What Cuba-U.S. Relations Means For U.S. Industry
By Alison L. Deutsch | January 30, 2015 AAA |
President Barack Obama announced the restoration of diplomatic relations
with Cuba in December after 54 years of isolation. Ties with the
island-nation were severed in January of 1961, one year after the first
trade embargo was imposed by President Dwight D. Eisenhower.
The historic announcement with Cuban President Raúl Castro was
established amid a prisoner exchange brokering the release of dissidents
detained on espionage charges. Obama has agreed to release three Cuban
agents held in the U.S. for the last 15 years in exchange for Rolando
Sarraff Trujillo, a Cuban national who operated as an intelligence agent
for U.S. Cuba also agreed to release 53 political prisoners.
The discussions prompted the immediate release of Alan P. Gross, an
American government aid contractor held for five years in Havana. Gross
was sentenced to 15 years by the Cuban government on espionage charges
but was released on humanitarian grounds.
As part of the diplomatic normalization process, the U.S. will reinstate
its embassy in Havana. High-level exchanges between the two governments
have already begun. The U.S. will address matters of Cuban domestic
policy such as improvements in human rights conditions and advancing
democratic reforms. (For more, see: How To Invest In Cuba.)
Cuba is motivated to thaw relations with the U.S. as instability in
Venezuela mounts and a looming credit default threatens the Venezuelan
economy. Venezuela serves as one of Cuba's main economic supports
through its subsidized oil supplies. To preserve its economic integrity,
Cuba is setting its sights on outside economies.
The decades-long American policy of isolationism has failed both
economically and politically. Normalization of relations – and an
eventual lifting of the embargo – will allow the U.S. to enter a nearby,
untapped market of 11 million people, and U.S. travel, agriculture, and
financial services sectors are looking to gain. (For more, see: The
Economic Impact of Better US-Cuba Relations.)
Travel restrictions have kept American tourists out of Cuba for decades.
The new White House policy will relax travel constraints, granting
access to a wide range of travelers in the process. The reopening of
America's embassy in Havana will also facilitate travel for Americans
seeking to travel to Cuba.
Included among the authorized types of travel are visits to family,
business trips, and visits for educational or religious purposes.
However, despite a dozen authroized travel types, tourism is still banned.
The U.S. travel industry sees a breadth of business possibilities for
the sector as a number of American tourists inevitably take advantage of
this new travel destination.
Carnival (CCL), the U.S. cruise liner, has already showed interest in
bringing tourists to Cuba's nearby ports. Among a handful of other
airlines, United Airlines (UAL) has announced plans to serve direct
flights to Cuba once kinks in government regulations are sorted out.
Additional opportunities could exist for American hotels as Cuba
currently houses a dearth of tourist accommodations.
The policy shift could prove lucrative for American food companies who
will no longer face burdensome restrictions on exports. Though exempted
from the trade embargo, agriculture companies have encountered
regulatory barriers and have been required to finance through third parties.
Cuba is the largest importer of wheat in the Caribbean and has not
imported the grain from the U.S. since 2011. The freer trade guidelines
could potentially raise the U.S. share of wheat imports from zero to
90%, creating a $150 million business in the process. There is also
greater room in the marketplace for soy products and corn, the latter of
which hasn't been traded since 2008.
The uptick in American goods will also benefit Cuba by boosting Cuban
food security. The country currently imports about 80% of its food
American banks will finally be able to conduct business in Cuba for the
first time since the trade embargo barred U.S. banks from doing business
there. American financial institutions will now also be able to open
correspondent accounts at Cuban financial institutions to process direct
transactions, eliminating the need to search for a banking intermediary
in Cuba to sell products or process trade.
Individuals will also feel the effects of relaxed financial
restrictions. Remittance levels to Cuban nationals will be raised,
allowing Americans to send more money to Cuba. Remittances pertaining to
humanitarian projects and the promotion of private businesses will be
authorized without limitation.
Americans traveling in Cuba will no longer be limited to cash
transactions and will be able to use their credit and debit cards on the
island. American Express (AXP) is the latest American credit card issuer
to announce its plans to conduct business in Cuba. MasterCard (MA) also
recently announced it would stop blocking Cuban transactions.
THE BOTTOM LINE
Congressional approval is needed to lift the current economic embargo.
Without full legislative access to Cuba, any significant American
economic gain would not materialize. However, the swift progress of
Cuban-American diplomatic relations suggests an eventual—and perhaps,
forthcoming—embargo lift which in turn, would bring considerable success
to the travel, agriculture, and financial services sectors.
Source: What Cuba-U.S. Relations Means For U.S. Industry