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June 9, 2015
It has been a little over six months since President Obama formally announced his intent to improve the United States' trade and diplomatic relations with Cuba, stating that –

[T]he United States of America is changing its relationship with the people of Cuba. In the most significant changes in our policy in more than fifty years, we will end an outdated approach that for decades has failed to advance our interest and instead we will begin to normalize relations between our countries.1

Since that time, U.S. companies have seen the Treasury, Commerce and State Departments issue a rapid succession of notices and amendments to the existing sanctions on Cuba in order to implement new opportunities in the areas of travel, imports, exports, gifts, and financing among others. But how far do these changes really go? And can U.S. companies reasonably expect to see the blossoming of more commercial opportunities with Cuba in the near future?

By way of background, a month after President Obama's historic announcement, the Treasury Department's Office of Foreign Assets Control ("OFAC") and the Commerce Department's Bureau of Industry and Security ("BIS") amended the Cuban Assets Control Regulations ("CACR") and the Export Administration Regulations ("EAR") to put the new policy changes into effect.2 Subsequently, in April, the President announced his intent to remove Cuba from the list of state sponsors of terrorism. However, these changes did not in any way lift the U.S. embargo on Cuba – only new legislation by Congress will accomplish that feat. Nonetheless, the changes that were made illustrate a current movement toward liberalization and, as President Obama stated, the possible normalization of commerce between the U.S. and Cuba in the future. Specifically, the regulatory changes that were made by OFAC and the BIS put into play the following key changes:

Travel to Cuba. OFAC Specific Licenses for travel to Cuba are no longer required to be obtained by U.S. persons who fall into one of the twelve (12) available categories of general licenses in the CACR. The general licenses currently apply only to: family visits: official business of the U.S. government, foreign governments and certain international organizations; journalistic activities; professional research and professional meetings; educational and religious activities; public performances, clinics, workshops, athletic and other competitions and exhibitions. Authorized travelers are permitted to pay living expenses, purchase goods for consumption in Cuba and engage in other transactions that are ordinarily incident to their travel – in fact, U.S. credit and debit cards may now be used for such transactions. Travelers are also no longer restricted by specified per diem rates – there is no dollar limit placed on authorized expenses. Further, travel agents and commercial airlines may now provide services to authorized travelers without first having to obtain specific licenses from OFAC.

Commercial Imports of Goods and Services from Cuba. Certain commercial goods that are produced by independent Cuban entrepreneurs may now be imported for retail sale in the United States. Eligible items are those that are not identified on the State Department's so-called "515.582 List." This negative list identifies products by their Harmonized Tariff Schedule sections and chapters that are prohibited from entering the United States even if they were produced by independent Cuban entrepreneurs and shipped directly from Cuba to the United States. U.S. persons intending to import eligible goods from Cuba are required to obtain documentary evidence that demonstrates the Cuban entrepreneur's independent status (e.g., copy of a license to be self-employed or to operate a private business issued by the Cuban government or other document that shows the producer is a private entity that is not owned or controlled by the Cuban government). U.S. Customs and Border Protection will require an informal entry for eligible goods imported under Section 515.582 that are valued under $2,500. Formal entry is required for eligible goods valued over $2,500. At the present time, Cuba is subject to Column 2 rates of duty under the Harmonized Tariff Schedule of the United States (HTSUS), which are significantly higher than the Column 1 rates of duty applicable to the goods of most other countries.

Imports of Goods from Cuba for Personal Use. Authorized travelers may bring back to the United States as accompanied baggage merchandise that they purchased in Cuba for their personal use, even if those goods are identified on the State Department's 515.582 List – such items will be subject to a value limit of $400 per person of which no more than $100 may consist of alcohol or tobacco products. However, if the purchased items were produced by independent Cuban entrepreneurs and are not so listed on the 515.582 List, an $800 exemption from customs duties will apply upon the traveler's arrival in the U.S.3

Exports and Re-exports of Consumer Communication Devices to Cuba. Under the expanded license exception for the export of Consumer Communication Devices to Cuba ("CCD" in Part 740.19 of the EAR), a license from the BIS is not required for commercial sales and donations of items such as personal computers, mobile phones, TV's, memory devices, recording devices, digital cameras, consumer software where they foster the flow of information to, from and among the Cuban people.

Exports and Re-exports of Items for Support for the Cuban People. Under new license exception SCP ("Support for the Cuban People" in Part 740.20 of the EAR), U.S. companies may export or re-export certain items to Cuba if they provide support for the Cuban people in one of three broad categories:

  1. items that improve living conditions and support independent economic activity (e.g., building materials, equipment, tools for use by the private sector to construct or renovate privately-owned buildings, residences, businesses, places of worship, etc.);4
  2. items that strengthen civil society (e.g., items for use in scientific, archaeological, cultural, ecological, educational, historic preservation or sporting activities); and,
  3. items that improve communications (e.g., items for use by news media personnel and U.S. news bureaus).
Cuban government import agencies and other government-owned, operated or controlled companies in Cuba may in fact act as consignees for the purpose of receiving and effecting delivery of these items to the private sector end-users. In addition, items eligible for license exception SCP must be subject to the EAR and classified as either EAR99 or in an Export Control Classification Number ("ECCN") that is controlled only for antiterrorism ("AT") reasons.

Gifts and Donations to Cuba. License exception GFT ("Gift Parcels and Humanitarian Donations" in Part 740.12 of the EAR) now authorizes exports of multiple gift parcels in a single shipment to Cuba.

Remittances. The previous limit on remittances to Cuba was increased from $500 per quarter to $2,000 per quarter; however, the prohibition on remittances made to the Cuban government and the Communist Party remains in effect.

Payments and Financing. U.S. financial institutions may now open correspondent accounts at Cuban financial institutions to facilitate the processing of authorized transactions. In addition, the only payment and financing terms permitted for exports to Cuba (or re-exports of 100% U.S.-origin products to Cuba) are cash in advance (as defined under the revised rules) or financing by a banking institution that is located in a third country. Note that third country financial institutions cannot be U.S. citizens, lawful permanent U.S. residents, entities organized under U.S. law, or Specially Designated Nationals.

What remains to be seen is how quickly the Cuban government can make changes of its own to begin this journey toward normalization, such as making improvements to its telecommunications infrastructure, expanding the number of private sector entrepreneurs, and authorizing them to commence exporting to the United States.

Despite the challenges, normalization of trade between the United States and Cuba may become a reality for this generation of U.S. companies. The path toward normalization is likely to be slow and fraught with additional challenges, including the U.S. presidential election in 2016. However, many U.S. companies are already taking steps to identify opportunities in Cuba. Many companies are already looking at the current Cuban commercial environment, as evidenced by the travels of recent commercial delegations to Cuba led by such groups as the World Affairs Council and the California Chamber of Commerce. Other companies are assessing both Cuban markets for their goods and potential suppliers of Cuban products that may be in demand by U.S. consumers. Companies are also developing strategies for protecting their intellectual property if and when they do enter the Cuban marketplace. Only time will tell what this next chapter in the history of U.S. and Cuban relations holds – but it is never too late for companies to start testing the waters.

[1] See President's announcement on December 17, 2015 at https://www.whitehouse.gov/issues/foreign-policy/cuba.
[2] See 80 Fed. Reg. 2286 - 2302 (January 16, 2015). 
[3] The first $1,000 above that $800 mark will be assessed duty by U.S. Customs and Border Protection at the rate of 4% ad valorem. 
[4] The term "private sector" refers to economic activity generated by private individuals and groups as enterprises for profit, as well as by non-profit organizations and charities. Private sector entities are not owned, operated or controlled by the Cuban government.