Agricultural Exports to Cuba

Cuba has been under an economic embargo that prohibits general trade between the U.S. and Cuba since 1963. Congress amended the trade ban against Cuba in 2000 with the Trade Sanctions Reform and Export Enhancement Act (TSREEA), which authorized licensed agricultural sales as long as they are financed by payment of cash in advance or through financing by a third-country financial institution using a letter of credit. Between January 2001 and January 2005, U.S. poultry product exports to Cuba have totaled almost 200,000 metric tons valued at about $126 million, mostly chicken leg quarters. Cuba is the seventh largest market for U.S. poultry.

The interpretation of “payment of cash in advance” came under scrutiny by the Treasury Department’s Office of Foreign Assets Control (OFAC) in the latter part of 2004. On February 22, 2005, the OFAC amended the Cuban Assets Control Regulations (CACR), 31 CFR part 515, to clarify the meaning of the term “payment of cash in advance,” which is used in the restrictions on payment and financing terms for authorized exports from the United States to Cuba. “Payment of cash in advance” now means that the seller, or the seller’s agent, receives payment prior to shipment of the goods from the port at which they are loaded.

The final rule on U.S. payment policy went into effect on the day it was announced, with a 30-day window until March 24, 2005 for such transactions to be completed. The new policy did not make an exception of current contracts, which could risk nullifying all outstanding contracts. Because the CACR involve a foreign affairs function, no notice of proposed rulemaking was required and there was no opportunity for public participation or delay in effective date.

Some exporters had been using “cash against documents (CAD).” Using CAD, after the shipping documents were received and the goods inspected at the port, Cuba would be informed and begin to make payment. Funds would be wired from Cuba to a third country bank and then wired to the shipper’s account. Once the funds were received Cuba took possession of the goods.

Cuba may use letters of credit through a foreign bank, but exporters say that will increase the time and costs of transactions. Cuba refuses to pay cash in advance for goods on fears that its property would be confiscated by Cuban exiles in the U.S. with legal claims.

The House and Senate have submitted identical bills (H.R.719 and S.328) to amend the TSREEA of 2000. Language in the Agricultural Export Facilitation Act of 2005 clarifies Congress’ intent to sell agriculture goods to Cuba by defining “cash payment in advance” as receipt of payment before transfer of title and release of physical control of goods to the seller. The bills prohibit the President from restricting direct transfers from a Cuban financial institution to a U.S. financial institution executed in payment for a product authorized for sale under TSREEA of 2000.

On March 16, 2005, bills S.634 and H.R. 1339 were introduced to clarify payment terms for sales of agricultural commodities and products to Cuba under the TSREEA of 2000. The amended versions state payments of cash in advance means the payment by the purchaser of an agricultural commodity or product and the receipt of such payment by the seller prior to the transfer of title of such commodity or product to the purchaser, and the release of control of such commodity or product to the purchaser.

Since the passage of TSREEA in 2000, total U.S. agricultural exports have grown from nearly zero to almost $400 million in 2004. When transportation, port fees and insurance costs are included, the value climbs to about $1 billion. Cuba is now the 25th largest export market. Shell egg exports grew from 1.5 million dozen in 2002 to 2.2 million dozen in 2004. Exports of chicken leg quarters grew from 2,997 metric ton in 2001, to 44,383 metric tons in 2004.
Source: U.S. Federal Register; U.S. Library of Congress; Statement of the American Farm Bureau to the House Committee on Agriculture March 16, 2005; Testimony of Robert Werner, Director, Office of Foreign Assets Control, U.S. Department of the Treasury, before the House Committee on Agriculture March 16, 2005; Department of Commerce, U.S. Census Bureau; news wires

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Source: USDA's Agricultural Marketing Service - 29th March 2005