What Will the “New Chapter” in U.S.-Cuba Relations Entail?

It is quite likely that the current and upcoming changes to the United States’ relationship with Cuba will be the most significant we’ve seen since 1961, when the U.S. government initially cut ties with Havana and imposed an embargo on Cuba that has only grown stricter over the years. President Obama’s December 17 announcement signaled the start of efforts to normalize U.S.-Cuba relations and was immediately echoed by Cuban President Raul Castro as the two countries exchanged numerous prisoners on humanitarian grounds. The U.S.’ new approach, details of which were released in a White House fact sheet, includes plans to rekindle diplomatic ties through discussions led by Secretary Kerry, the establishment of a U.S. Embassy in Havana in the coming months, and high-level exchanges between the two governments beginning with the next round of U.S.-Cuba Migration Talks to be held in Havana later this month. The White House also indicated that the Treasury Department’s Office of Foreign Assets Control (OFAC) and the Commerce Department’s Bureau of Industry and Security (BIS) would make adjustments to existing regulations in order to begin the normalization process. On January 15, both OFAC and BIS published final rules implementing President Obama’s initial reforms, which include the following changes, effective January 16th, 2014:

  • Travel: OFAC general licenses for 12 specific categories of travelers will make it easier for certain travelers such as those with family in Cuba, journalists, researchers, educators, and performers to visit Cuba as they will no longer need to apply for specific licenses.
  • Remittances: The amount a U.S. person will be able to remit to Cuba in a quarter will be increased from $500 to $2,000 and remittance forwarders and those sending money to support the development of private businesses in Cuba will no longer require specific licenses from OFAC to do so.
  • Exports: A small group of goods and services will be allowed to be exported from the U.S. to Cuba, including building materials for residential construction, agricultural equipment, consumer communication devices and related software, applications, hardware, and services, as well as other “goods for use by private sector Cuban entrepreneurs.”
  • Imports: Upon their return to the U.S., travelers to Cuba will be able to import up to $400 worth of Cuban goods ($100 of which can consist of tobacco or alcohol products).
  • Shipping: Certain vessels that have engaged in trade with Cuba will be allowed to enter the U.S.
  • Financial Institutions: U.S. entities will be allowed to open accounts at Cuban financial institutions and U.S. credit/debit cards will work in Cuba. Transactions incident to Cuban travel and related insurance coverage will also be permitted.
  • Extraterritorial Reach: The scope of U.S. sanctions against Cuba will be limited so that certain U.S. owned/controlled entities located in third countries will be allowed to transact with Cuban individuals in third countries.

For more details regarding these changes, you can take a look at the text of the OFAC changes here,¬†the text of the BIS changes here, or review the Treasury Department’s fact sheet on the issue¬†here.

It remains to be seen whether these initial executive-led changes open the door to a more comprehensive dismantling of the 50-year-old economic and financial embargo against Cuba and usher in a truly new chapter of normalized trade between the two countries. If this does occur, U.S. exporters and American industry as a whole will have the chance to gain big from opportunities made possible by the newly opened Cuban market. However, a more substantial easing of sanctions is unlikely absent direct congressional action to amend or repeal the various pieces of legislation underpinning the regulations promulgated by OFAC and BIS. President Obama along with the executive agencies can only go so far in suspending the economic embargo on Cuba due to limitations on their power to do so specified in Titles I and II of the Libertad Act (or Helms-Burton Act) of 1996. Undoubtedly, questions of the limits of executive power as compared to that of Congress to change U.S. law and foreign policy will fuel the debate, especially since President Obama must seek support for this initiative from a Republican Congress.

While drastic changes to the sanction regime will not happen overnight, how far OFAC is willing to go in implementing changes to the regulations and subsequent reaction in Congress will give us a better sense of how much support the President has, and how fierce the opposition is. These initial steps will help gage whether a transition to a truly “normalized” trade relationship with Cuba can be accomplished relatively quickly or if it will take many years to dismantle this longstanding policy. Stay tuned.