New U.S. Policy Towards Cuba
On June 16th, 2017, President Trump’s administration announced the general framework for the new U.S. Cuba policy. Formal implementation of the new policy will take place once the U.S. Treasury Department issues the updated regulations expected sometime this Fall.
Highlights of the new Policy:
- No more deals with Cuban military holdings: Persons subject to U.S. jurisdiction will be generally forbidden to engage in economic transactions with Cuban companies under the control of the military or any security or intelligence agency of the Cuban government. For complying purposes, the U.S. government will post the list of Cuban companies that are known to be part of the military holdings.
- No more individual “People to People” travel: Persons subject to U.S. jurisdiction will no longer be able to individually self-certify in the pre-approved “Educational Travel/People to People” subcategory to travel to Cuba: Any person wishing to engage in a people-to-people exchange will now have to book a group tour sponsored by a U.S. organization that has been granted a specific license to organize these types of tours. These group tours must have a full time schedule of activities and a representative of the organization must ensure compliance with the itinerary. You can learn more about the 12 pre-approved categories here: Traveling to Cuba.
The U.S. administration should start working on a regulatory framework within 30 days after the June 16 announcement. The existing, specific commercial licences granted by OFAC before the announcement of the policy will remain in place.
- Empower the Cuban Private Sector: The new policy states its goal is to help Cuban nationals to be more independent from Cuban authorities, but, by limiting the most popular “people to people” travel category, we believe this will affect the private businesses in Cuba, depriving them of a significant source of income . Moreover, it may become more politically risky for private entrepreneurs to engage in meaningful relationships with U.S. citizens or organizations.
- Weakening the Military Control of the Economy: In Cuba there is a centralized economy which includes the requirement that military run companies have to report to the central budget: if the objective is to reduce the resources that go directly to the military, it would have to be done by limiting the resources that go to the Cuban economy as a whole, assuming the goal is for Cuban officials to reduce the armed forces budget. At the same time, less engagement and resources will, of course, cause substantial harm to the standard of living of the Cuban people.
- Increasing the Risks for the Cuban Government. In addition to the direct economic impact, President Trump and the Cuban-American legislators that lobbied for this change in policy are, in part, relying on the continuing political instability of Venezuela; Cuba’s main political and commercial partner. Cubans, however, have survived a dozen American presidents with a similar foreign policy. We believe that increasing the risks for Cuban institutions will not help to accelerate positive changes on the Island. On the contrary, it may increase uncertainty and many perhaps generate a step back to more familiar defense tactics. The impact may be even more complex if we look at the generational change that will be taking place in Cuba during this period which includes general elections and the decision of Raul Castro to leave the presidency of the Council of States and Ministers by early next year.
- U.S. Company's Opportunity Cost: The Cubans have been and will continue to engage in business transactions with European and Chinese companies which effectively blunts the full impact of the U.S. embargo. When the Cubans can work with European or Chinese partners, import, finance new business or develop new markets for exports, the embargo becomes, at best, a symbolic political statement while continuing to be a burden for the Cuban people and, also, a significant lost opportunity cost for U.S. businesses, given the stated goal of the Cuban government to bring $2B-2.5B USD annually in foreign investment to the nation’s economy .
- Continuing Commercial Engagement: "The general approach is to allow as much of this continued commercial engagement activity to go on as possible" , said Secretary Rex Tillerson about the new U.S.-Cuba policy. Besides the general prohibition of dealing with Cuban holdings lead by the military, there is not much new in the policy to further limit commercial relations. Most of the travel categories still have a general licence and can be self-certified, such as “professional research” or “professional meetings” and will therefore continue to supply an important access point for commercial engagement. The policy recognizes that this engagement may improve the lives of the Cuban people and will consider permitting commercial relations between U.S and Cuban organizations that strengthen this particular positive effect of the engagement.
- Ongoing Commitment to Reform the Economy: Cubans will not pause in their progress towards economic reforms, notwithstanding the desire to see these changes occur faster and to be more substantive. Because of this commitment, as of 2017, the growth of the private and cooperative sectors of the economy now comprise approximately 25% of the overall workforce. State run enterprises continue to evolve as evidenced by their adoption of more progressive management principles and the widespread elevation of a new generation of aligned managers.
- First mover advantages. This is the time to gain first mover advantages in the Cuban market and to help the Cuban people to reach their highest potential. The Cuban economy will continue to experience multiple openings and expansion of foreign investments. Political and economic institutions are scheduled to be reformed in the relatively near future with the adoption of a new Constitution. The scope and content of this reform is not yet known or even yet openly discussed on the Island and will have to deal with structural changes, like the increase in the private and cooperative sectors. Taken as a whole, the incentives from both the Cuban and U.S. sides should lead to an increase in interchange and trade between the neighboring countries.
Cuba Strategies continues to offer its clients an unprecedented opportunity to gain entry into this emerging market through its intimate understanding and ability to navigate the complexities of Cuba’s business climate.
Further reading on the new Cuba policy can be found here:
 American travelers may just be deter by the complexities of traveling to Cuba, even when they are able to legally doing it. You can read a cancellation email to a Cuban private rental house soon after the Trump announcement here: Cancellation email.
 To learn more from Cuba as an investment destination you can check: Presentation on the Cuban Market by the Cuban Chamber of Commerce, March 2016