BIS, OFAC Issue Final Rules Further Opening Trade With Cuba

The OFAC final rule amends the agency's regulations to allow for Food and Drug Administration approval and subsequent importation of Cuban-origin pharmaceuticals. The final rule also authorizes Cuban-origin pharmaceuticals to obtain pre-export approval through the avenues of discovery and development, pre-clinical research, clinical research, regulatory review, regulatory approval and licensing, and regulatory post-market activities. Furthermore, U.S. persons engaged in the authorized activities may open, maintain and close bank accounts at Cuban financial institutions to facilitate such transactions, according to the rule.

OFAC is also adopting general license policies to permit certain U.S. re-exports of goods destined for Cuba and to allow the importation into the U.S. items previously exported or re-exported to Cuba. However, the subsequent exportation or re-exportation of serviced, repaired or replacement items back to Cuba must receive a separate authorization, the rule says. OFAC is also amending the 180-day wait required between the time that vessels call Cuban ports and load or unload at U.S. ports. The amendment will exempt from the requirement items that would be designated as “EAR99” under the Export Administration Regulations or controlled on the Commerce Control List for anti-terrorism reasons.

OFAC is removing the $400 cap on Cuban goods that authorized travelers may import into the U.S. as accompanied baggage, including the $100 cap on alcohol and tobacco products. Normal limits on duty and tax exemptions for this accompanying merchandise will apply, but authorized U.S. travelers will be able to bring in the Cuban goods through third countries, OFAC said. The rule will also allow U.S. persons to contribute to Cuban infrastructure, consistent with BIS export or re-export licensing policy, including through exports related to public transportation, water management, waste management, non-nuclear electricity, electricity distribution, hospitals, public housing, and primary and secondary schools. OFAC is also narrowing the U.S. definition of “prohibited officials” of the government of Cuba and the Cuban Communist Party.

Meanwhile, BIS' final rule will limit the scope of Cuban individuals ineligible for license exceptions for gift parcels, consumer communications devices, and software and commodities for the private sector or by "individuals" to improve the free flow of communications or support certain private sector activities in Cuba. Under BIS' rule, only the Council of Ministers, flag officers of the Revolutionary Armed Forces, and members of the Politburo will be ineligible for those license exceptions. Furthermore, BIS will generally authorize air cargo headed to non-Cuba destinations to transit Cuba under "License Exception Aircraft, Vessels and Spacecraft," complementing an existing general authorization for maritime cargo traveling to the country.

BIS is also moving toward a general license policy for transactions “ordinarily incident” to certain exports to Cuba authorized by the BIS, but commodity exports to Cuba arranged between a U.S.-owned or -controlled firm in a third country and the government of Cuba remain subject to a specific license policy. Furthermore, BIS is allowing use of License Exception SCP for exports of consumer goods designated as "EAR99" or subject to Commerce Control List anti-terrorism controls directly to eligible individuals in Cuba for personal use or their immediate families' personal use. The administration is looking to help Cuba achieve its goal of expanding overall internet connectivity in the nation from its current rate of 5 percent to 50 percent of its population by 2020, the presidential directive says. Industry members cited poor internet connectivity in Cuba as a trade barrier (see 1608050001).

While he indicated that an expanding private entrepreneur class is an encouraging sign for bilateral commerce, President Barack Obama in his policy directive also cautioned that Cuban “legal, political, and regulatory constraints” won’t allow the economy to grow enough through foreign exchange to buy U.S. exports, even if the embargo were lifted. “Even if the U.S. Congress were to lift the embargo, Cubans would not realize their potential without continued economic reform in Cuba,” the directive says. “Cuban government regulations and opaque procurement practices hamper transactions with U.S. companies that would be permitted under U.S. law.”

The policy directive says the U.S. will "expand dialogue" with Cuba at the World Customs Organization and World Trade Organization, and will press the country to meet WCO standards for supply chain security. The directive also notes that U.S. and Cuban law enforcement will cooperate to "ensure that authorized commerce and authorized travelers move rapidly between the United States and Cuba." It also calls for the expansion of scheduled and chartered maritime links.

A Treasury Department fact sheet (here) on the final rule clarifies that agricultural commodities, not “agricultural items” such as tractors and pesticides, are subject to provisions in the Trade Sanctions and Trade Enforcement Act of 2000 that ban U.S. financing of agricultural exports to Cuba, a prohibition exempting only pre-transport cash payments or payments from third-party financial institutions. “As required by the Trade Sanctions Reform and Export Enhancement Act, authorized exports and reexports to Cuba of agricultural commodities, such as poultry and corn, remain subject to the limited payment and financing terms of cash in advance or third country financing,” the fact sheet says. Treasury updated its frequently asked questions about Cuba (here).

Rep. Mario Diaz-Balart, R-Fla., issued a statement Oct. 14 in opposition to the reforms (here). "Once again, the Obama administration seeks to appease the Castro dictators with weakened sanctions, and justifies the policy by conflating the Cuban people with the brutal dictatorship that oppresses them,” he said. “It is false to pretend that doing business with the Castro regime helps the Cuban people. Instead, and in contravention of U.S. law, the new regulations provide a boost to the Castro brothers’ state-owned monopolies.”

Senate Finance Ranking Member Ron Wyden, D-Ore., in an emailed statement to International Trade Today, commended the administration, saying its actions to normalize U.S. commerce with Cuba will position the U.S. well to urge the nation's government to make progress on human rights and freedom of expression issues. "It could open new opportunities for American farmers, manufacturers and service providers" Wyden said. "I hope Congress will act to end the embargo and resume trade with the Cuban people.”

(Federal Register 10/17/16)