As the White House tries to open up a trade relationship, Cuba shuts off the spigot. What’s going on?
By Danny Vinik
As President Obama’s Commerce Secretary Penny Pritzker journeys to Havana tomorrow to promote the idea of a warmer U.S. trade relationship with Cuba, she's shadowed by an awkward fact: The existing trade between the two nations is vanishing, and nobody is quite sure why.
Strange as it might sound for a country under a 53-year embargo, Cuba does buy a significant quantity of American goods every year, thanks to a little-known exception that allows American companies to sell food and medical supplies there. But as the two countries grow diplomatically closer, that business relationship has dropped off sharply.
Agricultural exports to Cuba slid from $710 million to $291 million between 2007 and in 2014. In the first seven months of this year, they’ve fallen to $122 million, a 41 percent drop. In July, the only agricultural product that Cuba imported from the United States was poultry, according to the U.S. Cuba Trade and Economic Council.
As Pritzker arrives on Tuesday for two days of high-level talks with senior Cuban officials, the drop-off is a stark reminder of how much control the Cuban government can exert over the relationship—and the limits of the White House’s ability to promote U.S. interests.
"What the Obama administration does is only 50 percent of the equation. This is also about what the Cuban government wants,” said John Kavulich, the president of the U.S-Cuba Trade and Economic Council. “And right now the Cuban government is showing a less than enthusiastic focus on what the president’s done.”
In part the numbers are going down because of pure economics: falling commodity prices push down the value of all trade. Many experts also point to the fact that Cuba can buy agricultural products in a global market. The U.S. has some major competitive advantages—high-quality products and a coastline less than 100 miles from Cuban soil—but American producers still have international competition. And a U.S. law forbids domestic producers from selling agricultural goods on credit to Cuba, putting U.S. producers at a disadvantage.
But many experts say economics is only part of the reason for the decline in exports. They also point a finger at politics. All U.S. agricultural goods must be sold to one state-owned company, Alimport, and many Cuba observers generally believe the Castro regime uses it as a political lever. During much of the 2000s, Alimport purchased U.S. agricultural products from dozens of states with the hope of garnering support from the states’ respective lawmakers to repeal the embargo.
"Alimport can certainly make decisions on imports that aren’t purely economic,” said Michael Gershberg, the special counsel at Fried Frank who focuses on trade issues. “If they receive orders from the government to make decision based on political reasons, that can certainly have an effect [on purchases].”
When the strategy failed, the Cuban government moved in the opposite direction: Instead of buying from many different states, it decided to dramatically cut back on all U.S. agricultural products.
“They tried the carrot. That didn’t work,” said Parr Rosson, the head of the department of agricultural economics at Texas A&M University. “This may be the stick.”
As diplomatic relations improved over the past year, the “stick” approach remains. In 2007, U.S. producers sold $109 million worth of corn and $67 million worth of soybeans to Alimport. Through July of this year, they’ve sold less than $5 million worth of corn and less than $7 million worth of soybeans. In fact, total U.S. food sales to Cuba fell to less than $4 million in July, one of the lowest numbers since the law allowing such U.S. agricultural exports took effect in 2001.
Just a few years ago, WestStar Food, a Texas agricultural company specializing in pinto beans, was selling 5,000 tons of beans to Cuba each year, worth around $3.2 million at today’s prices. Then those sales disappeared. “We haven’t exported anything there for almost four years now,” WestStar’s president, Patrick Wallesen, said. “For the most part, the way I see it, they pretty much quit buying everything except chicken and grains.”
At the diplomatic level, all the formal moves have been toward openness: Secretary of State John Kerry reopened the U.S. embassy in Havana in August; a month later the Commerce and Treasury departments relaxed a rule to allow U.S. companies to establish warehouses, storefronts and offices in Cuba. The government also loosened its telecom restrictions, allowing U.S. telecom and Internet providers to do business on the island. It’s possible that those moves will open new business channels—but it’s also possible the farm sales are a sign Cuba isn’t biting
“The U.S. can do what it can do,” said David Salmonsen, the senior director for congressional relations at the American Farm Bureau Federation. “Fully having normal trade relations will help. But the focus at the same time is on what does Cuba want to do.”
Despite the Obama administration’s desire to renew diplomatic relations with the Cuban government, increased trade still requires cooperation on the part of the Cubans. Pritzker’s visit to Havana this week is intended to push Cuba towards a more open business climate. But if President Raul Castro intends to restrict purchases of U.S. agricultural products as leverage to pressure American politicians into repealing the embargo entirely—a job that falls to Congress—the White House is stuck.
As for Patrick Wallesen, he’s not confident that the Cuban government will be interested in his company’s beans anytime soon. But he’s hopeful that someday, that will change.
“If they would allow me to lease a warehouse and import product into Cuba,” he said, “I would be there tomorrow.”