Question

In: Economics

The Impact of the Third Round of Regulatory Changes to the US Embargo on Cuba: Licenses...

The Impact of the Third Round of Regulatory Changes to the US Embargo on Cuba: Licenses Now Available for Products to Support Construction Projects in Cuba

By Doug Jacobson, Glen Kelley and Michael Burton, Jacobson Burton Kelley, PLLC

On January 27, 2016, the Office of Foreign Assets Control (OFAC) and the Bureau of Industry and Security (BIS) published a third round of coordinated amendments to the Cuban Assets Control Regulations (CACR) and the Export Administration Regulations (EAR). The Federal Register notices published by the agencies can be found here (OFAC) and here (BIS).

These regulatory changes are intended to further implement President Obama’s policy of seeking to thaw the longtime stalemate in political and economic relations between the US and Cuba.

However, because most aspects of the US travel, trade and financial embargo of Cuba is governed by US law, the Obama Administration remains limited in the regulatory "tweaks" to the embargo, absent further action by the US Congress.

The recent changes, described below, build on the amendments to the U.S. regulations implementing the Cuban embargo that were made in 2015, including:

The January 2015 amendments to the CACR and EAR regulations expanding the scope of the 12 authorized categories of travel to Cuba and authorizing certain trade and financial transactions between the US and Cuba;

The July 2015 removal by the State Department of Cuba from the list of State Sponsors of Terrorism and the corresponding increase by in the de minimis threshold for reexports to Cuba of "items subject to the EAR" from 10% to 25%; and   

The September 21, 2015 amendments to the CACR and EAR authorizing certain business activities and physical presence by US companies in Cuba, expanding the scope of EAR License Exceptions SCP (Support for the Cuban People) and AVS (Aircraft, Vessels and Spacecraft).

Major Changes to the US Embargo on Cuba Resulting from the January 27, 2016 BIS and OFAC Amendments

The OFAC and BIS regulations issued on January 27, 2016 made a number of changes to the restrictions on traveling to and doing business in Cuba. While some of the changes have a very limited scope some of the changes are more much more significant and could open up a wide range of new business with Cuba, assuming a counterparty in Cuba can be found.

The following is an overview of the major changes made by OFAC and BIS to the regulations implementing the US embargo on Cuba.

A. Exports and Reexports Involving Cuban Infrastructure and Other Projects Now Subject to Case-By-Case Licensing Policy

The most significant change made by the January 27, 2016 amendments was the amendment by BIS of section 746.2 of the EAR in order to establish a case-by-case review policy for exports and reexports of "items" for use in construction of various infrastructure products in Cuba, such as facilities for treating public water supplies, facilities for supplying electricity or other energy to the Cuban people, public transportation projects, food processing, public health and sanitation, sports and recreation facilities, and other infrastructure that directly benefits the Cuban people. This is particularly important given Cuba's infrastructure needs. The fact that BIS may issue licenses for transactions with Cuban state-owned enterprises is significant given the Cuban Government's pervasive role in the Cuban economy.

This new case-by-case licensing policy also now authorizes exports and reexports to wholesalers and retailers of items for domestic consumption by the Cuban people. While the term "item" is not defined, this should allow a wide range of consumer and other products to be exported from the US to Cuba as long as a BIS license is obtained in advance.

It is important to note that these changes only authorize the export of goods and software associated with these infrastructure projects. The provision of services by US companies and persons involving such projects in Cuba, such as engineering and architectural services, remain prohibited by OFAC.

In addition, a general policy of denial continues to apply to exports and reexports of items from the US for use by Cuban state-owned enterprises, the Cuban military, agencies, or other organizations of the Cuban government 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.

B. Exports and Reexports Now Subject to General Policy of License Approval

BIS also amended section 746.2 of the EAR to add a general policy of approval for certain exports and reexports previously subject to case-by-case review and a policy of case-by-case review for exports and reexports of items not eligible for license exception to meet the needs of the Cuban people.

Specifically, the January 27, 2016 rule revises the licensing policy from possible approval on a case-by- case basis to a general policy of approval for exports and reexports of the following items to Cuba:

Telecommunications-related items that would improve communications to, from, and among the Cuban people (to the extent not eligible for license exception SCP);

Parts and components necessary to ensure the safety of civil aviation and the safe operation of commercial aircraft engaged in international air travel, including the export or reexport of such aircraft leased to state-owned enterprises (this includes cargo aircraft); and

Agricultural products that are outside the scope of agricultural commodities as defined in Part 772 of the EAR, such as insecticides, pesticides and herbicides, as well as agricultural commodities not eligible for License Exception Agricultural Commodities (AGR).

C. Changes Made to Financing of Certain Export Transactions Involving Cuba

OFAC's amendments to the CACR remove the long-standing cash in advance payment requirement and therefore US banks are now authorized to finance authorized exports and reexports to Cuba, except for agricultural commodities. As a result, US banks are now authorized to issue, advise, negotiate, pay or confirm letters of credit, including those issued by a Cuban bank.

OFAC remains prohibited by US law to authorize payment and financing terms for the export and reexport to Cuba of agricultural commodities and agricultural items, which remain subject to the cash in advance payment terms.

D. Limited Expansion of Certain Authorized Travel Activities to Cuba

OFAC made a number of "tweaks" to the existing 12 categories of authorized travel to Cuba, including changes made to eliminate some of the unintended consequences resulting from the September 21, 2015 amendments.

Temporary Sojourn in Cuba by Aircraft and Vessel Crew Members.OFAC has authorized by general license personnel, such as crew members, who are operating vessels or aircraft to engage in travel-related and other transactions in Cuba in order to facilitate the temporary sojourn of aircraft and vessels authorized by BIS in connection with the transportation of OFAC authorized travelers between the US and Cuba.

Movies and Television Programs. OFAC has authorized travel-related and other transactions directly incident to professional media or artistic productions for exportation, importation, or transmission, including the filming or production of media programs (such as movies and television programs); music recordings; and the creation of artworks in Cuba by persons that are regularly employed in or have demonstrated professional experience in a field relevant to such professional media or artistic productions.

Organizing Professional meetings in Cuba. OFAC authorized by general license travel-related and other transactions to organize professional meetings or conferences in Cuba. The existing general license authorizes only attendance at such meetings or conferences.

Scope of Humanitarian Projects Expanded. OFAC expanded the list of authorized humanitarian projects to include disaster preparedness and response.

E. Air Carrier Services to Cuba

In anticipation of the operation of commercial flights to Cuba later this year, OFAC authorized by general license the entry into blocked space, code-sharing, and leasing arrangements to facilitate the provision of air carrier services including the entry into such arrangements with Cuban nationals.

Conclusion

While some of the changes to US licensing policy on transactions with Cuba that went into effect on January 27, 2016 are significant in scope, many challenges remain in doing "normal" business with Cuba. Despite early enthusiasm many US companies have been frustrated by the extremely limited business possibilities in Cuba given that much of Cuba's economy is owned and controlled by the Cuban Government and individuals in Cuba face significant obstacles on engaging in business transactions directly with US companies, let alone having access to US financing or other authorized credit facilities.

  1. How will the lifting of restrictions promote US interests in Cuba?
  2. What political argument(s) support not lifting the embargo restrictions against Cuba?

Solutions

Expert Solution

1. Lifting of restrictions will be beneficial for US in the following ways:

  • Opening of new business opportunities with Cuba resulting in growth of both Cuba and United States.
  • Increased exports to Cuba resulting in expansion of US in new markets and earning higher profits.
  • Certain telecommunication equipment, internet based services, building materials can be sold in Cuba by US. E.g Netflix have started providing its services in Cuba.
  • Foreign Direct Investments by US in Cuba will help in the economic growth of both economies.
  • Hiring Cuban employees, renting Cuban facilities, registering local subsidiaries subject to the condition that all these are related to primary activities permitted under regulation will be profitable for both economies.
  • No permission is required by business people who want to visit Cuba for business purpose and invest in Cuban markets.
  • Simplifying the procedure of Air Carrier Services in Cuba by US government.

As a result of this there will be more cultural and economical exchange between two economies resulting in their growth and development.

2. Following are the political arguments in favor of not lifting sanctions against Cuba:

  • Cuba has not met the conditions for which the embargo was imposed like legalizing political activity, releasing political prisoners, granting freedom to press, obeying internationally recognized human rights etc.
  • Cuba supports acts of terrorism which is against mankind.
  • Lifting of restrictions without Cuba meeting the specified conditions will tarnish the image of US portraying it as weak and ineffective.
  • No willingness shown by Cuban government to maintain friendly relations wilt US government.
  • Absence of private sector in Cuba opening trade barriers will only help Cuban government and not the citizens.
  • Cuban government has always responded aggressively to US attempts to soften the embargo.
  • With this embargo the US government is able to pressurize the Cuban government but at the same time it is providing assistance to Cuban citizens.
  • This embargo forces the Cuban government to obey and follow the human rights.
  • The majority of Cuban Americans who are aware of the current situation also supports the embargo.

Related Solutions

Should the U.S. strengthen the embargo and other economic sanctions on Cuba, keep them about where...
Should the U.S. strengthen the embargo and other economic sanctions on Cuba, keep them about where they are presently at, or reduce them?
In 250 words explain the repercussions of the trade embargo against Cuba since February 1962, who...
In 250 words explain the repercussions of the trade embargo against Cuba since February 1962, who they impacted and if the embargo has been beneficial in 2019.
The United States has maintained a trade embargo against Cuba since February 1962 in response to...
The United States has maintained a trade embargo against Cuba since February 1962 in response to actions taken by the Cuban government. The primary idea behind an embargo of this nature is to punish to Cuban government by restricting trade with a large economy such as that of the United States, but embargos tend to have other repercussions as well. What I'd like you to do, in 300-400 words, is explain what some of these repercussions have been, who they...
Consider an analysis of changes in safety regulations for US automobiles. The net impact in the...
Consider an analysis of changes in safety regulations for US automobiles. The net impact in the primary market is a loss of $25 billion per year, measured using actual prices and quantities before and after the change (i.e. not holding other prices constant). The change in regulations effected the US tire market, reducing consumption by 200K, but price did not change appreciably. The change in regulations effected the US gasoline market. The price of gasoline fell from $2.10 per gallon...
Suppose that OPEC cartel imposes an embargo on oil exports to the US, which causes global...
Suppose that OPEC cartel imposes an embargo on oil exports to the US, which causes global oil prices to double that forces the domestic gas prices to rise to $5 per gallon. Thus, to make gasoline more affordable for American consumers the US Government decides to impose $3 price ceiling on it at the retail level. What would be the economic consequences of such government intervention in the market mechanism? What alternative rationing mechanisms will the market have to resort...
Describe the regulatory responsibility of AUSTRAC in the context of this case. What changes (if any)...
Describe the regulatory responsibility of AUSTRAC in the context of this case. What changes (if any) to the scope of their responsibility were brought about by the findings of the 2018 Royal Commission into the Banking sector. In regards  to the Commonwealth bank Unwitting Mule article
How did the War of 1812 impact the US? Discuss the impact on US political parties...
How did the War of 1812 impact the US? Discuss the impact on US political parties and the economy.
Question: Evaluate the impact of competition policy and other regulatory mechanisms on the activities of a...
Question: Evaluate the impact of competition policy and other regulatory mechanisms on the activities of a selected organisation. Guidlines Choose any UK based national or international organisation e.g. Tesco, BAA, Primark, and discuss a competition policy (Competition Act 1998) and how it is constrained by competition policies e.g. regarding monopolies, by regulations and by authorities (Competition Commission, Office of Fair Trading; Directorate General for Competition); European Commission); sector regulators e.g. Ofgem, Ofwat, Civil Aviation Authority; Companies Acts; regional policy; industrial...
What is an example of two economic trends and two regulatory changes that have happened in...
What is an example of two economic trends and two regulatory changes that have happened in business currently
a) What impact, if any, do regulatory activities have on the ethics of the WorldCom case?...
a) What impact, if any, do regulatory activities have on the ethics of the WorldCom case? If not applicable to this case, discuss possible overall impacts of regulatory activities for ethical situations in general.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT