Jorge Espinosa, partner, Espinosa Trueba Martinez. Miami (Gaston De Cardenas)
On May 20, fulfilling a campaign promise to a room full of supporters in Miami, President Donald Trump announced, “I am canceling the last administration’s completely one-sided deal with Cuba.” While this declaration played well to his supporters, it was far from true. Most of the policy openings introduced by President Barack Obama remain in place. We still have an embassy in Havana, commercial flights and cruises to the island continue and certain American industries continue shipping products to the island country. So what changed? Basically, there were two major changes to the existing policy.
Travel by Americans for pure tourism without an allowed exemption is no longer allowed. The exemptions were still in place under the Obama policy but they were not being strictly policed. As long as it was likely to lead to exchanges with the Cuban people, Americans were free to book a trip to Cuba without any formalities. The 12 categories of authorized exemptions include family visits, journalists, cultural exchanges, educational trips, humanitarian trips and the ambiguous “support for the Cuban people.” This will likely result in a resurgence of the role of the licensed tour company to help Americans comfortably comply with the regulations.
The second major change involves who an American can spend money with on the island. The Secretary of State has been empowered to compile a list of forbidden Cuban entities that are “under the control of, or act for or on behalf of, the Cuban military, intelligence or security services or personnel … its affiliates, subsidiaries and successors.” This policy specifically names and targets a mega company owned and operated by the Cuban military, Grupo de Administracion Empresarial S.A. (GAESA), its affiliates, subsidiaries and successors. This is likely to have a deep impact on doing business with Cuba since Gaesa owns numerous subsidiaries throughout the island particularly in the lucrative tourist industry. It is also likely to create some initial confusion since affiliates seems to expand the reach of the prohibition beyond government-owned entities and successors could in theory capture private entities who take over previous manufacturing or services offered by a government company.
The stated purpose for these policy changes is to “promote a stable, prosperous, and free country for the Cuban” and to do so by channeling “funds toward the Cuban people and away from a regime that has failed to meet the most basic requirements of a free and just society.” A further reason was to respond to the human rights problems on the island and to support dissidents. Depending on the nature of US private dealings with Cuba, the policy is likely to fail in some ways and succeed in others.
A decline in tourism by Americans due to newly enforced restrictions on travel and money expenditures is likely to negatively impact the economic well-being of the growing private sector on the island. Airbnb, one of the recent success stories, will be bypassed if tours are arranged by travel agencies more likely to book through the large foreign-owned hotels. Uncertainty about regulations could also discourage travelers and the expansion of financial and cellphone access on the island which could encourage more travel.
On the other hand, the policy change could be a boon to the nonagricultural cooperatives or private businesses which the Cuban government expanded in 2012. These cooperatives are run and operated by the workers and operate a wide array of functions around the island including tourist horse carriages, discotheques, restaurants and art cooperatives. In fact, the first export of Cuban product to the United States was accomplished earlier this year when 40 tons of charcoal bought from a cooperative was delivered to Port Everglades for sale under the brand Fogo. The policy could therefore encourage acceleration in the transition of government commercial functions to cooperatives unless the Cuban government feels threatened and slows the expansion.
Fortunately, the Cuban government’s reaction to the president’s policy change is a sign of how things have changed in the last decade. In a long statement issued on June 16, the government of Cuba made the usual attack against what remains of the U.S. embargo and against social justice in the United States. While still shrouded in socialist catchphrases and ignoring the human right abuses on the island, the response was restrained and stopped short of threatening any retaliatory actions. Instead, it invited further “respectful and cooperative dialogue.” Moreover, the Cuban government held up the last two years as evidence that “can cooperate and coexist in a civilized manner, respecting the differences and promoting everything that benefits both nations and people.” This was a very different response to past exchanges where Cuba responded to U.S. actions with strongly belligerent language and with threats to start broadcast wars over Radio Marti or to make its own version of famous U.S. brands over Havana Club.
Hopefully, the window that the new policy has left open to business with Cuba will continue to see commerce grow and will promote the positive changes that so many want to see for the island nation.