The Obama Administration took another big step this week to ease the U.S. trade restrictions against Cuba, creating additional opportunities for U.S. companies seeking to engage with Cuba in the areas of export and related payment terms, telecommunications, travel and carrier services, and news and media. Most notably, the Administration has significantly expanded the types of U.S.-origin products that may be approved on a case-by-case basis for export to Cuba to include a wide range of consumer products for “domestic consumption by the Cuban people.” In addition, the new regulations remove restrictions on payment terms and financing related to exports of U.S.-origin goods to Cuba (other than agricultural products, which remain subject to a statutory provision requiring payment by cash in advance or third-country financing).
On January 27, 2016, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) and the U.S. Commerce Department’s Bureau of Industry and Security (BIS) issued new rules further easing sanctions on Cuba. These amendments to the Cuban Assets Control Regulations (CACR) and Export Administration Regulations (EAR) further implement the dramatic changes in U.S. policy towards Cuba announced in December 2014 and build on previous rule changes published in January 2015 and September 2015. The new OFAC regulations lift the restrictions on export financing for non-agricultural exports to Cuba, further facilitate provision of travel and carrier services, and expand existing authorizations for various activities in Cuba. The new BIS regulations adopt more favorable licensing policies for certain items, including telecommunications items and items related to aviation safety.
The new regulations do not lift the U.S. trade embargo against Cuba.Tourist travel remains prohibited, and most ransactions with Cuba are still restricted for U.S. companies and persons subject to U.S. jurisdiction. Although legislative action by Congress will be required to fully lift the embargo against Cuba, the new regulations are the latest (and may not be the last) in a series of measures taken under executive authority to ease the sanctions.
Exports to Cuba
The new BIS rules significantly expand the categories of U.S.-origin products that may be authorized for export or reexport to Cuba on a case-by-case basis. Most notably, the new regulations include a very broadly worded provision authorizing the licensing of items for “wholesale and retail distribution for domestic consumption by the Cuban people.” Export licenses may now be granted case-by-case for new categories of items that meet the needs of the Cuban people, including exports to state-owned enterprises, agencies, and other organizations of the Cuban government that provide goods and services for the benefit of the Cuban people. The change in policy applies to license applications to export or reexport items used for the following activities:
- Agricultural production
- Artistic endeavors (including the creation of public content, historic and cultural works and preservation)
- Food processing
- Disaster preparedness
- Relief and response
- Public health and sanitation
- Residential construction and renovation and public transportation
- Wholesale and retail distribution for domestic consumption by the Cuban people
- Construction of facilities for treating public water supplies
- Construction of facilities for supplying electricity and other energy to the Cuban people
- Construction of sports and recreation facilities
- Other infrastructure that directly benefits the Cuban people
Previously, export license applications for such items were subject to a general policy of denial. Licenses issued under this new policy generally will prohibit reexports from Cuba to other destinations.
In addition, as explained further below, the new rules establish a more favorable “policy of approval” for certain categories of items, such as telecommunications products and items for environmental protection, that were previously subject to case-by-case review.
The new OFAC regulations remove the restrictions on payment and financing terms for non-agricultural exports from the U.S. or reexports of 100 percent U.S.-origin non-agricultural items from a third country which are licensed or otherwise authorized by the Department of Commerce. Prior to the issuance of the new rule, financing for authorized exports to Cuba was restricted to payment of cash in advance or financing by banking institutions located in third countries which were not U.S. persons. Due to statutory requirements imposed by Congress, agricultural items and commodities continue to be subject to the export financing restrictions requiring use of specific payment and financing terms.
OFAC also issued an authorization for banks and other depository institutions to provide financing for exports and reexports of non-agricultural items or commodities to Cuba. The financing activities covered by this new general license include issuing, advising, negotiating, paying, or confirming letters of credit (including letters of credit issued by Cuban banks), accepting collateral for issuing or confirming letters of credit, and processing documentary collections.
Travel Services and Carrier Services
The new OFAC rules provide new authorizations for arrangements related to travel and other carrier services. Under the new regulations, U.S. entities may now enter into blocked space, code-sharing, and leasing arrangements to facilitate the provision of air carrier services for persons, baggage or cargo from the United States to Cuba, including entry into such arrangements with Cuban nationals. In complementary revisions to the EAR, BIS adopted a general policy of approval for license applications to export or reexport items necessary to ensure the safety of civil aviation and the safe operation of commercial aircraft engaged in international air transportation, including exports of aircraft leased to state-owned enterprises. License applications to export these items were previously subject to review on a case-by-case basis.
The new OFAC rules also clarify the scope of authorizations for travel and related transactions directly incident to facilitating authorized temporary sojourn of aircraft and vessels to Cuba from the United States. For example, U.S. crew on a vessel or U.S. personnel providing services to aircraft on the ground to Cuba are now explicitly covered by a general license. Travel-related transactions by such U.S. personnel who facilitate normal operation of aircraft or vessels would be limited to the duration and scope of their duties related to the authorized temporary sojourn to Cuba.
Expansions in Authorized Travel
The new OFAC and BIS rules expand authorizations for travel to Cuba for certain activities and broaden the types of activities which U.S. persons may engage in.
- Travel and related transactions directly incident to professional media or artistic productions of information or informational materials for exportation, importation, or transmission, including the filming or production of media programs (including movies and TV programs), music recording, and creation of artwork in Cuba are now permitted.
- Travel and related transactions directly incident to the organization of professional meetings or conferences in Cuba is now permitted. Previously, only travel related to the attendance of these events was authorized, so organizational trips were not covered. Marketing in Cuba for such professional meetings or conferences is also permitted.
- Travel and related transactions directly incident to the organization of amateur and semi-professional international sports federation competitions and public performances, clinics, workshops, athletic and other competitions and exhibitions in Cuba is now permitted. Previously, only travel related to the attendance of these events was authorized. OFAC has also amended the regulations to remove the requirements that for certain events all U.S. profits be donated to charity and that the workshops and clinics be organized and run by the authorized traveler. Marketing in Cuba for such events is also permitted.
- Travel and related transactions directly incident to the conduct of contract negotiation and leasing of items authorized for export or reexport to Cuba is now permitted. Previously, travel-related transactions for these activities were not covered by the OFAC general license though other activities like sales negotiation and servicing of items authorized for export were licensed.
Media and Informational Materials
OFAC’s new regulations broaden the authorization for transactions relating to informational materials by authorizing creation of informational materials for export and import to and from Cuba. This includes the artistic or substantive alteration, or enhancement, of such materials, in contrast to the previous rule that did not permit any substantive alterations and required that materials be pre-existing. Also newly authorized is the hiring of Cuban nationals and the remittance of royalties or other payments in connection with these transactions. Marketing of the informational materials is authorized, but not other marketing or business consulting services.
Telecommunications and Software Exports
The new BIS rules adopt a general policy of approval for license applications to export or reexport telecommunications items that would improve communications to, from, and among the Cuban people. Additionally, the rules implement a general policy of approval for license applications to export commodities and software to 1) human rights organizations or individuals and non-governmental organizations that promote independent activity to strengthen civil society in Cuba and 2) U.S. news bureaus in Cuba whose primary purpose is gathering and disseminating news to the general public. License applications to export these items were previously subject to review on a case-by-case basis. These changes create opportunities for telecommunications and internet services companies, as well as for companies in the news and media industries.
The new OFAC rules expand the types of authorized humanitarian projects in Cuba to include disaster preparedness and response. This broadens the existing list of humanitarian projects, which included disaster relief projects.
The new BIS rules adopt a general policy of approval for license applications to export or reexport agricultural items which do not fall under the EAR’s definition of “agricultural commodities” (such as insecticides, pesticides, or herbicides), and agricultural commodities that are not eligible for export under License Exception AGR. Prior to the issuance of these amendments, BIS reviewed applications to export such agricultural items on a case-by-case basis.
Energy and Environment
The new BIS rules adopt a general policy of approval for license applications to export or reexport items necessary for the environmental protection of U.S. and international air quality, waters, or coastlines. This authorization includes items related to renewable energy or energy efficiency. Prior to the issuance of these amendments, BIS reviewed applications to export these items on a case-by-case basis.
Special thanks to Deborah Wei and Ashley Steinberg for their contribution to this update.