Obama expands wiggle room for U.S. business in Cuba

Home Depot in Havana? New U.S. rules allow the sale of construction material to Cubans
Home Depot in Havana? New U.S. rules allow the sale of construction material to Cubans

CUBA STANDARD — Taking another significant sanctions-easing step, the Obama Administration now allows U.S. businesses to open offices, stores and warehouses in Cuba, hire Cubans, open bank accounts on the island, enter joint ventures with state telecom ETECSA, and lease their goods to Cuban consumers.

“This is a legacy builder,” said John Kavulich, president of the New York-based U.S.-Cuba Trade and Economic Council, adding that the Cuban government “will need to reciprocate or risk a lessening of interest by the United States business community.”

Cuba has not made any official statement yet, but if the process of selecting ferry providers is an indicator, the government will react at a slow but deliberate pace, making its own choices. Depending on the Cuban reaction, the easing measures have the potential of triggering a flow of millions of dollars in U.S. investments to Cuba.

Other observers caution that the main body of U.S. sanctions remains in effect. The current setup still requires specific licenses for any transaction not covered by the new exemptions to the Cuban Assets Control Regulations (CACR) and Export Administration Regulations (EAR), making any business complex and unpredictable, and leaving investments at the whim of political change in Washington.

“Although the changes to the CACR and EAR are significant, the long-term trajectory of U.S.-Cuba trade normalization and corresponding trade relief remains uncertain,”  Dentons Washington lawyers Michael Zolandz, Jason Silverman, Peter Feldman and Kenyon Weaver write in an assessment of the changes. “This trajectory will likely depend as much on the next U.S. president as the current one, and the topic of Cuba sanctions can be expected to surface in the coming months as the various U.S. presidential candidates establish their positions on foreign policy. It will take an Act of Congress to reverse these prohibitions. Businesses entering the Cuban market should therefore be prepared to navigate a shifting regulatory landscape.”

Under the amended regulations, U.S. agricultural goods and medical exporters, telecom and Internet service providers, construction material suppliers, shipping and mail service providers, travel service providers, news media, universities, and religious organizations can now “establish and maintain a physical presence, such as an office, retail outlet, or warehouse, in Cuba.”

“These individuals and entities will also be authorized to employ Cuban nationals, open and maintain bank accounts in Cuba, and employ persons subject to U.S. jurisdiction in Cuba,” a joint statement by the U.S. Departments of Commerce and Treasury says.

This means that UPS or FedEx could open drop-off locations in Cuba, U.S. food and medical distributors could open warehouses or sales offices at the Mariel Special Development Zone, U.S. airlines could open ticket offices in Havana, Home Depot could sell its goods at a store, Verizon or Google would be able to offer devices, and John Deere or Caterpillar could have showrooms, says Kavulich.

The revised Cuban Assets Control Regulations (CACR) — administered by Treasury Department’s Office of Foreign Assets Control (OFAC) — and to the Export Administration Regulations (EAR) — overseen by the Commerce Department’s Bureau of Industry and Security (BIS) — will take effect Sept. 21, senior officials told reporters during a background briefing Sept. 18.

The same day, President Obama called President Raúl Castro by phone “to discuss the process of normalization between the two countries in advance of Pope Francis’s upcoming visits to Cuba and the United States”, a White House statement said.   The leaders also “discussed steps the United States and Cuba can take, together and individually, to advance bilateral cooperation, even as we will continue to have differences on important issues and will address those differences candidly,” the statement said.

Earlier this week, Obama urged business executives during a meeting in Washington to press Congress to lift the embargo, mentioning “significant economic opportunities.”

Telecom and Internet services

The new regulations expand the telecommunications and Internet general license to allow a physical presence in Cuba, such as “subsidiaries or joint ventures,” the press release said. In a background briefing session, a senior administration official told reporters that the joint venture clause was introduced because of the recognition that state company ETECSA is the only player in the Cuban telecom sector.

“Persons subject to U.S. jurisdiction will be allowed to establish a business presence in Cuba, including through joint ventures with Cuban entities, to provide certain telecommunications and internet-based services, as well as to enter into licensing agreements related to, and to market, such services,” the press release said. Under the changes, leasing or loaning of consumer communications devices to end-users is now also allowed.

The regulations also permit the import of Cuban-made mobile applications, and the hiring of Cubans to develop apps.

The new rules also allow U.S. businesses to:

•sell goods and services to Cuban nationals outside of Cuba, as long as it doesn’t involve exports to or from Cuba. Banks can now open accounts for Cuban nationals in third countries.

•take cargo ships, ferries, cruise ships and aircraft to Cuba under an application-free general license. Aircraft are allowed to remain in Cuba for up to seven days, vessels up to 14 days.

•travel on ships and boats that don’t stop in third countries under an application-free general license, including lodging aboard vessels.

•U.S. lawyers may now provide for-pay services to Cubans and entities in Cuba. However, there still are “certain limitations” on providing for-pay legal counseling to government or Communist Party entities. Also, U.S. citizens and businesses are now allowed to contract and pay Cuban lawyers.

Individuals can now:

•open bank accounts in Cuba, as long as they are authorized travelers.

•take recreational boats used in connection with authorized travel to Cuba under a general license.

•send unlimited remittances. With the idea of “empowering Cubans with opportunities for self-employment,” the U.S. government lifted all restrictions; currently up to $2,000 can be sent per quarter and person.

Finally, OFAC clarified that current sanctions in place “allow most transactions that are ordinarily incident and necessary to give effect to a licensed transaction. For example, certain payments made using online payment platforms are permitted for authorized transactions.”

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