U.S.-Cuba Trade Iffy, Even Without Fidel

August 10, 2006 01:26 PM ET
U.S.-Cuba Trade Iffy, Even Without Fidel
Associated Press
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NEW YORK (AP) - If Fidel Castro died tomorrow, the U.S. embargo against Cuba could not be lifted like any other -- as President Bush undid by decree the 18-year trade sanctions against Libya in April or President Clinton lifted the 19-year ban against Vietnam in 1994.

The door to trade with Cuba is bolted by numerous laws which, over the 46 years since the initial ban took effect, stripped much of the power of trade policy from the president and gave it to Congress.

U.S. companies are looking at Cuba's potential but few will discuss it openly, citing the current status of the embargo. But for U.S. businesses eyeing the Cuban market -- should the political situation on the island change -- moving beyond the embargo will take nothing short of an act of Congress, according to John Kavulich, a senior policy adviser with the U.S.-Cuba Trade and Economic Council.

"No matter what happens in Cuba, a provision of the Libertad Act of 1996 precludes the U.S. president from establishing normal economic and political relations with Cuba, as long as the government includes one of the Castro brothers," said Kavulich, whose New York-based group provides nonpartisan commercial and economic information about Cuba.

Castro, who turns 80 on Sunday, is said to be recovering from surgery that led him to temporarily cede power last month to his younger brother, Defense Minister Raul Castro. Neither of the brothers has made a public appearance since.

"Bush can't do the two biggies: He can't quote-unquote 'normalize' commercial, economic and political relations with Cuba -- the Libertad Act says that decision belongs to the U.S. Congress," Kavulich said. "And secondly, he cannot unilaterally allow expanded travel to Cuba -- that also is in the hands of the U.S. Congress."

The U.S. Treasury Department maintains that "legally, the president has significant flexibility to amend the embargo; however parts of that embargo are in place pursuant to legislation and would require congressional action," according to a spokeswoman.

Despite the political hurdles, U.S. companies have Cuba in their sights. Castro's hospitalization reminded U.S. companies that Cuba's status quo may be closer to change than it has seemed in decades.

"If you have a strategic plan for potential investment into Cuba, you should pull your plan off the bookshelf, dust it off and bring it up to date. We don't know how quickly opportunities in Cuba will develop," said Teo A. Babun, Jr. a Miami-based consultant to companies looking to expand into a post-embargo Cuba.

The roster of clients posted on his Babun Consulting Group Web site includes an international unit of packaged foods giant ConAgra Foods Inc., Radisson Seven Seas Cruise Line, computer maker Hewlett-Packard Co. and the Port of Delaware.

Babun said two types of companies would want to move quickly: Those looking for opportunities as government-owned companies privatize, such as infrastructure companies, and those that need access to materials or products for export, such as mining companies looking for access to Cuba's large deposits of nickel, which is used in stainless steel production.

The first companies to move in would likely be those that could rebuild that country's infrastructure, said Frank Nero, who heads the Miami-based Beacon Council, an economic development organization. That includes companies that manage or build airports, water and sewer lines; electric utilities; telecommunications providers and automakers, he said. The tourism industry would be quick to follow, he added.

But Babun cautions any transition to a more open market economy will likely be arduous.

"Do your plan, but don't buy an airline ticket and don't pack your bags," he said.

Legislation and presidential decree have made the economic relationship between the U.S. and Cuba more complex over the years. Additionally, many companies and individuals have claims on assets that were expropriated by the Cuban government after the 1959 revolution. Some 5,911 claims outstanding could be worth $7 billion today.

Medical products were approved for export under the Cuban Democracy Act in 1992. The 2000 Trade Sanction Reform and Export Enhancement Act reauthorized U.S. export of food and agricultural products but also codified narrow categories of U.S. travelers permitted to go to Cuba. In 2004, President Bush limited family travel to every three years versus the previously permitted annual visits. Bush also eliminated "fully-hosted" travel, under which travelers could go to Cuba if they assured the U.S. their visit would be paid for by someone not subject to U.S. law.

In another tightening of restrictions, foreign subsidiaries of U.S. companies were banned after 1992 from exporting products to Cuba. Before then, foreign divisions of Otis Elevators, Cargill, Ford and other large companies were all doing business on the island. In the last year of the program, U.S. companies exported some $700 million in products and services through foreign-based units, according to the U.S.-Cuba Trade and Economic Council's Kavulich.

Today, the agricultural trade permitted under the 2000 act "is vibrant and is continuing to expand," said Kirby Jones, whose Washington-based Alamar Associates advises companies interested in doing business in Cuba. The country has become a top market for American rice, poultry and wheat, he said.

About 300 products are being sold to Cuba by 160 U.S. companies such as Tyson Foods Inc., Del Monte Foods Co. and Wm. Wrigley Jr. Co. Jones said.

"We believe Cuba could be an interesting market for us," said Antonio Ellek, co-founder and chief executive of Pasha's, a Miami restaurant chain that serves Mediterranean-style food. If the U.S. were to lift its embargo against Cuba, that country would be on Pasha's list of target markets.

Ellek, who spent four years with PepsiCo Restaurants -- now Yum Brands Inc., the parent of KFC, Pizza Hut and Taco Bell -- witnessed the expansion of those brands in Puerto Rico, the Dominican Republic and other Latin American countries. He said he expects similar hunger for American brands in Cuba.

"We'll have to follow things very closely," he said. "There will be an uncertainty at the beginning; we'll have to evaluate that. But as entrepreneurs, we cannot wait for a perfect market opportunity, otherwise we'll be too late."



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