Opening Cuba to U.S. Trade: Will Optimism Outlast Delays?

It may be hard to imagine, but the United States used to be by far Cuba’s largest trading partner, and its greatest source of foreign tourists and direct investment. In a typical week in May 1959, for example, 102 scheduled flights connected Miami and Havana, the Cuban capital. All that ended in 1960, when the U.S. imposed commercial and financial sanctions on Cuba in response to rising political tensions between the two nations. Direct contact, including ordinary commercial flights, ended abruptly. Since then, the Trade Sanctions Reform and Export Enhancement Act (TSRA) of 2000 has enabled U.S. exporters to ship medicines, food products and agricultural commodities to Cuba for humanitarian reasons, but the volumes remain small — only about $700 million of U.S. exports to Cuba in 2008, or about one-tenth the value of U.S. exports to the neighboring Dominican Republic.

When Barack Obama became president a year ago, many U.S. business groups had high hopes that he would push hard to end the embargo. They were encouraged by Obama’s lofty rhetoric about promoting “change,” and the fact that the new president owed no political favors to the Florida-based, Republican-leaning Cuban-American community, which has long supported the embargo. For the optimists, the question wasn’t ifthe U.S. embargo would end, but when? Just how soon would U.S. exporters, shipping lines, freight forwarders, banks and others be able to take full advantage of this untapped market?

“The lifting of the U.S. embargo on Cuba, when it occurs, will be the beginning of an era of renewed substantial U.S.-Cuba trade,” the Greater Miami Chamber of Commerce predicted in a report last year, foreseeing vast new opportunities for U.S. companies in Cuban infrastructure, high technology, tourism, biotechnology, agriculture, light industry, housing and much more. For the first time in its long history of forecasts about Cuba, the Chamber outlined three different scenarios through which the U.S. and Cuba could resume trade and investment ties, and only the first of the three scenarios involved any “meaningful political changes” by Cuba aimed at creating democracy and free markets in that country. In the second scenario, Cuba would not introduce meaningful political or economic changes but would resume trade with the U.S. nevertheless. In the third scenario, Cuba would make no meaningful political changes but it would introduce market-oriented reforms that resembled changes achieved in China and Vietnam. Although nominally still Communist, those countries had become attractive to U.S.-based exporters and multinationals, said the optimists, so why couldn’t Cuba follow that path?
 
Initial Optimism
 
“We recognize what the potential could be” if the trade relations were fully restored, says Jay Brickman, vice-president of government services at Crowley Maritime, a Florida-based carrier. Over the past seven years, Crowley has been sailing once a week from Port Everglades, Florida to Havana, carrying humanitarian and food products authorized under the provisions of TSRA, but Brickman notes the market could be far larger if the embargo ended.
 
The optimists in the U.S. business community were encouraged last September when U.S. Treasury and Commerce lifted restrictions imposed by the Bush administration on travel and cash remittances to the island sent by Cuban-Americans, and the new administration resumed U.S.-Cuba talks on cooperation in such practical matters as immigration, drug-trafficking and expanded telecommunications. But the Obama administration has officially renewed the embargo for another year, and the U.S. now seems increasingly unlikely to lift the economic embargo until Cuba takes some steps towards making political and economic reform, analysts told Universia Knowledge@Wharton.
 
Many people “read more into the Obama administration’s initial moves than was justified,” says David Lewis, vice-president of Manchester Trade, a Washington, D.C.-based trade consultancy. “But Obama did as much as he had promised, and I don’t think it will go beyond that unless there is a significant sign of change from the Cubans.” The Cuban position is that there shouldn’t be any embargo in the first place, adds Lewis, and its leaders don’t see any subtle relaxation of U.S. policy as a justification for demanding Cuba to make policy changes or “reforms” on a quid pro quo basis.

Jaime Suchlicki, director of the Institute for Cuban and Cuban-American Studies at the University of Miami, says that President Obama relaxed some travel restrictions and remittances to Cuba in anticipation that the Cubans would reciprocate, but the government headed by Raul Castro, older brother of Fidel failed to make any changes in response. “The Cuban government is more interested in its relationships with Venezuela, Iran, China and Russia” than it is in trade with the U.S., notes the Cuban-born Suchlicki. After all, those countries have never made any demands on Cuba to reform its political or economic institutions. Instead, they unconditionally prop up the Cuban economy by providing the country with petroleum (100,000 barrels a day from Venezuela) on very favorable financing terms, as well as cheap credit (from China, Iran and Russia). Despite Obama’s gestures to reach out to Cuba by relaxing some regulations, the Cuban government “is like a Stalinist regime, and the country is not far behind Haiti economically,” according to Suchlicki. “It is a hard-line military regime, in which the Communist Party oversees things.” Expecting Cuba to change its ways in order to trade with the U.S. is unrealistic, he says.

Augusti Ulied, professor of economics at the Esade business school in Spain, agrees that it would be unrealistic to expect Cuba to change its ways overnight. “My viewpoint is that the measures taken by President Obama to relax some aspects of the embargo of Cuba have been totally ineffective,” he says. “The Cuban government is not going to renounce its political and economic control of the island, and the Cuban people are gaining little advantage” from these measures.”

Ulied adds: “Under current conditions, it is hard to imagine that the U.S. will withdraw its embargo of Cuba. The U.S. policy of considering Cuba a terrorist country has provoked a hard-line reaction from the Cuban government, which has declared that President Obama is an enemy of the revolution, and has even compared him with his predecessors. In this situation, in which relations are worsening, it is hard to create short- and medium-term conditions for a dialogue that could open the road toward the ending of the embargo.”

Tourism First

Nevertheless, the optimists remain hopeful for a long-term revival of the U.S.-Cuba trade relationship. A good place to start, they say, would be to permit ordinary U.S. citizens to travel to Cuba. Several bills to end the ban on travel for ordinary U.S. citizens have been introduced into both the U.S. House and the Senate, and gained support in both political parties. Several U.S. hotel operators, mobile phone providers, travel insurance companies and credit card issuers have said that the proposed Freedom to Travel to Cuba Act (H.R. 874) would become a key step toward ending the U.S. embargo. The Washington, D.C.-based National Foreign Trade Council (NFTC) has held several meetings with its members to discuss business opportunities with Cuba since President Obama took office. Jake Colvin, vice-president for global trade policy at the NFTC, says that if these meetings had been taking place under former President George W. Bush, “you could have fit everyone interested in a closet,” but “now [there is] standing room only.”

Last September, Senator Richard Lugar (R-IN) and Rep. Howard Berman (D-CA), respectively ranking Member of the Senate Foreign Relations Committee and Chairman of the House Foreign Affairs Committee, wrote an op-ed in the Miami Herald calling for the unilateral lifting of the “anachronistic” ban on travel, arguing that ordinary Americans can “serve as ambassadors for the democratic values we hold dear,” thereby helping to bring change to Cuba. Some two dozen U.S. airports, ranging in location from Texas across the Gulf to Florida,  have requested licenses to fly charter flights to Cuba  because the established routes to the country, serving Miami and Los Angeles (LAX), are all completely booked.

Some optimists argue that even if Cuba fails to make major reforms, the process of opening the country to U.S. tourists could help to undermine its totalitarian political system. However, Suchlicki disagrees. “I don’t see how tourism will make the Cubans change. How could some Iowans who don’t even speak Spanish change Cuba?” Research shows that U.S. tourists who flocked to the Soviet Union during the 1980s played no role in upsetting that country’s totalitarian political system, he notes. According to Suchlicki, there is “a more serious argument” for ending the travel ban on Americans; namely, that “[we should] have the right to go anywhere.”

This much seems clear: There is a ready market for U.S. travel to Cuba, given its warm year-round climate and its proximity to Florida. Robert Whitely, president of the US Tour Operators, predicted recently that at least 850,000 Americans will go to Cuba in the first year after the travel ban is lifted. That would not even include an estimated 480,000 Americans who would visit Cuba on Caribbean cruises after U.S. ships are allowed to dock there, and another 480,000 Cuban-Americans visiting their families in Cuba each year, a Cuban official told the local press. Orbitz Worldwide, the online travel agency, said it has received more than 100,000 signatures for a campaign it began last May, at OpenCuba.org, aimed at lifting the travel ban to Cuba—and boosting Orbitz’s revenues in the process.

Some skeptics point out that Cuba lacks the infrastructure to support a surge in U.S. travelers; key hotels are already booked solid with European and Canadian tourists, and the few restaurants that could cater to cruise ships are already crammed with travelers from other countries. They also argue that, over the short-term, Sol Meliá — the largest Spanish hotel chain, which operates 24 resort hotels throughout Cuba — would benefit much more from the end of the U.S. travel ban than the chain’s U.S.-based rivals.   

Change ‘from the Inside’

Outside the realm of tourism, U.S. exporters of agricultural commodities also continue to push for an end to the embargo. A recent study by the U.S. Government Accountability Office (GAO) said that if the trade embargo were lifted, U.S. agricultural exporters would enjoy a potential market worth several times its current value. Last October, nearly three dozen U.S. businesses, many of them involved in food and agriculture, dispatched about 200 representatives to Cuba for a trade fair, including state agriculture officials from Maryland, Virginia and Georgia. At the fair, Terry Coleman, Georgia’s deputy commissioner of agriculture, told the press that the Obama administration should attempt to modify banking regulations so that Cuba can transfer payments directly from its banks to U.S. ones without having to go through financial institutions in third countries. That restriction has severely limited the ability of U.S. exporters to expand their markets in Cuba.

In another encouraging measure, the U.S. Congress has included in its FY (fiscal year) 2010 omnibus spending bill a provision to ease the flow of U.S. agricultural exports to Cuba. According to Colvin at the NFTC, this change “will make it easier for American farmers and other agricultural exporters to sell their goods to Cuba. This is a small but welcome step in the right direction, and it is great to see that fixing Cuba policy remains on the radar screen for Congress.”

Nevertheless, Suchlicki expects no significant changes for U.S. policy over the short term. The best possible scenario for those who want to open Cuba fully to trade with the U.S., he says, probably lies in gradual political change from within Cuba. “Cuba may go the route of the Soviet Union” and witness an end to the current regime with Fidel dying and then Raul passing away, too. “It won’t happen overnight. It could take several years. The best way for Cuba to change is to change from inside,” he said.

Opponents of the embargo are encouraged by recent polls that show that Cuban-Americans are no longer united in their support for the embargo. When polled by Miami-based Bendixen & Associates in 1992, 82% of Cuba-born exiles said the embargo should be kept in place. By 2005, that figure had dropped to 62%. However, by last August, only 40% favored maintaining the embargo, while 41% were against it. Fernand Amandi, executive vice president of Bendixen, says a key factor in the erosion of support has been the demographical growth of Cuban-Americans who were born in the United States, and no longer support the embargo.  There is “an ever-increasing segment of the ‘historic exile’ who no longer believe in continuing with a nearly fifty-year-old policy” that was designed to serve a very different age, he says.

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