When President Obama announced his historic restoration of diplomatic relations with Cuba, many South Floridians were hoping it would lead to a free flow of commerce and people between the two countries. Two and a half years later, those initial expectations have been tempered by the political and economic realities, as well as the uncertainties of President Trump’s policy toward Cuba.
“A lot of American businesses were hopeful that Obama’s reestablishment of diplomatic relations with Cuba would open a new market and lead to new trade opportunities,” said Pablo S. Quesada, partner, SMGQ Law in Coral Gables. “However, Cuba has failed to institute any real political or economic reform, and its economy has further stalled due to the collapse of Venezuela.”
Today, the short-term outlook for stronger business, travel and immigration between South Florida and Cuba appears far less promising than it did in 2015, according to several leading South Florida attorneys. The key challenges continue to be the tight political and economic control by Raul Castro’s government, the trade restrictions imposed by the U.S. Helms-Burton embargo act of 1996, and the difficult living conditions in Cuba.
“Many American business leaders who have visited the Island to meet with Cuban leaders have come back empty-handed,” said Quesada. “Many have learned there is yet no ability to invest capital in Cuba and there is no domestic market in Cuba for their products. “
Investment trends
Michael Diaz, Jr., global managing partner, Diaz Reus and Targ LLP in Miami, said he has seen greater interest in Cuban investment from European rather than U.S. sources in the past year. “Many U.S. investors have cooled their interest, based on the political and legal issues,” he added.
Another issue facing South Florida businesses looking for a possible foothold in the market is that the Cuban government is focusing on attracting large-scale infrastructure investment, such as airport and seaport projects, rather than consumer goods and services, according to Cuban-born Karel Suarez, a Diaz Reus associate. “While many U.S. businesses would like to invest there, it is the Cuban government that makes those decisions,” he said.
While South Florida is home to major cruise lines and air travel hubs, most U.S. multinationals looking at major infrastructure investment in Cuba are based elsewhere. “The reality is that except for the major players like Google, there just aren’t that many opportunities now,” Quesada said.
Commercial Obstacles
Currently, it is very difficult for South Florida businesses to access U.S. dollars for goods and services in Cuba in a way that doesn’t violate the embargo, said Diaz. “Even though the Obama administration made specific allowances in certain sectors, the embargo places a huge restriction on access to currency in a lawful manner. That limits the expansion of business opportunities.”
If that currency situation changes, then South Florida businesses will need to look at the political, economic and legal risks of making investments in the Cuban market, Diaz said. “Cuba has been relying on Venezuela for financial assistance, so U.S. investors should pay attention to economic conditions in that country as well,” he noted.
Legal Issues
South Florida businesses exploring ventures in Cuba face several major legal issues, says Gustavo J. Membiela, partner, Hunton & Williams in Miami. “The most important step is to do your due diligence to be sure you are not running afoul of the current U.S. restrictions on doing business with Cuba,” he said. “One way or another, the Cuban government is going to be involved in your transactions, even if you reach an agreement with a local entrepreneur.”
In addition, U.S. companies need to be aware of actions by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), which enforces economic and trade sanctions against Cuba.
“Another set of legal challenges involve doing business with Cuban partners or customers,” Membiela said. “If there is a dispute, will it be resolved in a Cuban courtroom or arbitration session, or can you take it outside Cuba to a different forum? We have seen several matters that are now being arbitrated in Europe. It all depends on the working of the deal and the nature of the dispute.”
Robert Targ, founding partner, Diaz Reus and Targ, notes that if the U.S. embargo is lifted and Cuba “opens for business,” a binational claims commission will likely be created to resolve the legal issues related to private property and businesses taken over by the government. “There will be a need for both sovereign and private representation on that claims commission,” he said.
Protecting Brands
Many South Florida attorneys are interested in intellectual property (IP) related issues, related to branding, patents, trademarks in Cuba, said Robert Thornburg, shareholder and registered patent attorney with Allen, Dyer, Doppelt, & Gilchrist, P.A. in Miami.
“This is a popular topic right now with lots of educational meetings and seminars dealing with the prospects of U.S. brands in Cuba,” he said. “But you have to sell goods there first. Those companies run up against the U.S. embargo, as well as the dire existence of most of the Cuban people.”
Thornburg added that the embargo has protected U.S. brands against counterfeit goods, a common problem in developing world. “Some countries are relatively safe havens for counterfeiting,” he said. “Cuba is not one of them because of the prohibitions on imports. We export a limited number of goods to Cuba, but we don’t bring in their products.”
Immigration Policy
Quesada notes that the January 12 change in U.S. immigration policy had no effect on Cubans who arrived in the United States before that date. Those immigrants continue to benefit from the Cuban Adjustment Act of 1996, which allows them to obtain permanent residency one year following their admission or parole into the United States.
However, due to the end of the “wet foot, dry foot” policy, Cuban migrants trying to reach the U.S. are now detained, whether or not they touch land in the U.S., and are returned to Cuba. “The result has been that we have seen a significant decrease in the number of Cuban migrants attempting to come the U.S.,” Quesada said, adding that less than 100 migrants have been detained by the U.S. Coast Guard since the policy ended.
Eventually, that change in immigration policy may encourage the growth of private enterprise in Cuba, added Suarez. “Now that people know they can’t come to the U.S. and stay legally, they may be more inclined to create their own businesses in Cuba.”
Travel and Tourism
A recent report from the International Monetary Fund (IMF) found that Cuba attracted a record 4 million visitors in 2016, second highest in the Caribbean after the Dominican Republic. That included an increase in U.S. travelers who comply with current travel requirements, such as educational, religious or humanitarian missions.
“South Florida’s travel industry had high expectations, and we saw a slew of airlines start new routes to Cuba to much fanfare,” Quesada said. “However, the travel industry overestimated the number of American interested in traveling to Cuba, and those traveling are not likely to return.”
Quesada said a trip to Havana or other parts of the island was a “bucket-list item” for many U.S. travelers. “But Cuba is not a destination that calls for them to return year after year, as we see with some other Caribbean markets such as the Dominican Republic or the Bahamas,” he said. “They find that the accommodations are not up to par with other Caribbean destinations. Once they leave the few premier hotels, they find that Cuba doesn’t have the infrastructure or simple conveniences that tourists seek.”
Since that first flurry of activity, several airlines have cut back on their flights, and Quesada does not expect to see any significant increase in the travel and hospitality sectors, until Cuba makes economic and political reforms that allow U.S. hospitality companies to make significant capital investments in the market.
Looking Ahead
It’s not just travel and tourism that would benefit from a seismic shift in Cuban government policies and the lifting of the U.S. embargo. Other South Florida firms and businesses are waiting for reform in order to capitalize on opportunities in the 11 million Cuban market.
“Right now, our cooperation with Cuba is very limited, so the biggest focus will need to be international trade agreements and treaties,” said Thornburg. For example, a new IP treaty with the Cuban government might make it possible for scientists and researchers on the island to bring their discoveries to the U.S.
“We have had family members of Cuban residents ask if they can file for patent protection on biomedical discoveries,” Thornburg said. “However, under U.S. law an invention must be assigned to the owner, which might be an individual, a company, a university or the state. In this case, it’s the government of Cuba. Currently, there is no treaty or trade agreement that says Cuban individuals can file for patent applications.”
Back to SFLG-MHBM June 2017