ECONOMIC EYE ON CUBA©
March 2016
US$4.3 Billion In 2015 U.S. Commerce Department Licensee In Perspective- 1
January 2016 Food/Ag Exports Deceased 8% Compared To January 2015- 2
No Exports Of Products Authorized By 2015/2016 Initiatives
January 2016 Healthcare Product Exports- 3
January 2016 Humanitarian Donations- 4
U.S. Port Export Data- 14
Current Speaking Schedule- 16
U.S. Technology Companies "Backdoor" Into Cuba
The government of the Republic of Cuba unlikely to purchase technology hardware and software from United States-based companies.
A challenge for United States-based communications/telecommunications companies and the United States government is how to answer the following inquiry from the Ministry of Communications of the Republic of Cuba: “If we purchase your equipment, how do we know the equipment will not be compromised before it arrives or have an ability to be compromised from abroad after its installation? Will you augment the specifications of equipment so we may monitor all voice, text, data and email traffic flowing through the equipment?”
However, United States-based air carriers and United States-based hospitality companies that will operate within the Republic of Cuba will import for their use servers, CPUs, monitors, laptops, modems, facsimile machines, printers, digital telephone systems, cables, satellite communications equipment, photocopiers, reservations systems software and other state-of-the-art products. The following companies, among others, could have an indirect operational presence within the Republic of Cuba:
California-based AMD
California-based Apple
California-based Broadcom
California-based Cisco Systems
California-based Hewlett Packard
California-based Ingram Micro
California-based Intel
California-based Oracle Corporation
California-based Qualcomm
Connecticut-based Xerox
Massachusetts-based EMC
New York-based IBM
Texas-based Dell
Washington-based Amazon
Washington-based Microsoft
From 20 January 2016 to 22 January 2016, The Honorable Daniel Sepulveda, Deputy Assistant Secretary of State and U.S. Coordinator for International Communications and Information Policy led an official fourteen-member delegation to the Republic of Cuba which included The Honorable Thomas Wheeler, Chairman of the Federal Communications Commission (FCC) and FCC staff, representatives from the OFAC, and according to Deputy Assistant Secretary Sepulveda, representatives of “academia, and the private sector.”
The names of the non-United States government participants have not been disclosed by the United States Department of State. The Washington, DC-based Information Technology Industry Council confirmed that its president, Mr. Dean Garfield, participated in the delegation “led by the U.S. Ambassador and Deputy Assistant Secretary of State for International Communications and Information Policy Daniel Sepulveda.” Other private sector participants included representatives of California-based Cisco Systems, Pennsylvania-based Comcast, Sweden-based Ericsson (North American Headquarters in Plano, Texas).
From Chairman Wheeler on 27 January 2016: “Ambassador Daniel Sepulveda from the State Department led our delegation which also included representatives from the Department of the Treasury as well as representatives of the technology community. The inclusion of the private sector in the talks advanced the dialog with real life examples of what was possible.”
NOTE: On 1 February 2016, Republic of Cuba government-operated Empresa Nacional de Telecomunicaciones de Cuba S.A. (ETEC S.A.) reported that it would install broadband services within the area of Old Havana using equipment sourced from Shenzhen, People’s Republic of China-based Huawei Technologies Co Ltd. (2015 revenues exceeded US$28 billion). On 6 November 2015, Huawei Technologies Co Ltd. Reported an agreement to market mobile devices, parts, accessories and to train repair personnel. The government of the People’s Republic of China has extended substantial financial credits to the government of the Republic of Cuba.
New York-based Verizon Wireless, which had since 2015 operated a roaming agreement through London, United Kingdom-based Vodafone) with Republic of Cuba government-operated ETECSA, has announced that the company now has a direct roaming agreement.
Texas-based AT&T is expected to announce a direct roaming agreement with ETECSA.
In 2015, Kansas-based Sprint Corporation established the first direct in roaming agreement with ETECSA.
Let’s Put The US$4.3 Billion In 2015 U.S. Commerce Department Licenses In Perspective…. Politics Versus Reality
The New York Times
13 March 2016
“Penny Pritzker, the commerce secretary, said the next day that her department had granted American companies billions of dollars’ worth of authorizations to do business in Cuba.”
The New York Times
17 February 2016
“Ms. Pritzker said her department had acted aggressively since Mr. Obama’s December 2014 announcement to pave the way for American companies to do business in Cuba, granting 490 authorizations amounting to $4.3 billion last year alone — a roughly 30 percent increase over the previous year.”
NOTE: We missed this… a perspective should have been provided last month.
For the first agricultural commodities (corn and poultry) exported (US$4,318,906.00) in December 2001 to the Republic of Cuba, United States companies were required to obtain/have a license/authorization from the Bureau of Export Administration (BXA) of the United States Department of Commerce for the exact value(s) of the product(s) to be exported to the Republic of Cuba. In 2002, the BXA was renamed the Bureau of Industry and Security (BIS).
When the government of the Republic of Cuba continued and then expanded its purchases of agricultural commodities and food products into 2002, in spite of initial statements that the 2001 purchases were to be a “one off” so United States companies were not to expect further orders, there began discussions between exporters and representatives of the BIS about opportunities to create a more efficient licensing process.
One such decision by the BIS was to permit, and then encourage, United States companies to apply for a license that would attempt to include an estimate of what potentially might be exported by the company; and licenses were to be valid for up to two years. In some instances, the export qualified under the “export exception” provision and would not require certain BIS processes. A goal was to lessen the paperwork for the BIS and the United States companies.
For example, if a United States company wanted to export corn to Republic of Cuba government-operated Empresa Cubana Importadora Alimentos (Alimport), under the auspice of the Ministry of Foreign Trade of the Republic of Cuba (MINCEX), and had a contract or anticipated a contract or wanted to have all documentation necessary so the company could approach Alimport and say they were “ready to go," the BIS encouraged the company to add to the expected or desired quantities and U.S. Dollar values. Simply put, if the reasonable expectation was to export corn valued at US$1 million, the company would use US$5 million or US$10 million or US$100 million… whatever they wanted to use.
While Secretary Pritzker reported that the BIS issued 490 licenses in 2015 valued at US$4.3 billion, this is not reasonably related to actual exports; many of the application values upon which the BIS licenses were based were aspirational. Would have been productive for the United States Department of Commerce to provide detailed data about the 490 licenses (with company names redacted) for review.
Agricultural commodity and food product exports from the United States to the Republic of Cuba for the period December 2001 through January 2016 under provisions of the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSREEA) were US$5,283,872,190.00. For 2015, the value was US$170,670,054.00
Healthcare product exports from the United States to the Republic of Cuba under provisions of the Cuban Democracy Act (CDA) of 1992 were US$11,043,717.00 for the period 2003 through January 2016. For 2015, the value was US$4,896,966.00.
Humanitarian donation exports from the United States to the Republic of Cuba during the period 2014 through January 2016 were US$5,832,280.00. For 2015, the value was US$4,619,588.00.
Thus, the total value of reported exports from the United States to the Republic of Cuba in 2015 were US$180,186,608.00 and in 2014 were US$293,077,853.00; both years data a meaningful distance from US$4.3 billion.
In 2015, the number of companies and organizations engaging in all exports were less than one hundred; for agricultural commodity and food products, the number of exporters was approximately thirty.
There is a substantial political component, which commenced during the Bush Administration and has continued through the Obama Administration- increase the value of licenses so as to emphasize 1) The White House was authorizing/encouraging commercial activity 2) Demonstrate that United States companies were eager to engage with the Republic of Cuba and 3) Reinforce the narrative that the government of the Republic of Cuba was not engaging to the level that United States companies were desiring.
Aggressively marketing aspirational license values can create an unsustainable and, more significantly, an unattainable commercial landscape. Important to neither oversell the Republic of Cuba nor undersell the Republic of Cuba. Sell it for what it is and be reasonable and honest about the potential. This will provide value to United States companies.
Creating a narrative within which the government of the Republic of Cuba is unlikely to have the capacity to participate is unproductive and potentially harmful.
Fairfield, Connecticut-based General Electric (2015 revenues US$117 billion) is evaluating export/service opportunities within the Republic of Cuba. GE has focuses including Healthcare, Power Generation, Aviation, and Lighting.
"GE (NYSE: GE) is the world’s Digital Industrial Company, transforming industry with software-defined machines and solutions that are connected, responsive and predictive. GE is organized around a global exchange of knowledge, the "GE Store," through which each business shares and accesses the same technology, markets, structure and intellect. Each invention further fuels innovation and application across our industrial sectors. With people, services, technology and scale, GE delivers better outcomes for customers by speaking the language of industry."
The most important question relating to the return of United States-owned hospitality companies to the Republic of Cuba marketplace is:
Will Bethesda, Maryland-based Marriott International and Stamford, Connecticut-based Starwood Hotels and Resorts Worldwide (which is being acquired by Marriott International) force changes to the hospitality sector throughout the Republic of Cuba or will the companies conform to the existing infrastructure (operations, economics, personnel, etc.)?
NOTE: the term “tourism” should not be used as the twelve categories of travelers permitted by the Trade Sanctions Reform and Export Enhancement Act of 2000 does not legally authorize leisure travel to the Republic of Cuba by individuals subject to United States law.
The initial answer will be a bit of both…
With the return of regularly-scheduled commercial airline service, the operational requirements of airlines are the foundation upon which the hospitality companies will operate.
There is a requirement for high-speed internet access (satellite or land-based, potentially leading to an upgrade of the cable that lies under the Florida Straits). The airlines and the hospitality companies will bring with them servers and modems and Wi-Fi equipment and computers and facsimile machines and printers and cable and satellite (Direct TV, Dish, etc.) and cellular equipment for 4G and 5G capabilities and digital telephone systems. As are the airlines, they will seek for the government of the Republic of Cuba to institute an electronic visa program. They will be islands of state-of-the-art technology surrounded by seas of technology expectations.
There is a requirement for correspondent banking (with Pompano Beach, Florida-based Stonegate Bank being the principal benefactor as the airlines and hospitality companies will make use of its direct correspondent banking agreement with Republic of Cuba government-operated Banco Popular de Ahorro).
Marriott International and Starwood Hotels and Resorts Worldwide will not permit their flagship properties to become ambassadors of what is a minimally-acceptable customer experience; envoys to the status-quo. They will be advocates for change; they will be forceful.
The United States companies will not permit properties to be absent of basic guest room necessities; nor will restaurant and bar menus not have available the products that are listed for purchase.
The United States companies will not permit properties to fall into disrepair because the Republic of Cuba government-operated company that owns the property is required to make payments to the government of the Republic of Cuba to be directed for other purposes.
The United States companies will not finance the operations of their properties because their landlord does not have the funds as required by the management contract.
The United States companies will have training programs- and they will bring individuals of Cuban descent from their United States properties to train and to work and to manage various departments of their respective properties. They will bring individuals of nationalities from throughout their global operations to impact the commercial, economic and political environment. They will increase the wages and benefits of their employees who are Republic of Cuba nationals. They will be employment magnets for the best and the brightest from existing properties throughout the Republic of Cuba. They will upend the existing employment structures.
Will the management contracts signed by Starwood Hotels and Resorts Worldwide and Marriott International be similar as those that Spain-based Melia and France-based Accor among others have signed with Republic of Cuba government-operated companies including Cubanacan Group, Gaviota Group, Gran Caribe, Hoteles Habaguanex? No, they will be adjusted towards the standards of the United States companies rather than the United States companies adjusting towards standards that will be operationally problematic.
The Libertad Act of 1996 authorizes individuals and companies subject to United States law to engage in direct negotiations with the government of the Republic of Cuba to settle claims registered with the Foreign Claims Settlement Commission under the auspice of the United States Department of Justice. As a result of a series of mergers and acquisitions during the last fifty-seven years, a US$51,128,927.00 claim initially made by New York-based International Telephone & Telegraph Corporation (ITT) is now controlled by Starwood Hotels and Resorts Worldwide (and, soon, Marriott International), which can use this value as a means to secure opportunities within the Republic of Cuba.
A cautionary note…. Since 17 December 2014, the government of the Republic of Cuba has continued to accept and to authorize primarily those Obama Administration initiatives that will earn revenues (visitors) rather than result in an expenditure of earnings (imports). United States agricultural commodity/food product exports to the Republic of Cuba decreased 41% in 2015 compared to 2014; and January 2016 exports to the Republic of Cuba decreased 8% compared to January 2015. Healthcare product exports increased fivefold in 2015 compared to 2014.
Des Moines Register
Des Moines, Iowa
12 March 2016
Will Cuba be a gold mine for Iowa businesses?
By Kevin Hardy
Many American businesses believe re-establishing trade with Cuba will prove a financial windfall, allowing them to bring their products and services to a market that's been all but forbidden over the last five decades.
Tom Swegle has his eyes on Cuba for the opposite reason.
"We always talk about trade going into Cuba," he said, "but not what is going out of Cuba, besides cigars and old cars." Swegle, CEO of MedCara, an early stage pharmaceutical company based in in Conrad, Ia., wants to export a Cuban drug that treats diabetic foot ulcers and license it for U.S. patients.
The medicine, Heberprot-P, is already available in 25 other countries. And with nearly 30 million Americans suffering from diabetes, Swegle has little doubt of the need for the product here.
But the trade embargo enacted in 1960 remains in effect, even as the United States works to repair its relationship with the communist Cuban government. Swegle is optimistic that President Barack Obama's efforts to mend fences with Cuba will eventually allow a company like his to bring the drug to the American market. "I absolutely think its going to open up trade," he said. "It may not happen next month, but all signs are pointing to having this embargo lifted. That's what we’re banking on." And he's not alone.
As diplomatic efforts ramp up, American businesses are eyeing opportunity in a market that for many has remained off limits for decades. In Iowa, those tied to the world of agriculture are especially interested, given that Cubans import a majority of the food they consume.
And many signs abound that the U.S. government is serious about thawing its long icy relationship with Cuba: More than 50 years after President Dwight Eisenhower severed diplomatic relations with Cuba, the U.S. flag now flies again over the American Embassy in Havana, which reopened in August. Both countries have agreed to regularly scheduled commercial flights between the U.S. and Cuba.
And later this month, Obama will visit Cuba, marking only the second time a sitting American president has visited the island nation. (Calvin Coolidge visited in 1928.)
"I think there is a lot of interest," said Meg Schneider, senior vice president of regional business development at the Greater Des Moines Partnership. "And when you think about Cuba, it's a market that's been closed off for 50 years. So not only the state of Iowa, but every state in the United States has a lot of interest in what is to come." Schneider said several Iowa companies already have done business in Cuba since the U.S. government relaxed its trade ban in 2000 to allow for some agricultural exports to Cuba.
Over the last decade, Iowa's government, nonprofit and business leaders have visited the island as a part of various trade missions exploring opportunities for future business there. So far, enthusiasm is mixed.
"If you’re looking for an easy sale, that’s not Cuba," said Dave Miller, director of research and commodity services for the Iowa Farm Bureau Federation. Miller recently returned from a February trip to Cuba sponsored by the Iowa Economic Development Authority. He said he sees plenty of opportunity in Cuba, especially for Iowa's pork, corn, soybean and egg producers. And demand for high-quality meats will only increase with an expected influx in tourism, he said.
But the Cuban market is largely controlled by the heavy-handed government, and U.S regulations on financing often make it difficult to move product. Miller said the Cuban government doesn't default on its purchases, but it can take upward of a year to turn around payment on some shipments, a massive burden for any small company looking to sell there.
Still, he said, now is the time to begin building relationships in Cuba. That's the advice locals gave to the most recent group of Iowans who visited. "The answer is yes, there is opportunity. The answer is yes, there are a still a number of challenges," Miller said. "But it is probably a good time to get in if you have patience and have deep enough pockets to withstand some of the time frames that emerge."
Sen. Steve Sodders, D-State Center, who led a group of Iowa business leaders to Cuba in January, sees plenty of opportunity on the island. Aside from the obvious ag connections, he said Meskwaki Inc., the investment arm of the Meskwaki Nation, is interested in bringing Cuban rum and tobacco into the country and distributing it across the Midwest.
"We didn't just go down there saying, 'We want you to buy our tractors, we want you to buy our seed, we want you to buy our hogs,'" Sodders said. "We said we want it to go both ways. We want to buy some of your products, too." He said Cuba has been inundated with state officials and business leaders from across the country courting business.
"They emphasized that we have to start trusting each other and build a relationship so that we can do business down there," Sodders said.
Iowa Economic Development Authority Director Debi Durham said it's important for business and public officials to monitor what's happening in Cuba. But it's too early to tell how fruitful any potential business opportunities will prove. "I don’t think you’re going to see a mad rush," she said. "I think it's going to be a measured approach."
Opportunities with Iowa ag
Iowa Secretary of Agriculture Bill Northey said the opportunity for local companies in Cuba extends beyond straight commodity exports. Much of Cuba is blanketed with fallow fields that once grew sugar cane. If Cuba decides to expand its own agricultural capacity, it will need the aid of seed companies, fertilizer providers and implement producers.
"They are going to need mechanization to do it. They will need some tools," Northey said. "They certainly don’t need a 200 horsepower tractor. They need something smaller, that’s usable and very cost effective."
Cuba has drawn plenty of American focus and intrigue over the last five decades. And Northey said that may sometimes boost enthusiasm from American companies to unreasonable levels.
"We see that they need our products. But we’re not sure that we’re going to be selling into that market for awhile, simply because they’re not ready yet financially and logistically," he said. "There's an interest that maybe exceeds the opportunity in some cases, but over time there are going to be opportunities."
Deere & Co. spokesman Ken Golden said the Moline, Ill.-based maker of farm equipment doesn't foresee placing manufacturing facilities in Cuba. But the company does expect to eventually export products there. "In general, freer trade in food and agricultural products is positive for our customers and for John Deere," Golden said. "In Cuba, there is a need for agricultural and construction machinery. However, the political and economic relations between the U.S. and Cuba will take some time to develop."
Challenges in Cuba
Andrew Doria, international sales director at Johnston-based Midwest Premier Foods, said his company is always looking for new markets to trade pork, beef, poultry and other foods. But right now, Cuba is nowhere near the top of his list. "It's a great opportunity for Iowa. It will be for our ag industry, but maybe not for our company in particular," he said.
Doria is skeptical that Cuba's crumbling infrastructure will be able to support a boom in tourism. On the February trade trip there, he noted problems with water pressure, electricity and cellphone service. And he doubts that Cubans will have enough cash in their pockets anytime soon to drive up demand for exported products. (The average state salary is about $20 per month.)
Doria said the Cuban government puts an extraordinary number of hurdles in front of businesses looking to sell products there. "In Korea, we have two or three steps to do business. In Mexico, we have two or three steps. Cuba, it appears to me there would be about 20 steps to do business," Doria said. "That's just rough."
Amid heightened competition from other countries, American exports to Cuba have fallen dramatically in recent years. Cuban exports peaked above $710 million in 2008, but by 2015 reached only about $170 million, according to the U.S.-Cuba Trade and Economic Council.
John Kavulich, president of the nonprofit council, said American business interests in Cuba are far outstripping the actual opportunity there. He said the enthusiasm is counterintuitive, especially given a drop in U.S. agricultural exports to Cuba.
The Cuban government's lack of a foreign exchange and its habit of delaying payment will remain barriers for the foreseeable future, he said. Still, he recognizes the progress Obama is making in working to restore relations.
"These are initiatives that are important and are real," Kavulich said. "However, they are only as beneficial to the United States as the Cuban government will permit them to be. And thus far the Cuban government is not permitting them to be profitable to the United States."
Given the uncertainty, he questions the value of the many Cuba trade trips sponsored by various U.S. business and government leaders in recent months.
"It makes good conversation at the country club, in the boardroom, to reporters, at church, to the chamber of commerce," he said. "But most of the visits are not necessary."
Stamford, Connecticut-based Starwood Hotels and Resorts Worldwide will receive authorization from the Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury to manage property(s) located in the Republic of Cuba.
Starwood Hotels and Resorts Worldwide is being acquired by Bethesda, Maryland-based Marriott International, which is also receiving authorization from the OFAC to manage property(s) located in the Republic of Cuba.
Will United States hospitality companies change the Republic of Cuba or will they be changed by the Republic of Cuba? Islands of state-of-the-art technology surrounded by seas of technology expectations
The most important question relating to the return of United States-owned hospitality companies to the Republic of Cuba marketplace is:
Will Marriott International and Starwood Hotels and Resorts Worldwide force changes to the hospitality throughout the Republic of Cuba or will the companies conform to the existing infrastructure (operations, economics, personnel, etc.)?
NOTE: the term “tourism” should not be used as the twelve categories of travelers permitted by the Trade Sanctions Reform and Export Enhancement Act of 2000 does not legally authorize leisure travel to the Republic of Cuba by individuals subject to United States law.
The initial answer will be a bit of both…
With the return of regularly-scheduled commercial airline service, the operational requirements of airlines are the foundation upon which the hospitality companies will operate.
There is a requirement for high-speed internet access (satellite or land-based, potentially leading to an upgrade of the cable that lies under the Florida Straits). The airlines and the hospitality companies will bring with them servers and modems and Wi-Fi equipment and computers and facsimile machines and printers and cable and satellite (Direct TV, Dish, etc.) and cellular equipment for 4G and 5G capabilities. As are the airlines, they will seek for the government of the Republic of Cuba to institute an electronic visa program. They will be islands of state-of-the-art technology surrounded by seas of technology expectations.
There is a requirement for correspondent banking (with Pompano Beach, Florida-based Stonegate Bank being the principal benefactor as the airlines and hospitality companies will make use of its direct correspondent banking agreement with Republic of Cuba government-operated Banco Popular de Ahorro).
Marriott International and Starwood Hotels and Resorts Worldwide will not permit their flagship properties to become ambassadors of what is a minimally-acceptable customer experience; envoys to the status-quo. They will be advocates for change; they will be forceful.
The United States companies will not permit properties to be absent of basic guest room necessities; nor will restaurant and bar menus not have available the products that are listed for purchase.
The United States companies will not permit properties to fall into disrepair because the Republic of Cuba government-operated company that owns the property is required to make payments to the government of the Republic of Cuba to be directed for other purposes.
The United States companies will not finance the operations of their properties because their landlord does not have the funds as required by the management contract.
The United States companies will have training programs- and they will bring individuals of Cuban descent from their United States properties to train and to work and to manage various departments of their respective properties. They will bring individuals of nationalities from throughout their global operations to impact the commercial, economic and political environment. They will increase the wages and benefits of their employees who are Republic of Cuba nationals. They will be employment magnets for the best and the brightest from existing properties throughout the Republic of Cuba. They will upend the existing employment structures.
Will the management contracts signed by Starwood Hotels and Resorts Worldwide and Marriott International be similar as those that Spain-based Melia and France-based Accor among others have signed with Republic of Cuba government-operated companies including Cubanacan Group, Gaviota Group, Gran Caribe, Hoteles Habaguanex? No, they will be adjusted towards the standards of the United States companies rather than the United States companies adjusting towards standards that will be operationally problematic.
The Libertad Act of 1996 authorizes individuals and companies subject to United States law to engage in direct negotiations with the government of the Republic of Cuba to settle claims registered with the Foreign Claims Settlement Commission under the auspice of the United States Department of Justice. As a result of a series of mergers and acquisitions during the last fifty-seven years, a US$51,128,927.00 claim initially made by New York-based International Telephone & Telegraph Corporation (ITT) is now controlled by Starwood Hotels and Resorts Worldwide (and, soon, Marriott International), which can use this value as a means to secure opportunities within the Republic of Cuba.
A cautionary note…. Since 17 December 2014, the government of the Republic of Cuba has continued to accept and to authorize primarily those Obama Administration initiatives that will earn revenues (visitors) rather than result in an expenditure of earnings (imports). United States agricultural commodity/food product exports to the Republic of Cuba decreased 41% in 2015 compared to 2014; and January 2016 exports to the Republic of Cuba decreased 8% compared to January 2015. Healthcare product exports increased fivefold in 2015 compared to 2014.
The Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury will authorize Bethesda, Maryland-base Marriott International to manage a property(s) in the Republic of Cuba.
Marriott International is acquiring Stamford, Connecticut-based Starwood Hotels and Resorts Worldwide, which will separately receive authorization from the OFAC to manage property(s) located in the Republic of Cuba.
Will United States hospitality companies change the Republic of Cuba or will they be changed by the Republic of Cuba? Islands of state-of-the-art technology surrounded by seas of technology expectations
The most important question relating to the return of United States-owned hospitality companies to the Republic of Cuba marketplace is:
Will Marriott International and Starwood Hotels and Resorts Worldwide force changes to the hospitality throughout the Republic of Cuba or will the companies conform to the existing infrastructure (operations, economics, personnel, etc.)?
NOTE: the term “tourism” should not be used as the twelve categories of travelers permitted by the Trade Sanctions Reform and Export Enhancement Act of 2000 does not legally authorize leisure travel to the Republic of Cuba by individuals subject to United States law.
The initial answer will be a bit of both…
With the return of regularly-scheduled commercial airline service, the operational requirements of airlines are the foundation upon which the hospitality companies will operate.
There is a requirement for high-speed internet access (satellite or land-based, potentially leading to an upgrade of the cable that lies under the Florida Straits). The airlines and the hospitality companies will bring with them servers and modems and Wi-Fi equipment and computers and facsimile machines and printers and cable and satellite (Direct TV, Dish, etc.) and cellular equipment for 4G and 5G capabilities. As are the airlines, they will seek for the government of the Republic of Cuba to institute an electronic visa program. They will be islands of state-of-the-art technology surrounded by seas of technology expectations.
There is a requirement for correspondent banking (with Pompano Beach, Florida-based Stonegate Bank being the principal benefactor as the airlines and hospitality companies will make use of its direct correspondent banking agreement with Republic of Cuba government-operated Banco Popular de Ahorro).
Marriott International and Starwood Hotels and Resorts Worldwide will not permit their flagship properties to become ambassadors of what is a minimally-acceptable customer experience; envoys to the status-quo. They will be advocates for change; they will be forceful.
The United States companies will not permit properties to be absent of basic guest room necessities; nor will restaurant and bar menus not have available the products that are listed for purchase.
The United States companies will not permit properties to fall into disrepair because the Republic of Cuba government-operated company that owns the property is required to make payments to the government of the Republic of Cuba to be directed for other purposes.
The United States companies will not finance the operations of their properties because their landlord does not have the funds as required by the management contract.
The United States companies will have training programs- and they will bring individuals of Cuban descent from their United States properties to train and to work and to manage various departments of their respective properties. They will bring individuals of nationalities from throughout their global operations to impact the commercial, economic and political environment. They will increase the wages and benefits of their employees who are Republic of Cuba nationals. They will be employment magnets for the best and the brightest from existing properties throughout the Republic of Cuba. They will upend the existing employment structures.
Will the management contracts signed by Starwood Hotels and Resorts Worldwide and Marriott International be similar as those that Spain-based Melia and France-based Accor among others have signed with Republic of Cuba government-operated companies including Cubanacan Group, Gaviota Group, Gran Caribe, Hoteles Habaguanex? No, they will be adjusted towards the standards of the United States companies rather than the United States companies adjusting towards standards that will be operationally problematic.
The Libertad Act of 1996 authorizes individuals and companies subject to United States law to engage in direct negotiations with the government of the Republic of Cuba to settle claims registered with the Foreign Claims Settlement Commission under the auspice of the United States Department of Justice. As a result of a series of mergers and acquisitions during the last fifty-seven years, a US$51,128,927.00 claim initially made by New York-based International Telephone & Telegraph Corporation (ITT) is now controlled by Starwood Hotels and Resorts Worldwide (and, soon, Marriott International), which can use this value as a means to secure opportunities within the Republic of Cuba.
A cautionary note…. Since 17 December 2014, the government of the Republic of Cuba has continued to accept and to authorize primarily those Obama Administration initiatives that will earn revenues (visitors) rather than result in an expenditure of earnings (imports). United States agricultural commodity/food product exports to the Republic of Cuba decreased 41% in 2015 compared to 2014; and January 2016 exports to the Republic of Cuba decreased 8% compared to January 2015. Healthcare product exports increased fivefold in 2015 compared to 2014.
Dallas, Texas-based AT&T will join New York, New York-based Verizon Wireless (through London, United Kingdom-based Vodafone) and Kansas-based Sprint Corporation (direct) in roaming agreements with Republic of Cuba government-operated ETECSA. AT&T is expected to announce a direct roaming agreement with ETECSA.
The Republic of Cuba will not be a legislative priority for the individual sworn into office on 20 January 2017.
Irrespective of rhetoric, there will be far too many legislative and regulatory issues with nationwide and global implications for any political capital to be invested and directed towards the bilateral relationship with the Republic of Cuba.
However, there may be diplomatic changes and/or regulatory changes which may expand or may constrict commercial opportunities.
What constrains a candidate is often different than what constrains a president.
This is what the landscape might resemble- 14 questions and potential actions by each candidate: CLICK HERE
A Hostage Triangle....
The scene unfolded in 2014 and was set in place on 17 December 2014. The actual event occurred in 2015 when President Obama confirmed his desire to visit the Republic of Cuba. At that moment, the government of the Republic of Cuba knew that the perceived strength of Washington in any negotiation had shifted to Havana.
President Obama became a hostage to Cuba.
If the President was now including a visit to the Republic of Cuba within his final term "legacy" events, the government of the Republic of Cuba knew that the President would need to try and create a commercial, economic and political landscape that would support such a visit.
The government of the Republic of Cuba believed that the Obama Administration would continue to expand the commercial, economic and political relationship- without an important caveat, that the government of the Republic of Cuba reciprocate. That is precisely what happened.
Other than permitting a substantial increase in the number of visitors to the Republic of Cuba, and thus earning significant revenues, there was no embrace (or authorization) for most of the commercially-focused initiatives offered through the United States Department of the Treasury and United States Department of Commerce. What initiatives provided revenues would generally be accepted; those which required expenditures would generally be avoided.
There have been visits to the Republic of Cuba by four cabinet secretaries; more than one hundred and forty representatives of the United States government have visited since 2015; approximately half that number of representatives of the government of the Republic of Cuba have visited the United States during the same period.
For the government of the Republic of Cuba, as hostage taker, or host, there seemed little risk. There was no population-driven demand for commercial, economic or political change. The deteriorating financial relationship with Venezuela was manageable, primarily due to a re-emergence of relationships with traditional trading partners; an agreement was reached with the Paris Club of Creditor Nations. Heads of state and heads of government were in line to visit Havana. But, there remained a tenuous financial foundation; Republic of Cuba government-operated companies were seeking payment terms of up to one year- often from providers who had already been incurring payment arrears.
The newfound and newly-resurrected interest from most governments, most financial institutions, most companies were a direct result of a belief, their belief, that the relationship with the United States was on a positive glide path and, most importantly, was based upon expectation, requirement, that United States citizens would increase their visits (and expenditures) and United States companies would have a presence, although in the slowest way possible so as not to jeopardize opportunities the governments, companies and financial institutions located in their respective countries feel have been reserved for them.
Cuba became hostage to its new and newly-resurrected friends.
No longer would the "sit back and wait" approach suffice; with less than a year remaining for Obama Administration initiatives, without a meaningful impact, and an impact that would be sustained, those entities (in Europe and in Asia and in the Americas) that had granted debt relief would again question how the funds would be repaid and how their newly-created commercial operations would succeed, without the United States' continued lessening of restrictions. They need the Obama Initiatives to survive the Obama Presidency.
Cuba is a hostage to President Obama.
With 317 days remaining in the Obama Administration, the government of the Republic of Cuba must now permit and, more importantly, have operational, some of the commercial initiatives- Alabama-based Cleber LLC to assemble tractors (critical to have an assembled tractor in the marketplace before 20 January 2017), Tampa-based Florida Produce of Hillsborough County to operate a leased food warehouse; cruise ship schedules, offices for companies, etc, agreement on certified claims. The Obama Administration plans to have some United States companies announce commercial intentions leading up to and during the visit by the President to the Republic of Cuba on 21/22 March 2016.
A bilateral landscape that is defined by the imagery of air carriers with regularly-scheduled services, an increase in visitors to the Republic of Cuba, increase in revenues to the Republic of Cuba, and a continuing decline in United States exports to the Republic of Cuba (41% decline food/agricultural commodity exports in 2015; 8% decline in January 2016) would not be immune to change from the successor to President Obama.
Today, the government of the Republic of Cuba has the role as hosting a hostage and being twice a hostage. How it manages a resolution of this hostage triangle will become apparent in thirteen days and then again on 16-18 April 2016, during the 7th Party Congress of the Communist Party of the Republic of Cuba.
No “Thank You” Note For President Obama
President Obama is resigned to accepting that the government of the Republic of Cuba will not be sending along any “thank you” notes in response to regulatory changes implemented in 2015, thus far in 2016, and those planned through 20 January 2017.
The goal of the Obama Administration during the remaining months in office is to make every regulatory change possible so that a successor will have a challenging regulatory landscape to reassemble. And, hopefully, the government of the Republic of Cuba will have fewer options to avoid integration of the initiatives into its commercial and economic policies.
The Republic of Cuba has remained as it does, in large measure, due to the government seeking, when in need, a country or group of countries to come along and provide the resources required so its citizens can resist concessions to the United States. For fifty-seven years, this strategy has not failed them.
Motus Tardus
There have been limited internal pressures for reform; and any pressures that do exist have been surmountable by the government of the Republic of Cuba. The most visible example of comfortability with the motus tardus is the generational profile of the two leaders of the country: President Raul Castro, at 84, who is also First Secretary of the Communist Party of the Republic of Cuba, and Jose Ramon Machado Ventura, 85, Second Secretary of the Communist Party of the Republic of Cuba and Second Vice President.
Less than two years from the retirement of President Castro, his official successor to lead the Communist Party of the Republic of Cuba is a gentleman who is older than the outgoing president and First Secretary. The First Vice President, Miguel Diaz-Canel, at 56, is the generally-believed heir apparent to President Castro, but not necessarily expected to become First Secretary.
The message to the population and to the United States is singular- change will be only as rapid as a lack of foreign exchange and outside support mandates.
After Five Months And Numerous FOIA Requests, Secretary Of Commerce Pritzker Releases Names Of Her October 2016 Delegation
The Honorable Penny Pritzker, United States Secretary of Commerce (DOC), has released the names of the DOC staff who accompanied her to the Republic of Cuba in October 2015.
The Secretary and her staff spent five months attempting to conceal the names of DOC staff, both those accompanying her to the Republic of Cuba and DOC employees visiting the Republic of Cuba since December 2014 independent of her visit; requiring multiple requests under provisions of the Freedom of Information Act (FOIA).
The Honorable Thomas Vilsack, United States Secretary of Agriculture (USDA), also required FOIA requests to obtain the names of the staff who accompanied him to the Republic of Cuba in November 2015 and USDA employees visiting the Republic of Cuba since December 2014 independent of his visit; requiring multiple requests under provisions of the FOIA.
The Honorable Anthony Foxx, United States Secretary of Transportation (DOT), released the names of staff who accompanied him to the Republic of Cuba in February 2016 and DOT employees visiting the Republic of Cuba since December 2014 independent of his visit without requiring requests under provisions of the FOIA.
The Obama Administration has required that the FOIA be used to request the names and titles of most employees of the United States government who have visited the Republic of Cuba since 17 December 2014 for the purpose of official discussions with representatives of the government of the Republic of Cuba. Yet, the United States Department of State confirms that such information is not considered to be classified, secret or top secret; just generally not provided.
With more than one hundred and forty (140) employees having visited (not including United States government employees preparing for the 21/22 March 2016 visit by President Obama to the Republic of Cuba), and more than sixty (60) representatives of the government of the Republic of Cuba having visited the United States, there is a disconnect…. President Obama is actively marketing the revisions in the relationship between the United States and the Republic of Cuba, yet does not want everyone to know who is participating in the process.
The names and titles of representatives of the United States government who have visited the Republic of Cuba since 17 December 2014 is of value to the United States business community as the data provides a) evidence of activity b) specific areas of engagement and c) specific contacts for representatives of United States companies.
The Obama Administration will be announcing changes to the process for individuals subject to United States law who are eligible to visit the Republic of Cuba, including changes to regulations that will encourage United States financial institutions to provide support to the soon-to-be operational regularly-scheduled commercial flights between the United States and the Republic of Cuba.
The Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury will be lowering the threshold for which an individual traveling to the Republic of Cuba would need to be under the auspice of an organized visit; resulting in more travelers visiting independently. This will be the honor system... on steroids.
There will be an impact upon non-profit entities and for-profit companies that organize group tours as individuals and couples, etc., may find less expensive travel options and can better configure authorized itineraries to profile specific interests.
The OFAC will further shift the burden of compliance with travel-related and financial-related transactions from the provider of the services (airlines, credit card companies, banks, etc.) to the user of the services. United States financial institutions have been advocating for these changes since the beginning of 2015 as a condition to further engage in tandem with regulations issued by the OFAC and by the Bureau of Industry and Security (BIS) of the United States Department of Commerce.
The changes are designed to have credit card and debit card terminals (especially at airports and, to a lesser extent, hotels) throughout the Republic of Cuba accepting credit cards and debit cards issued by United States Banks by the time that regularly-scheduled commercial airline service commences, expected by June 2016.
The first beneficiary will be Pompano Beach, Florida, based Stonegate Bank (2015 assets approximately US$2.3 billion) which in 2015 established a Direct Correspondent Banking Agreement with Republic of Cuba government-operated Banco Internacional de Comercio SA (BICSA), a member of Republic of Cuba government-operated Grupo Nuevo Banca SA, created by Corporate Charter No. 49 on 29 October 1993 and commenced operation on 3 January 1994.
Thus far, Stonegate Bank is not using the Direct Correspondent Banking Agreement because BICSA has restrictions upon its establishing an account at Stonegate Bank, which is now using a Panama-based financial institution to triangularly move funds from the United States to the Republic of Cuba; a process that generally takes twenty-four hours.
Stonegate Bank also provides commercial operating accounts for the Embassy of the Republic of Cuba in Washington, DC.
Stonegate Bank is expected to be the financial institution that will service some of the United States-based air carriers and provide support for United States-based financial institutions with the implementation of the use of VISA-branded credit/debit cards and MasterCard credit/debit cards.
The goal of the Obama Administration is to continue, through expansive commercial engagement, pressure upon the government of the Republic of Cuba to increase resources directed to the tourism sector, with an expectation (hope) that the government of the Republic of Cuba will direct opportunities to United States-based companies. The OFAC is considering whether to authorize United States-based hospitality companies to contract to provide services within the Republic of Cuba.
With an increase in visitors from the United States, there is an increase in funds earned by Republic of Cuba nationals employed, directly and indirectly, in the tourism industry- including hotels, restaurants (private and government-operated), transportation, retail, farming, tour guides, etc. As these individuals increase their earnings, they resurrect a middle class that the Revolution of 1959 sought to dismantle.
The expectation is the government of the Republic of Cuba will be required to develop policies, regulations and laws that provide opportunities for all Republic of Cuba nationals to increase their earnings, rather than seek means to lessen the earnings of the resurrected middle class.
FedEx is seeking to operate one daily all-cargo scheduled-service frequency (to be operated five days a week between Miami, Florida and Havana, Cuba.
FedEx is seeking an allocation of a single daily frequency, which it would operate five days a week (Monday-Friday) on a routing MIA-HAV-MID-MIA.
The connections to Merida, Mexico would be operated on a blind-sector basis, as that freight is needed to provide the proper revenue basis so that the flights can be economically viable.
The flights would be operated on a year-round (non-seasonal) basis. FedEx will be using is a purple-tail Boeing 757-200SF for its proposed service.
Given the complexities of setting up operations in Cuba with ground and customs clearance capabilities, FedEx respectfully requests a 120-day start-up period.
FedEx proposes a start-up date of September 1, 2016, or no later than the end of the mandated start-up period.
There is a ninety (90) day "use or loose" component of the United States Department of Transportation (DOT) route application process. Routes awarded to air carriers generally must be used within a certain period or the routes revert to the DOT for further distribution.
The route pleadings for flights from the United States to Havana are oversubscribed by more than 200% while the routes for the outlying cities are oversubscribed.
For passengers, round-trip flights from the United States to the Republic of Cuba may be 30% to 50% below existing levels.
The government of the Republic of Cuba is seeking to funnel passengers to airports outside of Havana, but existing United States law does not authorize leisure (tourist) travel to the Republic of Cuba. Most visitors from the United States on approved journeys want to include and/or need to include Havana due to historical and cultural venue locations. Most of the Republic of Cuba's one-star to three-star all-inclusive tourism-focused hotels are located outside of Havana.
Challenges to the route application process will be how the DOT manages any pleading from the non-legacy, including secondary-market air carriers Alaska Airlines, Eastern, Frontier, Sun Country, Spirit, Southwest, Dynamic, Frontier, etc.. They will argue for representation among the route authorities. But, the majority of their passengers are seeking low airfares and may focus upon leisure travel (vacations) to the Republic of Cuba, which are not permitted under United States law. Will they be financially able to commit resources to regularly-schedule operate flights that could be unprofitable?
There will be operational challenges for each of the United States air carriers that receive approval from the DOT for regularly-scheduled airline services from the United States to the Republic of Cuba.
The airlines are likely to seek authorization from the government of the Republic of Cuba to install satellite-based high-speed internet services for use by ticketing agents at each of the to-be-serviced airports.
The airlines are seeking to have the government of the Republic of Cuba introduce electronic visas, rather than the paper visas currently used for passengers.
The airlines are likely to request authorization from the government of the Republic of Cuba to establish offices in Central Havana; likely at a hotel, such as the Nacional. Given that American Airlines is expected to receive the majority of routes from the DOT given the importance of its operational at Miami International Airport (MIA), where the majority of individuals of Cuban descent reside, American Airlines would be expected to be the first airline with a non-airport based ticket office in the Republic of Cuba.
American Airlines is seeking approximately 50% of the flight routes from the United States to Havana as not only will individuals of Cuban descent be using the flights from MIA, but authorized travelers using cruise ships will transfer through MIA.
The airline receiving DOT authority to operate the most number of flights will be non-voluntarily subsidizing the other airlines' staff training programs and the training programs for all Republic of Cuba airport employees simply because the airline will have the largest number of employees to train and they will, in turn, share their knowledge.
The government of the Republic of Cuba is planning to construct a new terminal (or a transformation of an existing structure) at Jose Marti International Airport that would focus upon air carriers from the United States. This terminal would have a membership club, likely an American Airlines Admirals Club of United Airlines United Club.
The airlines will request that all flights use Terminal 3, the terminal with jet bridges, a more efficient baggage transfer system, higher quality passenger amenities, and better infrastructure for airline ticket counters. Currently, flights from/to the United States use Terminal 2, which is inefficient, old, and without current operational necessities.
Currently, an aircraft arriving from the United States and then returning to the United States requires at least two hours; the air carriers need that turnaround to be reduced to one hour.
The airlines also want another runway constructed at Jose Marti International Airport.
The government of the Republic of Cuba may have capacity to initially authorize all of the requested routes to become operational due to infrastructure issues.
Established in 1994, the U.S.-Cuba Trade and Economic Council provides an efficient and sustainable educational structure in which the United States business community may access accurate, consistent, and timely information and analysis on matters and issues of interest regarding United States-Republic of Cuba commercial, economic, and political relations.
Economic Eye On Cuba (EEOC)- posts are corrected and revised as new information becomes available
