Cuba Trade Opportunities Beckon to States Competing With Each Other, Foreign Nations

International Trade Daily™ provides rapid, reliable notification of the most significant developments affecting U.S. trade and international business policy, as well as the policies of major U.S....

By Lenore T. Adkins

June 19 — Virginia, New York and Missouri are jockeying with one another—and the world—to land business in Cuba, now that America has cracked the door open.

Virginia Gov. Terry McAuliffe (D) will lead a delegation of agricultural and other business leaders to Cuba by the end of 2015. The state intends to build on the agricultural trade relationship it has had with Cuba for more than a dozen years.

New York Gov. Andrew Cuomo (D), the first governor to lead a trade mission to Cuba since the U.S. policy shift, took 11 companies' representatives with him. Officials said they made four deals, including one with JetBlue Airways Corp., which will offer direct flights between New York and Havana starting July 3.

New York says it is critical to be first in line. “Our relationship with Cuba is going to develop,” said Howard Zemsky, president and chief executive officer of Empire State Development. “It's just a question of when.”

Missouri established partnerships with Cuba's Ministries of Sugar and Agriculture, three farmers' markets and two farmer cooperatives in hopes of increasing or establishing more outlets for the state’s goods.

But while some in Congress try to thwart President Barack Obama's new Cuba policy, the rest of the world has moved on.

For example, French President Francois Hollande's visit in May resulted in Air France adding 11 weekly flights to Cuba.

At the same time, Rep. Mario Diaz-Balart (R-Fla.), chairman of the House Transportation, Housing and Urban Development (THUD) subcommittee of the Appropriations Committee, added language to a THUD spending bill (H.R. 2577) to stop new flights and cruise ship travel to the island. The House passed the bill June 9, with the language intact.

“We must not permit the exploitation of properties stolen by the Castro regime, which is expressly prohibited in U.S. law,” Diaz-Balart said in a statement.

An official from the U.S. Chamber of Commerce said it was unaware of any other U.S. state officials headed to Cuba. The National Governors Association and the National Conference of State Legislatures said they don't track that information. Officials from the Cuban Interests Section in Washington didn't respond to repeated phone messages and e-mails for comment.

What Has Opened Up

The president's new Cuba policy includes easing certain sanctions under the financial, commercial and economic embargo. The policy shift

• allows the sale of communications devices, software and other related items in Cuba;

• lets telecommunications companies build infrastructure on the island;

• gives the go-ahead for U.S. banks to establish relationships with Cuban banking counterparts; and

• authorizes certain building materials and agricultural equipment and supplies for export.

 

Negotiations between Washington and Havana to reopen embassies in both capitals are ongoing, and most restrictions under the U.S. embargo remain unscathed.

The U.S. Chamber of Commerce has long urged Congress to lift the embargo and views the new detente with Cuba as a positive step.

“We want to see even more,” Jodi Hanson Bond, the chamber's vice president of the Americas for the International Division, said in an e-mail. “More opportunity for U.S. citizens to travel to Cuba, more opportunity for U.S. companies to do business on the island and of course, more opportunity for Cuban citizens.”

Virginia May Expand Cuba Ties

At $52 billion a year, agriculture is Virginia's top industry and accounts for nearly 357,000 jobs. Virginia's port in Norfolk ranks third among the top five in the U.S. that export to Cuba, according to the U.S. Cuba Trade and Economic Council, Inc. The other ports in order of ranking were: South Louisiana, Westwego in Louisiana, New Orleans and Port Everglades in Florida.

State data show Virginia shipped $38.4 million in agricultural products to Cuba in 2013, the most recent year for which figures are available. Soybeans represented about 81 percent of that revenue; soybean meal rounded out the remaining 19 percent. Those figures show a sharp decline from 2012, when Virginia exported $65.6 million in agricultural products to the island nation. In fact, China is the top importer of the state's agricultural products, with $691 million worth in 2014.

Jose Cabanas, chief of the Cuban Interests Section in Washington, spoke at three Virginia trade events this year, including one in Norfolk. McAuliffe pledged to continue an initiative to increase the state's exports by updating the strategic plan to turn Virginia into the largest agricultural exporter on the East Coast—this year it ranked second, behind No. 1 Georgia.

Virginia's existing relationship with Cuba gives the state a competitive edge, said Todd Haymore, Virginia's secretary of agriculture and forestry.

“We believe that Virginia is in a very, very good place to do business with Cuba beyond agricultural opportunities at some point in the future,” Haymore said.

People from the agricultural export side will comprise a strong presence on the “lean and mean” Virginia delegation that heads to Cuba later on this year, Haymore said. Officials will also try to bring people from a cross-section of Virginia business interests, including the health-care and IT sectors.

“We need a targeted delegation to examine and discuss opportunities for when things do change and full trade commerce is allowable,” Haymore said.

New York Sees Opportunities 

Cuomo's April trade mission led to JetBlue becoming the first major U.S. carrier to fly between New York and Havana since Obama softened travel restrictions.

The New York delegation included executives from Roswell Park Cancer Institute, Infor Global Solutions, Inc., the State University of New York (SUNY) and representatives of the agricultural, financial, health and pharmaceutical industries.

Roswell Park completed a deal with Cuba's Center for Molecular Immunology to develop a lung cancer vaccine for a clinical trial in the U.S. Infor Global Solutions completed a deal to sell health-care management software in Cuba and SUNY left with a memorandum of understanding to beef up study abroad opportunities and scholarly exchanges with the University of Havana.

Getting to the table first “speaks to our history and open mindedness,” said Empire State Development's Zemsky.

“Whether you talk about financial services, agriculture, hospitality, air service, life sciences, who has it over New York?” said Zemsky, who was part of Cuomo's delegation.

New York officials are now following up with executives from the delegation to help facilitate any opportunities seen on the island.

Global Competition

The unprecedented thaw between the U.S. and Cuba has brought an explosion of business and diplomatic interest.

China recently inked a deal with Cuba's Ministry of Tourism to construct a golf course on the island. On a recent visit to the island, Japan offered credit lines and donated medical supplies to state companies in Cuba, the Havana Times reported.

Hollande's trip in May made him the first French president to visit Cuba. Joining him were executives from Air France-KLM, The Soufflet Group, Orange SA, Accor SA and Pernod Ricard SA. Accor later announced plans to build a luxury hotel on a Cuban beach resort that will offer Wi-Fi in every room. A French shipping company has agreed to open a logistics center at the port of Mariel, which is in the center of a special development zone meant to attract foreign investment.

A U.K. business delegation led by Lord Hutton of Furness, in charge of the U.K.'s Cuba initiative, announced $400 million in new tourism infrastructure, agriculture and energy projects and more.

In terms of diplomacy efforts, Federica Mogherini, the European Union's foreign policy chief, flew to Cuba in March to restart the EU's own normalization efforts focusing on trade, human rights, democracy and development cooperation. The fourth round of those talks began this week in Brussels.

Missouri Seeks to Deepen Relationship

Missouri officials said they were on the phone to Cuba to arrange a March trade visit less than 48 hours after Obama made his historic announcement last December.

“Missouri’s diverse agriculture makes it an excellent potential trade partner for Cuba,” Richard Fordyce, Missouri's director of agriculture, said in an e-mail.

The state exports products from industries that include the $7.3 billion wood products sector and holds leading positions in an array of agricultural products, including beef cattle, rice, turkeys, soybeans, corn and hogs.

Fordyce and Georganne Wheeler Nixon, Missouri's first lady, represented the state on the delegation to Cuba with U.S. Agriculture Coalition for Cuba, comprising 95 people in all. The state secured opportunities for state agribusinesses to participate in several pilot bartering projects with Cuba. Fordyce said details of those projects aren't available.

In Cuba, Nixon met with agriculture, trade and investment and tourism officials, and with Josefina Vidal, the Cuban government’s lead negotiator on normalization. Nixon and Fordyce also met with U.S. Ambassador Jeffrey DeLaurentis in Havana. Missouri leaders said they gathered information about Cuba’s agricultural needs and fostered relationships with agribusinesses.

Paul Johnson, the agriculture coalition vice chairman, said he learned Cubans in the agriculture industry want access to credit, equipment, seeds and fertilizer.

In Cuba, ‘El Bloqueo.'

The U.S. imposed an embargo, “el bloqueo” in Spanish, in 1960, a year after Fidel Castro overthrew U.S.-backed Cuban President Fulgencia Batista. After Castro nationalized industry, U.S. land and banks on the island, then aligned Cuba with the former Soviet Union, the U.S. severed diplomatic ties and later blocked all trade.

In its most recent annual report to the United Nations in 2014, Cuba estimated the embargo's economic damages at $1.1 trillion.

Cuba is still a single-party dictatorship, whose primary imports are machinery, food and fuel products, and whose exports include refined fuels, sugar, tobacco, nickel and pharmaceuticals. Cuba's main trading partners in 2014 were Venezuela, China, Spain, Brazil and France, said John Kavulich, president of the U.S.-Cuba Trade and Economic Council, Inc.

Cuba's $68 billion gross domestic product won't grow much in the short term—just 3.5 percent this year, 4.5 percent in 2016 and 5.3 percent in 2017, said Juan Triana Cordovi, a University of Havana economics professor.

The Cuban armed forces control more than 80 percent of the economy, said Jose Azel, a senior research associate at the University of Miami's Institute for Cuban and Cuban American studies. That includes the island's principle holding company, Groupo de Administracion Empresarial S.A., which has as subsidiaries the island's major hotel chains.

Cuba revised its law in 2014 to encourage more direct foreign investment, but the response has been anemic.

“The Cuban government wants to have its economic cake and eat it too,” said Ted Henken, a Baruch College professor of Black and Latino Studies.

Florida: Dissension in the Ranks

The largest Cuban-American population in the U.S. lives in South Florida, just 90 miles from Cuba, and they tend to support the embargo. Gov. Rick Scott (R) has said he has no interest in doing business with the country.

Scott sees potential threats from Cuban exports of agricultural goods because of increased competition and the possible introduction of invasive pests and species.

“Florida agriculture has over a $100 billion impact on our state and President Obama should be doing everything he can to support it,” Scott said in a statement.

Tampa, Fla., officials don't share that view. Its city council has approved a resolution to reopen the Cuban Consulate that closed in 1959, which the Greater Tampa Chamber of Commerce also supported.

Havana is a straight shot by boat from Port Tampa Bay, giving Tampa an advantage, said Bob Rohrlack, the chamber's president and chief executive officer.

In May, Rohrlack went to Cuba with representatives from the city's health, oil and development industries, along with top officials from Busch Gardens, the Tampa Bay Lightning hockey team and Tampa International Airport. While the group did not sign any deals, Rohrlack sees opportunities for medical exchanges and growth at the airport.

New Jersey Businesses Take Lead

The president's Cuba policy is also a touchy subject in New Jersey, home to the second-largest population of Cuban Americans, after Florida. Union City, N.J., formerly nicknamed Havana on the Hudson, sheltered thousands of Cuban refugees who fled the island during Castro's regime and the 1980 Mariel boatlift.

New Jersey Gov. Chris Christie (R) criticizes Cuba's refusal to hand over Joanne Chesimard, a fugitive on the FBI's Most Wanted Terrorists list, who was convicted of killing a New Jersey state trooper in 1977. A spokesman for Christie declined to comment on whether the governor would organize a trade mission to Cuba.

Yet IDT Corp., a New Jersey-based phone company, signed a deal with Cuba's state-owned telecommunications company in March that lets it offer long-distance telephone service between the U.S. and Cuba. Operators previously routed calls through a third country.

Moreover, the New Jersey Technology Council, a regional trade group with members from New Jersey, New York and Philadelphia, went to Cuba in April. James Barrood, the council's president and chief executive officer, said the 12-member team gained a better understanding of Cuba and identified technical talent there.

“Ultimately if they emigrate to the states, we want the smartest talent coming to our areas of the states,” Barrood said.

The embargo puts the U.S. at a disadvantage, said Robert Muse, a Washington attorney with expertise in U.S. laws relating to Cuba. For example, the embargo bars U.S. companies from building hotels on the island, blocking them from the benefits of increased U.S. travel to the island.

“The rest of the world is delighted if we want to keep shooting ourselves in the foot,” Muse said. “They’ll cheer us on from the sidelines.”

To contact the reporter on this story: Lenore T. Adkins in Washington at ladkins@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com