January 20, 2015

New Cuba Regulations Should Benefit U.S. Agriculture

Treasury and Commerce Department regulations to implement the beginning of normalization of relations with Cuba, announced in December by President Obama, were published in the Federal Register on January 16. The new regulations are effective immediately and should benefit U.S. agricultural exports by improving the foreign exchange earnings available for purchasing U.S. agricultural products and by making U.S. goods more price-competitive.

Full normalization of relations with Cuba, including the elimination of the trade and investment embargo, will require congressional approval. Congressional action to change U.S. law on Cuba is unlikely in the next couple of years.

The export of U.S. agricultural products and medical supplies is the only exception to the decades-long general trade embargo. Congress approved this exception in 2000 in the Trade Sanction Reform and Export Enhancement Act (TSRA.)

The policy changes announced by the President and implemented by these regulations in the areas of travel, banking and trade are the most important for U.S. agriculture.

Travel

All travel currently allowed under the existing rules, including all agricultural trade-related business travel, would be approved under a general license so there would no longer be a need to apply for a specific license from the U.S. government. This change does not freely open travel to every American wanting to take a vacation in Cuba, but many more Americans are likely to be traveling to Cuba. There will no longer be limits on how much money Americans can spend while travelling in Cuba. Americans will no longer be prohibited from using credit cards for payment in Cuba and can bring back with them up to $400 worth of goods including up to $100 worth of tobacco and alcohol products. Travel agents and airlines will be able to provide travel services without requesting a specific license. More U.S. travel activity to Cuba should increase foreign exchange earnings for Cuba which could be spent on imports of U.S. agricultural products.

Banking

U.S. banks will be able to develop correspondent relationships with Cuban banks. This will allow U.S. banks to confirm letters of credit from Cuban banks and to receive cash transfers from Cuban banks. They will also be able to develop credit card business with merchants in Cuba. Authorized remittances from Americans to Cuban citizens will be increased from $500 per quarter to $2,000 per quarter, and banks will not be required to have a specific license for sending these remittances.

Trade

The Office of Foreign Asset Control (OFAC) at the U.S. Treasury Department will alter its interpretation of the TSRA statutory requirement of “cash payment in advance” from cash payment received before shipment of goods to cash payment received prior to transfer of title and control. The intention of OFAC officials is to provide more flexibility to the U.S. exporter in receiving payment for the goods, including the transfer of cash to U.S. banks from Cuban banks.

Additionally, the new rules would allow tools, farm equipment and building materials to be exported to private farmers and other private interests in Cuba.

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