What Embargo? State Leaders Rush to Cuba to Forge Trade Ties

Andrew Cuomo© The Associated Press

New York Gov. Andrew Cuomo slides into a 1956 Chevrolet during a trip to Havana earlier this year. Governors and other state officials are traveling to Cuba to forge business ties with the island nation.

The U.S. trade embargo on Cuba remains in place, but the re-establishment of diplomatic relations between the two nations has spurred a steady stream of state and local officials to visit the island nation in search of economic opportunity.  

Democratic Gov. Andrew Cuomo of New York was the first state chief executive, in April, to visit Cuba after President Obama announced plans to ease relations with Cuba. Atlanta Mayor Kasim Reed, a Democrat, went in June and Republican Gov. Asa Hutchinson of Arkansas went in September. A group of Iowa legislators and businessmen plan to go in December. Democratic Gov. Terry McAuliffe of Virginia hosted José Cabañas, Cuba’s ambassador to the U.S., in September as well.  

Though states may be eager for the end of the embargo, it’s not clear when Washington will lift the 50-year-old policy and allow free trade between the two nations. In the meantime, there are limits on what products American businesses can ship to Cuba, mainly just food and medicine, and how Cubans can pay for them.

Cuba’s Communist government also insists on having control over most of the business transacted on the island. That tight grip, along with Cuba’s infrastructure problems, will create problems for U.S. businesses even after the embargo is lifted.

Critics say many trade missions are over-hyped boondoggles that rarely produce the economic activity promised, let alone concrete business agreements. But most of the trips are to countries that already have well-established diplomatic and business relationships with Americans. Cuba is a largely untouched frontier, and state and local officials are eager to be the first to cultivate it.

Playing the Long Game

Hutchinson, who traveled to Cuba last month with Arkansas rice and poultry producers, said it would take time for the initial contacts to bear fruit.

“I see opportunities, but what underscores that opportunity is a requirement for patience,” Hutchinson told reporters. “For 50 years they’ve had their economy stymied and they’ve been isolated from technology. It’s going to take some time for them to adjust to new opportunities in the marketplace.”

The trip was paid for by Arkansas’ Republican Party, rather than state taxpayers. It included meetings with Cuban officials but also less formal activities, including a basketball game between Arkansans and Cubans.

Legislators in Iowa are also hoping to meet with Cuban officials, something Democratic state Sen. Steven Sodders said would make a big difference once the embargo is lifted.

“Every friendship you make up front, you have a better chance that they’ll work with you over New York or California. That’s the benefit of getting Iowa in first,” Sodders said.

His trade mission group includes a number of legislators, paying either with leftover campaign cash or out of their own pockets, as well as business leaders from the hospitality, agriculture and medical technology sectors.

Cuomo took about 20 business leaders to Cuba in April, including representatives from MasterCard Inc. and Pfizer Inc., but the biggest deal announced from the trip was between JetBlue Airways Corp. and Cuba Travel Services. The companies agreed to offer chartered flights from New York to Havana. 

If the U.S. does open up trade with Cuba, there appears to be room for growth, at least in agriculture. According to the Congressional Research Service, agricultural exports to Cuba, which were worth $365 million from 2012 to 2014, might expand to match exports to the Dominican Republic, which took in $1 billion in U.S. agricultural products over the same period.

But politicians in some states aren’t rushing to shake the hands of Cuban officials. Many members of Florida’s huge Cuban immigrant population oppose ties to the Castro regime. The state’s governor, Republican Rick Scott, said closer economic ties to Cuba would only allow it to compete with Florida in selling agricultural products—like sugar, citrus and tropical fruit—while helping to fund an oppressive government. Republican Gov. Scott Walker of Wisconsin has expressed similar views. 

Florida’s attitude has created openings for others in the Southeast region of the U.S. Like Arkansas, the city of Atlanta is hoping to make early connections.

“Georgia and Atlanta don’t have the historical baggage that Florida and Miami have with Cuba. We have a clean slate with Cuba, and we want to take advantage of that,” said Claire Angelle, Atlanta’s director of international affairs.

Barriers Remain

Current U.S. regulations require U.S. businesses exporting food and medicine to Cuba to receive full payment up front, rather than extending credit to buyers. The Cuban government almost always insists on being the majority owner of any major business on the island, which includes doing the hiring, said Jose Azel of the Institute for Cuban and Cuban-American Studies at the University of Miami.

Lifting the embargo won’t change everything immediately, Azel said. He pointed out that non-U.S. companies have been trading with Cuba while the embargo was in place, but the economy of the country has changed little.

“People look at Cuba and say, ‘They have nothing; they need everything!’ But need alone does not make a market. You have to have money,” said Azel, who is a Cuban exile. “Cuba cannot buy from anyone because they are bankrupt. There are 190 other nations that Cuba has been able to buy from that make great products—and cheaper—but they’re not buying them because they don’t have the money.”

Exporting U.S. goods to Cuba would be easier than making foreign direct investment there, according to Jock O’Connell, an international trade adviser with Beacon Economics, a California-based consulting company. O’Connell noted that Cuba lacks the capital, the Internet access, the infrastructure and the transportation systems to make business successful, while the decades-long suppression of entrepreneurial culture would make it hard to find residents who can help develop new businesses.

But O’Connell said that the people who participate in trade missions get political benefits, too. Politicians get a chance to raise their profiles beyond the state level and business leaders get to meet politicians.

Hutchinson, the Arkansas governor, said a lot would need to change in Cuba to clear the way for more trade. The country needs updated banking regulations and technology, and more business opportunities for Cuban families. Currently, Cubans who don’t work for the government are limited to a list of approved private sector jobs.

Hutchinson wants Washington to take steps that might speed up the process, such as allowing U.S. businesses to extend credit to Cubans who want to import American agricultural products.

Despite the remaining obstacles, Azel said trips by Hutchinson and other American officials may help build relationships in Cuba.

“The efficacy of trade missions tends to be far less than they get credited for,” Azel said. “But you do meet people and establish contacts and shake hands, and that matters in international business.”

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