On December 17, 2014, President Barack Obama announced sweeping changes in the diplomatic and trade relationships between the United States and Cuba.  These changes, outlined below, will require time to implement; certain aspects will require Congressional approval. 

New developments should be expected as diplomatic negotiations between the United States and Cuba continue and expand into discussions of economic areas.  Clients should begin acting now to consider whether Cuba will become a promising market for products and investment. 

As part of the announcement, President Obama instructed Secretary of State John Kerry to initiate discussions with Cuba on the re-establishment of diplomatic relations between the United States and Cuba, which were severed in January 1961.  Secretary Kerry will also review Cuba’s designation as a “state sponsor of terrorism” and report to the president within six months on whether Cuba has supported international terrorism.

The changes proposed by the White House were posted on its website on December 17 in the form of a Fact Sheet.[1]  The proposals include:

• • expanded commercial sales and exports of goods and services to Cuba, in particular, building materials for entrepreneurs and private residences;
  • more business training by U.S. companies; and
  • the increased sale and transport to Cuba of communications hardware and services.

In his remarks, President Obama cited what he called the failure of the U.S. embargo against Cuba to promote the emergence of a democratic, prosperous and stable Cuba.  The announced changes will impact the embargo initiated in 1963.  The statutory basis for the embargo includes the Trading with the Enemy Act (TWEA), the Cuban Democracy Act (CDA), and the Cuban Liberty and Democratic Solidarity Act (referred to as the “Helms-Burton Act”).  Specifically, Section 5(b) of the TWEA grants the president broad powers to regulate matters involving enemies of the United States. 

The regulations promulgated to enforce these statutory provisions, the Cuban Assets Control Regulations (CACR), were adopted under this authority by executive order of the president.  The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) is primarily responsible for the administration of the CACR, although additional export regulations are administered by the Bureau of Industry and Security of the U.S. Department of Commerce.  The CACR empowers OFAC to issue general licenses that permit broad categories of activity that might otherwise be prohibited by the CACR, and specific licenses that permit individual transactions and activities.

While only Congress can formally overturn the five decades–long embargo, the Administration has the authority to liberalize aspects of trade and travel to Cuba through executive action.  Even the changes proposed by President Obama, however, are not immediately self-executing.  OFAC posted a cautionary note on its website to emphasize that the announced changes will not take effect until new regulations are approved.[2]

The Fact Sheet proposes the following changes in commercial and economic areas of interest:

• • Empowering the Cuban People
    Travel and remittance policies will be enhanced to provide Cubans with alternative sources of information and opportunities for self-employment and private property ownership.  Again, raising a cautionary note, the White House emphasized that persons will still be required to comply with all provisions of the revised regulations and that violations of the terms and conditions will remain enforceable under U.S. law.  Many of these changes will be put into effect through amendments to regulations of the Departments of the Treasury and Commerce. 

• • Expansion of Travel
    General licenses will be made available for all authorized travelers in the twelve existing categories of travel, which include, among others, family visits; journalistic activity; educational activities; and official business of the U.S. government, foreign governments, and certain intergovernmental organizations.
    
    Authorized travelers in the existing categories will be able to make arrangements through any service provider that complies with OFAC regulations governing travel services to Cuba; OFAC general licenses will authorize the provision of such services.

• • Facilitating Remittances to Cuba
    Remittance levels will be raised from $500 to $2,000 per quarter for general donative remittances to Cuban nationals (except to certain officials of the government or the Communist party).  Donative remittances for humanitarian projects, support for the Cuban people, and support for the development of private businesses in Cuba will no longer require a specific license from OFAC, nor will remittance forwarders require a specific license. 

• • Expanded Commercial Sales/Exports
    The expansion will include certain building materials for private residential construction, goods for use by private-sector Cuban entrepreneurs, and agricultural equipment for small farmers.  

• • Import of Additional Goods From Cuba
    Licensed U.S. travelers to Cuba will be authorized to import $400 worth of goods from Cuba, of which no more than $100 can consist of tobacco products and alcohol, combined.

• • Facilitating Authorized Transactions Between the United States and Cuba
    U.S. financial institutions will be permitted to open correspondent accounts at Cuban financial institutions to facilitate the processing of authorized transactions.  U.S. credit and debit cards will be permitted for use by travelers to Cuba.
    
    Licensed agricultural sales to Cuba are currently approved as long as they are financed by payment of “cash in advance” or through financing by a third-country financial institution.[3]  U.S.-Cuba trade in agricultural goods has been inhibited, however, by the strict interpretation of the phrase “cash in advance” to mean the receipt of full payment for the goods by the exporter before the goods are shipped (as opposed to receipt of payment after the goods are shipped, but before title to the goods passes to the purchaser).  To facilitate sales of U.S. goods to Cuba, the regulatory definition of the term “cash in advance” will be revised to specify that it means “cash before transfer of title.”

• • Increase Cubans’ Access to Communications and Their Ability to Communicate Freely
    The commercial export of communications equipment will be expanded.  This equipment will include the commercial sale of certain consumer communications devices, related software applications, and hardware and services for the establishment and update of communications-related systems.  Telecommunications providers will be allowed to establish in Cuba the necessary mechanisms, including infrastructure, to provide commercial telecommunications and internet services and to improve telecommunications between the United States and Cuba.

• • Application of Cuba Sanctions in Third Countries
    U.S.-owned or U.S.-controlled entities in third countries will be generally licensed to provide services to, and engage in financial transactions with, Cuban individuals in third countries.  In addition, general licenses will, among other things:  (i) unblock the accounts at U.S. banks of Cuban nationals who have relocated outside of Cuba; (ii) permit U.S. persons to participate in third-country professional meetings and conferences related to Cuba; and (iii) allow foreign vessels to enter the United States after engaging in certain kinds of humanitarian trade with Cuba.

• • Resolution of Disputed Territories With Cuba and Mexico
    The United States, Cuba and Mexico have an extended continental shelf in an area within the Gulf of Mexico where the three countries have not yet defined boundaries.  The United States has expressed a willingness to invite the governments of Cuba and Mexico to discuss shared maritime boundaries in the Gulf of Mexico. Delineation would facilitate the exploitation by each of the three countries of natural resources located within their respective disputed areas.
    
    

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