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U.S. Companies Consider the Possibilities of Cuban Trade

U.S. Companies Consider the Possibilities of Cuban Trade

Posted by Juan Gavasa on December 18, 2014

The White House’s move to normalize ties with Cuba could give U.S. companies access to a market that’s been largely off-limits for more than a half century but has less commercial allure than it once did.

U.S. companies from General Motors Co. to agribusiness giant Cargill Inc. to furniture retailer Ethan Allen Interiors Inc. applauded the White House announcement on Wednesday of its move to restore diplomatic relations with Cuba and begin dismantling the embargo in place for 54 years. The effort includes steps to foster commerce between the countries, including authorizing some U.S. exports to Cuba, relaxing restrictions on financial transactions and lifting limits on remittances to the country.

“Cuba needs everything we make in the United States,” says Bill Lane, global government affairs director for Caterpillar Inc., who said the company hopes to soon install a dealership in Cuba that can sell agricultural, construction and mining equipment. “We’ve been calling for a new policy toward Cuba for 15 years.”

Still, many companies stopped short of promising investment in Cuba. Opportunities abound in agriculture, telecommunication, retail, tourism and natural resources, but many obstacles remain. The biggest hurdle remains the existing embargo on full trade between the countries, a policy that can only be lifted by Congress.

The U.S. will now allow certain exports to Cuba, such as residential building materials, agricultural equipment, and goods used by such small businesses as restaurants and barbers. U.S. officials said that last year the U.S. exported to Cuba $300 million of medicine and $3 billion of food—both largely exempt from the embargo—showing the country’s potential for U.S. exporters.

U.S. citizens who visit Cuba will be able to bring back up to $400 of goods, including $100 worth of tobacco and alcohol, thus allowing a small amount of Cuban cigars and rum into the U.S., although not for resale. The U.S. also will allow visitors to Cuba to use U.S. credit and debit cards and allow U.S. institutions to open accounts at Cuban banks for certain authorized transactions. But a ban on tourist travel to Cuba has to be lifted by Congress, administration officials said.

“What we’re doing is we’re authorizing as much travel as we possibly can within the constraints of the legislation,” an official said. “We believe that that will lead to a significant increase in travel.”

In the 1950s, U.S.-Cuban commercial ties boomed. Pan American World Airways ferried U.S. tourists to Havana’s casinos and beach resorts, Cuba was a major exporter of sugar, and the U.S. was its main trading partner and investor. U.S. firms profited off the island’s natural resources.

Since the U.S. embargo—put in place in 1960 after Fidel Castro ’s communist rebels took power in Cuba—U.S. firms have lost out on the 11 million consumers 90 miles off the Florida coast, and Americans have had little access to Cuban cigars and Havana Club rum.

Cuba’s economy today remains heavily controlled by the government, its consumers relatively poor, and its market served by multinational companies from other countries that did not sever ties with the island. Those factors could limit opportunities even if Congress does decide to overturn the U.S. embargo.

Johanna Mendelson-Forman, a scholar in residence at American University who studies Latin America, said the first U.S. investments in Cuba will come from entrepreneurs eager to test a new frontier. Cuban-Americans “are ready to jump,” she said.

Luis Coello, who arrived in the U.S. from Cuba in 1966 when he was 9 years old, started selling calling cards for telephone calls to Cuba in the 1990s. Later, he tried to build an undersea fiber optic cable from Key West, Fla., to Havana, but the project never came to fruition. On Wednesday, Mr. Coello said he would redouble efforts on a new business selling cellphones that can make cheap calls to Cuba.

“The country right now is up for grabs in the telecommunications business,” Mr. Coello said. “It’s a huge opportunity.”

Bigger telecom firms might be more cautious. While AT&T Inc. and Verizon Communications Inc. lent their support to Mr. Coello’s undersea cable plan, it isn’t clear whether they would invest now. While Cuba is a potentially attractive market given its low Internet and mobile-phone penetration, whether companies invest depends on what regulations are set in Cuba, said Sergey Dluzhevskiy, a research analyst at Gabelli & Co.

U.S. airlines have prepared for the chance to serve the country for years by operating flights for the few Cuba-charter companies authorized by the U.S. government. American Airlines Group Inc., for example, flies to Cuba 20 times a week, up from 15 a year ago, carrying Cuban-Americans, humanitarians, journalists and other people authorized to visit the country.

Vivian Mannerud, head of Miami-based Airline Brokers Co., which runs charter flights to Cuba, said the policy changes will lead to a boom for the few charter companies like hers.

“It’s a huge day. I’m crying, I’m laughing,” said Ms. Mannerud, who has been involved in U.S.-Cuban relations for decades. “It’s almost like the Cold War is really over.”

U.S. hospitality companies also are eager to do business in Cuba when they can, including Hilton Worldwide Holdings Inc., which opened the Habana Hilton in 1958 with a Trader Vic’s, casino and supper club, only to see it nationalized.

“The minute it’s available, we’ll be down there,” says Choice Hotels International Inc. Chief Executive Stephen Joyce, whose Rockville, Md.-based company includes the brands Comfort Inn and Cambria Suites.

The foreign companies in Cuba now are largely restricted to joint ventures with Cuban firms because of local rules, said Stephan Meier, a business professor at Columbia University who brings 40 students to Cuba a year. He said Imperial Tobacco Group PLC of the U.K. works with Cuban cigar companies, French beverage company Pernod Ricard SA works with the maker of Havana Club rum, and Spanish hotel chain Meliá Hotels International SA works with Cuban hotels.

“Even if the Americans lift the embargo, it’s a risky environment to work in,” he said, citing Cuban financial laws.

Coca-Cola Co. sells its namesake cola in every country but Cuba and North Korea. It quickly resumed shipments to Myanmar in 2012 after the U.S. dropped sanctions against the Southeast Asian country. On Wednesday, the company said its re-entry to Cuba depends on timing and regulation. Its rival, PepsiCo Inc., said it “looks forward to adding Cuba…contingent on business relations becoming normalized.”

The news is also good for U.S. farmers, who will be able to export crops to Cuba without harsh restrictions that made trade costly and time-consuming, like requiring buyers to pay in advance. “This significantly increases the potential and opportunity, and when that happens American agriculture usually responds positively,” U.S. Agriculture Secretary Tom Vilsack said.

For U.S. rice farmers, the Obama administration’s move on Cuba opens up market where per-capita rice consumption is around 110 pounds a year, nearly five times the U.S. level, says Greg Yielding, executive director of the Arkansas Rice Growers Association. Cuba once was a “major market” for U.S. rice, with consumers there favoring long-grain varieties cultivated in Arkansas, Louisiana, Mississippi and Texas, Mr. Yielding said. Lately, he said, Cuba’s gotten more of its rice from China and Venezuela.

Scott Lehr, senior vice president of international development for the International Franchise Association, said his members are excited about the prospect of developing franchises in Cuba but that a lot of work needs to be done to ensure the Cuban government protects trademarks so U.S. brands can operate there without being threatened by knockoffs.

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