Cuba sanctions eased, but too early for a 'gold rush'

Louis A. Dejoie, McNees Wallace & Nurick

As much of the world now knows, beginning in January 2015, the Obama Administration began easing some of the sanctions that have been imposed on Cuba for generations. Since that easing, there has been a great deal of interest by American companies and would-be tourists in entering the Cuban market.

Yet while Cuba does present some potentially significant opportunities, it is still far too early to pronounce a "gold rush."

Cuba has a population of more than 11 million people and, because of the U.S. embargo, there is a pent-up demand for American products which has been growing for almost 60 years. Significant investment needs to occur in infrastructure, telecommunications, tourism, agriculture, and the list goes on. The Obama Administration did, indeed, make it easier to do business in a number of sectors and to travel to Cuba without specific government authorization. There are now direct flights by U.S. airlines to Cuba, and Airbnb reports an inventory of some 4,000 rooms. American "tourists" are going to Cuba in record numbers for such things as "people-to-people" exchanges and humanitarian purposes.

However, there remains an enormous amount of change that needs to occur before Cuba can rightly be said to be open for business.

The embargo remains in effect, and it does not look like it will be lifted anytime soon. Under the terms of the Helms-Burton Act, which enacted the embargo, Cuba will need to make reparations for the nationalization of U.S. businesses in the early days of the Castro regime. Unless new Congressional legislation is passed, which appears doubtful in the current political climate, billions of dollars will need to be paid by the Cuban government before the embargo is lifted. It is not likely that the Cuban government will agree, at least in the foreseeable future, to make such payments - even if it had the money to do so - which it does not. Therefore, the ability of American companies to do business in Cuba will remain limited to those operations and business sectors that fall within the narrow exceptions enacted by the Obama Administration.

And who knows what will happen next. Fidel Castro has died and Donald Trump is the new U.S. President. Perhaps being a hotel and real estate developer, President Trump will be inclined to open a new tourist destination and press for additional normalization of diplomatic relations.

But don't count on it. Trump's pronouncements on the campaign trail have been, at best, ambiguous. While he appears open to continuing a relationship, he has made clear that he wants "a better deal," and he does have the power to reverse President Obama's actions and reimpose more restrictive sanctions.

Because of the many unknowns, we are advising our clients to proceed with caution. Things might change rapidly one way or another. With that caution, opportunities which we see as worth exploring include the following areas:

- Medicine and medical devices

- Civil aviation and ocean transportation

- Goods related to environmental protection and renewable energy

- Telecommunications

- Agricultural commodities

- Consumer communications devices

- Humanitarian and not-for-profit initiatives

- Importation of permitted goods from private Cuban entrepreneurs

- Internet services and direct sales

- Infrastructure projects

In conclusion, while it appears that the U.S.-Cuban relationship has been put on a trajectory towards normalization, it is not yet close to business as usual, and it is unknown how the changing of the guard - in both the U.S. and Cuba - will affect the future.

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Louis A. Dejoie is chairman of the McNees Wallace & Nurick International Law Practice Group and a member of the firm's Corporate and Tax and Intellectual Property groups. He also is the director of the World Trade Center in Harrisburg, Pa. Dejoie has practiced law involving international business since 1984 and advises foreign investors on establishing U.S. operations and assists U.S. clients in penetrating foreign markets through direct investment and foreign representation.

Published: Mon, Mar 06, 2017

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