By George W. Thompson
The Commerce and Treasury Departments have announced new regulations permitting expanded U.S. trade with Cuba. Although the trade embargo, emplaced for decades, remains in effect, the newly-announced changes widen the trade opening established in December 2014. This is a remarkable turn of events in the previously restrictive control regime.
To provide a recap of the regulations and the previous liberalizing efforts: Commerce and Treasury have long taken a “tag team” approach to shut off virtually all U.S. trade with Cuba. Commerce has controlled exports and reexports of all but a small percentage of U.S.-origin products. Treasury prohibited all persons “subject to the jurisdiction of the United States” from conducting any transactions with Cuba or Cuban persons, regardless of location.
Two Previous Sets of Regulatory Changes Expanded Permissible Trade with Cuba
The first round of Commerce regulations, adopted in January 2015, established License Exception SCP (“Support for the Cuban People”). This authorized exports and reexports of “EAR99” and “AT1” items to private sector end users. The authorized goods were limited to three categories: building materials, equipment, and tools, agricultural tools and equipment or tools, equipment, supplies, and instruments for use by private sector entrepreneurs.
Treasury established a complementary general license permitting persons covered by the embargo, including foreign subsidiaries of U.S. companies, to engage in “all transactions ordinarily incident to” exports and reexports covered by License Exception SCP. Payment terms were limited to cash in advance or financing by non-U.S. banks. Also made permissible were travel for an enlarged group of specified purposes and establishment of correspondent Cuban accounts by U.S. banks.
In August 2015, a second revision provided additional SCP authorizations. These included exports and reexports of items for use by U.S. persons “to establish, maintain, or operate a physical presence in Cuba”, for business travel, for promotional gift purposes and as tools of trade to repair previously-exported items. Also permitted were equipment and spare parts for permanent use on aircraft departing the United States (under License Exception AVS (Aircraft, Vessels, and Spacecraft)). The policy of denial for license applications to export or reexport “items to ensure safety in civil aviation, including the safe operation of commercial passenger aircraft,” has been changed to permit case-by-case consideration.
Once again, Treasury also amended its regulations to authorize persons subject to U.S. jurisdiction to undertake actions consistent with those authorized by Commerce, as well as related “market research, commercial marketing, sales negotiation, accompanied delivery, installation, or servicing in Cuba” and establishment of bank accounts in Cuba for such activities. Treasury further permits exporters to receive remittances in the United States from Cuban nationals, and banks to provide related services. The prohibition against provision of goods or services to Cuban nationals in third countries was lifted, too. Other authorized activities included provision of vessel carrier, legal, telecommunications and internet services, gift imports and donation remittances.
The New Regulations Go Even Further
On January 27, 2016, Commerce announced a third set of changes, relating to its export licensing policy for specified types of items. https://www.gpo.gov/fdsys/pkg/FR-2016-01-27/pdf/2016-01557.pdf
Newly-subject to a policy of approval are license applications for the following:
- Telecommunications items that would improve communications to, from, and among the Cuban people
- Commodities and software to human rights organizations or to individuals and non- governmental organizations that promote independent activity intended to strengthen civil society in Cuba.
- Commodities and software to U.S. news bureaus in Cuba whose primary purpose is the gathering and dissemination of news to the general public.
- Agricultural items that are not “agricultural commodities” already subject to export authorization, such as insecticides, pesticides and herbicides.
- Items necessary to ensure the safety of civil aviation and the safe operation of commercial aircraft engaged in international air transportation, including for aircraft leased to state-owned enterprises.
- Items necessary for the environmental protection of U.S. and international air quality, waters, or coastlines (including items related to renewable energy or energy efficiency).
The license policy for the following types of proposed exports and reexports has been changed, from a presumption of denial to a case-by-case review:
- Agricultural production, artistic endeavors, education, food processing, disaster preparedness, relief and response, public health and sanitation, residential construction and renovation and public transportation.
- Wholesale and retail distribution for domestic consumption by the Cuban people.
- Construction of facilities for treating public water supplies, facilities for supplying electricity or other energy to the Cuban people, sports and recreation facilities, and other infrastructure that directly benefits the Cuban people.
Even under the new policy, Commerce “generally will deny applications to export or reexport items for use by state-owned enterprises, agencies, and other organizations that primarily generate revenue for the state, including those engaged in tourism and those engaged in the extraction or production of minerals or other raw materials” and for “items destined to the Cuban military, police, intelligence or security services.”
Transactions licensed by BIS under the new policy already were encompassed by Treasury’s previous general license, so no corresponding changes were required of that agency. Treasury did, however, simultaneously adopt the following new measures, https://www.gpo.gov/fdsys/pkg/FR-2016-01-27/pdf/2016-01559.pdf:
- With the exception of certain agricultural exports, banks “are authorized to provide financing for exports or reexports” covered by Treasury’s general license, “including issuing, advising, negotiating, paying, or confirming letters of credit . . . accepting collateral for issuing or confirming letters of credit, and processing documentary collections.”
- Also authorized are “transactions relating to the creation, dissemination, artistic or other substantive alteration, or enhancement of informational materials,” travel for professional meetings, athletic competitions and public performances as well as related travel, carrier and remittance forwarding services, and participation in specified humanitarian projects.
In theory, these new authorizations provide broad opportunities in Cuba for U.S. companies. The paucity of potential private-sector partners there remains an impediment to large-scale activity, at least thus far. With many of the previous regulatory impediments removed, however, those U.S. companies interested in Cuba can operate under U.S. government encouragement.