Who's really being hurt?

Who's really being hurt?

New regulations could shut off an important market for U.S. agricultural-products exporters in 2005 - the first year in half a century that America will have an agricultural trade deficit. The Treasury Department's Office of Foreign Assets Control, which enforces trade sanctions, is preparing to require Cuba to pay for goods before they are loaded for export. This requirement is likely to choke off U.S. exports to Cuba, which exceeded $400 million in 2004 and could reach $1 billion by 2006.

The U.S. embargo on bilateral trade with Cuba has been in place since 1960, but the Trade Sanctions Reform and Export Enhancement Act of 2000 allowed exceptions for U.S. agricultural, food product and medical exports. Since that law took effect, Cuba has become our 21st-largest agricultural market, with more than $1.15 billion in cash purchases. The U.S. is Cuba's primary source for imported food. U.S. agricultural-product sales to Cuba are growing at an annual rate of 115 percent.

How much impact does Cuban trade have on the U.S. economy? A study by Texas A&M University found that $400 million in agricultural exports to Cuba generates $919 million in additional U.S. economic output, boosts gross domestic product by $517 million and creates 10,656 U.S. jobs. If the trade embargo were eliminated, the projected $1.24 billion in farm exports to Cuba would stimulate an additional $3.6 billion in total economic output and another $818 million in household income.

By prohibiting financing by U.S. suppliers or banks, the law requires cash in advance for authorized U.S. exports to Cuba. On the few occasions when a Cuban payment has not been completed in time, shippers have been able to prevent sales on credit by withholding legal title and possession of the goods until payment was received. The Office of Foreign Assets Control now argues that a payment delay of even a few hours is an illegal extension of credit to Cuba. While the new guidelines are ostensibly meant to remedy this, in reality they are a thinly veiled attempt by the Bush administration to intensify economic pressure on Fidel Castro - at the expense of American farmers and businesses.

The proposed changes in export rules are irrational. Food sales to Cuba do not prop up the Castro regime, but help alleviate the negative impact of U.S. sanctions on the Cuban people. Less than 5 percent of U.S. products end up in state-owned stores where the elevated markup of prices lines Castro's pockets. The rest is distributed to the population through the rationing system.

The proposed regulations are also probably illegal. A recent report by Congressional Research Service lawyers stated that it was "difficult to find legal support for an interpretation of 'payment of cash in advance' that requires payment to be received prior to shipment."

A letter sent to Treasury Secretary John Snow last Nov. 23 by Sens. Max Baucus, D-Mont.; Larry Craig, R-Idaho; and Byron Dorgan, D-N.D., echoed the research service report. The senators expressed their "outrage and profound disappointment" concerning the actions of the Office of Foreign Assets Control, calling them "an unacceptable interference by the U.S. government into lawful commerce conducted by compliant U.S. businesses," which "must necessarily be interpreted as a conscious and intentional decision by OFAC to flout the will of Congress."

Despite rancorous political relations, Cuba prefers to import from the U.S. because of its proximity to Havana and the high quality of U.S. agricultural products. Cuban officials have reluctantly declared that they will turn to other suppliers if forced to pay while goods remain in U.S. ports.

The new guidelines would harm the competitive position of U.S. products compared to those readily available from other suppliers at a time when the U.S. trade deficit exceeds $600 billion and the Agricultural Department has announced that the U.S. will have an agricultural trade deficit in 2005. This development would be highly detrimental to U.S. producers because Cuba has become our 21st-largest agricultural market and, ironically, one of the least risky for U.S. exporters because of the cash-in-advance provision.

If the goal of the U.S. government is to end the Castro regime, an open U.S. trade policy would be more effective than the embargo. Despite its supposed support for free trade, the Bush administration vastly underestimates the extent to which increased foreign trade and interaction with U.S. businesses can undermine Cuban communism.

Timothy Ashby served during the Reagan and George H.W. Bush administrations as director of the International Trade Administration's Office of Mexico and the Caribbean, and as acting deputy assistant secretary of commerce for the Western Hemisphere, with responsibility for commercial relations with Cuba. He can be contacted at tashby@aol.com.