After Fidel, business as usual?

After Fidel, business as usual?
By Steve Hirsch
THE WASHINGTON TIMES
Published December 31, 2006

President Bush's hard-line attitude toward Cuba has prompted businesses to
pull back from exploring opportunities in the communist nation.
That is not expected to change even as ailing, longtime dictator Fidel
Castro lies in a hospital bed and his brother Raul runs the country.
Other factors hindering the potential of doing business there include
the island's small population and poor investment climate, but Mr. Bush's
strong stance is the overarching issue, according to government officials,
businesses and longtime observers and analysts.
The Cuban economic embargo, imposed in the early 1960s, allows cash
sales only for food, medicine and medical equipment and restricts travel to
the island.
During the Clinton administration, U.S. companies visited Cuba on trade
missions and considered trade, investment and other business opportunities.
The Bush administration, however, has adopted a tougher approach,
including a tightening last year of payment requirements on food exports to
Cuba. That, business officials say, has played a major part in discouraging
U.S. companies from exploring the Cuban market.
"If you look at the way the administration has tried to restrict food
sales to Cuba, even though Congress passed a law permitting them, and at the
roadblocks they've placed in the path of people and companies trying to
visit Cuba, companies don't have to stare too hard at the tea leaves to get
the message," National Foreign Trade Council President William A. Reinsch
said.
"They just give up on trying to plan for business there. There has
clearly been a chilling effect on opening doors to Cuba, and the result is
that we will be unprepared when restrictions are finally lifted, which
everybody knows will happen eventually," he said.
Bush backs embargo
The Bush administration has left little doubt where it stands on the
embargo.
Mr. Bush said in 2002 that without political and economic reform, trade
with Cuba "will merely enrich Fidel Castro and his cronies" and that the bar
on U.S. financing for Cuban farm purchases would continue, saying that it
"would just be a foreign-aid program in disguise, which would benefit the
current regime."
Whenever the United States has shown interest in easing relations with
Mr. Castro, "somehow it's always failed," Commerce Secretary Carlos
Gutierrez said in a recent interview.
"You look back at history over the last 47 years and anytime that it
looks like we're getting too friendly, they go to Angola, they shoot a plane
down, they open up their jails ... and they let out a lot of very nasty
people, not political prisoners," he said.
The administration believes that outside investment will not lead to
political liberalization or democratization, stressed Caleb Charles McCarry,
the administration's Cuba transition coordinator.
"Investing in the current economic and political structure in Cuba
simply supports the regime, and does not support the aspirations of the
Cuban people for genuine change that leads to political and economic
freedom," he said.
Under current law, Cuba would have to establish a transition government
that takes a number of steps toward democracy and "does not include" Mr.
Castro or his brother Raul for the embargo to be lifted.
Raul Castro is now running the country while the Cuban leader is in the
hospital, leading some observers to speculate that the post-Fidel Castro era
has begun. Mr. Castro has not been seen in public since July.
However, even if Fidel Castro leaves office in the next five years, the
Economist Intelligence Unit in London said in an October report that it
"does not anticipate any sudden, radical alterations in the political
system."
In addition, unless relations with Washington improve, the report said,
Havana "will continue to limit dissent on the grounds of national security."
The report predicted continued hostile U.S.-Cuban relations and
sanctions, regardless of Fidel Castro's presence, saying the sort of
fundamental change in the relationship that could lead to liberalization
"would require strong political will on both sides to overcome resistance
based on ideology and vested interests, and there are no signs yet of any
shift in the entrenched positions."
Hill could ease embargo
The election of Democratic House and Senate majorities for the next
Congress could lead to efforts to ease the embargo. But without radical
change in Cuba or a softened administration stance, those moves would be
limited.
Earlier this month, a delegation of 10 members of Congress from both
sides of the aisle visited Havana, the largest U.S. legislative mission to
Cuba under Mr. Castro to date.
Raul Castro invited the U.S. to talk about the two countries' relations,
including topics such as the embargo, immigration, drug trafficking, capture
of fugitives, the environment and oil exploration.
Rep. Jeff Flake, an Arizona Republican who has sponsored legislation to
allow U.S. companies to work with Cuba to exploit oil reserves off its
northern coast, said his bill would be more likely to get out of committee
in the next Congress and predicted more proposals around the edges of the
embargo, in such areas as banking regulation.
He is the Republican chairman of the Cuba Working Group, a bipartisan
group of members of Congress who are pushing for changes in U.S. policy
toward Cuba.
Rep. Bill Delahunt, Massachusetts Democrat and the probable chairman of
the International Relations oversight and investigations subcommittee, plans
hearings on U.S. democracy assistance for Cuba. Mr. Delahunt, who is the
Democratic head of the Cuba Working Group, said Congress initially will
focus on travel restrictions, although he criticized current overall Cuba
policy.
"You'd have to be oblivious to the past 50 years not to conclude that
this just hasn't worked. And now, we don't understand, I don't think, what's
happening in Cuba, what the reality is in Cuba, and I think it hurts us if
we want to have influence in Cuba as Fidel Castro passes from the scene," he
said.
Rep. Charles B. Rangel, the New York Democrat who is expected to head
the Ways and Means Committee, will continue to oppose the embargo through a
Treasury appropriations amendment to bar funding of the enforcement of the
embargo, according to his staff.
But any push to lift the embargo in the new Congress would not get to
the floor for a vote, said Sen. Larry E. Craig, an Idaho Republican who
sponsored the oil legislation in the Senate.
He cited both a reluctance in the Senate to take dramatic action until
there is a change in Havana and strong backing for the embargo by the Bush
administration.
Congress can have some influence on foreign-policy issues, he said, "but
if the executive is hard over on an issue, and they are, clearly, on this
issue, then it will be very difficult to do anything over the next two
years."
Doing business tough
One U.S. official said the administration is not using its embargo
enforcement to try to discourage American companies from considering the
Cuban market, but to ensure a transition to "real democracy," including
"real economic reform."
Mr. Reinsch, however, described the situation more ambiguously.
"We don't think -- or can't prove at any rate -- that the administration
has overtly told companies to stay out of Cuba notwithstanding the laws
permitting them to engage in certain activities there," he said.
"We do think that their actions have been deliberate and have sent clear
signals to the business community that doing business with Cuba won't be
worth the effort."
Others clearly say the administration's stance has tamped down business
enthusiasm for Cuba.
In 1994, members of the U.S.-Cuba Trade and Economic Council came from a
variety of industries, including pharmaceuticals, financial services,
tourism, food, agriculture and retail, although legal trade was limited to
health care products, said John S. Kavulich II, the group's senior policy
adviser. By 2002 and 2003, he said, membership was largely in the food and
agriculture industries.
Many businesses that have shown interest in Cuba would not comment for
this article.
Cuba has bought more than $1.3 billion in U.S. farm products since late
2001, according to the Congressional Research Service, but even companies
allowed to export to Cuba see the embargo as a hindrance.
The U.S. rice industry exports 150,000 to 200,000 metric tons to Cuba a
year, but that should be more like 500,000, said Stuart E. Proctor Jr.,
president of the USA Rice Federation. Cuban officials have said the U.S.
would be Cuba's top rice supplier if it weren't for the embargo, he said.
Mr. Proctor said U.S. regulations have made shipping rice to Cuba more
difficult, raising questions for Cuban officials about America as a rice
supplier.
"You've got to be a reliable supplier, and we're not, in the eyes of the
Cubans," he said.
Investment possibilities
Observers instead stress the potential for investment, where
opportunities for U.S. companies remain, although companies coming from
countries ranging from Israel to China to Britain are already working there.
Investors from other countries have moved into such industries as nickel
mining, telecommunications, infrastructure and citrus production, Lexington
Institute Cuba analyst Philip Peters said, although he added that Cuba is
looking for partners in other areas.
Potential opportunities for American companies include energy,
agriculture, tourism, biotechnology and information technology, Mr. Peters
said.
The best initial opportunities will be those that generate hard
currency, such as nickel mining, where there is still room for new foreign
companies, as well as oil and hotels catering to foreigners, he said.
Some foreign oil companies have signed agreements with Cuba for oil and
gas exploration along Cuba's northern coast, including Repsol of Spain,
Sherritt International of Canada and Sinopac of China.
Executives from energy-related U.S. companies such as Exxon Mobil Corp.,
Caterpillar Inc. and Valero Energy Corp. met with Cuban officials in Mexico
City earlier this year to discuss Cuban oil reserves, but are barred from
exploring those reserves.
The U.S. Geological Survey has estimated there are between 1 trillion
and 9.3 trillion barrels of undiscovered oil and between 1.9 trillion and 22
trillion cubic feet of undiscovered natural gas off Cuba's northern coast.
If the United States maintains its embargo, India, Spain and Canada
could end up drilling for oil 51 miles off the U.S. coast, according to
Kirby Jones, president of the U.S.-Cuba Trade Association.
"If you're a Floridian looking with binoculars away from Key West, if
you're going to see an oil platform, I think you'd feel more comfortable if
it was a U.S. platform than a Chinese platform," Mr. Flake said.
Mr. Jones says the post-Castro era already has arrived, describing the
country as a sophisticated, growing business environment with 350 joint
ventures operating and 500 to 600 foreign companies maintaining offices. He
said that even in areas that are still open to Americans, opportunities
become fewer each day.
Cuba, he said, is much different than it was in 1994, when the first
joint venture was set up. Foreign partners already are operating in all the
sectors of the Cuban economy where they are allowed -- those aside from
defense, health care and education -- and he said many of them have invested
hundreds of millions of dollars in the past 12 years.
Other hindrances
The U.S. embargo is not the only obstacle to business, though. Observers
note that Cuba only has about 11 million people and they have limited access
to hard currency. Vietnam, by contrast, has a population of more than 84
million and is not an island.
One agriculture industry official said his company's attention to the
Cuban market "would not be enormous" if the embargo were lifted but the
political situation didn't change. The official said U.S. companies in the
agricultural sector would be interested in Cuban possibilities without the
embargo, but that there would be no rush into Cuba as long as the economy is
state-driven.
Another agriculture executive said there are appealing aspects to Cuba,
including its proximity and the fact that it pays cash, but added it will
always be a small part of the market, even without the U.S. embargo.
Outside of agriculture, opportunities for U.S. exports may be limited as
well.
"There's reason to believe that over time the Cuban economy is going to
do well and produce a consumer class for American goods, but not in the
short term," according to lawyer Robert Muse, who has substantial experience
in U.S. laws relating to Cuba.
"When the embargo's lifted, some U.S. companies will seek to export to
Cuba, but it's going to be targeted exports. It's going to be luxury goods
for the hotel trade, for example," he said.
Joint ventures aren't as numerous as they used to be for investors.
Cuban authorities have cut back on the number of small foreign companies
active in Cuba since 2003, but are interested in larger companies for major
projects in such areas as mining and energy, according to the Economist
Intelligence Unit.
In opening to outside investment, Mr. Muse said Mr. Castro "made a
tactical accommodation with capitalism" during the 1990s, when the Soviet
bloc trading arrangements expired and "Cuba needed serious foreign
investment, it needed to, in the expression they used in Cuba at the time,
reinsert itself into the world economy."
It also needed some limited reform to alleviate serious shortages of
food, consumer goods and services, according to the CIA's World Factbook.
"But that situation has bettered itself over time," Mr. Muse said,
adding that Cuba is now more economically stable "and there's been a direct
correlation between the lack of new investment going into Cuba and its
financial health," he said.
Cuba has increased ties with China and Venezuela, which has helped
Cuba's economy. "These relationships seem set to become more important" and
will overshadow Cuban relations with Organization for Economic Cooperation
and Development countries, according to the Economist Intelligence Unit.
Cuban authorities would not comment for this article, but others pointed
to Cuban government policies as a barrier to investment.
The Economist Intelligence Unit described Cuba as "one of the world's
least attractive foreign investment destinations" from 2001 through 2005.
The situation is likely to improve only slightly through 2011 because of
state domination of Cuba's economy and limited opportunities for private
business, the report said.
Outside investment also has been hindered by outstanding claims on
expropriated property and by U.S. sanctions, which increase costs of such
activities as shipping and restrict the export market for Cuban products,
the report said.
Cuba's inhospitable investment environment may mean that there are still
opportunities for U.S. firms, should relations ease between the two
countries.
Mr. Muse said Mr. Castro's "genuine distaste for international
capitalism and the profit motive" probably has left much of the investment
market relatively open, adding that "very little is foreclosed from American
companies at the moment."
However, he added that in areas where there is room for only one foreign
investor, primarily in raw materials, American companies could lose out.

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