Will U.S. businesses be Cuba's new compadres?

Will U.S. businesses be Cuba's new compadres?
Castro's departure could mark a new economic policy
David Armstrong, Chronicle Staff Writer

Thursday, August 10, 2006

With Fidel Castro apparently still ailing and his younger brother Raul
serving as Cuba's leader, U.S. businesses hope Washington will finally
see enough political change in the communist nation to lift
long-standing limits on trading with Cuba.

Though this wouldn't begin in earnest until the Castro brothers leave
power at a still-undetermined time, it would be a new wrinkle for
Washington, which has tried everything from mounting the Bay of Pigs
invasion to defoliating Fidel's beard to effect regime change.

The end of the 45-year-old U.S. embargo would free exporters and
importers to deal with a post-Castro Cuba, allow investors to put money
into the country, and remove restrictions on American tourists who want
to travel legally to the tropical home of mojitos and Afro-Cuban jazz.
Other foreign tourists, with no limits on their travel, spend $2 billion
a year in Cuba.

In turn, Cuba could export its world-class cigars, rum, baseball players
-- and possibly oil -- to the United States. Oil became a factor only
two years ago, when potentially rich offshore deposits were discovered
northeast of Havana.

Corridor to commerce

Tight limits on U.S.-Cuba commerce have been in place since 1961. They
have occasionally been loosened but never abolished, as 10 U.S.
presidents of both major parties have bowed to the political power of
fervently anti-Castro Cuban exiles in the crucial electoral swing state
of Florida. Exceptions have been made for exports of food and medical
supplies.

It could be years before a dollar strategy is implemented, and even then
it's far from certain that it would lead to a windfall from Cuba, a
developing country of just 11 million people, most of them poor. But a
post-Castro, post-communist Cuba could in time offer attractive
prospects to U.S. businesses, especially in the Southeast, experts say.

"For Florida, it's big. It's that natural corridor," said Sean Randolph,
president of the Bay Area Economic Forum. For California, 3,000 miles
away, Cuba is less of a natural market, he said. Still, California
biotechnology companies, construction companies with the know-how to
repair Cuba's long-crumbling infrastructure, and hotel companies and
retailers that cater to foreign tourists could benefit from a Cuba
that's open to business.

In time, Randolph said, a Gap or a Bechtel may find markets in Cuba. In
the near term, California biotech companies, some of which now carry out
clinical trials of new drugs in China, could develop medicines and
conduct trials in Cuba, where a sophisticated but low-cost medical
establishment has developed despite the U.S. embargo.

Two years ago, California biotech company Micromet Inc. signed a deal
with Cuba's Center for Molecular Immunology to collaborate on developing
anticancer drugs, after obtaining a special license from the Treasury
Department. Micromet of Carlsbad (San Diego County) didn't return phone
calls seeking comment.

California's powerful agribusiness sector is eying Cuba, too. But at
least so far there appears to be little reason to believe Cuba will be a
major market for California, this country's top agriculture-exporting
state, with $9 billion a year in farm exports.

California is a leading American producer of rice, a staple of Cuban
cuisine. But Cubans favor long-grain rice, which is grown mainly in the
U.S. southeast, said Tim Johnson, president of the California Rice
Commission. The Golden State specializes in producing short-grain rice.
Add in the costs of shipping rice through the Panama Canal, and
California rice becomes prohibitively expensive for Cubans, he said.

Raisins in the sun

Despite the embargo, a few scattered business deals have been made.

In 2002, Sen. Barbara Boxer, D-Calif., led a 24-person California
delegation to Havana, where delegates met with Fidel Castro and talked
about export possibilities. After the group returned home, Cuba bought
100 tons of California raisins. However, this was a one-shot purchase,
not the beginning of a trade relationship.

One of the members of Boxer's delegation was Bill Mattos, president of
the California Poultry Federation. Mattos said the group's meeting with
Castro began over mojitos, proceeded to dinner and ended with marathon
late-night conversation. The group spent seven hours with Castro, who
seemed very knowledgeable about California chicken farming, possessed
incredible stamina and had a photographic memory.

But the high shipping costs from being geographically removed make it
unlikely that California could sell a lot of chicken to Cuba, where the
bird is a staple food, according to Mattos. That said, Mattos continued,
his federation -- like many business groups -- says the trade embargo
should be lifted, as that would benefit U.S. business in general while
raising the standard of living in Cuba.

"I think it's important to open the border and keep agricultural
products flowing there," he said. "We are always disappointed with any
administration that puts up barriers to trade. Whether they're
Republicans or Democrats, I haven't seen an open attitude from any of them."

In 2004, two years after Boxer's delegation visited Havana, Rep. Mike
Thompson, D-St. Helena, journeyed to Cuba as part of another trade
delegation. He dined with Castro and pop singer Carole King, among
others, over bottles of California wine and talked trade. Again, no
breakthrough was possible in the absence of White House support.

Thompson said that Washington's trade embargo has outlived its
usefulness. "We have an incredible opportunity to change our foreign
policy (with) Cuba, which will benefit agriculture and benefit all
Americans who wish they could travel there," he told California Wine and
Food magazine. The embargo "unfairly punishes the Cuban people and it
gives their leader a scapegoat. He can blame everything on the embargo."

Uncertainty ahead

Important U.S. trading partners such as Canada, Mexico and the European
Union trade with Cuba, but the consequences of the U.S. embargo have
been dire for the island nation. Without access to the huge, nearby U.S.
market, Cuba's development has been slowed, and with the collapse in the
early 1990s of its patron, the Soviet Union, Cuba nearly imploded.

Recently, Cuba's economy has benefited from trade with fast-growing
China and oil-rich Venezuela -- whose leftist leader, Hugo Chavez, seeks
to build a counterbalance to President Bush's plan to create a U.S.-led
Free Trade Area of the Americas. Cuba's gross domestic product is
growing 8 percent a year, according to CIA estimates, thanks in part to
Venezuela, which has sent $2 billion worth of oil and credits to Cuba
this year.

Until Washington and Havana can fully re-engage for the first time since
the era of Eisenhower and JFK, U.S. executives can only speculate about
what could be -- and U.S. consumers can only dream about legally buying
Cuban products in this country.

A business breakthrough may still be far off, said Gordon Mott,
executive editor of Cigar Aficionado magazine, which covers Cuba as the
ultimate cigar-lover's fantasyland. Famous Cuban brands such as
Montecristo, H. Upmann and Romeo y Julieta have been obtained in both
Cuba and the United States by a Spanish company that is just waiting for
the right to sell the premium stogies here, Mott said.

However, Raul Castro is no more popular with Washington than Fidel, and
Fidel may be far from permanently ceding power, Mott said. Fidel may not
even be that sick.

"Rumors of Fidel's impending death have come up many times. If he was
really close to death, it would be kept very quiet," said Mott, who
covered Central America for the Associated Press before becoming a
magazine editor. "This is a trial balloon by the Cuban government to
gauge the domestic reaction."

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