Cuba Si! Trade With Cuba … Not Quite Yet
There has been much fanfare surrounding the reestablishment of diplomatic relations with Cuba, starting with President Obama’s announcement of the resumption of bilateral relations, and followed by the formal establishment of diplomatic relations, the re-opening of embassies in both countries, rule amendments by the Departments of Commerce, Treasury and State, and removal of Cuba from the so-called “E-1” list of foreign State Sponsors of Terrorism. But for American businesses anxious to make tracks to Cuba to establish commercial beachheads for the sale of goods and technology, the reality is much the same as it has been since 1982 when Cuba was first designated as a State Sponsor of Terrorism (SSOT). The island nation remains the subject of a comprehensive U.S. trade embargo under which U.S. persons are forbidden from conducting virtually all types of commercial transactions with Cuba unless they obtain “specific licenses” from Commerce and/or Treasury, and the chances of obtaining them have been slim to none.
Until recently, exports to Cuba were almost entirely forbidden under an embargo first imposed by Congress in 1982. Permitted exports were strictly limited to items such as (1) medicines, medical devices and other items intended to improve the living conditions of the Cuban people, (2) items necessary for the environmental protection of U.S. and international air quality, waters and coastlines, (3) support for independent economic activity, strengthening civil society in Cuba, and improving the free flow of information to, from and among the Cuban people, (4) limited amounts of U.S.-origin agricultural commodities, and (5) certain gift parcels and consumer communications devices to eligible recipients in Cuba and NGOs, but not to Cuban Government and Communist Party officials or organizations administered or controlled by them.
On Dec. 17, 2014, President Obama announced that the United States was charting a new course in bilateral relations with Cuba. Implementing the President’s order, on July 22, 2015, the Department of Commerce’s Bureau of Industry and Security (BIS) amended the Export Administration Regulations (EAR) to (1) remove EAR references to Cuba as a State Sponsor of Terrorism (reflecting the Secretary of State’s rescission of that designation on May 29, 2015), (2) remove anti-terrorism license requirements from Cuba, and (3) make Cuba eligible for the more relaxed 25 percent de minimis threshold and portions of several license exceptions. The BIS order can be viewed here.
Regarding the increase in the de minimis level, the EAR generally apply to the export of items that contain more than a de minimis amount of controlled U.S.-origin content. Previously, the de minimis level for most foreign-made items exported to Cuba was defined as 10% or less As a result of the amendment, the de miminis level has been increased so that, for most (but not all) products exported to Cuba, foreign items that contains 25 percent or less of U.S.-origin content will not be deemed to be governed by the EAR or, therefore, the embargo.
Under the newly available license exceptions, (1) License Exception RPL (Servicing and Replacement of Parts and Equipment) can now be used to export one-for-one replacement parts for items previously lawfully exported to Cuba, including for aircraft and for explosive detection equipment and concealed object detectors (e.g., airport screening devices), (2) certain encryption items and technology that were excluded from being taken by travelers to Cuba in their luggage will now be covered by License Exception BAG (Baggage), and (3) certain civilian aircraft not operating under FAA Air Carrier Operating Certificates will be able to use License Exception AVS (Aircraft, Vessels and Spacecraft) for temporary sojourns to Cuba.
The BIS action follows on the heels of rule amendments by the BIS and the Department of Treasury’s Office of Foreign Assets Control (OFAC) aimed at facilitating improved access by Cubans to telecommunications services and international connections that increase the ability of the Cuban people to communicate freely. These amendments generally authorize:
- transactions that establish mechanisms to provide commercial telecommunications services in Cuba or link third countries and Cuba;
- telecommunications-related transactions, including payments related to the provision of telecommunications involving Cuba or provided to Cuban individuals (e.g., the purchase of calling cards for people to use in Cuba or payment of the bills of such people directly to a telecommunications operator located in Cuba);
- provision of fee-based services incident to internet communications and related to certain authorized exportations and re-exportations of communications items, e-mail or other messaging platforms, social networking, VOIP, web-hosting or domain-name registration, services related to many kinds of software used on personal computers, cell phones and other personal communications devices, and services related to the use of such devices; and
- services such as cloud storage, software design, business consulting, and the provision of IT management and support related to use of hardware and software exported or re-exported to Cuba.
OFAC also took steps to allow certain types of previously prohibited financial transactions, including:
- allowing U.S. financial institutions to process credit or debit card transactions inside Cuba for authorized travelers (with several credit card companies, including American Express and MasterCard, already having amended their protocols to process such transactions);
- allowing U.S. financial institutions, including banks and credit unions, to open correspondent accounts at banks in Cuba and at Cuban banks in third countries to facilitate the processing of authorized transactions; and
- expanding the scope of financial services entities permitted to process “authorized remittances” (e.g., transfers to individual Cuban residents, but not prohibited officials of the Cuban government or members of the Cuban Communist Party), to include all “banking institutions” (e.g., money transmitters, registered securities brokers or dealers, and depository institutions), subject to compliance with recordkeeping and reporting requirements.
Other than those narrow changes, Cuba remains subject to a comprehensive embargo, meaning that a license is still required to export or re-export to Cuba any item subject to the EAR (including so-called EAR99 items and items that are controlled on the Commerce Control List only for anti-terrorism reasons) unless authorized by a license exception. While BIS has discretion to authorize exports to Cuba of a broader range of goods, software and technology on the Commerce Control List, any such authorization will need to be consistent with the limitations imposed by the statutes that established the embargo, which allow exports to Cuba only for limited purposes, such as the provision of support for the Cuban people. Thus, despite rescission of the SSOT designation, financial and trade transactions with Cuba remain highly restricted, and those that occur will need to be tailored to fit within license exceptions or be authorized through the grant of specific licenses. In light of the agencies’ prevailing general licensing policy of denial, such licenses will be only sparingly granted until Congress rescinds or relaxes the embargo.
But some additional relaxation of U.S. trade restrictions seems likely to follow, in the form of additional general licenses and increased availability of license exceptions. Lifting of the embargo will be more difficult, as that will require congressional action. Nonetheless, it is not too soon for U.S. businesses to start planning their strategies for how to capitalize on developing trade opportunities in Cuba.