[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
AGRICULTURAL TRADE WITH CUBA
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HEARING
BEFORE THE
SUBCOMMITTEE ON TERRORISM, NONPROLIFERATION, AND TRADE
OF THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 9, 2015
__________
Serial No. 114-100
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Printed for the use of the Committee on Foreign Affairs
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U.S. GOVERNMENT PUBLISHING OFFICE
96-050 PDF WASHINGTON : 2015
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COMMITTEE ON FOREIGN AFFAIRS
EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida BRAD SHERMAN, California
DANA ROHRABACHER, California GREGORY W. MEEKS, New York
STEVE CHABOT, Ohio ALBIO SIRES, New Jersey
JOE WILSON, South Carolina GERALD E. CONNOLLY, Virginia
MICHAEL T. McCAUL, Texas THEODORE E. DEUTCH, Florida
TED POE, Texas BRIAN HIGGINS, New York
MATT SALMON, Arizona KAREN BASS, California
DARRELL E. ISSA, California WILLIAM KEATING, Massachusetts
TOM MARINO, Pennsylvania DAVID CICILLINE, Rhode Island
JEFF DUNCAN, South Carolina ALAN GRAYSON, Florida
MO BROOKS, Alabama AMI BERA, California
PAUL COOK, California ALAN S. LOWENTHAL, California
RANDY K. WEBER SR., Texas GRACE MENG, New York
SCOTT PERRY, Pennsylvania LOIS FRANKEL, Florida
RON DeSANTIS, Florida TULSI GABBARD, Hawaii
MARK MEADOWS, North Carolina JOAQUIN CASTRO, Texas
TED S. YOHO, Florida ROBIN L. KELLY, Illinois
CURT CLAWSON, Florida BRENDAN F. BOYLE, Pennsylvania
SCOTT DesJARLAIS, Tennessee
REID J. RIBBLE, Wisconsin
DAVID A. TROTT, Michigan
LEE M. ZELDIN, New York
DANIEL DONOVAN, New York
Amy Porter, Chief of Staff Thomas Sheehy, Staff Director
Jason Steinbaum, Democratic Staff Director
------
Subcommittee on Terrorism, Nonproliferation, and Trade
TED POE, Texas, Chairman
JOE WILSON, South Carolina WILLIAM KEATING, Massachusetts
DARRELL E. ISSA, California BRAD SHERMAN, California
PAUL COOK, California BRIAN HIGGINS, New York
SCOTT PERRY, Pennsylvania JOAQUIN CASTRO, Texas
REID J. RIBBLE, Wisconsin ROBIN L. KELLY, Illinois
LEE M. ZELDIN, New York
C O N T E N T S
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Page
WITNESSES
Mr. John Smith, Acting Director, Office of Foreign Assets
Control, U.S. Department of the Treasury....................... 5
Mr. Phil Karsting, Administrator, Foreign Agricultural Service,
U.S. Department of Agriculture................................. 15
Mr. Matt Borman, Deputy Assistant Secretary, Bureau of Industry
and Security, U.S. Department of Commerce...................... 21
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Mr. John Smith: Prepared statement............................... 8
Mr. Phil Karsting: Prepared statement............................ 17
Mr. Matt Borman: Prepared statement.............................. 23
APPENDIX
Hearing notice................................................... 42
Hearing minutes.................................................. 43
Written responses from Mr. John Smith to questions submitted for
the record by the Honorable Ileana Ros-Lehtinen, a
Representative in Congress from the State of Florida........... 44
AGRICULTURAL TRADE WITH CUBA
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WEDNESDAY, SEPTEMBER 9, 2015
House of Representatives,
Subcommittee on Terrorism, Nonproliferation, and Trade,
Committee on Foreign Affairs,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:05 p.m., in
room 2200, Rayburn House Office Building, Hon. Ted Poe
(chairman of the subcommittee) presiding.
Mr. Poe. This subcommittee will come to order. Without
objection, all members may have 5 days to submit statements,
questions, and extraneous materials for the record, subject to
the limitations in the rules.
In 1962, President John Kennedy first imposed the trade
embargo on Cuba after Communist dictator Fidel Castro took
over. Fifty years later, Cuba is still Communist, and the
Castros are still in control. They continue to imprison
political dissidents. They do not respect the human rights of
their own people. And among other things, there are at least
6,000 claims of Americans who had their properties stolen by
the Castro brothers and are not resolved, totaling about $8
billion.
This past December, the President announced that he would
move to normalize relations with Cuba. Last month, the U.S.
Embassy in Havana reopened for the first time in 54 years. News
agencies are now reporting that the President plans to
unilaterally lift travel restrictions to Cuba.
This hearing on agricultural trade with Cuba comes at a
time when a lot of change in our policy toward Cuba. And I will
reiterate, the hearing is about trade with Cuba.
In 2000, Congress carved out of JFK's trade embargo
agricultural commodities so our farmers could export to Cuba.
Exports rose, hitting about $685 million in 2008, making up 42
percent of the Cuban market. Since then, exports have dropped,
U.S. wheat and rice farmers went from providing over 40 percent
of Cuba's supply to now not supplying any. The U.S. has not
exported rice since 2009 and wheat since 2011. Cuba gets its
wheat and rice from Vietnam, Venezuela, and Brazil. Sometimes
it is difficult to understand why.
Some of this very well may be because the Communist Cuban
Government is manipulating the market. Maybe the Castro
brothers don't want to buy American rice even though it is
cheaper and it is certainly better than rice from other places
in the world. We know the Cuban Government already
discriminates against our farmers.
Unlike with other foreign competitors, the Cuban Government
forces American farmers to sell their goods to a state-owned
company called Alimport. This requirement by the Cuban
Government raises the cost of doing business for U.S. farmers,
makes them less competitive against their foreign counterparts.
There are other hurdles that give our farmers a competitive
disadvantage.
Unlike foreign competitors, U.S. exporters cannot offer
terms of credit to Cuban buyers. That means Cuba has to make
all payments upfront in cash. If the U.S. Government allowed
our exporters to offer terms of credit to Cuba, maybe our
exporters would understand that the U.S. Government will not--
let me say that again. If the U.S. Government allowed our
exporters to offer terms of credit, our exporters understand
that the U.S. Government will not bail them out if Cuba does
not pay its debt. If our farmers want take that risk, then
maybe we should let them take that risk.
It is already U.S. policy that agricultural goods are not
subject to the embargo, but that restriction we have left in
place makes it hard for our farmers to trade at all.
This half in and half out trading environment doesn't make
much sense to me. It is clear that the U.S. could be a strong
contender in the Cuban market. Before the embargo, Cuba was
typically the largest commercial market for U.S. long grain
rice exports. Cuba often took more than half the U.S. annual
long grain sales and almost one-third of our total rice
exports.
In my home State of Texas, I have represented many rice
farmers. They grow long grain rice as they do in, I believe,
Arkansas as well. When I got to Congress, I thought rice came
in a box. So there is long grain rice; there is short grain
rice. The markets for long grain rice were Iran, Iraq, and
Cuba. Bummer. So they are looking for markets. Many rice
farmers have literally gone out of business, and they are doing
something else with their land.
U.S. exporters have an advantage over foreign competitors
because of the distance between the United States and Cuba. It
is about 100 miles. That means lower shipping costs and transit
times, which are especially important when shipping perishable
goods. Ports like Mobile, Alabama; Miami; New Orleans; and
Houston will have an opportunity to being a major export. The
Port of Houston is a natural gateway for trade with Cuba,
because it has a lot of products that Cuba needs. Exporting to
Cuba would also require no infrastructure because American
exporters have a strong foothold in the Caribbean and the Latin
American markets. The rice market has a lot of potential
because U.S. exporters can provide high quality rice year
round, other than suppliers like Vietnam.
It is clear our current policy when it comes to
agricultural export to Cuba is not working. Cuba imports about
70 percent of its food. By law, our farmers have the freedom to
export to Cuba, but in practice, the government seems to get in
the way.
I look forward to hearing from our witnesses about how we
can effectively implement already existing U.S. policy that
allows agricultural exports to Cuba.
I will now yield to the ranking member from Massachusetts,
Mr. Keating.
Mr. Keating. Mr. Chairman, thank you for having this
hearing. I also would like to thank our witnesses for being
here today to discuss agricultural trade with Cuba, and it is
fitting that we have representatives from the Department of
Treasury, Agriculture, and Commerce with us this afternoon to
give us their particular perspectives and on the benefits and
opportunities that lay ahead of us.
This is obviously a time when the United States is
reassessing its policy with Cuba. The administration has re-
established diplomatic relationships with Cuba, removed Cuba's
designation as a state-sponsored terrorism, and issued new
regulations easing restrictions on travel, remittances, trade,
and financial services.
The President has also stated he looks forward to engaging
Congress in a debate about lifting the trade embargo. This is a
debate to be met with optimism, restraint, and passion by
supporters and opponents alike.
I understand the desire for a different relationship with
Cuba and the excitement surrounding new commercial
opportunities in the Cuban market. Currently, Cuba imports
about 80 percent of its food; next to the European Union, China
and Brazil are the countries that are the two highest
suppliers. There is no denying that there are substantial
opportunities for the United States businesses, particularly in
the agricultural industry. However, I remain cautious with
regard to how well-intended policies may impact those hurt most
by the regime's policies, the Cuban people. Conditions on the
island have not changed appreciably. The Cuban Government
continues to jail political dissidents without just cause,
engages in other human rights abuses, and fails to respect the
rule of law. Fundamentally, we can agree that the Cuban
Government does not afford Cuban people the political and
economic freedom that they deserve.
My main concern with opening up agricultural trade is the
same concern I have with respect to the possibility of
increased trade with Cuba generally. Who benefits? While I look
at our renewed relations with the island as an opportunity for
new commercial endeavors, it is foremost an opportunity for the
Cuban Government to demonstrate its commitment to reforms at
home. And so I look forward to hearing from our witnesses
concerning existing agricultural trade with Cuba, why U.S.
agricultural exports to Cuba have decreased, and how the
administration's recent policy and regulatory changes might
impact agricultural trade with Cuba in the future.
Thank you, Mr. Chairman. I yield back.
Mr. Poe. I thank the gentleman from Massachusetts.
The Chair is going to recognize other members that are
present, even not on this subcommittee, but are here because of
this hearing. The Chair will recognize each for 1 minute.
First will be the gentlelady from Florida, Ms. Ileana Ros-
Lehtinen, the chair of the Middle East Subcommittee.
Ms. Ros-Lehtinen. Thank you so much, Mr. Chairman.
From an economic perspective, the very concept of trade and
investment in Cuba is grounded in the misconception about how
business takes place on the island. In Cuba, every single
foreign trade transaction has been with the Castro regime or
individuals acting on behalf of the regime.
Since passage of the 2000 Trade Sanctions Reform and Export
Enhancement Act, nearly $5 billion in U.S. agricultural and
medical products have been sold to Cuba. It is an inconvenient
truth, however, that all of those sales, all of them, by more
than 250 privately owned U.S. companies were made to only 1
Cuban buyer, the Cuban regime.
According to our U.S. Department of Agriculture, itself,
``The key difference in exporting to Cuba compared to other
countries in the region is that all U.S. agricultural products
must be channeled through one Cuban Government agency,
Alimport.'' Exporting to Cuba is not about trading with small-
or mid-sized farmers or businesses or manufacturers around the
island, as some Americans would have you believe.
Little imported food or medicine ever makes it into the
stores where Cubans shop, nor is it available on rationed cars.
It is gobbled up by high-ranking officials inside the regime.
And one last point, Mr. Chairman, the Castro regime has proven
time and time again that it will not pay its bills. It has not
paid its creditors, and it has not paid U.S. certified claim
holders. And so we have put in place this cash-in-advance
provision to protect U.S. agricultural industry and to ensure
that U.S. businesses are paid. And I have a series of questions
when I am allowed to ask our witnesses.
Thank you so much for the opportunity, Mr. Chairman.
Mr. Poe. I thank the gentlelady.
The Chair will recognize Mr. Emmer from Minnesota for
opening statement.
Mr. Emmer. Thank you, Chairman Poe and Ranking Member
Keating. Thank you for holding this hearing, and I appreciate
your leadership on this issue and allowing me to join my former
committee to discuss an issue that I care about deeply.
My State of Minnesota was one of the first to send a
delegation to Cuba after Congress made exceptions to the
embargo for agricultural commodities in medical supplies in
2000. Cuba, who imports, as you heard, nearly 80 percent of its
food is a natural market for American agricultural products. On
a recent trip to Cuba, I met with several Cuban citizens and
private business owners who want to increase trade with the
U.S. because they are convinced this will create more
opportunity for the Cuban people as a whole.
While your topic today involves a discussion of regulatory
barriers to agricultural trade and the actions of government,
this discussion and today's hearing is really about people,
Americans and Cubans alike, who see renewed opportunities in
expanding trade.
I thank the witnesses for their time and expertise, and I
look forward to their testimony.
Thank you, again, Mr. Chairman. I yield back.
Mr. Poe. The gentleman yields back.
The Chair recognizes the gentleman from Arkansas, Mr.
Crawford.
Mr. Crawford. Thank you, Chairman Poe and Ranking Member
Keating for allowing me to join this subcommittee as a guest
today.
Chairman Poe and I work closely together to identify
opportunities for engagement with Cuba particularly as is
applies to ag trade and specifically rice, as he mentioned. A
little more than a year ago, we authored a letter to Treasury
and OFAC requesting an easing of cash in advance for trade
restrictions on exports to Cuba. I would like to thank Mr.
Smith and your team for doing exactly what we asked in taking
steps toward making U.S. ag more competitive in a country that
is so close to our shores and imports about 80 percent of its
food supply. While we have made progress on the executive
level, I believe there is a lot more we can do, we can be doing
here in Congress to further expand trade opportunities and
permit travel.
As a member from the district where ag is the number one
industry, I am focused on removing barriers to ag trades, so
this hearing is very relevant to those efforts. And, again, I
thank the chairman and ranking member.
Mr. Poe. The gentleman yields back his time.
Without objection, all the witnesses' prepared statements
will be made part of the record. And I would ask that each
witness please keep your presentation to no more than 5
minutes. There is a light in front of you that will indicate
that you can talk, you can slow down, and you can quit.
I will introduce each witness and then give them time for
their opening statements. John Smith is Acting Director of the
Office of Foreign Assistance Control at the Treasury
Department, which is responsible for administering economic and
trade sanctions. Prior to joining OFAC, Mr. Smith served as an
expert to the United Nations and was a trial lawyer with the
Department of Justice.
Mr. Karsting is an Administrator of the Foreign
Agricultural Service, U.S. Department of Agriculture.
Previously served more than 22 years on Capitol Hill working on
appropriations, agriculture, and development issues.
Mr. Matt Borman is Deputy Assistant Secretary of the Bureau
of Industry and Security at the Department of Commerce. Mr.
Borman joined the Commerce Department in 1992 and has spent his
career largely focusing on export implementation and
enforcement.
Mr. Smith, we will start with you, and you have 5 minutes.
STATEMENT OF MR. JOHN SMITH, ACTING DIRECTOR, OFFICE OF FOREIGN
ASSETS CONTROL, U.S. DEPARTMENT OF THE TREASURY
Mr. Smith. Thank you, sir. Good afternoon Chairman Poe,
Ranking Member Keating, and distinguished members.
Thank you for the invitation to appear before you today to
discuss potential opportunities to expand agricultural trade
with Cuba. I will be addressing key regulatory amendments made
by Treasury's Office of Foreign Assets Control, or OFAC, in
January to implement changes to U.S. policy toward Cuba
announced by the President in December as well as the
restrictions that remain in place.
The regulatory changes are intended to create opportunities
for increased agricultural exports to Cuba among other benefits
to U.S. business. These changes ease Cuba sanctions within the
continuing constraints of the embargo while advancing the
administration's policy to further engage and empower the Cuban
people.
The January rule changes benefit American exporters in at
least five key respects. First, OFAC expanded the financing
provisions of the regulations to allow America's agricultural
exporters to be more competitive in selling their wares to
Cuba. Second, OFAC broadened the ability of U.S. financial
institutions to provide services and effectuate payments for
exporters and others authorized to engage in trade with Cuba.
Third, OFAC authorized trade delegations and exporters
satisfying the conditions of our regulations to travel to Cuba
and engage in associated authorized transactions without the
need to apply to OFAC for a specific license.
Fourth, OFAC expanded certain humanitarian projects in
Cuba, including those related to agricultural and rural
development that promote independent activity.
And, finally, OFAC eased restrictions to better provide
efficient and adequate telecommunication services between the
United States and Cuba and to increase access to
telecommunications in Internet-based services for the Cuban
people.
I will talk about a few of these in more detail. As an
initial matter, OFAC, as has been mentioned, modified the
regulatory interpretation of the term, ``cash in advance,''
which describes the financing requirement for agricultural
trade between the United States and Cuba.
In addition, to improve the speed, efficiency, and
oversight of authorized payments between the United States and
Cuba, OFAC authorized U.S. banks to establish correspondent
accounts at financial institutions in Cuba. This change was
intended to ease the flow of authorized payments and eliminate
the need for third-country payment structures, which should
benefit U.S. exporters to Cuba.
Another of our changes is related to travel. OFAC's Cuba
sanctions program is our only sanctions program that restricts
travel to a country. The January regulatory amendments eased
the travel restrictions by authorizing certain additional
travel within the 12 existing categories of travel in our
regulations without the need to apply for a specific license
from OFAC.
Travel to Cuba for tourist activities, though, remains
prohibited. The additional and expanded general licenses for
travel were intended to make it easier for Americans to
interact with the Cuban people and for trade delegations and
authorized exporters to travel to Cuba to promote their
products. Even with these changes that I have described, most
transactions between the United States and Cuba, including most
imports, exports, and other activities, remain prohibited.
As OFAC implements these regulatory changes, we will
continue to enforce the Cuban sanctions program and take
actions against violators as appropriate. The President's
December announcement laid out a new course for our relations
with Cuba, driven by a hope for a more positive future for the
Cuban people. Our regulatory amendments to our Cuban assets
control regulations in concert with the regulatory amendments
that were issued by the Commerce Department mark significant
changes to our Cuban sanctions that implement the new policy
announced by the President. These changes are intended to
benefit the Cuban people and help them to freely determine
their own future as well as to support U.S. business and
American exporters to Cuba.
Thank you, and I would be happy to answer any questions.
[The prepared statement of Mr. Smith follows:]
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Mr. Poe. Thank you.
Mr. Karsting.
STATEMENT OF MR. PHIL KARSTING, ADMINISTRATOR, FOREIGN
AGRICULTURAL SERVICE, U.S. DEPARTMENT OF AGRICULTURE
Mr. Karsting. Chairman Poe, Ranking Member Keating, and
members of the subcommittee and special guests, I am pleased to
come before you today to discuss agricultural trade with Cuba.
As President Obama announced last December, the administration
is charting a new course with Cuba in its drive to further
engage and empower the Cuban people. The measures being taken
also expand opportunities for America's farmers and ranchers.
In January, the Treasury Department published regulatory
changes, including the revised interpretation of the term
``cash in advance'' and authorization for U.S. banks to
establish correspondent banking accounts at Cuban banks. These
changes had been sought by members of the U.S. agricultural
community. Also, after more than half a century of isolation,
the United States reopened its Embassy in Havana on July 20.
USDA and many of its stakeholders are excited about this
new chapter in U.S.-Cuba relations. Fifteen years ago Congress
lifted the band on agricultural exports to Cuba that had been
in place for decades. Despite that opening, U.S. Government
agencies, including USDA, remain statutorily prohibited from
providing export assistance and any credit or guarantees for
exports to Cuba. As Secretary Vilsack has said, he cannot
currently use a single dollar of trade promotion funding for
our trade with Cuba. These restrictions apply to the Foreign
Agricultural Service's successful market development programs,
like the Market Access Program and the Foreign Market
Development Program.
Though the policy changes announced and implemented by the
President are significant, we still have legislative hurdles to
cross and USDA stands ready to provide technical assistance to
you and other Members as Congress considers further changes.
If remaining statutory limitations were removed, we could
be poised to become a major trading partner with Cuba. Cuba
depends heavily on imports to feed its 11 million citizens.
According to the World Food Programme, Cuba imports between
70 to 80 percent of its food, which means the potential for our
producers is significant. The United States has potentially
huge structural advantages in exporting to Cuba, chief among
them is location. We are less than 100 miles away, meaning
lower shipping costs and transit times, especially compared to
our current top competitors, Brazil and Europe.
In Fiscal Year 2008, U.S. agricultural exports to Cuba
reached $658 million. However, by the end of last fiscal year,
they had fallen by more than half, to $300 million. Yet, at the
same time, global agricultural exports to Cuba have doubled
over the past decade to more than $2 billion. Last year, the
largest U.S. agricultural exports to Cuba were poultry, soybean
meal, soybeans, and corn. I am confident the U.S farmers,
ranchers, and exporters are poised to capture the markets in
Cuba, but I don't want to minimize the obstacles.
In addition to those I mentioned a moment ago, we bear in
mind two overarching factors: First, Cuba is a country of
limited foreign exchange; and second, U.S. companies are behind
our foreign competitors in market development.
Another impediment to trade is Cuba's tightly controlled
import policy requiring that all U.S. agricultural imports be
channeled through one state corporation.
The recent changes in U.S. policy toward Cuba are just one
example of opportunities for USDA and Congress to support
America's farmers and ranchers as they build on a record of
agricultural exports. In Fiscal Year 2014, global exports of
U.S. food and agricultural products reached a record $152.5
billion and supported more than 1 million American jobs. The
potential for U.S. agricultural exports around the globe is
considerable. It is also critically important that we have
trade agreements that support and create U.S. jobs by helping
American agriculture to compete even more successfully. For
example, USDA trade negotiators are currently working with USTR
to advocate on behalf of U.S. agriculture in two major
negotiations, the Trans-Pacific Partnership and the
Transatlantic Trade and Investment Partnership. Once these
agreements are in place, U.S. agricultural producers will enjoy
improved access to markets representing two-thirds of the
global economy.
In conclusion, there is significant potential in extending
U.S. agricultural exports to Cuba. Reestablishment of
diplomatic relations and reopening our Embassy is simply the
first step of a longer normalization process between the United
States and Cuba.
Agriculture has long served as a bridge to foster
cooperation, understanding, and the exchange of ideas among
people. And I have no doubt that American agriculture will play
an important role as we expand our relationship with the Cuban
people.
[The prepared statement of Mr. Karsting follows:]
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Mr. Poe. Thank you.
Mr. Borman.
STATEMENT OF MR. MATT BORMAN, DEPUTY ASSISTANT SECRETARY,
BUREAU OF INDUSTRY AND SECURITY, U.S. DEPARTMENT OF COMMERCE
Mr. Borman. Good afternoon, Mr. Chairman, Ranking Member
Keating, members and guests of the subcommittee. Thank you for
the opportunity to appear before the subcommittee today to
address the role of Department of Commerce with regard to
regulating agricultural trade with Cuba.
As you know, on December 17, 2014, the President announced
the most significant shift in Cuban policy in more than 50
years. As you noted, these changes are intended to create more
opportunities for the American and Cuban people by increasing
commerce, authorized travel, and the free flow of information.
To implement aspects of the President's new approach, the
Bureau of Industry and Security of the Department of Commerce
has amended the Export Administration Regulations twice--first,
on January 16, and then again on July 22. The January 16
amendments created a new license exception, which is our
equivalent of the Department of Treasury's general license,
called Support for the Cuban People, which was focused on
allowing U.S. exporters to send certain items to Cuba for
private sector economic activity and civic society without an
individual license.
We also expanded the scope of our license exception for
gift parcels and humanitarian donations and revised our license
exception for consumer communication devices, all to facilitate
the movement of those goods to Cuba. The July 22 amendment to
the regulations implemented the Secretary of State's decision
to remove Cuba from the State Sponsors of Terrorism list.
Specifically to exports of agricultural products, the
measures that were announced by the President and implemented
in both of our regulations did not change the Export
Administration Regulations with regard to BIS authorization of
exports of agricultural commodities. The Trade Sanctions Reform
and Export Enhancement Act of 2000, TSRA, governs how we
regulate the export of agricultural commodities to Cuba. To
implement TSRA, we created a license exception, agricultural
commodities, AGR, which is really an expedited individualized
licensing process. This allows agricultural commodities to go
to Cuba under an expedited process. Exporters have to provide
prior notice. We review those prior notices with the Department
of State and typically give an answer to the exporter within 12
business days.
Consistent with TSRA, this expedited review process
includes screening the ultimate consignor, the customer in
Cuba, to ensure that the recipient does not promote
international terrorism and that the transaction does not raise
proliferation concerns. If the transaction meets the terms and
conditions of the license exception AGR, exporters may proceed
with the transaction once we confirm that neither reviewing
agency has raised an objection.
In addition, exports of agricultural commodities must be
made pursuant to a written contract and must take place within
1 year of the signing of a contract unless the export is a
commercial sample or a donation; in that case, the contract
requirement doesn't apply.
During calendar year 2014, BIS processed 56 agricultural
export notifications valued at about $2.4 billion, and we had
an average processing time of 10 days. Multiple shipments may
be made pursuant to a single notification, and you should keep
in mind that the dollar value, the $2.4 billion, reflects the
proposed export, not a value of actual exports.
As you heard from Mr. Karsting, the dollar value of actual
exports last year was just a little bit under $300 million. But
in any event, in 2014, exporters made 600 shipments of
agricultural products to Cuba. In Cuba, only state-run
companies are authorized to engage in foreign trade
transactions and often a whole category of commodities imported
from the United States is channeled through specific companies
depending on the sector. And, of course, folks have already
mentioned Alimport in the agricultural arena.
That really summarizes how we at Commerce regulate the
export of agricultural commodities to Cuba, and with my fellow
panelists, I will be happy to answer questions. Thank you.
[The prepared statement of Mr. Borman follows:]
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Mr. Poe. The Chair recognize itself for questions.
How come we are exporting less rice to Cuba than we were in
2009? What is the reason?
Mr. Karsting. I think it is hard to get inside the mind of
Alimport to find out what kind of buying decisions they are
making. That is one of the reasons I think it is important for
us to ramp up our interaction there.
From 1941 to 1961, we had an agricultural attache in
Havana. And all across the globe, we have people in 100
different offices in 87 different countries where that is their
job to understand what is going on regarding buying decisions
within a country. Alimport is obviously opaque, but we would
like to know a little bit more about that too because we would
like to sell more rice.
Mr. Poe. My concern is the exporting of rice. What is good
for the United States? What is good for American businesses
with this question? As I mentioned in my opening statement, we
grow that long grain rice. There are no markets for the long
grain rice. Cuba is a primary market. And my rice farmers--and
we ship it right out of a Port of Houston, which is an export
port right out of Cuba. Because of the financing or lack of
financing involved in it, why not let the exporter assume the
risk as opposed to the government being involved in prohibiting
credit? I will hear from all three of you on that.
Mr. Smith. I mean, I can start.
Mr. Poe. Sure. Mr. Smith.
Mr. Smith. To the extent that we hear from exporters, and I
am sure you all hear from exporters as well, we can speculate
on why trade may have gone up or down, but probably the primary
thing that we hear from exporters at least on the Treasury side
is the lack of availability of financing or credit that they
can get. They tell us that their competitors in other countries
can get either private financing or government financing, and
we are restricted by statute from allowing that.
Mr. Poe. So if we change the statute, we would have to
change the statute to allow the exporter to assume the risk of
whether Cuba pays or not? We have already heard that they don't
pay their bills, but could we--why not let the exporter assume
that risk?
Mr. Smith. I think that is a decision for Congress to
make----
Mr. Poe. Okay.
Mr. Smith [continuing]. Within the statute.
Mr. Poe. Anybody else want to weigh in on that?
Mr. Borman. In the statute, yes.
Mr. Poe. How does the state-run government company put U.S.
exporters at a disadvantage, Alimport? How does that put us at
a disadvantage?
Mr. Karsting. Clearly, they have been making purchasing
decisions since 2009 where both a variety of the exports as
well as dollar value have gone down. So they are making
purchasing decisions to go with other suppliers. A lot of the
other suppliers have been in the country for some time
developing relationships, helping to create demand, presumably,
and that is what I think a lot of our stakeholders in the
agricultural community are looking for as we look to this new
relationship, that same sort of advantage.
Mr. Poe. Mr. Borman, any comment?
Mr. Borman. I don't really have anything to add to that.
Mr. Poe. I have a constituent, Ms. Rogers, who claims that
she is owed more than $40 million from the Cuban Government;
her grandfather brought John Deere and Caterpillar to Cuba. She
is one of maybe 6,000 claimants against the Cuban Government
for their actions 50 years ago. What is the status of those
claims as a whole, the claims against the Cuban Government for
confiscation of property and assets belonging to others?
Mr. Keating--I mean, Mr. Smith.
Mr. Smith. Obviously, I think the State Department has
primary jurisdiction. I think they have ongoing discussions or
planned discussions that are outside of the Treasury Department
expertise.
Mr. Poe. Do either Mr. Karsting or Bowman know any status
of any of those claims?
Mr. Karsting. No.
Mr. Poe. There is a political issue. It has become a
political issue, has it not, in the overall discussion of
whether or not we should open up to Cuba or Cuba open up to the
United States? Is that a fair statement, Mr. Smith?
Mr. Smith. I mean, it is certainly an issue for the
administration and for Congress to weigh. We still have, in our
Treasury regulations, the provisions from the statute that do
not allow any financing or other credit to be provided
involving transactions for confiscated property. So we still
have that restriction in our regulations that is in the
statute. I think when you are talking about any further
discussions involving those claims, I think that is very much a
matter for the diplomatic side of our Government along with
Congress to consider.
Mr. Poe. I will yield to the ranking member, Mr. Keating,
for questions.
Mr. Keating. Thank you. I think at least a couple of you
mentioned in your testimony that the intent to benefit the
Cuban people or its the hope that some of these changes would
benefit the Cuban people. What can we do to ensure more that
this will actually benefit the Cuban people, not just the
regime? It is not in these regulations or enforcing some of
these new changes.
Mr. Smith. I think for the Treasury Department--and I think
Commerce has had a similar philosophy when we looked at the
regulatory changes that we made, we looked to see how they
could impact and help the Cuban people, and how we could
restrict the government from benefiting. Where we may allow
increased remittances for example, we excluded the Government
of Cuba or Cuban Communist Party officials. So we tried to
focus it on what might be individuals and moving it away from
the government. When we talked about increasing travel from
U.S. persons, it is our philosophy that Americans are the best
Ambassadors for America to actually get the message to the
Cuban people about how a democracy works. And so when you go
down each one of our changes, each one of the categories, we
try to focus on how we could help the Cuban people. And I think
that is what we continue to look at.
Mr. Keating. How is that working, or is it working? Do you
have any----
Mr. Karsting. I would say just on the point of having
Americans that are Ambassadors for change, American farmers,
American agriculture have been doing that for a long time in
our farmer-to-farmer exchange program. And that cohort of
people that are primarily my stakeholders are very anxious to
get on with that task, and I think farmers talking to farmers
is a great way to reinforce those changes.
Mr. Borman. Sir, we have seen a significant number of
exports made under the license exceptions; for example, the
donations, which I think we are fairly confident would actually
go to the intended recipients, in part because the people who
make the donations would learn if their intended recipients
didn't receive them. And we continue to try to educate U.S.
exporters who would like to make these exports to the private
sector, to specific groups in Cuba, on how to make sure that
they identify who those foreign parties, different parties are,
to make sure that they are going to the authorized end users.
Mr. Keating. Well, realizing that you are not advocating in
your official capacities for any particular change in the
future, can you at least share with us some thoughts you might
have heard from others, if they are not even your own personal
feelings about what changes, further changes, we can make to
try and enhance our ability to help the Cuban people directly?
And I realize you are not speaking for your own opinion or for
the Department.
Mr. Karsting. I think a lot of our stakeholders have made
clear that the ability to have a little bit more flexibility
with regard to our Market Promotion Program (MAP), Market
Access Program, Emerging Markets Program, those things that
help us focus on trade missions, reverse trade missions, those
sorts of things--I think they would say would be really
valuable to us.
Mr. Keating. Trade promotion area too.
One of the new regulations provides that certain goods
produced by independent Cuban entrepreneurs are eligible to be
imported into the U.S. Can you define that term, ``independent
Cuban entrepreneurs,'' for me and give me an idea what you
anticipate would be imported with this new change in turn?
Mr. Smith. The State Department has put out a list of what
would constitute independent Cuban entrepreneurs. I think the
way they did it is they took categories that they thought would
not be appropriate that traditionally were not small business
or entrepreneurs that were really state controlled. They put
that on the list, and they said other things could be allowed.
But this is a State Department function and we authorize what
the State Department puts on its list. So that is a State
Department expertise.
Mr. Keating. And, lastly, you mentioned how tourism changes
can help some of the agricultural business. Could you just
comment on how that can happen, some personal observations or
some thoughts as how that would translate?
Mr. Karsting. I think any number of countries, there are
lots of different markets within one country. You know, we
think of bulk commodities, wheat, rice, corn, soy, going to one
group. But there is also significant hotel-restaurant trade in
different countries, and the potential for tourism and
restaurant trade in Cuba is significant. I think there were 2.8
million last year, up to 3 million this coming year. That is a
little different market, one that will seek different products.
Mr. Keating. Mr. Chairman, I yield back.
Mr. Poe. I thank the gentleman.
The Chair recognizes the gentleman from South Carolina, Mr.
Wilson.
Mr. Wilson. Thank you, Mr. Chairman, and thank you very
much for having this hearing.
I appreciate, Chairman, Judge Ted Poe for his leadership.
And this is so important about agricultural trade with
Cuba. President Obama has thrown the Cuban Communist
dictatorship a lifeline by restoring diplomatic relations. I
don't believe this is in the interest of the people of Cuba.
In fact, this dictatorship had as a patron the Soviet
Union. Then it had as a patron Hugo Chavez. And both of those
experiences have proven Margaret Thatcher correct, that
socialism will exist until you run out of spending other
people's money.
The businesses in Cuba are dominated by the Castro regime,
a military mafia, stolen from the Cuban people. So as the
oppressive regime that the benefits from trade go to is a
mafia, not to the people of Cuba. I learned first hand of the
appropriation in that--of stolen property from extraordinary
constituents. A neighbor of mine was a businessperson in Cuba,
a plumbing business. He was just a wonderful person, a dear
family man with wonderful, four young daughters, and he knew
that because he was an anti-Communist that he was going to be
picked up. And so he went to the local department store back in
1959, and he got luggage, went back home. Before he got home,
the secret police were there. And they said, what are you
doing? And he said: Well, we are going to be visiting a sick
aunt in New York. And so the children were told to pack
whatever you can; we are not coming back. They didn't come
back. But one of American success and dream, and in South
Carolina, they then developed one of the largest plumbing
businesses in our State. It is just horrific to think of
rewarding people who have stolen property.
Mr. Smith, Cuba is one of the last remaining Communist
dictatorships that is of Marxist Leninist theory of state
ownership of the means of production in business.
But with the Communist allies now liberated, thank God,
state ownership is shifted to the Cuban military. What
percentage of business industry is owned by and operated by the
Cuban military, and what percentage may be operated by the
elite of the Communist Party?
Mr. Smith. Sir, I don't have that statistic. I rely on the
State Department for that. I know that--well, when we talk
about what is owned by the Cuban Government, we are talking
about an overwhelming majority. I have heard 75, 85 percent
figures. But when you say the military itself, I don't have
that statistic, versus government ownership.
Mr. Wilson. Actually, the numbers you gave are what I have
heard, too, that at least 70 percent of all business would be
with the Cuban military. But in between, you have, as has been
in the post-Communist experience in other countries, a mafia
developing.
Mr. Borman, it is hard to believe because of experience,
that the increased trade will help the Cuban people. The
evidence is clear, the Castro regime had 30 years of subsidized
trade with the Soviet Union and billions of dollars in European
investment, yet none of the profits made its way to the Cuban
people. What makes us think that adding the U.S. to the
equation would be different except to prop up a corrupt
dictatorship?
Mr. Borman. So the changes to our regulations we have made
allow the export of items to the private sector in Cuba, and
there are now about 200 categories of employment, private
sector employment, that are legal in Cuba. So if someone wants
to makes that export, it has to go to one of the private sector
activities. These are not, with the exception of telecom, going
to the Cuban Government. The telecom is to facilitate
communications among the Cubans and the rest of the world.
Mr. Wilson. You say, private sector. Who would be the
private sector?
Mr. Borman. So there are agricultural co-ops. For example,
there are people who run small restaurants, auto repair shops,
those kinds of things. And those kinds of activities are legal
in Cuba now in the private sector. So one of the percentages I
have heard is roughly 85 percent of the Cuban economy is
currently government controlled and about 15 percent is in this
space, several hundred thousand people.
Mr. Wilson. I would certainly look into that. Because I
can--I had the opportunity, and I was really grateful, to be in
Shanghai, and I saw these different businesses who were
operating, and then somebody whispered to me, and they had
beautiful logos, and it was impressive, I found out they were
all state-owned. None were independently operated.
I yield back.
Mr. Poe. I thank the gentleman.
The Chair recognizes the gentleman from Texas, Mr. Castro.
Mr. Castro. Thank you, chairman. And thank you all for your
testimony, for being here with us today. Let me ask you, for
whoever is appropriate to answer this, if there was trade
between the two countries in agricultural, which specific
States or regions of the country would benefit most from that?
Mr. Karsting. I think we see a lot of opportunity in
certain commodity sectors, rice, poultry, wheat, corn, and soy,
so any State that produces those. Certainly, the States
involved in processing and shipping those, our Port of Houston,
Port of New Orleans, I imagine all of our ports. But at USDA,
when I look at agricultural exports overall, I am sort of
agnostic about where they come from, because we know that it
helps all farmers, all producers, everywhere if we grow markets
overseas. So, I think there are probably some localized
improvements, but it is good for everybody if we sell more.
Mr. Castro. And let's imagine that you said today that we
were going to have normalized trading relationship with Cuba.
How long would it actually take to start that up, practically
speaking?
Mr. Borman. Well, of course, that would be assuming that
all the legislative barriers are taken away.
Mr. Castro. Right.
Mr. Borman. Then it is hard to say how long that would take
because the Cuban economy, as you have heard, is still
seemingly dominated by the government. To overcome many years
of where they have been, that would take quite a bit of time
for them to develop markets and for U.S. companies to figure
out what the markets were.
Mr. Castro. Right. I imagine the United States Congress was
okay with it; what would be the time lag after that in your
estimation?
Mr. Karsting. I would say for the programs that I manage
within the Foreign Agricultural Service, to treat Cuba like
other countries with regard to Market Access Program, foreign
market development, Emerging Market Programs, would not take
very long at all to change the notice that goes out to our
cooperators, the private sector groups we work with, to say:
Okay, now you can do things in Cuba. We would still look at
them with the same level of scrutiny that we look at all the
things that come to us and say: We want to make sure they have
got good plans, that they are spending resources wisely. But as
a matter of turning the switch, it wouldn't take that long.
Mr. Castro. Okay. I apologize, I came in a little late, and
I know some of this ground may have been covered but what is
the annual loss in terms of trade for not being able to trade
with Cuba?
Mr. Karsting. It is kind of hard to quantify what we are
losing. We went from a high of $658 million in 2009, we are now
at about $300 million a year in agricultural trade. Meanwhile,
their imports to other countries have grown to about $2
billion. So our market share has declined, and their market has
grown in terms of an export destination.
Mr. Borman. Another way to look at it is, last year, we
authorized about $2.4 billion in ag exports to Cuba, but only a
small percentage, roughly $300 million, was actually made. So,
clearly, the folks who came in seeking authorization saw a
potential sale there, but the actual sales were far less than
that.
Mr. Castro. Okay. Thank you.
I yield back, chairman.
Mr. Poe. Thank you.
The Chair yields to the gentleman from Pennsylvania, Mr.
Perry.
Mr. Perry. Good to see you all.
Thank you, Mr. Chairman.
To tell you the truth, I am a bit disappointed there is not
somebody here from State, and so my questions are kind of
probably more involved than that. But in that interest, how
much do any of you folks get involved with State's policy, with
State's policy regarding the economy of the state of Cuba. How
do we know as individuals and people who support exporters,
regardless of where they are from in the United States, how do
we track how those goods and services go to the Cuban people as
opposed to enhancing the government? Is there any way to know
that, and do you get involved in that? Anybody.
Mr. Borman. We at Commerce do. You have got two ways that
goods subject to our jurisdiction go to Cuba. Either under an
individual license, which means the exporter has to come in
with an application to say who they are, who they want to sell
to, and what the item is. And there is an interagency process
that reviews that and determines, is that consistent with our
policy. So, certainly, we would vet the end user, and in that
scenario, you would have very few circumstances where approvals
would go if the item was to go to a government end user. There
are some exceptions, like medical----
Mr. Perry. But there is essentially one buyer, right?
Mr. Borman. Well, but then, from there, it depends what the
product is. It might go to a government end user, like a
hospital, because the government controls all the hospitals.
But it could go to a retail store, which is eventually sold to
any Cuban person off the street.
Then on the license exception side, the way we have created
this is we have told people, you can make certain exports
without individual licenses, which means we in the government
don't review the end user, but you have to determine yourself
that it is essentially in the private sector. And that is where
we are continuing to try to educate U.S. companies and the U.S.
exporters on who is in the private sector.
And then, on the back end, once items are in Cuba, I think
it is very likely that if they don't go to the intended
recipient, the U.S. exporter will let us know. If somebody
sells something to a relative, say, who is running an auto
repair shop, and they send them a tool kit and the tool kit
doesn't make it, I am confident that the intended recipient
will let their relative know that. So that is kind of the way
we would look at that.
Mr. Perry. I mean, does it get down to that level? I mean,
how do you know? If you are talking about a tool kit, let's say
you send a tap and die set--I don't know if they have the
provisions to make that stuff like that in Cuba. I don't know
what their capacity is. But let's just say you send that, and
the recipient never gets it. I mean, are you going to find a
$200 or $300 tool set in the scope of the kind of numbers you
are talking, arguably be diminished by half?
Mr. Borman. You are also talking about an issue that is a
general export control issue, not just Cuba. For example, one
of the data points I have heard is that last year, there was
about $2.6 billion of remittances that went from U.S. to Cuba,
and over 50 percent of that probably went to small businesses.
So, again, those typically are going to be from friends or
relatives in the United States who have friends and relatives
in Cuba running those businesses. So I think they would tell
them, I am sending you X, you know, an auto repair kit or
something, and when the intended recipient didn't receive it,
they would let the sender know, and then they would likely
contact us. So there are ways to try to monitor that.
Mr. Perry. And then what is the penalty? What happens then?
Mr. Borman. One other thing. We also are continuing
monitoring open source and classified information to see if
there is anything significant that would come up in terms of
unauthorized diversion of items. Penalties, they can be
criminal penalties with jail time, they can be criminal fines,
and also administrative fines and denial of export privileges.
So they can be fairly significant.
Mr. Perry. To the exporter?
Mr. Borman. Well, it can be to the exporter or to the
foreign party, who would then go on a public denied persons
list, which would then mean nobody could send anything to them
without authorization.
Mr. Perry. And how often does that occur?
Mr. Borman. Well, it occurs a lot. We have a denied persons
list which has dozens and dozens of foreign parties on it, and
then we have other restricted lists that tell the public, you
can't send to them without government approval.
Mr. Perry. So from a strategic standpoint, how does our
export, how does our trade policy, how does that comport with
our aversion to the Communist Government in Cuba? How do we get
to where we want to be to not have a Communist Government in
Cuba through our export policy?
Mr. Borman. Well, I am not sure that it can get to that
stage.
Mr. Perry. Well, how does it enhance it, or how does it----
Mr. Borman. Well, certainly, the policy would be not to
allow things that would go to the Communist Party or the Cuban
Government or the military. Certainly, that is the policy that
continues to be in place.
So, for example, the other thing to keep in mind is the
items that are eligible for these license exceptions or general
authorizations, they are very low-level items. They are not
items controlled by the multilateral nonproliferation regimes.
Those would still all need a license. So if somebody came in
for a license for one of those items, like a big machine tool--
5 axis machine tool--and they said we want it to go to the
Cuban Ministry of Industry to produce aircraft, that would be
denied. So that is the way we deal with that as well.
Mr. Perry. Are there any provisions for marking or
information that goes along with the goods or services?
Mr. Borman. Well, there are requirements that the
documentation that goes with it lays out what--who they can or
can't go to.
Mr. Perry. Okay.
Mr. Borman. But for these low-level items, it is not clear
to me that people would want to try to put tracking or other
devices on them.
Mr. Poe. The gentleman's time is expired.
Mr. Perry. Thank you, Mr. Chairman.
Mr. Poe. The Chair recognizes the gentlelady from Florida,
Ms. Ileana Ros-Lehtinen.
Ms. Ros-Lehtinen. Thank you, so much, Mr. Chairman.
I have questions for Mr. Smith and Mr. Borman, and I would
appreciate if you could give me written responses as soon as
possible.
Mr. Smith, the January 2015 OFAC rule permits persons to
import into the United States goods from Cuba, including
tobacco and alcohol, and permits U.S. persons to use credit and
debit cards from U.S. financial institutions to pay for these
transactions. Congress has prohibited U.S. financial
institutions and persons to extend financing with respect to
any transaction involving property confiscated by the Cuban
regime. So if a credit card is used by a person to purchase
alcohol or tobacco, such a transaction would involve the
extension of a short-term loan or credit by a U.S. financial
institution to consummate a transaction involving confiscated
property. So I would ask you, how doesn't this new OFAC
regulation not contravene U.S. law? And I would like that
answer in writing.
And, secondly, a recent news story stated:
``A $3-million yacht left Key West this week with two
barbeque grills, 250 channels of satellite TV and a
just-in-case plan for rescuing stranded Cuban rafters
encountered in the Florida Straits. After 4 hours
smooth sailing, the Still Water tied up at Havana's
Hemingway Marina. The well-heeled passengers
breakfasted on smoked salmon and pastries, then boarded
an air-conditioned Cuban Government bus for a day of
touring the city.''
Surely, you are aware that tourism travel to Cuba is
illegal, so how do these elite luxury yacht trips not
constitute illegal tourist activities, or is your Department
just looking the other way?
Mr. Borman, two questions for you, sir. The January 2015
BIS rule correctly cited the 1992 Cuban Democracy Act that is
granting the Department of Commerce authorities to permit
certain exports that promote telecommunication connections with
Cuba. Yet the same rule remains conspicuously silent as to
where BIS purportedly derived its statutory authority to create
the Support for Cuban People license exemption for
nontelecommunication items. So the Libertad Act explicitly
ratified all these restrictions, codified a comprehensive trade
embargo against Cuba. Thus, how do your regulations, these new
BIS regulations, not contravene U.S. law? What gives you the
power to do that?
And, lastly, Mr. Borman, in the past, you have acknowledged
that exports under the Support for the Cuban People license
exemption would have to go through a Castro-owned intermediary,
these bogus companies, as the regime controls all foreign trade
on the island, as we have discussed. Funneling exports through
the Castro regime is inarguably in contravention of the foreign
policy objectives of the U.S. as codified by statute.
So, again, I would ask you, Mr. Borman, how does this BIS
regulation not contravene U.S. law?
And, Mr. Chairman, if I may, my answer to your question
about the decrease in sales, the reality is that the Castro
regime knows and understands the U.S. very well. And it is
purposefully, I believe, dropping the amount of sales right now
of U.S. agricultural products so that the ag industry falls
with this ruse and advocates for loosening of sanctions. And
more concessions to the Castro regime will not help the Cuban
people, but will only fill the coffers of the monopolies that
have been created by the regime.
And if I could just point to this--our local affiliate of
NBC put out this tweet that is being followed live on Miami
television, a sad scene that gets replayed every day. This is
right off my congressional district, right off Key West. These
are Cuban migrants trying to come to the United States. They
did not get the memo about the paradise that is there in Cuba
when all of these sanctions will be lifted, and there is a
record number in recent history of Cuban rafters coming into
the United States.
So maybe you have a statement that you could give me to
tell these folks how things are going to get so much better for
them once we lift all these restrictions.
And I was wondering if you knew that since the December 17
Obama announcement, there have been a record number of arrests
of dissident and opposition leaders in Cuba who are calling for
freedom and human rights, and they did not get the memo of how
everything but these ag products is going to improve their
plight and their families' plight.
Thank you, Mr. Chairman. And I would appreciate if the
gentlemen can give me those responses rapidly. Thank you.
Mr. Poe. I thank the gentlelady.
Ms. Ros-Lehtinen. Sorry for my voice.
Mr. Poe. The four questions, that will be submitted in
writing to you. I know you are trying to write them down. They
will be submitted to you in writing, and return the answers not
only to the gentlelady in Florida, but to the Chair as well.
Mr. Poe. Thank the gentlelady. I hope you get to feeling
better.
The Chair recognizes the gentleman from Minnesota, Mr.
Emmer.
Mr. Emmer. Thank you, Mr. Chair.
And thank you, again, the witnesses for being here today.
I come from a State, Minnesota, that one of the two major
drivers of our private economy is agricultural, and it is
always about markets, not just in the United States but beyond
our borders. And when it comes to Cuba, when the exception was
made more than a decade ago, Minnesota was one of the first to
send a delegation to Cuba and open up the relationship. It is
important to our State when we are talking about export markets
and growing trade opportunities.
And I think it was Mr. Karsting who testified that lifting
the embargo would help farmers in general; it would help all
farmers. And I guess I want to go from there.
What sectors, if you will--and whoever has the expertise or
all of you--what sectors in our agricultural industry in this
country are hurt most by the U.S. trade embargo?
Mr. Karsting. I think we have seen losses in wheat and
rice, and you can go down the laundry list of bulk commodities
and look at who has gone up and who has gone down over time,
and that would be sort of a rough way to look at it. I think
wheat and rice are two of the principal ones. Poultry exports
remain pretty strong. But in general, what we have seen from
2005 compared to today, is that Cuba used to buy a much greater
variety of goods, and now that variety of goods has been
diminished. There has also been a fundamental shift in U.S.
agricultural exports in the last decade or two. We sell a lot
more processed and intermediate products these days than we did
a decade or two ago. So, there is probably potential
opportunity in each one of those categories. It is hard for me
to say exactly which one is going to shine. Ask me in 10 years,
and maybe we will have some good numbers on that.
Mr. Emmer. Is there anything that maybe, again, I don't
know which one of you this is most appropriate for, but we talk
about--you have testified as to what the administration has
done. There might be an argument if they are within their
authority or not.
But is there more that can still be done, you believe,
without congressional action to open up the Cuban marketplace?
Mr. Karsting. I think the authority within my agency, you
know, where we would go now does require action by Congress.
Our principal export promotion programs that I mentioned
before, we can't use those. We can't spend a single dollar on
any sort of export promotion.
So, you know, we would love to be an environment where we
have a little more on-the-ground market intelligence in the
country. When I say intelligence, I mean our ag attaches, those
sorts of things, at some point. We currently run all of our
Caribbean operations out of an office in Miami. So we will take
it one step at a time.
Mr. Emmer. Mr. Smith you were talking about some of the
things that have been done through this administration's
actions, including broadening the ability of financial
institutions to do more. And I think the gentlelady from
Florida was referring to debit cards, et cetera. You had
referred to U.S. banks, financial institutions, that can now
have correspondent relationships in Cuba. How many of those
exist at this moment? Has that started already?
Mr. Smith. To my knowledge, there is only one financial
institution that has opened a correspondent account in Cuba. I
think Cuba is one of our toughest sanctions programs. The
variety of requirements that we have under our sanctions and
the penalties that we impose for violations--most people are
aware of the major penalties that we instituted when we find
that a financial institution has run afoul of our sanctions--
lead banks to be very, very cautious.
And so I think if you ask me what my expectation would be
is that until there is a greater interest for the banks, until
there is more trade or interest from big American companies,
you will have banks that are very cautious about getting in
until the profit is greater for them.
Mr. Emmer. But taking that one step farther, it is not just
that, but isn't it true that with the embargo still in place,
they don't--there isn't going to be a rush of banks, financial
institutions entering into Cuba?
Mr. Smith. I think that is right. As I said at the
beginning, even with these changes, most imports, most exports,
and most other transactions remain prohibited between the
United States and Cuba. Given that landscape, there is not that
great of an incentive for financial institutions to rush in
across the board.
Mr. Emmer. Lastly, could you expand on your testimony
earlier that you said the administration through its actions
have expanded certain humanitarian projects in Cuba.
Mr. Smith. Sure.
Mr. Emmer. Could you expand on that?
Mr. Smith. Sure. We issued a general license that is a
regulatory authorization that allows U.S. persons to do certain
activities within what we define as the humanitarian field.
Within the humanitarian field, we define what we mean by that.
So it may be certain medical or educational or other types of
projects, including certain micro-financing type activities.
And we also authorize in that area more remittances and an
unlimited category where we might have restrictions in other
categories. So we have been working in that area. We also allow
travel for that purpose as well.
Mr. Emmer. And I think, lastly, with what little time I
might have left, Mr. Karsting, you were talking about the
farmer-to-farmer programs. Can you--for people that are here,
can you tell us, how do those work?
Mr. Karsting. We do a number of sort of educational
exchange programs, and farmer to farmer can be one of them.
Often, when we send trade missions overseas, U.S. producers
will go and accompany their sales executives and that turns
into a de facto farmer-to-farmer exchange.
We also have two other programs that we administer: There
is the Norman E. Borlaug Exchange Program and the Cochran
Exchange Program. The Borlaug relates more to graduate-level
Ph.D. Research exchanges. The Cochran Program deals with a lot
of very practical on-the-ground sort of this is the way you
manage cold supply chain, you know, any number of sorts of
things.
So we do exchange programs around the globe, but obviously
not with Cuba unless there is a change in the law.
Mr. Emmer. Okay. Thank you.
I yield back.
Mr. Poe. Thank the gentleman.
The Chair recognizes the gentleman from Arkansas, Mr.
Crawford.
Mr. Crawford. Thank you, Mr. Chairman.
This is a question perhaps best directed to the State
Department, but since they are not part of this panel, I will
direct it to any and all of you who can answer it. Are there
any barriers in place that you know of that restrict Cuban ag
customers and officials from coming to the United States for
the purpose of developing business relationships or conducting
quality control activities like safety and quality inspections?
Mr. Karsting. We are not bringing in Cuban agricultural
projects, so there would be no reason for them to----
Mr. Crawford. I guess, maybe I should clarify what I am
asking here. Can they come here to develop relationships as it
applies to U.S. businesses accessing Cuba?
Mr. Karsting. That is a question I would leave to State.
Mr. Smith. I think that is more of a State Department visa
issue.
Mr. Crawford. All right. Thank you.
Mr. Karsting, some supporters of trade with Cuba have said
that we need to keep the restrictions on FAS' market
development programs to ensure that taxpayer money doesn't get
into the hands of the Castro regime. Do you think that is a
valid criticism, or are there enough safeguards in place that
would prevent misappropriation?
Mr. Karsting. Our use of these market development programs,
just by way of background, is one of our signature public/
private partnerships. So we cooperate with about 86 different
groups out there, private sector groups that promote
agricultural exports overseas. So our agreement is with them,
and they submit to us their strategies for building markets
overseas.
So I don't view that money as going directly into the
coffers of any of their target countries. It is going into the
hands and the control of U.S. producers and exporter groups for
them to figure out, with our concurrence, what is the best
strategy for growing and developing a market overseas. So, I
think there are a couple layers of protection in there that
give me comfort on that.
I want to back up a little bit to your earlier question.
You talked about people coming over here. This is probably a
good point to talk about. An important part of USDA in many,
many countries around the globe is not just for our FAS folks
to have a presence there to figure out how we can grow
opportunity for American agriculture, but also for our Animal
and Plant Health Inspection Service team to be on the ground,
to make sure that we protect American agriculture on the plant
and animal health side of things.
So as we look down the road to a relationship with Cuba, it
involves both of those elements.
Mr. Crawford. Okay. Thank you.
And let me ask you, Mr. Karsting, would you say that
Alimport is a concern in terms of quality of access in
promoting U.S. products directly to consumers?
Mr. Karsting. Ask that again.
Mr. Crawford. Would you say that Alimport is a concern in
terms of quality of access and promoting U.S. products directly
to consumers?
Mr. Karsting. Well, certainly a lot of our competitors
don't go through Alimport, and it is a pretty opaque process.
But you aren't able to change things unless you are there and
able to build relationships hopefully with end-use customers.
Mr. Crawford. What recommendations would you--or anybody on
the panel can answer this if they want to--have in terms of
policy shift that we could implement here that would enable
producers to market directly into the Cuban market?
Mr. Karsting. Like I mentioned before, the Secretary said
we can't spend a single dollar of our MAP, EMP, or other
marketing sorts of programs, in Cuba, and that is something
that Congress is going to have to grapple with. We can't
unilaterally take any action on that.
Mr. Smith. And I think from a Treasury--oh, I am sorry.
Mr. Borman. We in Commerce are also statutorily prohibited
from doing our normal range of trade promotion and market
analysis activities in Cuba.
Mr. Smith. And on the Treasury side, what we hear most from
exporters are the cash in advance rules, meaning that they
can't get private financing either. They have to go through
this----
Mr. Crawford. Okay. So that is what we can't do. So I guess
what I am asking is recommendations from you for what we could
do. And if I am hearing you right, you think we could take some
action to lift that?
Mr. Smith. That restriction is in the statute; it is in the
Trade Sanctions Reform and Export Enhancement Act that doesn't
allow private financing or government financing. So that is----
Mr. Crawford. Which would be an essential piece to this
anyway, so you would recommend that that would be a starting
point?
Mr. Smith. If Congress wanted to look at that, that is the
place to go.
Mr. Crawford. Okay.
Mr. Borman. And TSRA also has the restrictions on export
assistance, which is what we were talking about in our----
Mr. Crawford. Okay. Thank you.
I yield back.
Mr. Poe. Thank the gentlemen. Thank all out of our
witnesses for being here.
I thank our Members of Congress, especially the ones not on
the committee for being here today as well.
And the subcommittee is adjourned.
[Whereupon, at 3:14 p.m., the subcommittee was adjourned.]
A P P E N D I X
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