Trump Administration Has Completed Commoditization Of Cuba Absent Protests From Companies And Politicians; Who's To Blame?
/Trump Administration Has Completed Commoditization Of Cuba
3 Companies May Lose 100% Of Their Business In A Single Country
Nary A Whimper From Companies, Organizations And Politicians
Why Weren’t OFAC Licenses 10 Years?
Who’s To Blame?
Last week, the Trump Administration took two decisions impacting three prominent United States companies- excising potentially 100% of their operations in a single country.
None protested. Nor did any politicians. Business organizations remained silent. National newspapers did not include it in their print editions. National newscasts ignored it. Few wire services reported it.
There were no publicized statements about the decisions by the Trump Administration from Members of the United States Congress; Cuba Working Group within the United States Congress; Washington DC-based United States Chamber of Commerce; Washington DC-based Business Roundtable; Washington DC-based American Hotel & Lodging Association; Washington DC-based U.S. Travel Association; Fairfax, Virginia-based Electronic Funds Transfer Association; Copenhagen, Denmark-based International Association of Money Transfer Networks; Washington DC-based American Bankers Association; former President Barack Obama; former Vice President Joseph Biden; officials and staff members of the Obama Administration.
Members of the United States Senate and United States House of Representatives serving those three states (Maryland, Colorado, and New York) where the companies are located did not came to the defense of their constituents. Nothing from The Honorable Benjamin Cardin (D- Maryland), The Honorable Chris Van Hollen (D- Maryland) The Honorable Michael Bennet (D- Colorado), The Honorable Cory Gardner (R- Colorado), The Honorable Charles Schumer (D- New York), The Honorable Kirsten Gillibrand (D- New York), The Honorable Jamie Raskin (D- 8th District, Maryland), The Honorable Diana DeGette (1st District, Colorado) and The Honorable Nita Lowey (17th District, New York).
Why no publicized statements? By connecting the Republic of Cuba to Venezuela the Trump Administration has created toxicity and deflated expectations of re-engagement with the Republic of Cuba. No company executive wants to publicly defend a relationship with a military-controlled company. United States companies and United States politicians have moved, albeit reluctantly, onward.
Why is this tragic? For perspective, as a state, the Republic of Cuba would rank by population (11 million) eighth of fifty and rank by size thirty-fourth of fifty. All the Caribbean Sea-area countries could fit inside the boundaries of the Republic of Cuba. The city of Havana is 228 miles from Miami, Florida. United States brands are well-known and preferred where available; no company would ignore the country.
Since 2001, the Republic of Cuba has purchased, on a cash-in-advance basis as required by United States statute, more than US$6.2 billion in agricultural commodities and food products from the United States; and has ranked as high as 25th and never lower than 60th of the 219-232 United States export markets. Since 2003, the Republic of Cuba has purchased approximately US$26.4 million in healthcare products (medical equipment, medical instruments, medical supplies, pharmaceuticals) from the United States. Since 2017, more than US$26 million in power generation equipment, agricultural equipment, excavators, backhoes, graders, scrapers, bulldozers, railway fixtures, and signaling equipment have been sold to the Republic of Cuba.
For United States companies, at minimum through 3 November 2020 and potentially beyond regardless of who resides in The White House on the night of 20 January 2021, once heralded as the next new (and renewed) marketplace for United States companies, the subject of the Republic of Cuba is now comatose and nearing moribund. As a commodity, the value of its 11 million citizens is tragically, barely now an after-thought.
Another example of the mounting excruciating injuries from the jointly-exercised failures of the Obama Administration and Raul Castro Administration to seek bilateral permanence. The Obama Administration neither understood nor wanted to understand what tools are required for commerce; stability being among the most important.
What Happened Last Week
The Trump Administration continues to implement policies designed to separate the military from the civilian commercial and economic infrastructure within the Republic of Cuba by discouraging, restricting and prohibiting transactions with military-controlled entities in the Republic of Cuba.
First, the Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury informed Bethesda, Maryland-based Marriott International (2019 revenues approximately US$21 billion) that the two-year license first received in March 2016 by Starwood Hotels & Resorts Worldwide prior to its September 2016 acquisition by Marriott International, then renewed in March 2018 and again in March 2020 to manage properties in the Republic of Cuba would be terminated on 31 August 2020. The one operational property, Four Points by Sheraton Havana, has approximately 300 employees and is owned by Republic of Cuba government-operated Gaviota, a subsidiary of Republic of Cuba government-operated Enterprise Administration Group (GAESA) that is controlled by the Revolutionary Armed Forces of the Republic of Cuba (FAR). A second property delayed for three years was scheduled to be operational in 2020 and a third property was never mentioned after initially being identified in 2016. NOTE: Representative offices for United States airlines remain operational in the Republic of Cuba.
Second, the United States Department of State added Republic of Cuba government-operated Financiera Cimex (Fincimex), a Panama-registered subsidiary of Republic of Cuba government-operated Corporacion Cimex which is a subsidiary of GAESA and controlled by the FAR to the Cuba Restricted List. As of 12 June 2020, individuals/entities subject to United States jurisdiction are (with some exceptions including “grandfathering”) prohibited from engagement with Fincimex.
Fincimex is the remittance agent in the Republic of Cuba for Denver, Colorado-based Western Union Company (2019 revenues approximately US$5.6 billion) and processes credit/debit card transactions for Purchase, New York-based Mastercard International (2019 revenues approximately US$15 billion) which on 1 March 2015 removed its restriction (block) on the Republic of Cuba for United States-based financial institutions. Each company operates within general licenses and specific licenses issued by the OFAC.
With the removal of the block by Mastercard International, three financial institutions permitted their Mastercard products (credit card/debit card) to be used in the Republic of Cuba: Pompano Beach, Florida-based Stonegate Bank; San Juan, Puerto Rico-based Banco Popular of Puerto Rico; and Fort Lauderdale, Florida-based Natbank (a subsidiary of Montreal, Canada-based National Bank of Canada) with approval of the Central Bank of the Republic of Cuba.
The use of Mastercard products issued by non-United States-based financial institutions are unimpeded for use in the Republic of Cuba, as are products from San Francisco, California-based Visa (2019 revenues approximately US$23 billion). Visa has not removed its restriction (block) on the Republic of Cuba for United States-based financial institutions.
An unanswered question is whether the Trump Administration will permit Western Union Company and Mastercard International to continue operations in the Republic of Cuba if the Republic of Cuba government-operated entities who hold agency agreements and processing requirements are not affiliated with the FAR. Marriott International too could change its management contracts to a non-FAR-related entity.
Changes-in-control would seem to satisfy the goals of the Trump Administration- to unwind the role of the military within the commercial and economic infrastructure of the Republic of Cuba while permitting maintenance of important commercial relationships. The Trump Administration might require further transparency with respect to the structure of any agreements.
Will be next for the Trump Administration to dismantle the sales offices in Havana representing the interests of Deerfield, Illinois-based Caterpillar (2019 revenues approximately US$53.8 billion) and Moline, Illinois-based Deere & Company (2019 revenues approximately US$39.2 billion) who collectively have since 2017 exported more than US$5 million in product to the Republic of Cuba? If the offices are ordered closed, will the Milwaukee, Wisconsin-based Association of Equipment Manufacturers and St. Louis, Missouri-based Farm Equipment Manufacturers Association, and Washington DC-based National Association of Manufacturers register their complaints?
Failures By Obama Administration And Castro Administration
From 2014 to 2017, when seeking OFAC licenses, why did not Obama Administration officials, department and agency staff, attorneys and consultants in Washington DC and in Havana, collectively or individually, consider longevity, permanence, interruption; and the impact of a Republican winning the 2016 presidential election? At minimum, contracts and leases needed to account for the four-year United States presidential term.
Why didn’t the Obama Administration offer, why didn’t the Castro Administration suggest, why didn’t companies (and their attorneys and consultants) ask for OFAC licenses of more than two years in duration? From those involved, the disturbing answer seems to be that no one thought about it. Amazing. Why wouldn’t they ask? The entire exercise was about pushing-the-envelope.
The Obama Administration should have encouraged and, if necessary convinced the Castro Administration that to render solid (immune from political interference) the commercial, economic, and political bilateral operational relationship, United States companies needed to have long-term contracts and long-term leases. The companies needed to move quickly to create a meaningful footprint. The message needed to be normalcy and stability rather than crimped and play-it-safe.
Not too much brainpower required to appreciate the two-year OFAC license issued in March 2016 to Starwood Hotels & Resorts Worldwide/Marriott International should have been for a minimum of four years or eight years, but more reasonably ten years to twenty years with options to renew as is standard with international hotel management contracts.
If the Obama Administration had instructed the OFAC, which it could have done, to issue a ten-year license in March 2016, Starwood Hotels & Resorts Worldwide/Marriott International along with other companies (there were others who wanted to and attempted to enter the Republic of Cuba including Parsippany-Troy Hills, New Jersey-based Wyndham Hotels & Resorts (2019 revenues approximately US$2 billion)) may have had by June 2020 perhaps ten or more properties under management in the Republic of Cuba- employing thousands of Republic of Cuba nationals. While the OFAC license could still have been revoked by the Trump Administration, there would have been caution given what would have been substantial investments in the Republic of Cuba and thousands of employees who were Republic of Cuba nationals.
Another lapse by the Obama Administration: Western Union Company and Mastercard International, along with agricultural commodity exporters, food product exporters, healthcare product exporters, and travel service providers needed direct correspondent banking. The efficient two-way electronic movement of funds is central to a normal, transparent and rationale commercial marketplace. Yet, despite advocacy from companies, business organizations and politicians, the Obama Administration (particularly National Security Council staff) would not instruct the OFAC to issue a general license, or multi-year specific license to United States financial institutions to have accounts with financial institutions in the Republic of Cuba and for financial institutions in the Republic of Cuba to have accounts with financial institutions in the United States. What did the Obama Administration instruct the OFAC to do? Not permit financial institutions in the Republic of Cuba to have accounts with United States financial institutions. This decision crystalized two points: First, the Obama Administration did not want to be bold, did not know how to be bold, did not want normalcy. Second, a complete lack of understanding about the basics of commerce.
If the Castro Administration did not want multi-year contracts and leases, then what the Trump Administration decided to do last week should have been expected.
What Might Have Been
The problems created by the Obama Administration and Castro Administration are not solely about the duration of licenses and contracts, it’s also about the failure of each to permit an immediate foundational presence within the Republic of Cuba for United States Companies.
Had, for example, entities including Seattle, Washington-based Starbucks Corporation; Houston, Texas-based Sysco Corporation; Miami, Florida-based Akerman LLP; Atlanta, Georgia-based The Home Depot; Chicago, Illinois-based Hyatt Hotels Corporation; Bonita Springs, Florida-based Hertz Global Holdings; Cupertino, California-based Apple; and Chicago, Illinois-based McDonald’s Corporation among others been permitted by the Obama Administration and the Castro Administration to have a presence, and not one flagship, but locations throughout the county, then the decisions taken since 2017 by the Trump Administration may not have been possible.
There would have existed not only a highly-visible United States commercial presence throughout the 800-mile archipelago, but an infrastructure and those companies would be employing thousands of Republic of Cuba nationals, paying them directly, paying them well, and training them for higher-paying jobs… possibly in the United States. President Trump would have been pleased with that optic.
If only the Obama Administration and Castro Administration had prepared for an election outcome they did not prefer to envision….
