The US and Cuba – long awaited trading Partners

It was December 2014 that the US and Cuba declared their intention to reinstate diplomatic relations after a long time of over half a century. Since then, the US has attenuated trade restrictions, travel to Cuba and remittances which has made people across the borders sanguine regarding the economic opportunities that would accompany a more normal relationship between the two nations.

Source: The USA Department of Agriculture; A corn farm in Cuba; The average US exports of grains to Cuba was 344,000 MT annually between 2012 – 2014.

Source: The USA Department of Agriculture; A corn farm in Cuba; The average US exports of grains to Cuba was 344,000 MT annually between 2012 – 2014.

The Economic Research Service (ERS) reports the potential influence of such commercial exchange between the two nations on bilateral trade in agriculture.

U.S.-Cuba trade was considerable before the Revolution in Cuba. During 1956-58, along with being the ninth most important market for U.S. agricultural exports and the second leading supplier of U.S. agricultural imports, the US was a major exporter of rice, lard, wheat flour, and pork, and a major importer of tobacco, cane sugar, molasses, and coffee. This trade was suspended after the Cuban revolution.

After a long hiatus, the Trade Sanctions Reform and Export Enhancement Act (TSRA) brought a crucial change to this US embargo in 2000. Sales of certain food articles and medical supplies into Cuba were allowed which aided in US regaining its position as Cuba’s key supplier of agricultural products which reached around 365mn USD annually during 2012 to 2014. These were mostly soybean meal, corn and chicken meat. However, without resuming US imports from Cuba, there was no palpable restoration of normal economic relations.

ERS report says reinstating the normal relations would increase US agricultural exports to Cuba via various channels. The US exporters could provide credit to Cuban importers which would improve US competitiveness. Then, US could export a wide range of agricultural products which is currently supplied by other nations into Cuban markets. The spur of economic growth due to ease of trade restrictions on Cuba, would enhance the demand for the US agricultural products. This will include dairy products and meat along with products that were popular in the past like dried beans, rice and wheat.

As trade pundits alerted that the US firms are losing advantage to foreign players, civil officials debated the opening of Cuba to agriculture market in the US at a hearing last week.

It was in front of the House Foreign Affairs on Nonproliferation and Trade that these experts presented evidence on the advantages and disadvantages of increasing US trade with Cuba.

Chairman of Subcommittee Ted Poe (R-Texas) alerted that as foreign players clinch trade agreements with Cuba American farmers face a drawback. The experts called Cuba an obvious destination for U.S. agricultural exports.

According to Poe’s comments, the freedom of the US farmers to export to Cuba is only in theory as the US government prevents it on the ground. In current scenario, the regulations should be reconsidered and revamped to make our agriculture bear financial risk. The US has the capability to be a strong competitor in the markets of Cuba.

In spite of the 1962 embargo which permits export of goods but yet there are hurdles for the agriculture industry.

Following President Obama’s long awaited move to rekindle diplomatic relations with Cuba, the hearing comes as President Obama visited Cuba on Sunday.

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Cuban President Raul Castro and US President Barack Obama shake hands moments before the opening ceremony of the VII Americas Summit, in Panama City on April 10, 2015. (AFP Photo/Presidencia Panama)

Before this trip, the authorities have reduced a number of financial and travel restrictions on Cuba which allow Americans to use U.S. dollars in Cuban financial transactions and thus allows them to visit the island nation.

However, a complete removal of the decade old embargo on Cuba is necessary to fully restore large-scale business operations.

Thus, the experts contended that the US should take quick actions. As per Ray Stoesser’s – president of the Texas Rice Council – comments the US farmers are losing market pie to rivals in other nations because they can finance and are not hindered by government intervention to supply the Cuban market.

To conclude, a long – term relation in U.S.-Cuba agricultural trade calls for fostering a bilateral relation that creates avenues for investment and trade.  Besides, a lot depends on the Cuban Government’s reforms for more open trade and investment policies to gain from those opportunities.

The reason why there is still skepticism in the air to resume business with the Cuban market is because lack of any signs of democratization.

This is also the reason why speculations are high among congressmen including President Obama that there is still some time before the embargo would be repealed completely. President Obama strongly believes that no matter it is the Democrat or Republican in the power next year, the embargo is most likely to be removed.

 

References:

Cortes, N; U.S. Cuba relations: What is next for U.S. investors?; January 15th, 2016; http://kluwerarbitrationblog.com/2016/01/15/u-s-cuba-relations-what-is-next-for-u-s-investors/; visited on March 14th, 2016

H.T; Why the United States and Cuba are cosying up; May 29th, 2015; The Economist; http://www.economist.com/blogs/economist-explains/2015/05/economist-explains-37; visited on March 14th, 2016

Fong J; Lawmakers eye boosting Cuba trade; March 16th, 2016; http://thehill.com/blogs/blog-briefing-room/273251-lawmakers-eye-boosting-cuba-trade; visited on March 14th, 2016

 

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2 Responses to The US and Cuba – long awaited trading Partners

  1. Hope Turock says:

    I do see an opportunity to improve US exports and narrow the overall trade deficit through exporting agricultural products to Cuba. There are also some other potentially profitable industries. Telecommunications could increase between the two countries—the article from The Economist that you posted explains that a US-based phone company, IDT, is working to provide phone services between the US and Cuba. There could be an increase in the tourism sector as well in Cuba, since it has a similar climate to the rest of the Caribbean. Cruises could potentially dock there and give the entire country a lot of revenue and increase GDP, which is what has happened in the Bahamas.

    The embargo, as you said, would need to end for this to happen. It could also be potentially useful for Cuba to join NAFTA—there would be a lot of free trade with Canada and Mexico as well, and the US would be able to export a whole lot more in each industry and actually import some goods from Cuba for the first time in a half-century. However, it does not seem that Cuba will join NAFTA anytime soon. If Donald Trump or Bernie Sanders becomes President, there will probably not be any change in the trade embargo. They both, as some others have said in their posts, seem to hate NAFTA and free trade, even though it brings each country to a better state of welfare than in autarky.

  2. zbardblog says:

    For over 50 years, the ideologies of both the US and Cuba have been very different in terms of contrasting relations, ultimately putting American and Cuban citizens in a trauma of forced separation. From doing a few readings myself I feel that president Obama normalizing relations through an open flow of people would be the most effect way. President Obama visit to Old Havana was really able to capture the interest of the Cuban people. The average Cuban was able to see him up close and not on TV or over the news like they have been hearing for the past 50 years. Obama made it clear that change must happen from within. He is telling us that change won’t happen over night and it will not be a smooth transition. We need to stick on the path Obama is taking us down and good things will happen moving forward.

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