (a rise of $34 million to $65 million annually); milk powder ($14 million to $41 million); processed foods ($18 million to $34 million); wheat ($17 million to $33 million) and dry beans ($9 million to $22 million).
If restrictions on U.S. travel to Cuba were lifted, commodity sectors that would benefit the most would be processed foods, poultry, beef, pork and fish — sectors in which most imports are distributed to the tourism sector.
On the other hand, U.S. exports of most bulk products — wheat, rice, corn, animal feed, soybeans, dry beans, forest products and milk powder — would see “virtually no gains” owing to increased visits to Cuba by U.S. tourists, since only a negligible fraction of these imports end up in the tourism sector.
All farm commodity sectors would likely benefit from an end to the financing restrictions, which add between 2.5% and 10% to the purchase price, depending on the sector.
ITC officials declined comment on their own report, referring questions to the Senate Finance Committee. The agency did, however, note that it scoured published reports and academic papers on the Cuban food market system — CubaNews is cited numerous times in the footnotes and bibliography — and conducted interviews with 40 executives in the farming, shipping, travel and tourism sectors.
ITC staffers also conducted field work in Havana, winning last-minute approval from Cuba to interview top officials of Alimport and other state-run agencies and trading entities.
Kirby Jones, president of the US-Cuba Trade Association, told CubaNews it’s a “very valuable report” because, for the first time, a government agency has analyzed the impact these regulations are having, and has quantified what would be the result of essentially normal trade and travel to and from Cuba.
“I can’t think of another instance where the administration is so actively engaged in efforts to limit what is lawful to do,” he said.
Among other things, the ITC report chides Treasury’s Office of Foreign Assets Control, noting that “OFAC appears to have restricted business travel to and from Cuba that is necessary for U.S. exports” to make sales.
It specifically blames a change enacted by OFAC in March 2005 which requires the seller to receive payment from Cuba before vessels carrying goods leave U.S. ports.
While the multinationals are usually able to afford delays and maneuver through red tape, the ITC says this can create real hardships for small to medium-sized American companies.
Licensing procedures, the report says, are “cumbersome, non-transparent and time-consuming” for small and first-time exporters.
In 2006, according to U.S. Commerce Department statistics, Cuba’s Alimport bought $340.3 million worth of agricultural commodities from U.S. suppliers, a drop from the $350.2 million in purchases the year before.
Ten products alone accounted for 88% of U.S. agricultural exports to Cuba in 2006: wheat (15.1% of the total); chicken (12.9%); corn (12.5%); rice (11.6%); soybeans (9.3%); soybean oil cake (7.8%); soybean oil (6.2%); peas, beans and lentils (5.8%); pork (3.7%) and powdered milk (3.7%).
During the first five months of 2007, Alimport’s U.S. purchases came to $141.6 million. This translates into total sales of $1.69 billion — significantly less than the $2.2 billion worth of imports Cuba claims to have purchased since TSRA went into effect. Neither figure takes into account the $118 million in new food deals announced during Alimport’s annual negotiating round in May.
John Kavulich, an adviser to the US-Cuba Trade & Economic Council in New York, says U.S. policies are only part of the problem.
“This is not and cannot be all about what the U.S. has to do to increase export opportunities,” he said in a Voice of America report that aired Jul. 20. “It is what Cuba needs to do to increase import opportunities.”
One key obstacle for Alimport is the weak level of Cuba’s foreign exchange, which it needs to finance foreign purchases, he said. Cuba has few lucrative exports and relies on financial support from other leftist nations.
“The Cuban government today is as dependent as it was, or more so, on Venezuela and China,” Kavulich told VOA. “They have made no structural changes.”
Jones predicted that 2007 food sales to Cuba will probably remain at the level of last year, give or take $5-10 million.
“I think they’re going to plateau at what they are until the restrictions are changed,” he told CubaNews. “It’s not just the mechanical result of lifting the restrictions. For instance, if you have direct banking, you cut out the middleman. Changing the law would help with logistics and traffic flow. But what lifting the restrictions would really do is [satisfy] the main concern of the buyer, which is the reliability of the United States as a supplier.”