Exporting to Cuba: Even If I Can, Should I?
CBIA Small Business News
April 27, 2016
This article is republished with permission by The Connecticut Business & Industry Association.
Are you a small business owner wondering if Cuba is the perfect new market for your goods? If the legal hurdles involved in exporting to Cuba are worth your effort?
If so, there are several practical questions you need to ask yourself before taking the next step:
- What U.S. regulations apply to my exported goods? What licenses are required to export to Cuba? What Cuban regulations apply to my goods?
- What is the current U.S.-Cuban political climate? How would I enforce my sales agreements if the Cuban government intervenes?
- What is the current state of the Cuban economy? Is there a market for my product?
- What travel restrictions remain in place? Do these restrictions make doing business prohibitively difficult?
- What restrictions remain in place on Cuban financing arrangements? Are any institutions willing to provide financing for Cuban buyers?
Restrictions Loosened, Not Removed
On Dec. 17, 2014, and Mar. 15, 2016, President Obama announced that certain travel restrictions would be amended, expanded sales and exports would be authorized, and U.S. travelers would be permitted to import more goods from Cuba—leading business owners to wonder whether the curtain on Cuba’s economy would finally be lifted.
The president’s announcements and subsequent initiatives loosened but did not eliminate the restrictions on U.S. companies exporting goods to Cuba.
Exactly how the regulations will be amended remains to be seen, but the president’s announcements suggest that personal travel will be more available and certain restrictions regarding financial products will be lifted.
Nevertheless, the U.S. trade embargo, which can be rescinded only with Congressional approval, remains in place.
Whether navigating the perilous restrictions is worth the effort—in light of potential (severe) penalties, the Cuban political climate, and possible policy changes after the presidential election—is a business decision that must be made on a case-by-case basis.
The amendments to Cuban regulations will allow small businesses to obtain a license to export U.S. commodities to Cuba for specific categories of goods, such as telecommunications items and software, agricultural products, and civil aviation.
While these are relatively narrow industries and are not likely to aid a small business seeking to break into the Cuban market, they may be a good first step to opening the Cuban economy.
Small businesses should carefully monitor the outflow of commercial activity and pay attention to what regulations are enforced by the Cuban government, which has been known to place unusual regulations on imports and exports.
What Sanctions Remain?
Currently, all transactions providing U.S. exports to Cuba must be licensed by the Office of Foreign Assets Control and are subject to certain restrictions, such as a ban on exporting items to Cuban state-owned enterprises or agencies, which includes many organizations involved in the tourism industry.
Exporting to Cuba thus requires more than the typical due diligence.
Additional regulations effective Jan. 27, 2016, seek to remove certain financial barriers by allowing sales on open account1 and financing by U.S. financial institutions for certain categories of exports.
The Jan. 2016 amendments sought to facilitate authorized exports by allowing certain additional transactions, such as allowing travel to conduct market research, commercial marketing, or contract negotiation, but it is not yet known what other exposures exist—including whether a U.S. entity may hire and pay Cuban nationals.
The Cuban export arena is an ever-changing environment that depends on many factors.
Small business owners should pay close attention to evolving Cuban regulations to determine when the ideal time to break into the Cuban economy might be, particularly given the significant investment of time and capital currently required.