U.S. Continues To Suspend Part of Its Embargo of Cuba 

On July 14 U.S. Under Secretary of State for Political Affairs Thomas Shannon notified appropriate Congressional committees that the Trump Administration would suspend Title III of the Helms-Burton Act (a/k/a the Cuban Liberty and Democratic Solidarity (LIBERTAD) Act) for a six-month period beyond August 1. The law requires Congressional notification at least 15 days before a suspension is to begin.[1]

Title III allows former owners of commercial property expropriated by Cuba to sue foreign companies and the Cuban government for using or “trafficking” in those confiscated holdings.

But ever since the enactment of the Helms-Burton Act, every president has routinely suspended Title III at six-month intervals. Such suspensions have been prompted by U.S. fear of alienating important U.S. trading partners such as Canada, Mexico, and EU countries from the filing of a potential tidal wave of lawsuits in U.S. federal courts brought by persons whose Cuban properties had been expropriated against companies from those U.S. trading partners that use Cuban tourism properties, mining operations, or seaports.[2]

This suspension by the Trump Administration is the first action on Cuba since President Trump announced his new direction on U.S.-Cuba relations during a June 16 speech in Miami. It is the latest sign that President Trump is not fully reversing President Barack Obama’s opening of relations with Cuba.[3]

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[1] U.S. State Dep’t, U.S. Determination of Six-Month Suspension Under Title III of LIBERTAD (July 14, 2017); Whitefield, Trump to suspend lawsuit provision of Helms-Burton in August, Miami Herald (July 17, 2017); Assoc. Press, Trump Administration Again Suspends a Part of Cuba Embargo, N.Y. Times (July 14, 2017).

[2] After the December 17, 2014, announcement by President Obama and Castro that the two countries were embarking on a path of normalization, they have engaged in discussions or negotiations about obtaining Cuban payment of U.S. persons’ claims for expropriation, now believed, with interest, to total at least $ 8 billion. Although Cuba has recognized that it has an international legal obligation to pay such claims and has paid expropriation claims from other countries and although Cuba has an economic and political interest in paying these U.S. claims, Cuba does not have the cash to do so and instead has asserted claims against the U.S. for alleged damage from the U.S. embargo and other acts. See these posts to this blog: Resolution of U.S. and Cuba’s Damage Claims (April 4, 2015); Resolving U.S. and Cuba’s Damage Claims (Dec. 13, 2015); U.S. and Cuba Discuss Their Claims Against Each Other (July 30, 2016).

 

[3] President Trump Announces Reversal of Some U.S.-Cuba Normalization Policies, dwkcommentaries.com (June 19, 2017).

 

Cuban Entrepreneurs Issue Policy Recommendations to Trump Administration  

On July 18, a group of eight Cuban entrepreneurs held a press conference in Washington, D.C. to announce that they had written to the U.S. Secretaries of State, Treasury and Commerce saying that they were “encouraged to read in President Trump’s June 16 National Security Memorandum on Strengthening the Policy of the United States Toward Cuba that the President wishes to encourage the growth of the Cuban private sector.” Therefore, these entrepreneurs asked the Trump Administration to consider and adopt recommendations regarding U.S. travel to the island, U.S. remittances to Cubans, U.S. banking services for such Cuban enterprises and continued U.S.-Cuba discussions and negotiations.[1]

U.S. Travel to Cuba

The group first asserted: “U.S. travel to Cuba directly benefits private entrepreneurs. The vast majority of U.S. individual travelers (vs. groups) frequent private restaurants and lodging. Fewer travelers will have a direct negative impact on businesses in the hospitality sector as well an indirect negative impact on both forward and backward linkage enterprises.” Therefore, the group recommended the following:

  • “Restore the ability of individuals to engage in self-directed People-to-People educational travel.”
  • “Issue guidance to clarify that individuals who support the Cuban private sector by using private lodging or restaurants are eligible, by general license, for individual travel under the Support for the Cuban People category by virtue of supporting civil society.”
  • “Clearly define new regulations so as not to deter would-be travelers; produce informational materials for public.”

U.S. Remittances to Cubans

Again the group started with a factual background: “Remittances are essential to Cuba’s private sector, providing the financing to begin, and the working capital to sustain, businesses. Remittances also provide Cuban consumers with the ability to patronize private businesses. A U.S. policy of not restricting remittances is therefore critical to the health of the private sector.” The following were the recommendations:

  • “The Department of Commerce should adopt a favorable disposition to approving those exports to Cuba likely to benefit Cuban private sector individuals and/or companies
  • “Allow maximum remittance flows to increase liquidity for private sector and Cuban families; exempt remittance from the prohibition on payments to ‘prohibited officials’ of the Cuban government.”

Banking

The following was the factual background: “Many Cuban entrepreneurs purchase goods and services in the [U.S.] to help run their businesses. Cubans are legally permitted to open bank accounts in the U.S., but there are restrictions on the allowable transactions, and limited and uncertain account services, impairing businesses in both countries.” Therefore, these were the recommendations:

  • “Expand the allowable transactions for Cubans holding bank accounts in the U.S. to include business-related transactions including the acquisition of goods for business use.”
  • “Do not close, and allow access to, U.S. bank accounts held by Cubans when the Cuban individual is not present in the U.S.”
  • “Make public statements clarifying the intent of the Administration to allow Cubans to open bank accounts in the U.S. (limiting risk for banks).”

Bilateral Dialogue and Cooperation

 “Most Cuban entrepreneurs view improved relations between the U.S. and Cuba as a net positive for their businesses, and many developed their business model on this premise.” Therefore, the following recommendations were made:

  • “Continue bilateral engagement on issues of mutual interest to build respect and confidence.”
  • “Continue outreach to U.S. banks and businesses to clarify regulations so allowable engagement continues and expands.”
  • “Engage directly with the Cuban private sector; [Cuban sector] leaders have written two letters to the Administration (one to the President-elect, another to Ivanka Trump Kushner) with no response.”

Conclusion

This letter and its recommendations are wholeheartedly endorsed by this blogger. Cuba’s private sector is a positive development for the Cubans directly involved in that sector, all other Cubans and the U.S., and President Trump’s June 16 announcement already is having negative effects on that sector and needs to be reversed.[2]

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[1] Letter, Acosta, et al. to Secretaries Tillerson, Ross and Minuchin (July 18, 2017); Policy Recommendations [to Trump Administration]: Support to Cuba’s Private Sector (July 18, 2017).

[2] Here is another report of those negative effects: Zanona, In Cuba, Trump’s policy shift casts dark shadow, The Hill (July 19, 2017).

President Raúl Castro Affirms Importance of Cuba’s Private Sector       

President Raúl Castro

On July 14, Raúl Castro Ruz, Army General, First Secretary of the Communist Party of Cuba Central Committee and President of the Councils of State and Ministers, addressed a session of Cuba’s legislature (the National Assembly of People’s Power).[1]

He first noted that despite “difficult circumstances, encouraging, modest [economic] results have been achieved. The Gross Domestic Product grew by 1.1% in the first half of the year, which indicates a change in the economy’s direction as compared to last year. Contributing to this result were agriculture, tourism, and other exports of services, construction, sugar production, and the transportation and communications sectors.”

Castro then affirmed the importance of the private sector of the Cuban economy in these extensive remarks.

He reported that the Council of Ministers recently had authorized “the expansion of self-employment and the experiment with non-agricultural cooperatives . . . with the purpose of gradually freeing the state from responsibility for activities that are not strategic, creating jobs, supporting initiative, and contributing to the national economy’s efficiency in the interest of developing our socialism.”

This “past June, these forms of property management were recognized as among those operating within the Cuban economy, in an extraordinary session of Parliament dedicated to analyzing and approving programmatic documents for our Economic and Social Model.”

“We currently have more than half a million self-employed workers and more than 400 non-agricultural cooperatives, which confirms their validity as a source of employment, while contributing to an increase and greater variety of goods and services available, with an acceptable level of quality.”

On the other hand, there have been “violations of the legal regulations in effect, such as the utilization of raw materials and equipment of illicit origin, under-declaration of income to evade tax obligations, and insufficient state control at all levels.” To meet these problems, the Council of Ministers has adopted measures that soon will be announced.

The Council, however, has “not renounced the expansion and development of self-employment, or the continuation of the experiment with non-agricultural cooperatives. We are not going to draw back or stop, nor will we allow the non-state sector to be stigmatized or face prejudice, but it is imperative that laws be respected, progress consolidated, positive aspects – which are more than a few – generalized, and illegalities and other deviations from established policy resolutely confronted.”

The “pace and scope of the changes we need to make to our model must be conditioned by the capacity we have to do things well and rectify any misstep in a timely manner. This will only be possible if adequate prior preparation is ensured – which we haven’t done – training and comprehension of established regulations at every level, follow-up and guidance of the process – aspects marked by a fair dose of superficiality, and an excess of enthusiasm and desire to move more rapidly than we are truly capable of managing.”

“What is a state, especially a socialist state, doing administering a barbershop with one chair, or two or three, and with one administrator for a certain number of small barber shops – not many. I mention this example because it was one of the first steps we took.”

The errors of implementation of these changes are mainly “ours, we leaders who developed this policy. . . . This is the reality. Let’s not try to block the sun with a finger. Mistakes are mistakes. And they are our mistakes, and if we are going to consider hierarchies among us, in the first place, they are mine, because I was part of this decision. This is the reality.”

Conclusion

As has been noted in previous blog posts, the Cuban government and people have recognized that entrepreneurs in the private sector are playing increasingly important roles in the Cuban economy and society and that developing a mixed economy is not an easy project.[2]

This is why it is so important for the U.S. Congress to adopt bills confirming the freedom for Americans to travel to Cuba on individual person-to-person trips that are important customers for businesses owned by Cuban entrepreneurs.[3] 

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[1] Castro Ruz, We will continue to advance along the path freely chosen by our people, Granma (July 17, 2017) (official English translation of the original Spanish).

[2] See posts listed in the “Cuban Economy” section of List of Posts to dwkcommentaries—Topical: CUBA.

[3] See This Blogger’s Reactions to Trump Reversal of Some U.S.-Cuba Normalization Policies (June 23, 2017); Open Letter to U.S. Congress About U.S. Freedom To Travel to Cuba (July 16, 2017).

Cuban Entrepreneurs Fear Implementation of Trump’s Ban on Individual Person-to-Person Travel to the Island

Meg Whitefield of the Washington Post reports that members of Cuba’s emerging entrepreneurial sector are fearful of the negative impact on their business of the future implementation of President Trump’s announced ban on individual person-to-person travel to the island.[1]

Here are examples:

  • The manager of a Cuban “loose association of vintage car owners who have banded together to offer transportation for visiting dignitaries and other groups” already has received cancellations of reservations and fears for the 20 drivers who depend on these bookings for their livelihood as well as a group of mechanics that refurbish classic cars.
  • The husband and wife owners of a Cuban “bed and breakfast for the past two decades have gradually renovated an old mansion that was in ruins when they began, adding guest rooms and struggling to find parts to get the swimming pool filter running again.” They are fearful of having fewer American visitors. The couple also fears the negative impact on “their 17 employees and the private sub-contractors they use to do everything from carpentry work to washing and pressing clothes for guests.” The couple said, “Cuentapropistas (the self-employed) have created a network. We regularly seek out each other’s services to solve our problems.”

Phil Peters, a consultant and president of the U.S. non-profit Cuba Research Center, said most casa particulares are small and won’t be able to handle group travel. “It’s harder if you have 20 people and need to run a scheduled program. You can’t have a tour bus stop at 10 different locations to pick up group members. It’s a little impractical.”

The exceptions, said Peters, “are tourist towns like Trinidad or Viñales where it seems like almost every other house is a casa particular. The three state-run hotels in Viñales, a small rural town near dramatic rock formations and caves, have a combined total of 193 rooms, while there are 1,107 private bed-and-breakfasts, many that have two or three rooms.”

The adverse effects of the future ban on individual person-to-person travel will also be felt in the U.S., according to Sandra Levinson, executive director of The Center for Cuba Studies, which is based in New York and has sponsored educational travel to Cuba since 1973. She said, “Millions are being spent by Cuban Americans who are helping their families in Cuba start their businesses by providing them with the necessary equipment for their startups — everything from bought-in-the-U.S. blenders, ice cream makers, coffee pots, dinnerware, air conditioners, TV sets, leather upholstery for cars, computers, cell phones, sound systems, bedding, shower curtains and more.”

These are important reminders to those of us in the U.S. who oppose this change in U.S. policy. Write your Senators and Representatives to pass the pending bills granting Americans freedom to travel to Cuba.

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[1] Whitefield, Cuban entrepreneurs brace for President Trump’s new Cuba policy, Miami Herald (July 3, 2017)  This blog previously has commented on the upcoming negative impact of the ban on individual person-to-person travel on Cuba’s private sector: President Trump Announces Reversal of Some U.S.-Cuba Normalization Policies (June 19, 2017); Cuban Reactions to Trump Reversal of Some U.S.-Cuba Normalization Policies (June 22, 2017); This Blogger’s Reactions to Trump Reversal of Some U.S.-Cuba Normalization Policies (June 23, 2017); Reducing Adverse Impact on Cuban Entrepreneurs of Trump’s Partial Ban on U.S. Person-to-Person Travel to Cuba (June 28, 2017).

 

 

 

 

 

 

 

Cuban Council of Ministers Reviews Cuban Budget and Economy

At a recent meeting Cuba’s Council of Ministers, its highest ranking executive and administrative body, reviewed the government’s budget and the Cuban economy. Here is a Cuban website’s report of the meeting.[1]

Government’s Budget

The State Budget for 2016, which shows a deficit lower than that approved by the National Assembly of People’s Power. This was despite expenditures to restore the damages caused by Hurricane Matthew in housing, schools, roads, waterways, communications infrastructures, among others.

The State Budget for 2017 is projected to have a lower deficit than originally projected, For the first six months “gross income represents 53% of the annual Plan, which is determined mainly by the favorable behavior of tax revenues.”

Cuban Economy

For the first half of 2017, the national economy has performed in accordance with the original forecasts. Production of foods and vegetables has exceeded forecasts while milk and beef are below such forecasts. The drought has had a negative impact on this sector.

By the end of May 2017 the number of foreign visitors exceeded 2,260,000, which represents a 20% growth over the same period of 2016.

Cuban Self-Employment

More than half a million people are now engaged in self-employment, which confirms its validity as a source of employment and increased supply of goods and services with acceptable levels of quality.

 However, there are problems with this sector of the economy: use of “illicit origin” raw materials and equipment; breaches of payment of tax obligations and underreporting of income; Inaccuracies and inadequacies in control; and deficiencies in contracting for the provision of services or products between legal persons and natural persons. There also has been a lack of rigor and exigency in their monitoring and control; tendency to increase prices; and use of bank loans for unauthorized purposes.

However, the Council ratified that non-agricultural cooperatives constitute a means to free the State from the administration of subsidiary economic activities, production and services. Therefore, the Council will continue to advance the implementation of this experiment of self-employment by correcting the deviations.

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[1] Martinez & Meneses, Council of Ministers analyzes economic progress and other important issues, CubaDebate (June 30, 2017).

Analysis Shows Cuban Military Controls Only 4% of Cuba’s Gross Domestic Product

William LeoGrande, Professor of Government at Washington, D.C.’s American University and a noted expert on Cuba, has analyzed the repeated assertion by many, including this blogger, that 60% of the Cuban economy is controlled by the Cuban military’s holding company Grupo de Administración Empresarial S.A. (GAESA).[1]

LeoGrande sets forth his analysis and concludes that GAESA’s revenue constitutes 21% of total hard currency income from both state enterprises and the private sector, 8% of total state revenue, and just 4% of GDP (Anuario Estadístico 2015).

This suggests that President Trump’s recent announcement of a future regulation banning U.S. companies from engaging in business with such Cuban entities may not have as a significant adverse effect on the Cuban economy as originally thought.

As always, comments of agreement or disagreement are encouraged.

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[1] LeoGrande, Does the Cuban Military Really Control Sixty Percent of the Economy, HuffPost (June 28, 2017).

Reducing Adverse Impact on Cuban Entrepreneurs of Trump’s Partial Ban on U.S. Person-to-Person Travel to Cuba   

As described in a prior post, on June 16 President Donald Trump announced a ban on U.S. citizens going to Cuba on individual person-to-person travel to be effective upon future adoption of regulations and instead requiring such travel to be only in organized groups. Another post then reviewed the anticipated adverse impact of this change upon Cuba’s emerging private enterprise sector (b&bs, restaurants, taxis, tour guides and others) by forcing visiting Americans to travel in buses and hotels owned by the Cuban government (including its military and security forces), which presumably will be banned by future regulations implementing another Trump policy change.

That is still the assessment of the anticipated impact[1] and, therefore, why this blogger advocates the prompt congressional passage of bills granting Americans the freedom to travel to Cuba as discussed in another post.

Indeed, the Associated Press confirms this view with reports of recent cancellations of reservations at b&bs in Havana and Trinidad, a colonial city on the south coast of the island, and by a prospective American traveler for this very reason. “Tour operators ‘should be opening Champagne’ because of the new policy, said John Caulfield, former chief of mission of the U.S. Interests Section in Havana and co-founder of the nonprofit Innovadores Foundation, which seeds innovation in Cuba.”[2]

The Associated Press, however, reports ways for Cuban entrepreneurs to reduce this adverse impact on their business with American travelers. Some small bed-and-breakfast owners plan to create informal associations of neighboring businesses so they can accommodate larger American groups. And at least some tour operators say they already use privately owned villas, casas and eateries, and engage with local guides, entrepreneurs and artists. And presumably the future U.S. regulations banning U.S. businesses from dealing with Cuban businesses owned or controlled by the Cuban military or security services will prohibit tour operators from having their travelers staying in hotels so owned or controlled and instead booking accommodations at privately owned enterprises.

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[1] Kunović, Five things you need to know about Trump’s Cuba policy—and who it will hurt, Wash. Post (June 22, 2017).

[2] Assoc. Press, New Trump Rules on Cuba Travel Leaves Winners and Losers, N.Y. Times (June 27, 2017).