Cuba craves U.S. farm products

Walter Lippmann walterlx at earthlink.net
Mon Nov 25 05:37:33 MST 2002


(I have strong opinions on the decline
and fall of the Socialist Workers Party
of the United States, but haven't had
time to write them up in a more nuanced
way. Following the evolution of Cuba's
struggle is already quite a full task.
This was posted to the CubaNews list.

(US food products, and much else, are
extremely popular here in Cuba as any
visitor to stores, movie-goers or TV
watchers can attest. Here is one of
the most detailed interviews given
by John Kavulich on US-Cuba trading
relationships published in a long
time. Read this all the way through.

(The ground is clearly slipping out
from under the blockade as more and
more US businesses see advantages in
trading with the island, and even
more still if the blockade were ended.)
====================================

Rutland, VT Herald
Cuba craves U.S. farm products
November 24, 2002

By Bruce Edwards Herald Staff

(John Kavulich is president of the New York-based U.S.-Cuba
Trade and Economic Council).

Question: I take it the purpose of your organization is to
facilitate and promote legal exports from the U.S. to Cuba.

John Kavulich: Not precisely. The U.S.-Cuba Trade and
Economic Council is the largest business organization in the
United States focusing on Cuba. Our mandate is to gather and
to provide commercial and economic information for use by
the United States business community and companies in other
countries. We do not take positions with respect to
U.S.-Cuba political relations. Thus, we are the place where
companies, governments, media, academicians, the general
public go to for commercial and economic information. We do
not promote trade with Cuba. We neither promote trade with
Cuba nor discourage trade with Cuba. We're the place where
people go to for the information on what they can do in
Cuba, what they can't do in Cuba, what their competitors are
doing in Cuba, what is happening in Cuba itself.

Q: If the purpose of your organization is not to facilitate
trade, what was its origin?

Kavulich: The catalyst for the creation of the organization
was the increased interest by the U.S. business community in
seeking information about Cuba and Cuba's inability to
provide that information in a timely, consistent and
accurate manner. The organization was conceived in 1993 when
Cuba's economy was at its lowest point as a result of a
contraction in its economy of about 70 percent during the
preceding three years as its trade relations with the
then-USSR and former USSR-dominated countries disintegrated.
So the interest by U.S. companies was simply not able to be
met by the Cuban government. By the time the Council was
established in 1994, the Cuban economy had begun a painful
recovery so the level of interest by the Cuban government
began to increase in terms of their interest to provide the
information. The Council seemed like a useful mechanism to
meet everyone's needs in a manner that would have
credibility because the organization would be a
not-for-profit, would not take positions on U.S.-Cuba
political relations. So, there would be no suspicions by
anyone of what the agenda was of the organization.

Q: Is your group funded primarily by the U.S. business
community?

Kavulich: The entire budget of the organization comes from
member companies whether they be U.S. companies, non-U.S.
companies. We accept no government funding whether it be
U.S. or any other government.

Q: The U.S. trade embargo has been in effect for more than
40 years, yet there are exceptions to the embargo including
agricultural and medical products. In fact, the U.S. will
soon be the single largest exporter of agricultural products
to Cuba.

Kavulich: By the end of December, the U.S. will have moved
from not being a source of agricultural products and food
products for Cuba to being their single largest provider.
The easiest way to describe it on the agricultural products
side anything that's a commodity, whether it's beef, pork,
rice, beans, apple, soy, corn, eggs, including eggs from New
England. And on the food products side, almost any product
you find in the supermarket, from wine to butter to candy to
soft drinks to cookies to cereals.

Q: How long has the U.S. been exporting these items to Cuba?

Kavulich: In October of 2000, the Trade Sanctions Reform and
Export Enhancement Act, which is known by its acronym TSRA,
was signed into law by President Clinton. The legislation
itself did not take place until June 2001 due to the delay
in drafting the regulations for the law. The Cuban
government from the moment President Clinton signed the TSRA
maintained that they would not avail themselves to
provisions under the TSRA. In fact, the Cuban government's
response to TSRA was we will not buy a grain of rice. That
was their position until November 2001, when Hurricane Lilly
impacted Cuba. And the Cuban government then used the
pretext of Hurricane Lilly as a mechanism at the time to
temporarily at the time shift their policy. And I stress in
November 2001, the Cuban government said this is not a
change in our policy. This is simply a one-time deviation
due to the impact of agricultural commodity inventories by
Hurricane Lilly.

Q: But that ,in fact, hasn't been the case.

Kavulich: Exactly. The first purchases were delivered in
December (2001) ... and then they continued to order and
continued to buy.

Q: The problem the Cuban government had with the TSRA was
that any purchases from the U.S. had to be made in cash.

Kavulich: Primarily, Cuba has a chronic shortage of foreign
exchange due to its chosen commercial and economic structure
which limit the ability of the government to maximize
foreign exchange earning opportunities. Centrally planned
economies are inherently inefficient and they stifle
entrepreneurship. So in order for the Cuban government to
maintain its current economic and political system, they
make some choices. And the most substantial impact of one of
those choices is an inability to earn enough foreign
exchange to provide a quality of life that the government
says it would like to provide for its people. The TSRA
required either cash-only sales or non-U.S. origin
financing. With both of those conditions, the Cuban
government faced substantial challenges because a large part
of their annual food products imports, which are about $750
million and sourced from countries whether either the
governments provide credits, such as France, China, Vietnam,
or they are able to get private sector financing. So, in the
case of the United States where they had access to a market
place where we produce high quality commodities and food
products we can deliver then within 36 hours. And generally
on transportation they may save 15 percent or so. But the
trade-off is they (Cuba) have to use cash or they have to
borrow the money in a third country.

Q: I take then that U.S. exporters have no trouble getting
paid.

Kavulich: Absolutely not. All payments are done either by
cash against documents or confirmed letter of credit. Most
companies receive their funds within 72 hours.

Q: How difficult is it for U.S. companies to do business
with Cuba? And is it only worthwhile for large companies?

Kavulich: The vast majority of what Cuba has purchased in
the last 11 months has been agricultural commodities.
Commodities are generally exported by large multi-nationals,
Archer-Daniels Midland, Cargill, Tyson or by cooperatives or
by smaller companies that do engage in international
commerce. For example, Massachusetts-based Radlo Foods,
which sources eggs from all over New England, has sold a
substantial number of eggs to Cuba. Radlo Foods has been
around a long time, but they are not a huge company. So
there are opportunities for large, medium and small
companies. Often people are initially taken aback by what
appears to be a substantial amount of the proverbial red
tape. But once a company representative takes a look at the
Commerce Department Web site, which does a very good job of
explaining how it's done, it's not that difficult. On the
Cuban side because companies are dealing primarily with one
paymaster they can often times deal by e-mail, by fax and by
telephone.

Q: Will the U.S. relax the trade restrictions to allow for
the export of additional products and services?

Kavulich: There is a discussion within the Congress and the
Bush administration to allow agricultural equipment to be
exported to Cuba under the same provisions as food products
and agricultural products. There seems to be a substantial
amount of support for that. As far as additional expansions,
there very well may be opportunities in telecommunications,
power generation. Again, the model being discussed is keep
everything on a cash basis. And by doing so there seems to
be less concern by the Bush administration to potentially
opening U.S. companies and potentially U.S. taxpayers to
defaults.

Q: How big a market is Cuba?

Kavulich: Cuba imported approximately $4.6 billion in
products in 2001. They exported about $1.6 billion. So there
is a substantial trade deficit. Cuba has 11.2 million
people, larger than all the Caribbean countries combined.
Cuban people have one of the highest awareness of U.S.
brands, and preferences for U.S. brands. So for U.S.
companies, Cuba is attractive because whenever you develop a
new market two of the greatest cost components are the
creation of brand awareness and the creation of brand
preference. So in the case of Cuba, you take those cost
components out of the equation. And also Cuba is not an
emerging market for U.S. companies. It is a re-emerging
market because U.S. companies were there in a substantial
way. Cuba also last year had 1.8 million visitors. Their
tourism sector has developed substantially in the last 12
years. There are well- known chains operating in Cuba from
Sandals to Accor. The tourism sector will continue to grow
and that is an attractive sector for U.S. companies at some
point in terms of providing products and services.

Q: Despite the embargo, many U.S. branded products are
readily available.

Kavulich: You're absolutely correct in that you can find
U.S. branded products throughout Cuba. But it's important to
note that does not mean that U.S. companies are violating
either the spirit or letter of U.S. Treasury Department
regulations. It is incredibly difficult to police the
re-export of U.S. branded products through third countries.
For example, if someone goes into a car dealership in Mexico
or Panama or Canada and buys one or two pickup trucks. The
sales person will not be asking you where you're going with
them. So if you buy them and put them on a boat and ship
them to Cuba, well if they're General Motors or Ford, those
companies have no idea. If you see Nike or Reebok products
in Cuba, they're coming through third parties sometimes even
fourth parties. Coca-Cola. A lot of Coca-Cola gets into Cuba
is made in Mexico, made in Panama, made in Canada. Coke USA
has nothing to do with the transaction. In some cases, some
countries have enacted laws to prevent foreign subsidiaries
or distributors of U.S. products in their country from
complying with U.S. regulations toward Cuba.

Q: How successful was your organization's recent trade fair
in Cuba?

Kavulich: It was rather remarkable. The total value of
contracts, agreements signed during the U.S. Food and
Agricultural Exhibition was about $93.5 million. The
original expectation was may be $15 million to $20 million.
There were 293 exhibitors from 34 states. The event was
specifically licensed by the U.S. government. There is
another show planned for 2004.

It is important for U.S. companies to know that the U.S.
Treasury Department, Office of Foreign Assets Control, will
issue licenses to representatives of U.S. companies to
travel to Cuba for sales purposes. And since enforcement of
the regulations has increased dramatically, under the Bush
administration, companies should not be going to Cuba under
some other person's license or some other organization's
license. For U.S. companies, the licenses are free and the
Treasury Department issues them regularly for food products,
agricultural products, health care products, informational
materials.

Q: What products can U.S. companies import from Cuba?

Kavulich: The only products permitted are informational
materials, books, newspapers, magazines, artwork, motion
pictures etc.

Q: Any guess when the embargo will be lifted and normal
trade relations between the two countries will resume?

Kavulich: The commercial, economic and political
relationships between the U.S. and Cuba will be normalized.
The relationship has never been about a particular moment.
It's always been about a series of moments. And some are
more significant than others. Likely within the next three
to five years, there will be a substantial change in the
relationship, whether it's a result of President Fidel
Castro departing the scene, or a result of the Cuban
government making some changes in its policy, or it's a
result of the U.S. government making changes in its policy,
or a combination of all. It's not a matter of it. It's a
matter of when.


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