We may already export more to Cuba than many people think we do. The figure below summarizes the value of U.S. exports since 1989. Over 90% of this since 2002 is agricutural products; exports peaked in 2004 at about $400 million and fell off somewhat thereafter.
According to the Wikipedia article on the United States embargo against Cuba:
In response to pressure from some American farmers and agribusiness, the embargo was relaxed by the Trade Sanctions Reform and Export Enhancement Act [TSREEA - Ben], which was passed by the Congress in October 2000 and signed by President Bill Clinton. The relaxation allowed the sale of agricultural goods and medicine to Cuba for humanitarian reasons. Although Cuba initially declined to engage in such trade, seeing it as a half-measure serving U.S. interests, Castro began to allow the purchase of food from the U.S. as a result of Hurricane Michelle in November 2001. These purchases have continued and grown since then.
Last week's Economist (Bye-bye embargo?, Nov 22) reports that Cuban officals are anticipating a lifting of the embargo as Castro passes from the scene, and a Democrat enters the White House in 2009. And they are acting on these hopes:
After two years of negotiations, plans are moving forward for Dubai Ports World, a partly state-owned company in the United Arab Emirates, to invest $250m in converting the decrepit port in Mariel, just west of Havana, into a modern container facility. A formal feasibility study has been commissioned....
Mariel appeals to international port operators for the same reason [for the same reason it appealed to people escaping Cuba in 1980 - Ben] - its proximity to the United States. "This deal isn't just about getting goods to Cuba," said one analyst who had studied the project. "It's about getting into the US market." American ports are close to capacity, and environmental restrictions make any big expansion of existing terminals unlikely. In a post-embargo world, Mariel, which is expected to be open for business by 2012, would be a well-positioned hub. Goods could be transferred from the big container ships arriving at the port to smaller vessels which could then reach dozens of harbours in the southern United States.
Dubai Ports World refuses to comment on the deal. But there can be little doubt that the company is eager to gain a foothold, if not actually in the United States, then as close as possible to it. Last year it was forced to abandon plans to operate six big ports in the United States after Congress expressed security concerns....
Does Cuba's acceptance of the Mariel project mean that the country's top brass is beginning to plan seriously for the day when the American embargo might end? That might appear premature, given that the Bush administration has explicitly ruled out unrestricted trading with a Cuban government under Raul Castro, Fidel's brother and presumed successor, and that only one American presidential candidate (Chris Dodd, a Democratic outsider) has called for a complete end to the embargo.
All the same, there is evidence that Cuban officials do believe that the days of the bloqueo (as they refer to the embargo) are numbered. The Cuban ministries that deal with foreign investment, known by their Orwellian abbreviations of MINVEC and MINFAR, have recently been putting the word out to foreign investors that tenders are welcome for a raft of projects. Theme parks, super-yacht marinas, golf courses, even airlines - all apparently geared to a future American market too - feature prominently on the list....
The US International Trade Commission recently looked at the impacts on U.S. agricultural exports to Cuba of a policy to relax the restrictions on financing agricultural trade and the restrictions on travel (U.S. Agricultural Sales to Cuba: Certain Economic Effects of U.S. Restrictions, John Reeder et al., USITC, July 2007).
The ITC report explains why agricultural exports to Cuba dropped off in 2005 and 2006. The TSREEA required Cuba to pay cash in advance, or to finance exports through a third country bank.
Prior to late 2004, exporters believed that transactions conducted in the form of “cash-against- documents” fulfilled the “cash-in-advance” condition. Cash-against-documents transactions do not specifically link the physical shipment of the goods from the port at which they are loaded to the completion of the financial transaction. Shipments would leave the departure port while the financial transaction was in process. Exporters maintained ownership of the product because the documents that transferred ownership were not exchanged. Upon receipt of payment, the seller would authorize the transfer of the documents necessary to transfer ownership of the product to the Cuban buyer. The available information suggests that virtually all transactions prior to late 2004 took place under these arrangements.
In late 2004, completion of some financial transactions involving exports of BIS-authorized agricultural products were blocked because U.S. financial institutions questioned whether cash-against-document transactions were, in fact, permitted under the cash in advance rule.
While researching the issue, OFAC [the US Office of Foreign Assets Control - Ben] allowed trade to continue. However, after completion of its research, OFAC officials announced a clarification of the term “cash-in-advance” in a February 2005 Federal Register notice.26 Under this clarification, payment of cash in advance was defined to mean that the seller must receive payment before the vessels carrying the goods leave the port at which they were loaded. Moreover, transactions similar to cash-against-documents transactions would not be permitted after March 24, 2005.27 After this clarification, Alimport chose not to pay in cash. Instead it arranged payments in the form of letters of credit through third-country banks, a process that had always been permitted under OFAC regulations.28 Reportedly, Alimport refused to pay cash in advance because by doing so, the exported products would become Cuban property while still in the U.S. port, and thus would be vulnerable to confiscation by Cuban exiles in the United States with legal claims against the Cuban government.
The ITC found that the increased transactions costs appear to have reduced exports. The ITC report also a nice discussion of the mechanics of financing under the different methods, illustrating the impact on transactions costs (pages 3-8 to 3-12).
As noted earlier, The ITC estimated the impact on U.S. agricultural exports if various financing restrictions, and restrictions on travel, were lifted. The lifting of the travel restrictions would have increased tourism. The policy changes considered only involved a partial additional relaxation of the overall embargo.
If these restrictions were lifted, demand for U.S. agricultural exports would increase for several reasons - the cost of importing would be lower and U.S. goods would displace goods currently imported from other countries, Cuban income would be higher also increasing demand for food, and tourists themselves would create an additional demand for food imports.
The ITC used partial equilibrium models to evaluate the impacts on different food categories. Because the individual models assume other prices are constant and don't address substitution effects between commodities, the ITC doesn't report overall total changes. There appear to be significant increases in exports for almost all of the agricultural commodites. Perhaps the biggest impact is for "other food products," including fresh potatoes, fruits, and vegetables.
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