On October 14, 2016, President Obama announced a detailed Presidential Policy Directive (PPD) designed to further the normalization of U.S. relations with Cuba, along with further revisions to the U.S. sanctions and export control regulations designed to implement the PPD and promote further engagement with Cuba. Together, the PPD and the regulatory amendments may represent the last major steps in the Obama Administration’s extraordinary series of measures to ease the U.S. embargo against Cuba by executive authority and reflect an overt effort to make those changes irreversible.
The new regulations, published in the Federal Register on October 17, 2016 by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) and the U.S. Department of Commerce, Bureau of Industry and Security (BIS), further expand opportunities for U.S. engagement with Cuba, create additional opportunities related to health and pharmaceuticals, trade in consumer products, and travel and carrier services. (OFAC rules availablehere and BIS rules available here). OFAC also released a fact sheet and revised FAQs regarding the regulations. The rules also provide expanded authorization for certain humanitarian activities, including the development of Cuban infrastructure. Perhaps the most significant change from the perspective of private business is a new provision in the OFAC regulations authorizing companies to enter into “executory contracts” with Cuban entities, provided that the performance of such contracts is expressly subject to prior receipt of all required U.S. Government authorizations for the contemplated transactions. In addition, the new regulations remove existing restrictions on imports of Cuban merchandise by authorized travelers, including monetary restrictions on purchases of Cuban alcohol and tobacco products (customs rules continue to apply and imports above personal duty-free exemption limits may be subject to customs duties). These amendments build on previous rounds of changes, including revisions in January 2015,September 2015, January 2016, and March 2016.
Presidential Policy Directive
President Obama’s PPD is significant because it amounts to a formal statement of U.S. Government policies aimed ultimately at ending the U.S. embargo against Cuba. According to the White House press release, the PPD “takes a comprehensive and whole-of-government approach to promote engagement with the Cuban government and people, and make our opening to Cuba irreversible.” In the PPD, the President emphasized six objectives for the countries’ bilateral relationship:
- Government-to-Government Interaction
- Engagement and Connectivity
- Expanded Commerce
- Economic Reform
- Respect for Universal Human Rights, Fundamental Freedoms, and Democratic Values
- Cuban Integration into International and Regional Systems
While recognizing fundamental differences between the countries’ economic and political systems and the statutory limits in place on the U.S. Government’s ability to loosen the embargo, the PPD underscored the ultimate end goal of normalization and emphasized deepening engagement at all levels of government. To that end, the PPD directed a number of executive branch agencies to take specific steps in support of normalization by fostering bilateral cooperation in areas of mutual interest, and taking a number of steps to lay the groundwork for a post-embargo relationship between the two countries.
Exports to Cuba
The new BIS rules provide new authorizations facilitating the direct sale of goods to individual consumers in Cuba. BIS has expanded existing License Exception Support for the Cuban People (SCP) to provide authorization for the export or reexport of eligible items for personal use or for the personal use of an individual’s immediate family. This expanded authorization is intended to facilitate sales to Cuban consumers by online retailers and other entities that sell consumer products directly to end users. In order to be eligible for this authorization, items must be classified as EAR99 or enumerated on the Commerce Control List (CCL) and controlled only for anti-terrorism (AT reasons). End-users must not be prohibited members of the Cuban government or Cuban Communist party.
OFAC has also amended its general license authorizing certain transactions incident to BIS-authorized exports and reexports to remove references to “100% U.S.-origin items.” This is intended to clarify the scope of the general license and minimize instances in which OFAC licensing would be required for exports or reexports already licensed by BIS. For example, the revised general license now clearly authorizes transactions incident to exports and reexports of U.S.-made products that incorporate foreign-made content, as long as the exports/reexports are authorized under the EAR. OFAC has also clarified in a note to this general license that transactions ordinarily incident to exportation from the U.S. include the importation into the U.S. of items from a third country for exportation to Cuba pursuant to a license or other authorization from BIS.
The amendments also include a technical correction to clarify that “agricultural items,” such as pesticides and tractors, that are authorized by BIS for export or reexport to Cuba, are not subject to restrictions on payment terms. Exports and reexports of “agricultural commodities” (as required by the Trade Sanctions Reform and Export Enhancement Act of 2000), such as poultry and corn, remain subject to the restrictions on payment terms that requiring cash in advance or third-country financing.
Imports of Items Previously Exported to Cuba
OFAC has amended its rules to permit recipients of items previously authorized for export or reexport to Cuba to return the items to the U.S. or a third country, provided the items are being imported:
- To be serviced or repaired before return to Cuba; or
- To return the items to the U.S. or a third country.
Returns of items to Cuba must be made pursuant to appropriate authorization under the CACR, in addition to any BIS authorization that may be necessary.
OFAC added a new general license authorizing U.S. persons to enter into contingent contracts for transactions that require specific authorization from OFAC, and authorizing transactions ordinarily incident to negotiating and entering such contracts. Contingent contracts may include:
- Executory contracts;
- Executory pro forma invoices;
- Agreements in principle;
- Executory offers capable of acceptance (such as bids or proposals in response to public tenders);
- Binding memoranda of understanding; or
- Similar types of agreements.
The performance of such contingent contracts, including making deposits, receiving payments, or providing services or goods, must be made expressly contingent on OFAC authorization of the underlying transactions. If the transaction requires another Federal agency’s licensing, performance must be expressly contingent on obtaining the necessary authorization from such agency.
Healthcare and Pharmaceuticals
OFAC has issued a new authorization for U.S. persons to engage in all transactions ordinarily incident to joint medical research projects with Cuban nationals. This general license permits the scope of authorized joint research projects to include commercial as well as non-commercial medical research.
The new rules also authorize U.S. persons to engage in all transactions incident to obtaining FDA approval of Cuban-origin pharmaceuticals, including discovery and development, pre-clinical research, clinical research, regulatory review, regulatory approval and licensing, regulatory post-market activities, and the importation into the U.S. of Cuban-origin pharmaceuticals. U.S. persons are also authorized to engage in transactions incident to the marketing, sale, or distribution in the United States of FDA-approved Cuban pharmaceuticals, including the importation of such pharmaceuticals.
In addition, the opening and maintaining of bank accounts at Cuban financial institutions is permitted to support joint medical research projects or authorized activities related to Cuban-origin pharmaceuticals.
Travel, Travel Services and Conferences
OFAC has removed the monetary value limits on merchandise imported into the U.S. from Cuba as accompanied baggage by authorized U.S. person travelers, provided the merchandise is for personal use only. (Previously, there was a total limit of US$400 for all Cuban merchandise imported into the U.S. and a US$100 value limit on alcohol and tobacco products.) Normal Customs limits on duty and tax exemptions for merchandise imported as accompanied baggage and personal use will apply. OFAC has also amended the regulations to authorize the import by U.S. person travelers in third countries of Cuban-origin merchandise purchased or acquired in a third country. Previously, such Cuban-origin merchandise had to be consumed abroad by U.S. person travelers.
OFAC has also removed a prohibition on foreign travelers importing Cuban-origin alcohol and tobacco products into the United States, although such goods must be imported for personal use and not for resale or in commercial quantities (and they remain subject to Customs rules on duties and taxes).
OFAC has amended the general license for travel related to professional research and professional meetings in Cuba to remove the restriction on travel for meetings or conferences for the promotion of tourism in Cuba. A corresponding restriction has been removed from the general license authorizing U.S. persons to sponsor, organize, or provide services in connection with, as well as participate in, conferences or other similar events in a third country that are attended by Cuban nationals.
The new regulations also authorize U.S. persons to make remittances to third-country nationals for travel by third-country nationals to, from, and within Cuba. The third-country nationals’ travel must be for purposes that would be authorized by a general license if they were U.S. persons.
OFAC has also amended recordkeeping requirements for U.S. person providers of travel and carrier services to reduce the recordkeeping burden related to providing such services for Cuba travel. Service providers may now collect and retain the specific license number from a traveler authorized to travel under a specific license, rather than obtaining a copy of the specific license issued by OFAC to the traveler.
Air Transit of Cargo
BIS has revised License Exception Aircraft, Vessels, and Spacecraft (AVS) to permit the carriage of cargo transiting through Cuba on aircraft on temporary sojourn. This authorization complements the existing authorization permitting carrying of cargo transiting Cuba on vessels on temporary sojourn to Cuba. Cargo in transit must depart with the aircraft at the end of its temporary sojourn to Cuba, and may not be removed from the aircraft for use in Cuba or transferred to another aircraft or vessel while in Cuba.
Foreign Vessel Transactions
OFAC has now authorized foreign vessels that call on Cuban ports for trade purposes to enter U.S. ports for unloading freight within 180 days after departing Cuba, if those foreign vessels carried only items that would be considered EAR99 or controlled for AT reasons only to Cuba from a third country.
Civil Aviation Safety
The amendments add a new general license authorizing U.S. persons to provide services for ensuring civil aviation safety and safe operation of commercial aircraft to Cuba and to Cuban nationals, wherever located.
OFAC has expanded the general license authorizing the provision of grants, scholarships and awards to Cuban nationals or in which Cuba or a Cuban national has an interest to include awards for scientific research and religious activities.
OFAC has also added new general license to authorize U.S. persons to provide Cuba or Cuban nationals with services related to developing, repairing, maintaining, and enhancing Cuban infrastructure that directly benefits the Cuban people. Infrastructure includes systems and assets used to provide the Cuban people with goods or services provided by:
- The public transportation sector;
- The water management sector;
- The waste management sector;
- The non-nuclear electricity generation sector;
- The electricity distribution sector;
- Public housing; and
- Primary and secondary schools.
This general license includes projects related to the environmental protection of U.S., Cuba and international air quality, waters, and coastlines.
OFAC has narrowed the definition of prohibited officials of the government of Cuba and the Cuban Communist Party. The definition now includes only members of the Council of Ministers, flag officers of the Revolutionary Armed Forces, and members of the Politburo. BIS has made corresponding changes to its lists of ineligible government end-users in its license exceptions, including License Exception SCP, License Exception Gift Parcels and Humanitarian Donations (GFT) and License Exception Consumer Communication Devices (CCD).