Commentary originally published by commPRO.biz on April 5, 2016. Written by Emily Grim, Associate, Reneo Consulting, LLC.

On December 17, 2014, President Obama announced the normalization of relations between theUnited States and Cuba. Today, just a short-time after the president’s historic visit to Havana, American citizens are left wondering how this shift in diplomatic relations will affect our country and, more importantly, what our changing relationship with Cuba looks like moving forward.

The bottom-line is that mutually beneficial trade and business partnerships between the U.S. and Cuba have the potential to spur jobs and growth in both countries. As we embark on these new business partnerships, two significant steps must be taken to facilitate sustained and successful relationships.

First, U.S. businesses entering the Cuban marketplace must have access to appropriate insurance to build confidence in the security of their investments. Use of insurance by early U.S. movers in the Cuban realm will set essential precedent for how future business deals between the U.S. and Cuba are structured.

Second, parties to any deal should agree on clear and defined dispute resolution procedures. A better trade framework, including standardized arbitration and alternative dispute resolution procedures, will lead to a stronger and more secure relationship for both parties.

The need for a strong trade framework is immediate as the continued evolution of diplomatic relations between the two countries opens more opportunities for U.S. investment in Cuba. For example, for the first time in half a century, the U.S. Government has loosened restrictions to allow U.S. companies in the export and telecom sectors to enter the Cuban marketplace and even open offices, warehouses, and other sites necessary to facilitate business transactions and otherwise establish a physical presence in the country. Perhaps most importantly, the continued loosening of restrictions on U.S. travel to Cuba will be a huge driver for increased exchanges between U.S. and Cuban citizens, increased investment, particularly in the hospitality sector, and the overall growth of the Cuban economy. The challenge in this realm is whether investments in Cuba’s infrastructure can keep up with this influx of U.S. travelers.

Despite this rapid increase in potential business opportunities, U.S. investors can only realize the full value of these opportunities by paying close attention to Cuba’s unique investment climate and model for economic growth. The smartest U.S. investors will focus on the development of the Cuban economy itself—particularly its export sector—as the country still requires significant capital to become a strong trading partner.  

Evolving diplomatic relations will continue to impact the nature and scope of Cuban investment opportunities, and the learning curve inherent in these changing relations requires a two-way street of respect and flexibility from both sides. Only by using this two-sided approach will multiple sectors of our economy—from travel, hospitality, and transportation to agriculture, biotechnology, and telecommunications—maximize growth potential. In this unique climate, we must focus on facilitating long-term partnerships that support the creation of a robust U.S. trading partner.

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Published by Bloomberg on March 18, 2016. Written by Ezra Fieser and Mike Dorning.

President Barack Obama’s bid to crack open Cuba to U.S. businesses will take a big step forward next week when he becomes the first sitting president to step on Cuban soil in more than eight decades. Just don’t expect U.S. companies to follow en masse any time soon.

More than a year after Obama and President Raul Castro announced a diplomatic thaw, many U.S. investors remain wary of an economy hobbled by a five-decade-old U.S. trade embargo, restrictive Cuban labor laws and a dual currency system. Companies that have or want to invest, like JetBlue Airways Corp., Carnival Corp. and Airbnb Inc., are more the exception than the rule.

“Firms just find it very difficult and don’t want to put a lot of money in,” said Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics in Washington who has written about normalizing ties with Cuba.

For starters, how do you pay your workers in Castro’s Communist economy? Nearly all foreign companies on the island pay a labor agency or Cuban-majority partner their workers’ salaries in convertible pesos, which are pegged to the dollar. But the workers receive their average $26 monthly salary in an entirely different currency: non-convertible pesos, worth 1/25th as much. The government pockets the difference.

While Castro’s government said in 2013 that it would seek to unify the currencies, little has happened. It’s a tough problem to fix, one that Moody’s Investors Service called the Cuban government’s “single most important macroeconomic challenge.”

“It’s the difference between making money and not making money,” Hufbauer said.

Joint Ventures

Second, most foreign companies allowed to enter Cuba have been limited to a 49 percent ownership ceiling, with a state-owned company holding the majority stake. Under joint ventures, it is the state-owned company that hires and pays the workers, meaning that foreign investors have little say in hiring their own workforce.

And who is behind that state-owned company? In many cases it is Luis Alberto Rodriguez, a general in the Revolutionary Armed Forces who oversees a conglomerate that comprises at least 57 companies. He’s also Raul Castro’s son-in-law.

While small businesses like hair salons and taxi driving are open to private entrepreneurs, big-money industries, including much of the hospitality sector, are often under Rodriguez’s control. His Grupo de Administracion Empresarial runs companies that account for half of the business revenue produced in Cuba, according to Omar Everleny Perez, a professor at the University of Havana and a researcher at the Center for the Study of the Cuban Economy.

Human Rights

Cuba also has the worst record on human rights in the Americas, according to the Washington-based Freedom House, and the government’s strong-arm tactics have gone beyond cracking down on local dissidents. Canadian businessman Sarkis Yacoubian, who built a business selling automobiles and industrial equipment in Cuba, was arrested in 2011 and accused of spying.

Yacoubian spent two years in jail before being convicted after a two-day trial of corruption and doing economic damage to the government. He was sentenced to nine years in prison and fined $7.5 million before being released in 2014 after having all his assets confiscated.

Finally, there is the infrastructure. Cuba’s crumbling roads and antiquated ports prompted the World Bank to rank it 152nd out of 160 countries, placing it between Yemen and Sudan, on its logistics performance index, which takes into account infrastructure and other factors that affect trade efficiency.

Undoubtedly much has changed in recent years. Direct mail between the U.S. and Cuba has been reestablished, Castro has eased travel restrictions and foreign companies are being encouraged to invest in free trade zones as the the island diversifies away from traditional allies like Venezuela. Unilever Plc. in January announced plans to return to Cuba with a $35 million soap and shampoo factory in Mariel, a port city west of Havana. Under that deal, Unilever will own a 60 percent stake in the venture.

Tourist Visits

Moody’s said the opening with the U.S. and the island’s decreasing dependence on Venezuela have improved its economic outlook. One factor: tourist visits have surged since the rapprochement, many of them by Americans traveling to Havana from third countries like Canada and The Bahamas. Obama’s March 20-22 trip, followed by a free concert by the Rolling Stones, will only help fuel that enthusiasm.

One historic comparison to Obama’s two-day visit is President Richard Nixon’s 1972 visit to Beijing, which paved the way for stronger economic relations with China. Vietnam is another good example, said Hufbauer.

Both countries found a way to ease economic restrictions to fuel greater prosperity, without giving up total political control.

“As the Cubans get comfortable with it, they will do more and more,” Hufbauer said, citing tourism, agriculture and medical services as key investment opportunities. “Given the geography and the cultural proximity, in 10 years it should be a very different relationship.”

Yet outside of Cuba, the biggest barrier to normalizing ties is beyond Obama’s power to remove: the embargo. Only Congress can do that, and the Republican majority has blocked any attempt to do so.

“The situation today is light years ahead of where it was a decade or even five years ago,” said Scott Gilbert, managing director of Reneo Consulting LLC, who in 2014 negotiated the release of Alan Gross, a jailed U.S. contractor. “The thing is, we are operating with legislation that really does cripple the ability for full U.S. trade and investment with Cuba.”

Until that too crumbles, what separates Cuba from the U.S. will continue to be much more than the 90 miles of the Florida Straits.

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Published by The New York Times on December 16, 2015. Written by Julie Hirschfeld Davis.

WASHINGTON — As the anniversary neared of President Obama’s announcement of a historic détente with Cuba, Representative Ileana Ros-Lehtinen of Florida, who was born in Havana and fled with her family to Miami decades ago, gave him a reality check. The policy change had done little to improve life for the Cuban people, she told the president at the White House last week, and had actually made their human rights situation worse.

Give it time to work, Ms. Ros-Lehtinen said the president responded, the strategy has been in place for only a year.

When he announced last December that he was shattering a half-century of hostility between the United States and Cuba in favor of a new chapter in the relationship between the two countries, Mr. Obama conceded that, “Change is hard.” In the 12 months since then, that prediction has been borne out. The normalization process has proceeded in fits and starts, yielding a handful of concrete accomplishments — most notably, the reopening of embassies in Washington and Havana shuttered since the Cold War — and lingering difficulties.

For all the aspirations of a new era in United States-Cuba relations, the reality has been a much more gradual process, still thwarted in many ways by the American embargo and major differences over politics, human rights and property claims.

Tens of thousands of Cubans have fled the country since the Dec. 17, 2014, announcement of the rapprochement, fearing that the Cuban Adjustment Act, the American law allowing them to obtain residency upon their arrival, will soon be changed. Many Cubans were left sorely disappointed, with little evidence of change on the streets, and even less in the daily lives of those earning paltry salaries and still struggling to find eggs and other staples.

“We went into this with no illusions that the Cubans were going to radically change their political system overnight, but our belief has been that greater engagement, greater people-to-people ties, greater commercial activity does open up space for the Cuban people,” said Benjamin J. Rhodes, Mr. Obama’s deputy national security adviser for strategic communications, who participated in the secret talks that led to the rapprochement. “Part of what we are doing is raising people’s expectations, and that’s appropriate.”

To critics like Ms. Ros-Lehtinen, the president has fallen far short. They argue that the United States has made valuable concessions to President Raùl Castro over the past year — including removing Cuba from the list of state sponsors of terror, restoring diplomatic ties, and loosening sanctions on travel and business with the island nation — without getting much in return.

“Despite some low-level agreements the administration trumpets, truly little has ‘progressed’ as it relates to Cuba or everyday Cubans,” Ms. Ros-Lehtinen said through a spokesman. “Repression has risen and has led to more Cubans trying to flee the country under Communist rule, while at the same time little progress has been made on human rights, U.S.-confiscated properties, return of wanted U.S. fugitives and democratic freedoms.”

But the president sees glimmers of hope in the painstaking work of prying open a half-century’s worth of institutional barricades between the American and Cuban governments, and he has explicitly refused to condition the thaw in relations to specific demands on Mr. Castro’s government. He told Yahoo! News last week that he wanted to visit the island nation during his final year in office and meet with pro-democracy dissidents there, in part to “nudge the Cuban government in a new direction.”

“We reject this notion that our opening is a form of concession, because the opening is the whole point — we think it’s in our interest to have people traveling down to Cuba and doing business there,” Mr. Rhodes said in an interview. “There’s a natural momentum to these things.”

The process has already yielded some concrete results, with the number of Americans authorized to travel to Cuba up 50 percent over the last year, a growing private sector in Cuba and two United States telecommunications companies sealing roaming agreements there.

In April, Mr. Obama and Mr. Castro shook hands and met face to face at the Summit of the Americas in Panama, becoming the first American and Cuban presidents to do so in more than 50 years. They had their first meeting on American soil in September at the United Nations. In between, after marathon negotiations by both governments, the United States and Cuba re-established formal diplomatic relations in July, opening embassies that had long been closed.

The Treasury and Commerce Departments have acted twice to ease sanctions and allow Americans and Cubans to forge closer personal and business ties, and on Wednesday reached an agreement on commercial flights.

An environmental cooperation deal was signed last month, and a pilot program to explore restoring direct mail service between the United States and Cuba will soon begin.

Diplomats have started high-level talks on human rights issues and resolving billions of dollars in claims against Cuba by American citizens and businesses for property seized in the revolution, as well as Cuban counterclaims for more than $150 billion in damages Havana claims to have suffered from the embargo.

“It was just pure fantasy to think, as it has been for the last 60 years, that the United States could directly shape the nature of the Cuban political system,” said Julia E. Sweig, a Cuba specialist and senior research fellow at the Lyndon Baines Johnson School of Public Affairs at the University of Texas at Austin. “It feels like we’re getting excited about tiny steps, but those tiny steps, against the backdrop of the thicket of laws and regulations that have produced a ‘no’ as the answer to any question, and now we’re figuring out how to get to ‘yes’ — that’s progress.”

Still, many obstacles remain, including an overarching concern among the Cuban government and American companies seeking to do business there that their assets will be seized because of outstanding sanctions and provisions of the embargo.

The Cuban government has resisted many of the economic reforms and other steps that will facilitate such deals, American officials acknowledge, partly out of fear that swift change will wash away the gains of the revolution in a sea of capitalist investment. There is also a worry in Cuba that opening its market to the United States might weaken the pressure on Washington to lift the embargo once and for all.

“When you stand back and look at this against the backdrop of almost 60 years of complete adversity, complete lack of dialogue, absolute distrust, it’s been a remarkable year,” said Scott D. Gilbert, a Washington-based lawyer who helped negotiate the release of Alan P. Gross, an American imprisoned in Havana, as part of last year’s agreement. “But there is frustration and disappointment on both sides that more deals haven’t gotten done. It’s a process that still needs a lot of work.”

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