On Dec. 17, 2014, President Obama announced the United States will re-establish normal diplomatic relations with Cuba and that certain economic sanctions will be eased. Notwithstanding the media frenzy implying that the embargo has been lifted, it is much more likely the easing will take place in measured steps.
The following are questions and answers to pertinent issues surrounding this monumental change in economic and diplomatic relations with Cuba.
When do the relaxations take effect?
The president’s statement, and guidance issued by the Office of Foreign Assets Control (OFAC), indicates that changes will not be effective until implemented through agency action. Administration officials are optimistically stating this will be a matter of weeks.
What changes are likely to take place?
What is the timetable for further relaxation?
The Obama administration has used the relaxation of sanctions in measured steps as a foreign policy tool in much the same way as it uses the imposition of sanctions in Russia (i.e., a slow roll-out to judge the effect on the other party and to judge the U.S. political reaction). The administration believes this to be an effective foreign policy tool. However, there is certainly no published timetable or public milestones that would indicate when further relaxations with Cuba might occur. Given the careful timing of the announcement – the day after the U.S. Congress closed their session – it is expected to see general licenses issued in the early part of January 2015 prior to the return of the new Congress mid-month.
What does establishment of formal diplomatic relations mean?
The president has called for the re-establishment of formal diplomatic relations with Cuba and reopening embassies, as well as a dialogue on a number of issues of common interest, such as “migration,” environmental protection and counternarcotics. It is clear that negotiations have been underway for a period of time and the implication is that there has been some kind of agreement on key issues with the Cuban government.
What sanctions will remain in place?
The announced relaxations are largely an expansion of areas where the U.S. has already eased restrictions (such as travel to Cuba, remittances, donations and allowing the sale of certain personal communication devices to Cuba). In some cases, the relaxations will merely remove the requirement for applying for specific licenses that were routinely granted through the issuance of broad general licenses.
U.S. citizens, permanent residents, companies organized under the laws of the U.S. (and their foreign subsidiaries), and persons or entities located in the U.S. are still largely prohibited from engaging directly or indirectly in any transactions with Cuba, unless such transactions fall within a general or special License. U.S. financial systems will still be required to block assets of the Cuba entities that come into their possession unless the transaction falls under the licenses.
What about restrictions under existing legislation such as Helms Burton?
The Libertad Act, 22 U.S.C. §§6021 et. seq. Titles I and II of the Libertad Act provide strong language requiring the president to impose/maintain certain prohibitions, take certain actions. These two titles of the act also seek to restrain the ability of the president to suspend the economic embargo on Cuba, unless and until a democratic government is in place in Cuba. How far the president goes in the liberalization process in light of the Libertad Act raises questions about executive versus congressional powers that no doubt will be the source of political commentary and possibly judicial review. What is likely is that the Obama administration has determined where it thinks that line is and that it will push its executive powers up to that line. However, it is unlikely that the Republican Congress will agree with the administration on exactly where that line is.
Title III of the Libertad Act created a private right of action against non-U.S. entities trafficking in Cuban-owned property that the Cuban government confiscated without compensating U.S. former owners. However, successive presidents have “suspended” the provisions of Title III as allowed under the law.
Additionally, there are issues surrounding the resolution of claims which have been consolidated in the Foreign Claims Settlement Commission (FCSC) process. The FCSC adjudicated thousands of claims by U.S. nationals for expropriation of property, and other claims against the Cuban Government. There are over 5,900 compensable claims totaling more than $1.9 billion in principal outstanding.
What are other practical considerations in expanding trade with Cuba?