On December 17, 2014, President Obama announced a change with respect to US policy towards Cuba. The changed policy envisions the re-establishment of diplomatic relations, a review of Cuba’s status as a state-sponsor of terrorism, and a relaxation of the current US embargo of Cuba. While the tone and tenor of the announcement was certainly striking, our review of the concrete changes proposed would suggest that only incremental changes to the US embargo will be made in the short term. This likely reflects the fact that much of the existing US embargo was “codified” into US law by acts of Congress passed in 1992 and 1996. The ability of the Administration to unilaterally relax certain key features of the present US embargo is therefore open to question.

The announcement of the new policy was predicated upon an exchange of prisoners which had apparently been under negotiation for some time, but was only publicly announced on December 17. Cuba released former USAID subcontractor Alan Gross, as well as a Cuban national who has been in Cuban prison for nearly 20 years for providing information to the United States, including information that lead to the arrest and conviction of Defense Intelligence Agency (DIA) senior analyst Ana Belen Montes; former Department of State official Walter Kendall Myers and his spouse Gwendolyn Myers. In return, the United States released the three remaining imprisoned so-called “Cuban Five.” This prisoner exchange removed a continuing irritant in US-Cuban relations and a continuing impediment to any improvement in US-Cuban relations.

What may be more interesting in the remaining two years of the present Administration is the ability of the Administration to garner support within Congress for laws authorizing further relaxations of the US embargo. Known anti-Castro/pro-embargo Members of Congress were quick to criticize the President’s action, e.g., Senators Rubio and Menendez, and Representatives Ros-Lehtenin and DiazBalart. Polling data shows, however, the public support for the Cuban embargo has dropped consistently in recent years and is now wellbelow 50%. Conservative Republican Jeff Flake was on the plane that picked up released USAID subcontractor Alan Gross in Havana and his office has already issued a press release supporting the change in US policy. Many Republican members of Congress from farm states have traveled to Cuba in years past in support of increasing agricultural trade. Support for or opposition to the embargo thus cuts across party lines. While a Republican Congress will instinctively be inclined to oppose Obama initiatives on the issue, the Administration may succeed in energizing a silent majority to support further changes in US policy toward Cuba.

The Implications

We review below the most important of the concrete steps proposed by the Administration when announcing its changed US policy towards Cuba. We note that some of the changes which generated the largest headlines appear to us among the least significant, while others that have garnered less attention may actually be more significant. The discussion which follows discusses the changes in roughly descending order of importance.

Direct Linkages Between US and Cuban Banks. US financial institutions will be permitted to open correspondent accounts at Cuban financial institutions to facilitate the processing of payments for authorized transactions. Similarly, US credit and debit cards will be permitted for use by travelers to Cuba. Last summer, BNP Paribas agreed to pay US$8.9 billion and pled guilty to a criminal charge in federal court relating to its past practice of routing to and through the US financial system dollar-denominated funds transfers originating in countries sanctioned by the US, including Cuba, Iran and Sudan. In light of the massive penalties paid by BNP Paribas (and others agreed to previously by other non-US banks), banks around the world have begun to simply decline to process any funds transfers with any connection to a sanctioned country. As a result, there has been a growing chorus of complaints from licensed sellers of food to Cuba that their Cuban purchasers are unable to effect payments through the international financial system despite their best efforts to do so. The ability of US financial institutions to open correspondent accounts at counter-part Cuban banks may go far to address this growing problem. What remains to be seen is whether any US banks will agree to open such correspondent accounts given the present risk-averse attitudes of banks generally.

Review of Cuba’s Status as a State Sponsor of Terrorism. The Administration announced that it has directed the State Department to undertake a review of Cuba’s continued inclusion on the list of state sponsors of terrorism. It is widely anticipated that this review will result in Cuba’s removal from the list. Cuba was placed on the US list of state sponsors of terrorism in 1982. At that time, the Cold War had not yet ended, the US remained in an ideological battle with its nemesis, the Soviet Union, and Cuba was providing active support to radical groups around the world, including in Nicaragua and Angola. Times have changed, however, and many have argued for years that Cuba’s continuing designation as a state sponsor of terrorism is unjustified. Secretary of State Kerrey recently made a point to praise Cuba’s sending of doctors to fight Ebola in Africa. Cuba is also hosting talks between the Colombian government and the FARC to resolve a long running civil war in Colombia. The days are long past when Cuba sought to export to other countries its unique brand of socialism. While the removal of Cuba from the list of state sponsors of terrorism will have little immediate impact on the US embargo of Cuba, it will have an important symbolic resonance in Cuba and could lay the basis for further incremental relaxations to the US embargo.

Reestablishment of Diplomatic Relations. The Administration has announced that it will immediately initiate discussions with Cuba to reestablish diplomatic relations with Cuba. The present US interests section in Havana will be upgraded to become a US Embassy, and the US will increase its engagement with Cuba on issues of mutual concern including migration, counter narcotics, environmental protection, trafficking persons and the delineation of the maritime boundary as between Cuba, the US and Mexico. The Administration was careful, however, when announcing these increased interactions to state that it will continue to support improved human rights conditions and democratic reforms in Cuba and other measures aimed at fostering improved conditions for the Cuban people.

The 2015 Summit of the Americas in Panama. The US will participate in the 2015 Summit of the Americas in Panama and will welcome the participation of the Cuban government as well, provided that Cuban civil society is also allowed to participate along with civil society from the other countries participating in the summit.

Broadened US Exports to Cuba. The Administration announced that it will begin to license exports to Cuba of building materials for private residential construction, goods for use by private sector Cuban entrepreneurs, and agricultural equipment for small farmers. The Administration also announced that it will license the commercial export of certain items that will contribute to the ability of the Cuban people to communicate with people in the United States and the rest of the world. This will include the commercial sale of certain consumer communications devices, related software, applications, hardware and services, and items for the establishment and update of communication-related systems. Telecommunications providers will also be allowed to establish the necessary mechanisms including infrastructure, in Cuba to provide commercial telecommunications and internet services. Licenses authorizing this broadened set of authorized exports will not be issued, however, until revised regulations are issued by the Department of Commerce Bureau of Industry and Security (BIS).

Increased Remittances. Remittance levels will be increased from US$500 to US$2,000 per quarter to Cuban nationals.

Revised Definition of “Cash In Advance.” Those making licensed export sales to Cuba are required to obtain “cash in advance.” Previously this was defined to require that the seller receive payment before vessels sailed to Cuba. The definition will be revised to specify that it means “cash before transfer of title.” Thus, instead of paying for exported goods before they leave the US, Cuban purchasers will instead be able to pay for imported goods before vessels arrive in Cuba or before, under the sales contract, title to the purchased goods transfers to the Cuban buyer.

Cuban Alcohol and Cigars. Those who travel lawfully from the US to Cuba will now be allowed to return with up to US$400 of Cuban merchandise, of which up to US$100 can be attributable to Cuban cigars or alcoholic beverages. Thus, lawful travelers to Cuba will be able to return with a bottle of Old Havana Rum and a few Cohiba Cigars. Large scale commercial importations will not be permitted, however.

Eased Licensing for Travel to Cuba. The United States has long allowed various categories of licensed travel to Cuba. In many cases, however, those who intended to travel first had to apply for and obtain a license. The Administration yesterday announced that rather than applying for and obtaining a license, the Cuban embargo regulations will be amended to allow such travel pursuant to a “general license,” e.g., travelers will no longer need to apply for and obtain individual licenses. It will remain the case, however, that all lawful travel from the US to Cuba must be arranged through licensed Cuban travel service providers. These specialized travel agencies will thus become the “gate keepers,” acting to ensure that those intending to travel from the US to Cuba in fact qualify under one of the various categories of authorized travel. Travel to Cuba for tourism will remain prohibited.