Treasury's Cuba Rule Change Might Force Contract Changes
The following is reprinted, with permission, from the National Journal's Congress Daily, March 8, 2005:
The Bush administration's decision to tighten regulations on the financing of U.S. trade with Cuba might affect up to $250 million in contracts for U.S. agricultural commodities, requiring the largest government-forced renegotiation for U.S. export firms since President Carter instituted the Soviet grain embargo in 1980, a key rice lobbyist said Monday.
"By issuing this regulation, Bush is the first president since Jimmy Carter ... to violate the sanctity of agricultural export contracts in such a broad fashion," said Fred Clark, the Washington counsel for the U.S. Rice Producers Federation.
The short-term result, Clark said, will be to increase expenses for companies such as ADM and Cargill that sell products to Cuba and, in the long run, to reduce prices to U.S. farmers that grow the products the Cubans buy.
The 1980 grain embargo significantly stalled U.S. trade with the Soviet Union. In the short term, the government compensated U.S. farmers, but the embargo is still blamed for a long-term decline in U.S. world market share of some products that has persisted despite increases in U.S. exports generally.
Since U.S.-Cuban agricultural trade began in 2001, the Cuban government has paid for goods after they are shipped from U.S. ports but before Cuba takes possession of them.
Last month, the Treasury Department's Office of Foreign Assets Control announced it would require Cuba to pay for the goods priort to shipping.
The exact value of the pending contracts is unknown. After Treasury's announcement, Alimport, the Cuban government agency that imports food, said it had signed an estimated $250 million in contracts "that will be implemented in the balance [of] 2005."
Some of that food would presumably be shipped by March 24, within the 30 days that Treasury officials gave for a transition period.
Individual food companies are unwilling to release details of Cuba contracts, but John Kavulich, president of the U.S.-Cuba Trade and Economic Council, said Monday that the $250 million figure might have "validity."
Cuban officials said the new regulations might raise the cost of doing business with the United States, making it a less competitive supplier, but they appear willing to try to make changes in the payment scheme.
Last week, Agriculture Undersecretary for Farm and Foreign Agriculture Services J.B. Penn, who was USDA's liaison with Treasury on development of the policy change, told the House Agriculture Appropriations Subcommittee the impact of the new regulations "all depends upon the Cubans and how they view the regulations."
Penn told House Agriculture Appropriations Subcommittee ranking member Rosa DeLauro, D-Conn., he believes Cubans can use "third country letters of credit" to continue buying U.S. products and if Cuba accept the new regulations, trade might continue at the same level as last year, $391 million.
But both Clark and Kavulich said since the United States changed the terms of trade, the Cubans -- like any commercial customer asked to renegotiate a contract -- are likely to make the seller pay any additional costs and extract additional benefits if possible. "Saying it is all up to the Cubans is like saying if I don't pay my mortgage it's up to the mortgage company," said Clark.
By Jerry Hagstrom