Fight over Cuba trade bill has many twists and turns

If this fight goes to a decision – and given the difficulties facing Congress with spending bills that include this issue and myriad others, it may not – American farmers will gain the right to sell to Cuba without the financial tools needed for any actual sales.

House Republicans agreed last week to legislation ending food sanctions against Cuba, Iran, Sudan, Libya and North Korea.

They must now work out differences with the Senate over a farm spending bill containing the sanctions language.

Cuba remains a highly flammable topic, however, and the legislation tightens conditions of the embargo at the same time it eases food sales.

The pressure for change came most successfully from farmers and Republican members of Congress from farm areas.

Rep. George Nethercutt, R-Wash., chief sponsor of the House legislation, played up the end of sanctions on food sales to Iran.

But it is Cuba's appetite for $1 billion a year in food imports that raised the highest expectations of quick sales by U.S. farmers.

The bill's restrictions on finance and insurance make it unlikely that U.S. farmers will sell anything close to that amount, however.

"This may be a step forward, but it's several steps less than what's needed," said Tom Buis, vice president for government relations with the National Farmers Union. "We're very disappointed, very disappointed."

Added restrictions

A symbolic easing of the embargo is more than what Cuba's strongest critics want, however.

They lost decisively when the issue came to the floor of both the House and the Senate, but they were able to insert financial restrictions with the help of the House Republican leadership.

"We want to become more open on trade with Cuba, but do so in a responsible fashion," said House Majority Leader Dick Armey of Irving.

"We want to make sure that we restrict the government from subsidizing any [of Cuba's] imports," Mr. Armey continued, "but we want to open it up to food and medicine."

Dr. Paula Stern, a former U.S. trade representative, estimates that ending the embargo on food sales could lead to U.S. exports of $400 million.

If export credits and U.S. financing are denied, however, Dr. Stern's research suggests that sales would come to less than a fifth of that amount.

Risk of default

Opponents of easing the embargo say allowing financing and insurance would invite Cuban default and leave U.S. taxpayers funding Cuba's grocery bill.

This view got an airing recently before the U.S. International Trade Commission.

"We can almost certainly sell things to the Cubans if we're also going to pay for them," said Frank Gaffney, Jr., president of the Washington-based Center for Security Policy.

Cuba has a spotty record of paying creditors and prefers to trade goods rather than pay cash.

Cuba barters sugar to France for wheat and to New Zealand for powdered milk.

Cash vs. barter

Cuban leader Fidel Castro was forced to allow the U.S. dollar to take over as Cuba's unofficial currency after the Soviet Union collapsed and $8 billion in Soviet subsidies vanished.

But the $1.8 billion earned off tourism, now Cuba's biggest industry, doesn't go far enough to cover all of Cuba's import needs after foreign investors take their share.

And foreign investors would be wise to take their earnings in dollars, and in cash, warned Georgetown University lecturer Brian Latell.

"Make no mistake – Castro has an absolute antipathy to capitalism," said Mr. Latell, who was a senior intelligence official in the administrations of former Presidents Reagan and Bush.

"He has a deep enmity, fear and loathing of unrestrained enterprise in Cuba and of foreign investors who would encourage it. ... I would warn foreign investors, as long as Castro remains in office, to be very cautious."

John Kavulich II, president of the U.S.-Cuba Trade and Economic Council, said he doubts that Mr. Castro would default on loans used to pay for U.S. food imports.

"The political incentives to pay could be almost a guarantee for U.S. banks" if they were allowed to offer financing, he said.

"The last thing Cuba wants is a headline in The Dallas Morning News datelined out of Havana that says 'Cuba defaults on Texas rice contract.'"

Alternatives

If the House leadership's version of the bill goes through, Mr. Kavulich said, U.S. farmers might still find a way to sell if food processors decide to finance exports on their own.

Mr. Nethercutt, meanwhile, says he was able to insert language that would make it possible for foreign banks to finance U.S. food sales to Cuba.

Farm-state senators like Republican John Ashcroft of Missouri and Democrat Byron Dorgan of North Dakota have to decide this week whether these weaker export finance tools make it worthwhile to support the bills.

Mr. Dorgan earlier vowed that U.S. bank financing must be part of what's allowed by the legislation.

"Some senators are saying they'll take the House version in order to get something passed. Other senators are saying they'll stand firm and let the embargo stay the way it is," said Tom McArthur, Mr. Nethercutt's press spokesman.

"We'll find out [this] week who's right."