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Is a Glimpse of US-Cuba Trade on the Horizon?

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Legislators like Illinois Senator Dick Durbin would like to see increased trade with the island nation -- as would many US companies.

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It's a refrain heard year after year: Cuba will be opening up "any day now" and US companies should position themselves to prepare for a boom in exports to the island nation.

The Obama administration would like to double US exports by 2015, and Senator Dick Durbin of Illinois is calling for increased trade with a market only 90 miles away.

Rob Sequin, a Massachusetts-based consultant serving businesses eager to enter the Cuban market, and the publisher of HavanaJournal.com, believes the post-embargo, post-Castro economic prospects are "obviously huge."

"Current opportunities in Cuba are limited and restricted with limited upside," Sequin tells Minyanville. "But Raul [Castro] changed things more than I expected."

Sequin says that, over the past year, "there have been substantial changes in the people surrounding Raul -- they've flushed out some of those who were loyal to Fidel."

He says the government is now more aligned with Raul than Fidel, that Raul is more of a manager, more practical, and has more of a pro-business orientation -- as we saw recently, when the Cuban government laid off thousands of state employees and took steps to legalize private sector activities.

"Raul was a general in the military, and the military ran all the business in Cuba, so he was in charge of everything, essentially," Sequin says. "However, it's still a communist country, and communism and business don't go together unless you're China -- and Cuba's not China."

Sequin says Cuba's reforms are baby steps, albeit baby steps in the right direction.

"It's like throwing a glass of water on a house that's burning down to see if that does anything," he explains. "Then, when that doesn't work, they go get a bucket full of water, throw it on the house, and see what that does. When that house burns to the ground, how it will be rebuilt, I have no idea. No one could give you a straight answer on that."


The next few months "will be interesting, that I can guarantee," Sequin says. "They're having a Communist Party Congress is April, which they haven't done since 1997, so we could see some major changes. You'll definitely want to keep your eye on Cuba coming up, because this time it could be different. Could be, emphasis on the 'could.'"

In fact, since the Trade Sanctions Reform and Export Enhancement Act of 2000 lifted part of the trade embargo (allowing specific products to be exported, such as agricultural products and medical supplies), a number of US companies have been doing brisk business with Cuba, supplying roughly 96% of Cuba's rice imports and 70% of their poultry and meat.

In 2001, Archer Daniels Midland (ADM) was the first domestic outfit to do business with Cuba in 40 years, after the Trade Sanctions Reform and Export Enhancement Act lifted part of the trade embargo a year earlier. Cargill followed shortly thereafter, and exports of US corn, cattle, wine, cigarettes, and other foodstuffs began flowing south.

In October 2002, the US Food & Agribusiness Exhibition in Havana drew 20,000 Cubans who wanted to taste things they never had before -- among them, products from Hormel (HRL), Tyson Foods (TSN), and Wrigley.

Sequin maintains that while the definition of an "agricultural product" is broad enough to allow for wooden utility poles (an export quite valuable to the state of Alabama), railroad ties, and newsprint, completing a sale is tricky.

"It's a real hassle because of the restrictions," he says. "For example, Cuba has to pay in cash through a third country; companies could do millions and millions of dollars in sales if the US would get out of the way."

Steve Yoder of the St Louis-based National Corn Growers Association agrees, telling the Peoria Journal-Star, "US suppliers can reach Cuba's three main ports in just one day or less, but current US policy hampers our ability to reach this market. If the United States does not become the supplier of choice, someone else certainly will."

US law "prohibits any US person or company from providing payment or financing credit terms to anyone in Cuba. The law specifically rules out open account transactions, requiring cash in advance arrangements. Foreign banks may, however, finance transactions and US banks may confirm or advise such foreign bank letters of credit or similar arrangements."


Paradoxically, this both helps and hinders US-Cuba trade.

On one hand, cash up front guarantees payment. On the other, it can shrink the market by a sizeable amount, as happened last year.

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