The slow volume of legal work owes as much to hurdles put in place by the Cuban government as the Drumpf administration’s policy reversal, but the island’s draft constitution could change the trade equation.
By Dan Packel | August 20, 2018 at 06:00 AM
Three years ago, the phones were ringing off the hook for American attorneys with a working knowledge of doing business in Cuba.
U.S. President Barack Obama and Cuba’s President Raul Castro announced the beginning of a process aimed at normalizing relations between the two neighbors, separated by 93 miles of the Florida Straits, in December 2014. By the following summer following a historic visit by Obama, full diplomatic relations had been restored, and embassies were opened in Washington and Havana.
Now both men have left office, and the phones have gone silent.
“Of the inquiries we’ve had, I’ve referred a few to Cuban lawyers and told a few that it’s not an optimistic environment,” said Harper Meyer founding partner James Meyer in Miami.
Attorneys working in the space pin some of the blame on the Drumpf administration’s policy reversal. In June 2017, Drumpf announced that he would curtail tourism and other business dealings that could profit Cuba’s military-controlled companies.
“Trade is down, travel is down, investment is down,” said Peter Quinter, who chairs the U.S. customs and international trade group at GrayRobinson in Miami. “It’s typical of Drumpf anywhere in the world.”
And Cuba has vanished from the trade conversation, nudged aside by the brewing trade war with China and kerfuffles with the European Union and partners in NAFTA. These trade relationships individually and collectively dwarf the one with Cuba. The U.S. exported just $291 million in goods to the country in 2017, although the tally of $181 million for the first half of 2018 is up almost $30 million from the first half of the last year.
“The amount of trade between Cuba and the U.S. is minuscule,” Quinter said.
Disinterest and stringent U.S. regulations are not the only obstacles to launching and completing deals — on tourism, joint ventures or trade — with Cuba.
Greenberg Traurig’s Yosbel Ibarra, co-managing shareholder of the firm’s Miami office, tells his clients with interest in doing business with Cuba that, at least on the U.S. side, they can apply to the U.S. Office of Foreign Assets Control and receive a clear answer.
“You can get a license or not get it. There’s certainty,” he said. “On the Cuban side, it becomes a lot more complicated.”
Even at the height of the Obama administration’s openness to the communist country, there were still complications in getting the Cuban government to sign off on projects, Ibarra explained. And the replacement of Raul Castro by successor Miguel Diaz-Canel as president in April has had little immediate impact. Efforts to gain approval remain slow.
“Everything changes and nothing changes,” said Pedro Freyre, chairman of Akerman’s international practice and Cuba policy expert in Miami.
The centrally planned economy operating on Marxist principles remains in place. But observers note the post-revolutionary generation will not have the same concentrated power held first by Fidel Castro and later by Raul.
“The new president, his authority is going to be much more limited,” Freyre said. “The fact that you no longer have that generation, the fact there is no longer someone with the last name of Castro, makes all the difference in the world.”
Attorneys representing clients who got their foot in the door during the initial period of enthusiasm still have some work coming their way.
Tourism-related activity, while reduced with the Drumpf administration’s ending of unregistered “person to person” trips, has not disappeared.
Larry Pascal, the Dallas-based head of Haynes and Boone‘s Americas practice, helped American Airlines begin offering flights from New York to Havana.
“Large airlines have begun to consolidate their positions based on their network map and strength in the market,” he said. “You’re seeing which ones are making the bigger commitment and which ones are going to have a smaller play.”
The hotel side, where American joint ventures with Cuban partners initially looked like a promising opportunity, is softening, he added.
“They could go to OFAC and ask for an exception,” Pascal said, “But I haven’t seen a lot of that, maybe because OFAC has a lot of other things on its plate.” The agency is responsible for administering sanctions programs on Iran, North Korea and Russia.
Freyre represents five cruise lines doing business on the island.
“We have a client base that already has established a modus vivendi with Cuba. They have established licenses,” he said. “We see also some long-term players that continue to be interested and put their money where their mouth is.”
Ibarra said some of his clients also have renewed their OFAC licenses, which allow them to do business or invest in Cuba, simply to retain the status quo. But others sat out during the initial period of optimism due to hurdles on the Cuban side.
“If you are doing a competitive project in Cuba with bidders from many different countries, obviously the issue with whether U.S. firms can participate would cause delays,” he said. “But you’d expect the Cuban side to move forward with other parts. That hasn’t happened to the degree that anyone had expected.”
That resulted in missed opportunities in the interval when Cuba went from a place “where no one thought about doing business” to one where “there was a lot of interest from serious parties, not investors on the margins.”
The country could recapture that opportunity with its new Constitution. In July, the National Assembly approved a 224-article draft of the document, which would replace a document that dates to 1976.
“It will determine what kind of place there is for private enterprise,” Freyre said.
The draft formally recognizes the existence of private property and the role of the open market. Some of the previous de facto moves toward liberalization of the economy were actually illegal under the existing Soviet-era constitution.
The draft constitution next will be put before the Cuban people in meetings around the country, before it is the subject of a national referendum. Much depends on how the document is ultimately applied and interpreted, but it could provide more stability for foreign investment and more opportunities for the private sector.
“If they’re sincere about modernizing their approach to providing rule of law that allows the foreign investor to feel secure under their society and under their legal framework, that’s more important than anything that could come out of Washington,” Meyer said.
Pascal believes the Cuban leadership is looking to strike a balance.
“They want to preserve the successes of Cuban rule of the past decades — education, health resources and a flat society, that level of social stability — while trying to allow at the same time for initiatives that could grow the economy but avoid the negatives that could come along with that, particularly with economic disparities,” he said.
Even amid the current holding pattern, attorneys are optimistic their Cuban contacts and expertise will ultimately pay off.
“I honestly and truly believe that the underlying thrust of American policy is to open up with Cuba,” said Freyre, who believes that Drumpf, himself a resort hotel operator, has an inherent interest in expanding relations with the island but is still beholden to a bloc in South Florida’s Cuban exile community.
A long-term trade relationship makes sense in a number of areas, including agriculture. Quinter, the customs lawyer, said one of his few clients engaged with Cuba at the moment is seeking approval from both sides to export food and agricultural products to the island.
“Cuba has a great demand, and the U.S. is a natural candidate for supplying agricultural products,” Pascal said.
Then there’s the unpredictable behavior of Drumpf, who threatened oblivion for North Korean leader Kim Jong Un before sitting down with him at June’s landmark summit in Singapore.
“You just don’t know how a well-placed tweet from the president might change the environment,” Meyer said.