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Doing Business in Cuba
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Doing Business in Cuba

In January 2015 the Treasury Department issued regulations to establish banking relations and allow U.S. companies to export items for sale in Cuba without the trade barriers that have existed for decades. While some Republican leaders have criticized Obama’s actions, normal relations with Cuba are only a matter of time and the opportunities for attorneys representing American and European companies wishing to pursue commercial opportunities in Cuba have never been greater.

Business Opportunities for the U.S. and Cuba Once Trade Begins to Flow

While the U.S. was already the fourth-largest exporter to Cuba behind China, Spain and Brazil, it is not far fetched to envision the U.S. quickly becoming the leading exporter and importer once full relations are restored. The Trade Sanctions Reform and Export Enhancement Act of 2000, even with it’s restrictions, allowed the U.S. to sell unprocessed agricultural products and raw forestry materials by American producers to Cuba.

Cuba has agreed to increase its internet penetration, currently estimated at only 5% which can only benefit American companies even more in the future. This is likely to be a boon to telecommunications firms on top of an expected increase in exports and profits for construction suppliers and farmers.

Already Cuba has a new $1 billion Mariel port aimed at trade with the United States. Auto collectors looking at Cuba’s vintage cars on its streets are already licking their lips in anticipation of the finds they may make if allowed to bring those cars back to the U.S. 

Cruise companies, travel operators, airlines, hotels and internet travel companies of course, cannot wait for the moment Congress might lift the embargo on Cuba in it’s entirety.

American hotel chains are already looking forward to the day when they can open hotels in Cuba. While high-end hotels may still be a decade to plan and build, existing hotels can be remodeled and retain that “cool” experience American travelers will be looking for most as they follow in the footsteps of Hemmingway.

With limited disposable income of the Cuban people, companies that sell consumer goods and chain restaurants will find it difficult at least initially to justify placing outlets in the Cuban country to sell their products to the local population, however, as the tourist trade picks up, even they can see the potential profits in selling their products to American visitors. 

The average salary of Cubans, the majority of which work for the government is less than $300 per year, thus limiting the market for many consumer goods, much less a latte or hamburger which would be out of the question.

However, until there are wholesale changes in the economic regulations in Cuba, American companies wishing to open offices in Cuba will still have to deal with frustrating regulations. Currently the Cuban government controls almost every large business, hotel or otherwise. 

Foreign firms doing business must hire their workers from the government which often pays the workers only a portion of what the government collects. American workers are unlikely to want to work under such restrictions and American companies will thus need to hire Cuban managers to run their operations and train their workers in Cuba. 

However, American offices in Cuba will not be necessary for agriculture in the U.S. to become one of the biggest beneficiaries of Obama’s efforts to lift restrictions and restore diplomatic relations with Cuba.

The removal of trade barriers that have long existed will make U.S. agricultural products much more competitive. Currently at approximately $350 million, agricultural exports could increase to $450 million, $500 million or more within just a few years. Among the beneficiaries could be wheat and rice farmers, and farmers who grow dry beans, dry peas, lentils and potatoes. Frozen chickens, soybeans, soy products and corn are all currently sold to Cuba.

Unbeknownst to most people, however, Cuba has good healthcare and a developed biotechnology industry. Cuba also has significant natural resources such as its large deposits of nickel which can now be more fully developed and Cuba’s rum and sugar industries will benefit greatly as well from a normalization of trade.

How Long Will It Be Before U.S. Companies Can Start Doing Business in Cuba?

Some things will take longer than others, for example, building an embassy and appointing an Ambassador. But based on the mostly favorable response from all but some of the Republican leadership and more elderly Cubans, there is likely to be a groundswell that rapidly leads to an allowance of leisure travel and business relations that the Chamber of Commerce and other trade groups have been clamoring for years to be granted.

White House officials feel confident Obama had the broad authority to loosen restrictions on trade and financial transactions with Cuba. Treasury and Commerce Department officials are therefore moving with all due haste to remove restrictions limiting the ability of Americans to travel, have financial dealings and export products to Cuba.

In addition, the assistant secretary of state for Western Hemisphere affairs will travel to Cuba with a team of American officials in late January to discuss the restoration of relations.

Under the terms of the deal made with Cuba, the amount of money that can be sent to Cubans each quarter has been raised to $2,000 from $500. Current requirements that cargo must be paid for in advance or financed by a bank in a third country before it can be shipped will also be relaxed. Removal of Cuba from the State Department’s list of state sponsors of terrorism will be a big step toward allowing full economic ties with Cuba as it will greatly facilitate banking.

In addition, American travelers allowed under 12 categories will be allowed to import $400 worth of goods, of which $100 can be tobacco products such as Cuban cigars and Cuban rum, so long as they’re not resold. 

Travel purely for tourism is still not allowed. However, as Americans become ever more anxious to see their neighbor country with its streets that look like the 50's and its vintage cars, it is only a matter of time before Congress becomes less intransigent on the issue of the embargo on Cuba and Americans are allowed to travel to Cuba as they do today to Hawaii and to other island destinations.

While it will still be some time before Americans can expect commercial air service from the United States to Havana, one can already sense the anticipation building. Congress will feel the heat if they drag their heels or play politics with this issue as they do with most other things. 

If nothing else, the delay before Americans can vacation in Cuba will allow the underdeveloped country time to increase its internet availability, something the American traveler today takes for granted. 

The regulations being worked on by the Treasury and Commerce departments governing how Cuba will be allowed to pay for newly allowed U.S. imports, travel categories, and the amounts of goods American travelers can bring back with them are expected to be published within days or weeks from the date of Obama’s announcement, not months.

Who’s In Favor of Restoring Relations and Who’s Against It? 

First and foremost, American companies, big and small are in favor. Within hours of Obama’s announcement on December 15, 2014, major companies were reportedly developing strategies to bring their products to market in Cuba. Foremost are those companies with products that could assist Cuba’s domestic production or develop its own resources.

As seen by the joyful celebrations in Cuba following President Obama’s announcement, the Cuban people have been waiting for such a development for a long time and are universally in favor of restoring full relations with the U.S. as are Cuban businessmen and the country’s leaders.

The Pope, whose urging and assistance brought the U.S. and Cuba to the negotiating table to release prisoners is undoubtedly pleased by the developments. Those who follow the Pope religiously may also be swayed to view the development favorably by the Pope’s involvement at least in the early stages of this process.

Democrats are widely applauding Obama’s masterstroke geopolitical move as are most of the populations in the rest of the world, especially those in Latin American countries and in Europe. Obama may have also managed to stick another thorn into Putin’s side who only recently visited Havana and promised to increase trade. Obama’s actions, however, will almost certainly result in trade that will dwarf anything Russia in it’s current state could have hoped to provide to Cuba.

Some Republican leaders and Presidential hopefuls like Marco Rubio, Ted Cruz and Jeb Bush were seen to be pandering to their base to condemn Obama’s moves. Their choice to put themselves on the wrong side of history may eventually hurt their chances in the general election. Paul Rand, on the other hand, applauded the President’s decision and has torn into Marco Rubio’s isolationist views as seeming to ignore the fact the U.S. engages with other communist nations such as China and Vietnam.

The decision by Republican leaders to appeal to a narrow slice of aging Cuban-American voters in the key electoral state of Florida who nurse a hatred of the Castro regime most Americans do not share, flies in the face of Democrats and independent voters, Catholics who are aware of the Pope’s involvement, Latinos nationwide and even younger Cuban-Americans in Florida.

The U.S. Chamber of Commerce has also applauded the move by President Obama as has the Atlantic Council, a business-backed policy forum.

American companies wishing to do business in Cuba will need to keep apprised of developments in Congress, obtain legal analysis of what they may be allowed to do under the President’s regulations, and finally should work to convince their representatives in Congress of the advantages of having Cuba increase its ties and commerce with the U.S. rather than with Russia or North Korea.

ABOUT THE AUTHOR:
Sebastian Gibson, The Law Offices of R. Sebastian Gibson
Sebastian Gibson has been named as one of the Top Lawyers the last 4 years running by Palm Springs Life Magazine. Attorney Sebastian Gibson has dual law degrees in California and in Great Britain, and has experience in both the U.S. and U.K. From offices in Palm Desert and Orange County, the law firm provides exceptional legal services in the fields of personal injury to the victims of car, motorcycle, truck, pedestrian and bicycle accidents, and to the families of victims of wrongful deaths. We also practice in the fields of insurance law, business and corporate law, contracts, entertainment law, trademarks, international law, music and literary publishing, modeling, celebrity law, real estate and homeowner association matters.
 

By The Law Offices of R. Sebastian Gibson 
Firm's Profile & Articles


Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
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