Panel I Of A Hearing Of The Commerce, Trade And Consumer Protection Subcommittee Of The House Energy And Commerce Committee - Examining The Status Of U.S. Trade With Cuba And Its Impact On Economic Growth

Statement

Witnesses: Walter Bastian, Deputy Assistant Secretary Of Commerce For Western Hemisphere Affairs, International Trade Administration; Matthew Borman, Acting Assistant Secretary Of Commerce For Export Administration, Bureau Of Industry And Security

Chaired By: Rep. Bobby Rush

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REP. RUSH: The subcommittee will come to order.

This is the subcommittee hearing on examining the status of U.S. trade with Cuba and its impact on economic growth.

The chair will recognize himself for five minutes for the purpose of an opening statement.

I want to thank the members of the subcommittee for participating in the first trade hearing in the 111th Congress.

I recently visited Cuba with my colleagues from the Congressional Black Caucus. We met with President Raul Castro. And our chairman, Barbara Lee, and I personally met with former Cuba President Fidel Castro, along with Congresswoman Julia (sic/means Laura) Richardson from California.

A lot has been said and written about that trip to Cuba and about that meeting. Because of travel restrictions, many Americans don't know what Cuba has become. (Inaudible) -- compelled me to call this hearing to assess U.S. trade policy toward Cuba.

I believe our current trade policy with Cuba is a failure. We must re-evaluate our trade policy's impact on both the Cuban and the American people. I strongly believe that expanding and diversifying our exports to Cuba will be beneficial to both countries.

Some argue the current embargo should be maintained as a political tool that has proved to be effective, as was the case with South Africa. However, I must say that the current embargo with Cuba is not -- (inaudible) -- embargo, and we're in a different political and economic environment today. Unilateral sanctions are usually problematic and ineffective. Congress has -- Cuba has opened its doors to the entire world, and the world has walked steadily in.

All nations in the Americas except the U.S. have resumed diplomatic relations with Cuba. All of our economic competitors, including China, Brazil, Mexico, Japan, Canada and the European Union are currently trading with Cuba.

Cuba has also made it clear that the same doors are open to the U.S., and our policies should not prevent American companies from doing business with the Cuban people. We're looking for new markets to penetrate. Our companies want to compete globally, and our unemployed workers want jobs.

Now is not the time to ignore all the opportunities that are presented to us, and I believe that Cuba should be treated like other trading partners with similar political and economic (conditions ?).

Liberalizing trade with Cuba is not without precedent and has already proven beneficial to both the U.S. and the Cuban people. In 2000, when I and other members of Congress voted to approve a modest opening of trade, overall exports to Cuba rose from $7 million in 2001 to $404 million in 2004.

However, I must add, the so-called cash-in-advance rule initiated by the previous administration in 2005 has complicated an already difficult process and has caused Cuba to cut back on its imports from the U.S. Nonetheless, the United States is Cuba's largest supplier of food and agricultural products, with almost $2.7 billion in total sales.

Having said all this, I am not naive nor am I blind to Cuba's challenges. It is undeniable that Cuba has serious political, economic, financial and social problems. Like many developing countries, Cuba has many regulatory hurdles. To be sure, political and economic reform must be initiated by Havana inside Cuba's borders.

However, it is also undeniable that some progress has been made and that the embargo in many instances has actually increased the suffering of the very people we are trying to assist. Since the fall of the Berlin Wall, approximately 28 nations have undergone transition from communist regimes. Countries that were less isolated from the West achieved more successful and prosperous democracies than those that were isolated.

I believe that Cuba can make a similar transformation if we fully engage the island nation in the global economy. I commend our president for his leadership in easing the current restrictions on Cuba. This is the first step in the right direction. I support a more rapid move towards normalization of our trading relationship with Cuba.

Today's hearing is just the beginning in a series of steps that I intend to take to do all I can to both open up markets for U.S. commerce, especially for small, minority and women-owned businesses, while also, at the same time, help bring liberty and prosperity to the Cuban people.

I yield back the balance of my time. And now I recognize the ranking member of this subcommittee, Congressman Radavonich, for five minutes for the purpose of an opening statement.

REP. GEORGE RADANOVICH (R-CA): Thank you, Mr. Chairman, for calling this important hearing to examine our trade relations with Cuba. I appreciate it.

This subcommittee's jurisdiction includes non-tariff barriers to trade. As we saw in an earlier hearing in the subcommittee that examined ways to promote our exports to help our economy, increasing our trade exports to revive our economy is a path that we should pursue. We manufacture many world-class goods and services the world will buy if given a chance.

Today we examine quite a different topic -- Cuba and our special situation with that country. Our embargo on trade with Cuba, except for food and medicine, is a long-standing policy I support due to the Castro regime that has been in power for 50 years.

President Obama has indicated a desire to go down a path to change that policy, including incremental changes to permit remittances and travel by Cuban-Americans back to Cuba to visit their families. Other pundits have suggested that we go further to normalize relations. I believe that that would be a mistake until the people of Cuba are free.

If that time comes, I would fully support a change in policy. Our agricultural exports would find a receptive market, particularly in Cuba, where about 80 percent of its food supply is imported. And the country would be a natural destination for our fruits and vegetables, among other products.

Unfortunately, the tyrannical oppression continues, and to pursue trade with Cuba is a major affront to those who have given their lives for the freedom of this Caribbean nation. I cannot justify in good conscience a change in policy that may produce marginal increases at best to our economy, and those benefits are quite questionable.

It is true that the embargo has not yet affected the bipartisan policy goal of regime change, but it is equally true that foreign investment and normal trade relations with Cuba by other developed nations has not produced any change. If we turned a blind eye and set aside our leadership as the world's promoter of democracy and freedom to follow in the footsteps of others, what do we expect will occur?

Thus far, the Castros have been able to use trade with other countries to further their own goals and enrich themselves without benefit to the people that they proclaim to care so much about. The Castros care so much, they do not tolerate political dissidence. They suppress free speech and limit religious expression, including the establishment of religion-based schools. Since they assumed power, religion has been suppressed because it was counterrevolutionary.

In short, a Cuban citizen has limited control over his own being because that right has been taken by the Castro brothers. In one of the truly humanitarian exchanges after Raul Castro took over, Cuban citizens were permitted greater freedom to move within their own country. Can anyone here imagine not being able to travel freely within our borders or send your child to a school of your choice? Well, maybe we can imagine that, given the administration's recent decision to eliminate school vouchers for children in D.C. If you have the money to send your children to an elite private school, I guess that you don't have to worry about vouchers for others.

Many would like to see the travel ban to Cuba lifted completely from a purely -- (inaudible) -- point regarding its effect on our economy that would provide little to our GDP and may even hurt our own domestic travel industry. Let's remember, travel and tourism in the United States is one of our better exports that generates many jobs.

Taking steps that would permit a one-way street permitting travel to Cuba without reciprocity would adversely hinder our balance of trade as we import more tourism. Add to that the substitution effect of diverting travel to Cuba that might otherwise have flowed to Florida or other domestic destinations, and I can only see us losing economically.

In short, increased travel and tourism may only hurt our domestic tourism industry without benefit to the Cuban people, while simultaneously filling the coffers of the Castros. Telecommunications is also viewed as a possible avenue to export more products, but doing business in Cuba requires a joint venture with the Castro government. Whether the net effect would be positive is debatable. Certainly other countries that do not maintain a trade embargo with Cuba have been free to expand their market to Cuba.

However, democracy advocates have yet to see the benefits of those ventures. This may be due in part to the very limited financial resources of the average Cuban citizen and the affordability of telecommunication services. Why anyone thinks that this will change of a company providing service as a U.S. company rather than their current provider (escapes ?) me.

As long as the Castros maintain a regime which oppresses individual freedom, oppresses dissenting political views, and expresses hostility toward religious expression, while at the same time maintaining a state-controlled economy to the benefit of the Castro family and their adherence, further trade relations beyond humanitarian aid in the name of making a buck is an injustice to the Cuban people and their brave freedom advocates.

Thank you, Mr. Chairman. I yield back.

REP. RUSH: The chair now recognizes the fine gentleman of Maryland, Mr. Sarbanes, for five minutes for the purpose of an opening statement.

REP. JOHN SARBANES (D-MD): Thank you, Mr. Chairman. I certainly don't need five minutes. I'm in a learning mode today. I'm looking forward to the hearing. I appreciate your convening it.

Obviously the economic embargo on Cuba is a delicate topic. It seems to become more delicate every day, and more people are coming to the discussion. You've rightly acknowledged the human rights concerns that exist, but you also noted the arguments for modifying or even eliminating that embargo. And I'm looking forward to hearing the discussion.

And with that, I yield back my time. Thank you.

REP. RUSH: The chair now recognizes my friend, the gentleman from Georgia, Dr. Gingrey, for five minutes for the purpose of an opening statement.

REP. PHIL GINGREY (R-GA): Mr. Chairman, thank you.

I want to thank you for calling the hearing today on this important issue of the current trade embargo with Cuba and its economic impact on our country.

In the face of our current economic struggles, our responsibility is to bolster the United States economy by expanding trade in a fair an open way that creates jobs domestically. And, of course, we look for every opportunity to do that, however, trade policy is not just economic, as we all know, but, of course, it's also foreign policy.

In the case of Cuba, the lure of trade with the United States must be heavily conditioned on the improvement of human rights in that country. In fact, the oppressive communist Castro regime has a widespread history of human rights violations and is currently listed -- currently listed as a state sponsor terrorism by our State Department. Therefore, I have supported -- and I will continue to support the embargo, and I do not believe that the United States should lift its embargo until Cuba makes significant reforms that expand freedom and civil liberties for its citizens.

Over the past decade there have been some concessions that have been made for humanitarian purposes, including remittances for family members of Cuban-Americans, as well as restricted travel for immediate family. Most recently, the Fiscal Year 2009 Omnibus Appropriations Act made some more modifications to existing travel restrictions and the Obama administration has called for additional changes to remittances. But, these need to be closely monitored so that they benefit the people of Cuba, and not just the Castros and the Castro government.

In the nearly 50 years that this embargo has been in place, there is one question that remains: Will Cuba trade with the United States improve political and economic conditions for the Cuban citizens? Or, will it simply reward and endorse the oppressive communist government run by both Fidel and Raul Castro?

In the intervening time we have seen a number of our allies in the Western Hemisphere -- this has been said by the chairman and ranking member, and Europe as well -- openly trade with Cuba, yet Cuba has made very little improvement in human rights conditions despite this open trade. For these reasons, I believe that the federal government, and this subcommittee in particular, needs to proceed very cautiously as we hear testimony today and we debate the future ramifications of trade with Cuba.

You know, I look forward to hearing from the both panel(s) of witnesses. And at this time I yield back the balance of my time, Mr. Chairman, and I look forward to having an opportunity to question the witnesses.

REP. RUSH: The chair certainly thanks the gentleman from Georgia.

And now it is my pleasure and honor to welcome to this subcommittee's hearing two fine public servants, both who are employees of the Department of Commerce. The one, Mr. Walter Bastian, is the deputy assistant secretary for Western Hemisphere, International Trade Administration.

Mr. Bastian, I want to welcome you, and I want to thank you for appearing before this subcommittee and taking the time out from your busy schedule to share your results with us.

The next witness on this first panel is the -- is Mr. Matthew Borman, a fine gentleman from the Department of Commerce, the Bureau of Industry and Security. His former title is the acting assistant secretary for Export Administration.

Mr. Borman, again, (my thoughts are ?) -- (inaudible) -- We want to thank you so much for being here and participating in this hearing.

We will ask, if you will -- it has been the policy, a new policy on this subcommittee that you be sworn in for the purposes of giving an opening statement and participating in this hearing. So, would you please raise your right hand -- stand and raise your right hand?

(The chairman administers the oath off-mike.)

(Response of witnesses is inaudible.)

REP. RUSH: Please let the record reflect that all of the witnesses have answered in the affirmative.

Mr. Bastion, we ask that you provide us with an opening statement, and you can restrict your statement, if you will, to five minutes -- I'd say, more or less, five minutes. Thank you.

MR. BASTIAN: Chairman Rush, Ranking Member Radanovich, and distinguished members of the committee, thank you for the opportunity to speak with you today concerning recent events in our relationship with Cuba. I welcome your interest in this topic.

Today's hearing is entitled, "Examining the Status of U.S. Trade with Cuba, and Its Impact on Economic Growth." But, I can imagine that the interest of the committee members has been not only to that subject, but also to the president's recent statements regarding his belief that we can move the U.S.-Cuba relations in a new direction.

It is my hope that members will take no offense if I do not take this opportunity to expand upon, nor to interpret, the words and messages the president so capably laid out during the successful Summit of the Americas in Trinidad and Tobago. We meet at a fluid moment in U.S. policy and, members of this committee know, setting U.S. policy towards Cuba is not within the province of the Department of Commerce.

On April 13th of this year the president directed the secretaries of Commerce, Treasury and State to take actions necessary to lift restrictions on family visits to Cuba; remove restrictions on remittances to family members; authorize greater telecommunications links with Cuba; and expand the scope of humanitarian donations eligible for export.

These changes in our Cuba policy are designed to encourage greater contact between family members, ease the flow remittances to Cuban families, and promote the flow of information to the Cuban people. The Bureau of Industry and Security, BIS, at the Department of Commerce, and Treasury's Office of Foreign Assets Control, OFAC, are hard at work implementing these policy changes. My colleague from the Bureau of Industry and Security will discuss these changes in more detail in his testimony.

Reaching out to the Cuban people in this way is a demonstration of our interest in setting our relations with Cuba on a more productive and positive course. The actions we are taking will directly benefit the wellbeing of Cuban citizens and will remove barriers between families in both countries.

Mr. Chairman, I understand that you recently returned from a visit to the island and that you, as well as a number of your colleagues, are interested in greater commercial interchange with Cuba. As you know, the United States maintains extensive legal restrictions on the ability of U.S. firms to trade with Cuba. The president has indicated his belief that the embargo should remain in place as a source of leverage for positive change in Cuba.

I will very briefly delineate the mix of legislation that governs our trade relations with Cuba. The United States maintains a comprehensive trade embargo with respect to Cuba under numerous laws. That embargo was first announced by President Kennedy in Presidential Proclamation 3447 in 1962, under the authority of the Foreign Assistance Act of 1961.

Implementing regulations issued by the Department of Commerce and the Department of Treasury to carry out the trade embargo on Cuba relied on general authorities in the Export Control Act of 1949, in the Trading With the Enemy Act.

The trade embargo on Cuba has been further shaped over the years by various pieces of legislation, including the Export Administration Act of 1979; the Cuban Democracy Act of 1992; the Cuban Liberty and Democratic Solidarity, otherwise the LIBERTAD Act of 1996; and the Trade Sanctions Reform and Export Enhancement Act, TSRA, of 2000.

TSRA limits Commerce's ability to promote and support U.S.-Cuba trade. Under TSRA, the Department is prohibited to providing the routine export assistance to U.S. exporters to Cuba that our U.S. and Foreign Commercial Service regularly provides to other U.S. firms.

Despite the broad restrictions on trade with Cuba, U.S. producers exported more than $700 million in agricultural goods to Cuba in 2008, making the U.S. the largest source of food to Cuba, and making us Cuba's fifth largest trading partner.

In conclusion, President Obama indicated at the Summit of the Americas that the United States seeks a new beginning in its relations with Cuba. The measures announced on April 13th were intended as a signal to the people of Cuba and to the government of Cuba that the United States is prepared to pursue policies that will strengthen the ties between the people in our countries and bolster progress for a free and democratic Cuba.

Thank you, Mr. Chairman, and I'm pleased to answer any questions that you or the members of the committee may have.

REP. RUSH: Thank you, Mr. Bastian.

And now we will recognize Mr. Borman for five minutes, more or less.

MR. BORMAN: Thank you, Mr. Chairman.

Mr. Chairman, Ranking Member Radanovich, and distinguished members of the subcommittee, I also appreciate the opportunity to appear before the subcommittee today to discuss the Bureau of Industry and Security's role in implementing the U.S. trade embargo on Cuba. I also ask that my written statement be included in the record.

REP. RUSH: So ordered.

MR. BORMAN: As my colleague, Mr. Bastian, has already outlined, there are a welter of laws and regulations that govern our trade with Cuba and I won't innumerate them again. I would point out that, in particular, the Libertad Act, among other things, codifies the trade embargo on Cuba. And it requires that the embargo remain in effect unless certain conditions are met, most notably either there's a transition government in place or there's already been a democratically elected government. So the Libertad Act codifies much of the current embargo.

Having said that, of course, though the president and all presidents retain some discretion to make exceptions to the embargo. And as a result of that discretionary authority the Commerce Department has the authority to issue licenses for particular transactions or generally authorizations for particular types of transactions under certain conditions.

And as Mr. Bastian has already noted, the Bureau of Security in Security regulates the export of commodities, software and technology to Cuba while the office of Foreign Assets Control, Department of Treasury, regulates all transactions with Cuba, including the financing related to exports. So we at BIS handle things going to Cuba and Treasury handles essentially everything else, all other interactions between the U.S. and Cuba. We do ours through the export administration regulations, Treasury has a separate set of their own regulations.

Now, pursuant to the laws and regulations, almost everything in the U.S. economy needs a license and individual authorization to go to Cuba and there's currently a general policy of denial for most items going to Cuba under the existing embargo.

Notwithstanding that general policy of denial, however, in 2008 we at BIS processed 358 applications for licenses to export to Cuba, and of those 358 applications, 235 were approved, 114 were returned without action, and eight -- nine were denied.

The total dollar value of those approved licenses was about $1.5 billion.

And in addition to those individual licenses we also processed 151 notices of agricultural exports to Cuba. This is a particular license exception we have implemented pursuant to the Trade Sanctions Reform Act, or TSRA as we call it. Of those 151 that we processed last year, 143 were approved and they were worth about $3.2 billion and the remaining eight were returned without action. So those are the authorizations that we at BIS authorize individually and under the TSRA exemption.

One other thing that I would point out is that these authorizations include about $95 million of exports that we authorized in the last quarter of 2008 for hurricane relief specifically and we did those in an average processing time of five days, which is, as you can imagine in a government bureaucracy is quite fast.

Now a word about the pending revisions to our regulations at BIS based on the president's announcement. As Mr. Bastian noted, the president directed the secretary of Commerce in particular to further expand the scope of the license exception that is the general authorization regarding gifts, gift parcels to Cuba. A wider variety of items will become available to be included in the gift parcels. The dollar value for the gift parcels will go up from $400 to $800. And the universe of recipients will be expanded, although there will still be no gift parcels permitted to either high government officials, Communist party members, or institutions or organizations controlled by either the government or the party.

We will also establish a new license exception for consumer communications devices -- cell phones, satellite phones, personal digital assistants, digital cameras -- again, to further the free flow of information between United States and the Cuban people and among the Cuban people.

And the last change that we'll implement as the result of the president's decision is to lift the personal baggage limitation. Currently, there's a limitation of 44 pounds per person to take with them to Cuba. When we finalize that regulation, implementing the president's directive, that limitation will be removed.

So that's what we're doing to implement the president's directive.

In conclusion, I just would like to say again that what we do is largely governed by statue as well as regulation and we continue to work with our interagency partners, principally the State Department in this area to implement the president's directive to meet the basic human needs of the Cuban people and facilitate contacts between the American people and the Cuban people.

And with that I conclude my oral statement and also I'm happy to answer questions.

REP. RUSH: The chair thanks the gentleman -- indeed the Chair thanks both of the witnesses for their fine statements.

The Chair now recognizes himself for five minutes for the purpose of questioning these witnesses.

Because of Cuba's other -- you can strike that -- because of the U.S.' unilateral embargo we sometimes assume Cuba's economy is cut off from the world. That certainly has not been the case, from my understanding. Investors from all over the world offer joint business in Cuba. Countries like Venezuela, Brazil, China, Vietnam extend credit to Cuba. Indeed, a Spanish company is lending -- is leading an effort to drill for oil in Cuba's territorial waters this year, if I am not mistaken. And I believe that American companies should be afforded the same investment opportunities in Cuba.

Let mek as both of the witnesses, what do you foresee happening if the U.S. normalizes its trade relations with Cuba? Can you indicate what markets would be ripe for entry in the U.S. -- for the U.S.? What markets are there that American companies might be able to penetrate most readily and most thoroughly if, in fact, we were to normalize trade relationships?

Mr. Bastian, would you please begin?

MR. BASTIAN: Thank you, Mr. Chairman. As you might imagine we don't have an awful lot of information on the specific needs of Cuba insofar as business is concerned. We don't share information with our trading partners -- other trading partners principally because we don't trade with Cuba to begin with. But I think it's a pretty safe assumption to say that in the areas of infrastructure, I think we've already covered as an example, basic telecommunications. But I think if you took at general infrastructure, transportation equipment, port handling equipment, things of that nature, ports, railroads, airports, things of that nature I think would offer some significant opportunity to U.S. business. Certainly things that we'll be taking a look at.

But, you know, keep in mind also that at the moment we do have -- we're the fifth largest supplier to Cuba of product, not manufactured goods necessarily except maybe some in the medical field but basically agricultural things. I think if we took a look initially at those sectors, how do you move goods across the island to reach the Cuban people, I think those would be essential to look at.

MR. BORMAN: In addition to what Mr. Bastian said, I think based on the data available to us some of the other areas that would have some potential would be food processing, handling, distribution and, as he said, in the medical area. Last year we licensed about 47 individual transactions for medical sales to Cuba worth about $64 million. So I think that would be another area.

REP. RUSH: Do you have an estimate for the lost business opportunities that have occurred as a result of the embargo? How many business opportunities have U.S. companies lost as a result of the embargo? Have you got an estimate?

MR. BASTIAN: Mr. Chairman, I think the really short answer is no, we don't. Again, we clearly are not approached by U.S. companies that are -- you know, say, you know, I could've sold so much to Cuba. That we have not gotten. I think you could probably take a look at maybe -- there was a really old study done, I think, by the ITC, back around I think 2001 in that timeframe there but the data, of course, in that case, is eight years old. But it might give you an indication. But beyond that I'm not aware of any information that's out there that talks about sales foregone.

REP. RUSH: Mr. Borman?

MR. BORMAN: I don't have any other information on that Mr. Chairman.

REP. RUSH: All right. If the embargo were lifted what do you believe would be the impact in Cuba? Would the Cuban people see a difference in their day-to-day lives if the Cuban government still controls the distribution of goods?

And secondly, how can we be assured that the Cuban government will grant the appropriate licenses and other authorizations to American companies to do business? Do you have any information -- can you help us along with answers to those questions?

Mr. Bastian?

MR. BASTIAN: Thank you, Mr. Chairman. Speculation is very difficult and sometimes pretty dangerous thing to get into. But I think you did mention something that is absolutely key and that is this is a two way street. The president as an example has announced some measures, he interested in pursuing those and what we need to do is find basically a partner for that dance that will make -- show a willingness to continue this course of action.

I think that would probably be my response.

MR. BORMAN: The only thing I would add to that is obviously a lot of the impact would be dependent upon the funds available for the Cuban people to actually purchase U.S. goods on a commercial basis. so that's a big unknown at this point.

REP. RUSH: My time is up. And now I would yield for the purpose of questions five minutes to the Ranking Member. Thank you.

REP. RADANOVICH: Thank you, Mr. Chairman, and again, welcome to the subcommittee.

Mr. Bastian, I want to -- I just noticed in your testimony on the amount of agricultural exports that occurred in trade between the U.S. and Cuba in 2008 was $700 million.

Can you give me an idea of how much that might due -- be -- that amount might be due to an increase in commodity prices? As you'll recall, last year some of those export prices were rather high.

MR. BASTIAN: I can't give -- I don't have the exact number off the top of my head. I'll get it for you. But I think that the -- you're absolutely right, because it was a significant jump in dollar amount over the last couple years, due in large measure to commodity prices.

REP. RADANOVICH: If there were a way to get the information to the Committee, to measure increases in exports in --

MR. BASTIAN: In real terms.

REP. RADANOVICH: -- something other than dollars.

MR. BASTIAN: I understand, sir. We'll get that back to you.

REP. RADANOVICH: All right, thank you.

Also, the Castro regime confiscated many businesses and took intellectual properties, such as trademarks, when they took over power, and claim they now own those properties.

How does the U.S. address trade policy with countries that don't honor property rights?

MR. BASTIAN: I do believe that that's a question that really does need to be directed to the State Department, on that.

But if I might, you do (bring ?) an interesting point, which is lifting the restrictions on Cuba on trade is part of what needs to be done. I think the other part are things that you've referred to.

I think you mentioned at the beginning your interest in non- tariff barriers. I think there's a whole host of issues that we need to take a look at there, if we're going to get the maximum benefit for U.S. companies.

REP. RADANOVICH: Perhaps you can ask this -- I would like to ask -- how should we deal with Cuba regarding our companies' intellectual property, given the profits Cuba has been -- has made selling confiscated property of former Cuban companies, usually in the form of rum or cigars?

MR. BASTIAN: I think we'd have to take a real hard look at that. And these are some of the issues, among others, that we would have to take a look at and get resolution to, I think, before we can move forward.

It also brings up the whole question of -- (inaudible) -- of intellectual property, of the security for, you know, potential future investors in the island. There are a host of issues we need to take a look at, the ones that you deal with.

REP. RADANOVICH: All right. Thank you, Mr. Bastian.

Mr. Borman, the BIS is working on a regulatory change to implement the directive to prevent license exemptions for donations of personal communications devices to Cuban citizens, but not to the Cuban government. How can we ensure that the donations are not confiscated or redirected to the government?

MR. BORMAN: Well, that really will depend on the knowledge people have of the individuals getting it, and then various ways of feedback we have. You know, we don't have a way to go in and necessarily check on the individual items once they're there, but there are a variety of other information sources we have that will help us assess that.

REP. RADANOVICH: Okay.

Have you defined what a personal communication device is?

MR. BORMAN: Yes. It's something that's really a retail sale. So, as I mentioned, it's things like personal digital assistants, mobile phones, satellite phones, laptop/desktop computers, digital cameras. Certainly nothing above a personal consumer level -- nothing that businesses or governments would really use in any significant way.

REP. RADANOVICH: About one-third of license applications that you received in 2008 were returned without action. Why were the applications returned?

MR. BORMAN: For one of two reasons. In some cases, licenses were not actually needed. There is a narrow strata of items, like agricultural exports, where you don't need an individual license.

And the other group would be ones that there's simply not enough information on. So, for example, with license applications, there's just not enough information on the proposed end user in Cuba for the U.S. government to make an informed decision.

And so we returned that, saying essentially you can't ship unless you come in and give us more information.

REP. RADANOVICH: Mr. Bastian, one last question. As long as the embargo is the official U.S. policy, where do the companies that are permitted to export agriculture and medical products receive export assistance?

MR. BASTIAN: They don't. We're talking about sales of agricultural commodities, which is basically cash in advance -- from Cuba.

REP. RADANOVICH: All right. Thank you very much.

MR. BASTIAN: Yes, sir.

REP. RADANOVICH: I yield back the balance of my time.

REP. RUSH: The chair thanks the gentleman.

The chair now recognizes the gentleman from Maryland, Mr. Sarbanes, for five minutes.

REP. SARBANES: Thank you, Mr. Chairman.

REP. RUSH: We'll allow you five minutes.

REP. SARBANES: Thank you.

I guess the U.S. embargo is the most restrictive trade embargo on Cuba in the world, right?

MR. BORMAN: Well, we do have fairly restrictive trade policies with some other countries -- Iran, Syria, North Korea --

REP. SARBANES: No, no. But I mean there's no other country, in terms of imposing an embargo against Cuba, that comes near to what ours --

MR. BORMAN: Yeah, there are other countries.

REP. SARBANES: Right. What is the next most restrictive trade policy imposed on Cuba by another country that you would -- is there any?

MR. BORMAN: I don't know.

REP. SARBANES: Okay.

MR. BASTIAN: Yeah, I'm not aware of what other countries' policies --

REP. SARBANES: We've talked about this distinction between the government and the people and steps that can be taken to try to ease some of the -- or promote more interaction with the people of Cuba, as opposed to with the government, which is tricky.

It's tricky when we try to make that distinction in a lot of places. And I can think of a number of other examples, but -- are there -- and some of this has to do with just allowing dollars and resources to flow straight to the residents of Cuba.

But are there -- is there any kind of NGO infrastructure or other ways of getting resources to the people as opposed to the government?

And after you comment on that, could you describe the impediments that the government might present to having that happen?

MR. BORMAN: Well, certainly on the NGO side, there are some NGOs that have a fairly well-established track record of operating in Cuba. And in fact, particularly on the medical side, medical donations we authorize are really through those organizations.

And I suppose there's always a possibility that the government would decide to do things differently, but I think there's enough information flow in and out of Cuba that it'll be fairly apparent if the government decides to do things in a more restrictive way than they're currently doing it in terms of letting those NGOs receive things from donors in the U.S. and distribute them directly to the people.

REP. SARBANES: Are there restrictions on the NGO activity that you know of now that exists where if they ease those, that would be a kind of leading indicator that the government is dealing in a different way with that kind of humanitarian assistance and other assistance?

MR. BORMAN: I -- that I don't have answer to, but we can check on that and get back to you on that.

REP. SARBANES: Okay. I'd appreciate that.

And the steps that the president took, or asked people to take just recently, in terms of lifting certain restrictions, are any of those ones that had been eased in the past and then tightened again? Or would you view them all as new in either kind or degree?

MR. BORMAN: On the gift parcels and the baggage, those were effectively changes to tightenings that were made in the previous administration. The donations of consumer communication devices, that's a new -- a license exception.

REP. SARBANES: Okay. Thank you. I yield back.

REP. RUSH: The chair thanks the gentleman.

Now the chair recognizes the gentleman from Georgia, Dr. Gingrey, for five minutes.

REP. PHIL GINGREY (R-GA): Mr. Chairman, thank you. You know, we're going to hear from the second panel in a few minutes, and I was just reading the testimony from the United States Chamber of Commerce.

And a statement is made in their conclusion regarding the embargo that's gone on for the past 50 years: Instead of isolating Cuba from the rest of the world, it has isolated the United States from our allies. The Cuban dictatorship could never have withstood five decades of free trade, free markets, and free enterprise.

That's a conjecture, and stated pretty strongly.

I also want, Mr. Chairman, to read a recent -- or, from a recent press release that the Diaz-Balart brothers, Lincoln and Mario, who represent the Cuban American community mainly in and around Miami -- and they were talking about something that President Obama said during his inaugural address on January 20th, and let me quote from President Obama. "To those who cling to power through corruption and deceit and the silencing of dissent, know that you are on the wrong side of history, but that we will extend a hand if you are willing to unclench the fist." That ends the quote.

The United States policy of state says: "The liberation of all political prisoners, the legalization of all political parties, independent labor unions and the press and the scheduling of free internationally supervised elections is what we treasure in the United States law in regard to dealing with a country like Cuba."

Let me ask Mr. Bastion first. The Castro regime confiscated many businesses and their intellectual property such as trademarks when they took over power and claimed they now owned those properties. Now for those who would say, Well, we're trading with China; this is a communist regime," well, I don't know that China has ever taken over or confiscated any American property, U.S. property, and done what Cuba did shortly after the Castros took over. How does the United States address trade policy with countries that do not honor property rights? How should we deal with Cuba regarding our company's intellectual property given the profits Cuba has made selling confiscated property of former Cuban companies, Mr. Bastian?

MR. BASTIAN: Thank you, Congressman. I think this is something which I've tried to refer to earlier, some of the issues we absolutely need to get resolved and we are familiar with the issues of the specific examples I think that you are alluding to. These are the types of issues I think this is what makes, it's quite a step. It's a long step from saying, okay, we're going to do this, we're going to establish these commercial relations with Cuba, make it reciprocal and then clean up a lot of these issues that we have to deal with. A lot of pressure to do that.

REP. GINGREY: Well, obviously it is complicated, and let me just quickly ask Mr. Borman, BIS is working on a regulatory change to implement the directive to permit license exceptions but donations of personal communication devices to Cuban citizens, but not to the Cuban government. How do we ensure that those donations are not confiscated or redirected to the government? Why do they fall under the personal communication device definition.

MR. BASTIAN: Well, again, because it appears to be donated often by relatives I think it becomes very quickly apparent if the Cuban government changes its current policy it starts confiscating these types of things from individuals. And we have the flexibility in our regulatory scheme to change that if it turned out that was the case.

REP. GINGREY: Well, I'm about to run out of my time, Mr. Chairman, but I would just say I agree with President Obama and the statements that he made in his inauguration. We need to see an unclenched fist. And I don't know that we're seeing that, and this business of saying, well, we are the only country, all the other Western Hemispheric countries are trading and getting this economic advantage by trading with Cuba, that's trying to say, well the end justifies the means.

You know, I think we've got a matter of principle here. And I do agree with the Diaz-Balart brothers and Ileana Ros-Lethinen and others who represent Cuban Americans who suffered, their families have continued to suffer under this brutal communist dictatorship 90 miles from our shore.

Mr. Chairman, I yield back.

REP. RUSH: The chair thanks the gentleman. The chair now recognizes the gentlelady from Florida, Ms. Castor, for five minutes for questioning of the witnesses.

REP. KATHY CASTOR (D-FL): Thank you, Mr. Chairman. Thank you very much for holding this very timely hearing. And thanks to our witnesses for appearing today.

I represent the Tampa Bay area in Florida. My home town of Tampa has extensive historic family and economic ties to Cuba. Prior to the Revolution there was very robust trade and travel; there were ferries that from the port of Tampa to Cuba; cattle shipments left the Port of Tampa, and many other agricultural products. So the Tampa area has a great interest in modernizings of relationship, and President Obama's announcement was greeted with great enthusiasm by Cuban-American families in my home town and across the state.

Travel agents now are absolutely overwhelmed. They can't keep up with the requests from family members to travel, and the bureaucratic barrier that was previous in place was really a shame. My office deals with the family travel requests on a routine basis, and the stories of dieing grandparents where family members now would like to go see them—I had one case of a bone marrow transplant. The only sister was in the United States, the brother was in there. She was the only match, and she had to ago through all the bureaucratic hurdles to get there.

But there's another bureaucratic hurdle in place now, and I hope that you all can help. Currently there are only three airports in the United States that are permitted to service charter flights or any air travel: Miami, New York and LA. Meanwhile, Central Florida probably has the highest population of Cuban Americans outside Miami. And we have requested Treasury and Commerce to help us quickly with getting another airport, Tampa International or some of the others, approved on an expeditious basis.

Can you help? I know this is an old fact issue, but this seems to be directly consistent with President Obama's direction. The problem is that these families really shouldn't be subjected to a longer waiting period or additional costs having to travel to Miami just to get to the island.

MR. BASTIAN: We are in receipt of our letter to the Secretary Elect, and after looking at it, it's become apparent to us that it's really the Department of Homeland Security Customs and Border Protection Unit that has the principal responsibilities. And we have already reached out to them and made them aware.

REP. CASTOR: You know, that's very interesting because we've talked to the Department of Homeland Security, and they said, No, this is Treasury. You know, people hate this about government.

MR. BASTIAN: Sure.

REP. CASTOR: You know, passing the buck. Where do we need to go to get this taken care of? I'm asking for your help as these families wait in line to try to see their family members.

MR. BASTIAN: As I said, in looking at the response we have developed to the letter; it's become clear to us that it's DHS. But we'll take the responsibility of making sure the right agency comes back to you with that question and deals with that issue.

REP. CASTOR: Because don't you agree this is consistent with President Obama's direction, and it doesn't make a lot of sense to just have LA, New York and Miami when we have other cities across the country that are ready, willing and able to handle a lot of traffic.

Yes? I'll take the nod. Is that it?

MR. BASTIAN: Yes. We will take a look at it. Keep in mind in particular we have one of your Tampa sons, assuming everything goes well up here will be our under Secretary. I'm sure he'll share your fervor and zeal in getting this resolved.

REP. CASTOR: That's right. Mr. Chairman, a native son of Tampa has been nominated to serve as the under secretary of Commerce for International Trade, Frank Sanchez. He's outstanding, and I look forward to an opportunity for you two to get together.

REP. RUSH: Thank you very much. I look forward to the same opportunity.

REP. CASTOR: Thank you very much. I yield back.

REP. RUSH: The chair now will now, if our witnesses will continue to meet with us, the chair will authorize a second round of questioning. I will give each member an additional three minutes to ask a question, so in that regard the chair recognizes himself for three minutes.

Are either of you familiar with a report that was issued by the ranking member of the Committee on Foreign Relations, Senator Lugar, Richard Lugar, the ranking Republican member? Are any of you familiar with that report?

MR. BORMAN: I've read it.

REP. RUSH: You read it? And are you familiar with his comments in conclusion of this report on page 11? And I want to read it just for our record here. "In hindsight the U.S. embargo has not served the national security, seems to be ineffective -- (inaudible) -- live in the United States. In the immediate post Cold War era the cost of maintaining this policy was negligible in comparison to the domestic political benefit derived from satisfying Cuban American groups in the U.S. The USG justified the embargo policy as an incentive for inducement for negotiation with the Cuban government. The rational means that the U.S. will lift the embargo or parts of it in response to reform of human rights and democracy. This narrow approach however has not served the progress in human rights or democracy in Cuba, and it has -- (inaudible) -- of other direct and regional strategic U.S. interests. Today it is clear that a reform of our policy which serve security and economic interest in managing migration, especially in combating illegal drug trade among other interests.

It goes on and on and on. I want unanimous consent that Senator Lugar's report of February the 23rd now be entered into the record. Without objection, so ordered.

Do you have any response to the Lugar Report, Mr. Borman? Have you had a chance to see it, and what are some of your comments, your reactions to that report?

MR. BORMAN: Well, I have read it. I have to say I don't have any commentary on it. I think this is something that the folks in the administration that are looking at policy remarks I think would be looking at it in conjunction with a variety of other inputs on the Cuban policy. But we at the Department of Commerce have not been specifically tasked to review that and come up with a response.

REP. RUSH: I ask your administrator as an advocate for U.S. businesses all over the world, in your experiences what sort of protection and assurances do people expect from the U.S. government when operating overseas? And should American companies expect that same sort of support if and when they do business with Cuba?

MR. BASTIAN: Mr. Chairman, the International Trade Administration particularly through our U.S. foreign commercial service where we've got a network of over 100 offices across the United States and about that same number overseas, but it provides a number of services from information-gathering, putting buyers and sellers together, finding agency representatives for U.S. firms. These are all services which we would certainly would make available to U.S. companies. Should the situation change, keeping in mind that at the moment embargo precludes us from doing anything with the U.S. business community insofar as Cuba is concerned. But we do have the ability to react and react quickly to changing situations whether it is something that comes about as a change in an economic situation, a political situation or a natural disaster like the hurricane destruction, things of that nature. Yeah, we can do that pretty quickly.

REP. RUSH: The chair has run out of time. The chair now recognizes the ranking member, Mr. Radanovich for three minutes.

REP. RADANOVICH: Thank you, Mr. Chairman. I've got one question for either member of the panel regarding business in Cuba. There was testimony that will be given during this committee hearing that 500 international companies represented in Cuba and many with substantial investments are however, according to the State Department the business environment is so unfriendly that the number of joint ventures dropped from 540 in 1982 to 287 in 2005. Because of the government's recentralization efforts, it is estimated that one joint venture and two small cooperative production ventures have closed each week since the year 2000 and foreign direct investment dropped from 448 million in 2000 to 39 million in 2001 and to zero in 2002.

Are these 500 international companies independently owned, or are they joint ventures? If they are joint ventures, why the difference between the State Department figures and the testimony we've heard before the committee? Maybe you can comment on, does the business climate work in Cuba for international companies that are doing business there?

MR. BASTIAN: A lot of the information we have is anecdotal as I've mentioned before we don't go out and collect information in Cuba. And we don't spend too terribly much time talking to our colleagues in other governments about their companies experiences. We usually have other things we want to talk about. But anecdotally, I think the answer is it's not the easiest place in the world to do business. And we are aware of whether they're joint ventures or direct investment, but everything's a joint venture of some sort, that have failed where the foreign partners certainly what you got going in was not what you expected to find. SO there's a lot of that.

Again not to beat that horse to death, but it goes back to the kinds of issues that you're interested in. The nontariff types of obstacles that exist.

REP. RADANOVICH: Thank you, Mr. Bastian. Mr. Borman?

MR. BORMAN: No, I have nothing to add.

REP. RADANOVICH: All right. Thank you very much. Thank you, Mr. Chair.

REP. RUSH: The chair now recognizes Ms. Castor for five minutes, three minutes rather.

REP. CASTOR: Thank you, Mr. Chairman. Gentlemen, President Obama's announcement and the White House document that followed was very specific when it came to telecom companies. Any telecom company in this country, what should they be doing now to investigate economic opportunities?

MR. BASTIAN: We haven't had any reaction from the Cuban government yet. I'll tell you quite honestly I've had, if you had asked me this question Friday at 3:00 I would have said no company has called me on this yet, to give you an indication, at about 3:05 I did get my first phone call. And they weren't interested in the specific opportunity or addition to the market as they were just the general likelihood that this will happen at some point in time. And I think you'll probably find that there are a number of companies that probably already have got some market research that they've collected through other sources, most of them outside the United States.

REP. CASTOR: I've heard, I've been contacted as well, and just people want to understand the process.

MR. BASTIAN: That's absolutely right.

REP. CASTOR: So right now we're waiting to see what the next step from the Cuban government is.

MR. BASTIAN: Right.

REP. CASTOR: Is that correct?

MR. BASTIAN: Yes, ma'am.

REP. CASTOR: There's no organized efforts at Commerce, there might be maybe our next panel would have some information on that, but as of right now Commerce doesn't have a strategy. But telecom companies should stay tuned?

MR. BORMAN: Well, no. They can contact us on our part because we can talk to them about what specific licensing requirements would be and how to coordinate that with Treasury because again for us if they are looking at opportunities that would involve the export of hardware of software of technology, that's what's covered by us. The financial arrangement part of it would be covered by Treasury. But that's what we can tell them about how we would deal with an application for some kind of transaction. As Mr. Bastian said, the other part is what the Cuban government will do, because somehow all of the telecom providers will have to deal in some way with the Cuban government. They should definitely contact us.

REP. CASTOR: Good. Thank you very much. I yield back.

REP. RUSH: (Inaudible.)

REP: Thank you, Mr. Chairman. You know, as we've heard in the testimony and some of the questioning in regard to opening up trade to Cuba, more so than we currently have done and that it would maybe increase human rights and be more effective than the embargo has been, and yet we have negotiated a trade agreement with Columbia, a country not too terribly far from Cuba, that is working very closely with us. I think it's a fair statement to say that President Uribe is a friend of the United States and has done an outstanding job in dealing with the FARC and trying to abide by every request that our Congress has made regarding labor relations. And I think they made great progress.

And yet here we've been sitting on a trade agreement, bilateral trade agreement with Columbia, for over two years. And it's not just about trade and the importance of having that bilateral relationship and open our markets to them and theirs to us. But it's a huge security issue, and why would take our eye off that ball and all of a sudden focus it on Cuba where we don't have a friend in the Castros and the amount of trade we're talking about I don't think compares to Columbia, I would love to hear both of your thoughts in regard to that. Why take our eye off the main issue in regard to dealing and ratifying that bilateral trade agreement with Columbia and focus on Cuba? Maybe we can walk and chew gum at the same time, but go ahead and comment on that. I'd appreciate it.

MR. BASTIAN: I think the issues are, maybe at first blush they appear to be somewhat similar, but I don't think they are. I think there's a huge -- emotional issues, political issues and social issues when we come to deal with Cuba. In particular I think on the emotional and political side the issues are different than they are with Columbia. Do you agree with you? President Uribe has made excellent starts in trying to get that agreement through and to try to accommodate the United States. I think it's clearly a discussion will be held between Uribe's administration, the president himself, because he does get involved. By that I mean President Uribe because he does personally get involved in these. And Ambassador Kirk at the U.S. Trade Representative's Office -- (inaudible) -- to focus ahead.

MR. BORMAN: Trade agreements are really in Mr. Bastian's bailiwick. I have nothing to add to his comment.

REP: Thank you, Mr. Borman. Mr. Chairman, I yield back. Thank you.

REP. RUSH: The chair thanks the gentleman. The chair now wants to again thank the witnesses for appearing before us today. You have with your narrow perspective, and I do respect that your perspective had to be narrow because it could not -- (inaudible) -- policy area which is not your purview and have not been clearly defined by the Obama Administration -- (inaudible). So I certainly appreciate your being with us to give us this narrow perspective as it relates to your jurisdiction.

I want to again thank you so much for being a part of this hearing, and we ask now that the panel, the first panel is dismissed. Thank you so very much.

MR. BORMAN: Thank you, Mr. Chairman.

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