What’s next for US companies in Cuba?

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The Carnival Sun is one of several U.S. cruise ships with trips to Cuba. Photo by Carnival Corp.

A year ago this time, a myriad of U.S. companies were rushing to be the first in their respective industries to pen deals with Cuba. With then-President Barack Obama loosening the U.S. embargo toward Cuba, it appeared trade would soon be flowing between the two countries. Then, a surprising November victory by Republican presidential candidate Donald Trump threw those plans into uncertainty. Trump, who originally said he was “fine” with Obama’s détente, vowed to roll it back, and for more than half a year the U.S. business community awaited word of what that meant.

In June, Trump began to define his Cuba policy, announcing he would prohibit U.S. businesses from doing deals with entities controlled by the Cuban military, as well as forbid U.S. travelers from visiting Cuba on self-directed people-to-people trips. The months between Trump’s announcement and the final publication of corresponding regulations are still cause for uncertainty—but experts say there could still be some silver linings.

Many sectors of interest to American corporations such as biopharmaceuticals, agriculture, and joint ventures in mining and manufacturing, do not appear to be under military control, so they should not be affected. U.S. transportation companies, i.e. airlines and cruise lines, will be allowed to continue. According to a frequently asked questions document published July 25 on the website of the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), business deals will be permitted “provided that those commercial engagements were in place prior to the issuance of the forthcoming regulations.”

Trump also made no mention of about two dozen bilateral agreements signed since late December 2014 when Obama initially began the détente. Those include points of common interest such as border security and drug trafficking, as well as scientific, educational, and recreational exchanges.

And, because it will take at least 120 days to publish the new regulations, there is also ample opportunity for U.S. businesses to lobby for a less severe articulation of the rules.

“We continue to talk with the government and give them examples of the type of opportunities that exist for U.S. manufacturers and job growth in the United States by improving the relationship,” explained Alexander Russ, director of International and Regulatory Affairs at the Association of Equipment Manufacturers in Washington.

Nonetheless, Trump’s announcement has created anxiety in some U.S. businesses worried about inadvertently engaging in illegal transactions with Cuba’s armed forces, which some media suggested could control as much as 60 percent of the Cuban economy. Some economists, such as Emilio Morales of the Havana Consulting Group, put that number at closer to 20 percent. Regardless, it will take many months for the U.S. State Department to come up with a list of just who or what is off limits.

“He [Trump] has not defined the word military. How expansive that definition is will have a great effect on whether this will severely curtail business or be limited,” said Jason Marczak, director of the Latin America Economic Growth Initiative at the Atlantic Council’s Adrienne Arsht Latin American Center in Washington.

On the one hand, Marczak says it’s important to publish the new regulations as quickly as possible, as “businesses are in limbo until they publish them.” On the other hand, he agrees with Russ that lobbying is of the essence. “Our focus right now is how we can influence the regulatory process,” he said.

THE CORPORATE LINE 

As far as public statements go, the business community remains adamant in their support for continued expansion of commerce with Cuba.

The U.S. Chamber of Commerce’s U.S.-Cuba Business Council, the membership of which includes such corporate heavyweights as American Airlines, Caterpillar, DHL, Dow and GE, issued an immediate statement after Trump’s announcement.

“U.S. private sector engagement can be a positive force for the kind of change we all wish to see in Cuba. Unfortunately, today’s moves actually limit the possibility for positive change on the island and risk ceding growth opportunities to other countries…,” said the statement by Myron Brilliant, the Chamber’s executive vice president and head of international affairs. “We remain committed to working with all relevant parties to remove the antiquated policies that hinder the empowerment of the American and Cuban people.”

Individual members of the USCBC issued their own statements, as well. One of those companies is heavy equipment manufacturer Caterpillar. While it has yet to finalize any business deals with Cuba—beyond donating $500,000 to restore Hemmingway’s house outside of Havana—it has been in exploratory phases for some time.

“Caterpillar believes that engagement with Cuba continues to represent a strong opportunity—not just for American business, but to serve as a powerful tool for change. We will continue to work closely with policymakers on the best way to accomplish these goals,” the company said in a statement following Trump’s announcement of the rollback.

Other members are continuing to move forward, albeit cautiously. General Electric, for example—which signed memorandums of understanding in March 2016 to provide power, aviation, and medical equipment to the Cuban government—is still advancing its plans. The company recently secured a deal to revitalize an existing power plant on the island, said a Washington-based industry expert who asked not to be named. That deal is expected to be honored since it was made prior to the enactment of the new Trump directive.

An American Airlines plane lands in Holguín in eastern Cuba. Photo by Jon Braeley.

CONTINUED TRAVEL

Although Trump’s new policy intends to change the course of self-directed people-to-people trips to Cuba, it has not eliminated all forms of travel. U.S. citizens of Cuban origin will be allowed to continue their regular familial visits; academics, researchers, and business people can continue to board flights; and people-to-people group travel, including cruise line and tours, will keep going.

“We can’t speculate as to what if any impact these new regulations will have on the number of people traveling. However, American is well positioned since Miami-Dade County is home to the majority of Cuban-Americans in the U.S., and we are the leading carrier from Miami International Airport, where we operate nine out of 10 daily frequencies,” American Airlines said in a July statement.

Cruise lines of various sizes, including giants Carnival and Norwegian, are not only continuing their existing cruises to Cuba, but expanding their itineraries for next year. Norwegian, for example, announced a new 2018 cruise to Cuba from Port Canaveral nearly a month after Trump’s announcement. Carnival, the first cruise company to send vessels to Cuba in 2016, announced it was preparing to send its affiliated Holland America Line to Cuba, and is waiting to introduce other brands to Cuba, pending approval.

“Travel brings people and cultures together, so we are excited about the upcoming cruises to Cuba for our guests,” Carnival Corp. said in a statement.

GOING FORWARD

Akin Gump, the Washington, D.C.-based legal powerhouse, has numerous clients interested in opportunities in such Cuban sectors as pharmaceuticals, hospitality, agriculture, and financial services. Their advice to clients, says Scott Parven, the attorney who heads their Cuba practice, is to stay the course.

“We are advising our clients to lean in—and they are doing so—and to lean in with their lawyers by their side, to make sure they are clearly understanding the law versus the rhetoric,” says Parven. “We are reminding clients that Cuba is always going to be a long-term play, that hasn’t changed. This is a speed bump, and we will get past it…. For those companies that have considered Cuba a market, it’s a just an issue of re-aligning strategies and tactics.”

Attorney Anya French, another member of the Akin Gump Cuba team, says that the firm has also been approached by new clients looking for clarification on the Trump policies. “It comes down to how the regulations are written,” she says. “There are sectors where there doesn’t seem to be an affect, but it’s not clear… that is what we are working on in our advocacy effort. The military is the primary issue.”

Charles Serrano, whose consulting firm Antilles Strategy Group has led some 200 commercial missions into Cuba, says that regardless of particular rules, Trump’s announcement has had a chilling effect on corporate interest in Cuba.

“I don’t think the corporate executives and general counsels that I normally deal with are making statements that we should rush in and get things done before the regulations change,” he says. “It’s more like, ‘Let me just see how the regulations turn out.’ And that is sad, because any indicator that [some activity] might be illegal or might increase the risk—especially for the big corporations we are talking to—those people are going to step back, not step forward.”

Included in that risk assessment is whether traditional Republican hardliners like Florida Sen. Marco Rubio will push to make the regulations even more debilitating for U.S. business.

“Will there be additional announcements if he [Trump] doesn’t feel that the Cubans are doing enough, or additional if he needs the support of Rubio?” asked Marczak. “There are a host of unknowns here that could cause investors to give second thoughts… in some cases, there is so much profit potential that they will be willing to take the risk.”

Having said that, the corporate community remains a strong champion of improving relations with the Cuban government, and will continue to be an advocate of loosening restrictions, right up to the point when the new regulations are actually printed.

“Our companies that go over there and try to understand the market always come back to talk about the overwhelming opportunities,” said Russ, especially in basic infrastructure. “There’s a lot of need over there, and we’d like to have U.S. companies be able to fulfill that need.”

 

J.P. Faber contributed to this report

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