Economic Sanctions and Agricultural Exports
Remy Jurenas

Issue

U.S. policy is to exempt commercial sales of agricultural and medical products from U.S. unilateral sanctions imposed on foreign countries, subject to specified conditions and prohibitions. Debate continues, though, among policymakers on the scope of the statutory restrictions that should apply on agricultural sales to Cuba. Members of Congress opposed to the Cuba-specific prohibitions have introduced bills in the 108th Congress proposing to effectively repeal or modify them. More recently, the FY2005 Agriculture appropriations bill (S. 2803) reported on September 14, 2004, by the Senate Appropriations Committee includes a provision to relax the licensing requirement for traveling to Cuba to pursue opportunities to sell agricultural and medical products. The Bush Administration continues to oppose this and other legislative efforts to relax restrictions on sales of agricultural products to Cuba.

Background

The Trade Sanctions Reform and Export Enhancement Act (TSRA -- Title IX of H.R. 5426, as enacted by P.L. 106-387, October 28, 2000) codified the lifting of U.S. sanctions on commercial sales of food, agricultural commodities, and medical products to Iran, Libya, North Korea, and Sudan. In a significant policy change, TSRA extended this policy to apply to Cuba. Enacted provisions place financing and licensing conditions on sales to these countries. Those applicable to Cuba are more restrictive than for the other countries, and are permanent. Including Cuba in this exemption to U.S. unilateral sanctions policy generated the most controversy. Proponents argued that the prohibition on sales to Cuba (a sizable nearby market) harmed the U.S. agricultural sector, and that opening up limited trade would be one way to pursue a "constructive engagement" policy. Opponents countered that such an exemption would undercut current U.S. policy designed to keep maximum pressure on the Castro government until political and economic reforms are attained. In the compromise adopted by conferees, opponents succeeded in inserting the permanent restrictive provisions that apply uniquely to Cuba.

Regulations

The interim rules to implement the 2000 Act's provisions took effect on July 26, 2001. The Department of Commerce's Bureau of Industry and Security (BIS) regulations allow for the commercial sale of agricultural products to Cuba without an export license if other Federal agencies do not object within 11 days. The Department of Treasury's Office of Foreign Assets Control's (OFAC) rules require an exporter to obtain a one-year export license for sales of agricultural and medical sales to Iran and Sudan and institute various checks in the process to ensure that only sales to permitted buyers are approved.

If a reviewing agency objects within 11 days, the license application is denied; if a "concern" is raised, OFAC has 30 more days to review the license request. Both agencies use the same detailed definition for agricultural and medical products. OFAC's regulations continue policy that prohibits U.S. banks from financing the sale of permitted agricultural product sales to Cuba, Iran and Sudan. Any approved sale must be paid for in cash or financed through eligible third country banks. With the normalization of U.S. political and economic relations with Libya announced in late April 2004, agricultural sales to that country are no longer subject to TSRA provisions.

Sales to Cuba Under New Policy

Cuban officials initially stated that no purchases would be made under TSRA's conditions; however, food stock losses due to devastation caused by a hurricane in late 2001 prompted a reversal. This development, and Cuba's strategy to use prospective purchases as leverage to remove the longstanding U.S. embargo, have led to $667 million in cash purchases of U.S. farm commodities and food products from December 2001 through July 2004.

Sales to Other Sanctioned Countries

U.S. trade data show that U.S. agricultural sales to Iran, Libya, and Sudan (from August 2001 when TSRA took effect, to July 2004) have totaled $166 million. The $41 million in recorded agricultural exports to North Korea, and also possibly some shipments to Sudan, likely were food donations and not commercial sales.

Legislation in the 108th Congress

Members of Congress opposed to the Cuba-specific prohibitions in TSRA introduced measures in 2003 and 2004 to repeal them (H.R. 187, H.R. 188 (section 2(h)), H.R. 1698 (section 1(f)), S. 403(section 3(f), and H.R. 4457/S. 2449). Section 760 of S. 1427, an amendment added by voice vote on July 17, 2003, during Senate Appropriations Committee markup of the agriculture spending measure, effectively would have facilitated travel to Cuba for those seeking to take advantage of TSRA's opening to sell agricultural and medical products there. This effort is reportedly in response to an OFAC decision in June 2003 to deny the license application of a firm seeking to organize a food and agribusiness exhibition in Havana in January 2004. Conferees dropped this provision from the measure later in the first session, facing a veto threat if it remained. In recent activity, the Senate Appropriations Committee reported an agriculture appropriations bill that contains an identical provision (section 776 of S. 2830). Other bills proposed to repeal U.S. travel restrictions (viewed by U.S. agricultural groups among others as a means for Cuba to generate dollar earnings to purchase U.S. food products). See CRS Report RL31139, Cuba: U.S. Restrictions on Travel and Legislative Initiatives, for more on the travel issue.

These bills reflect similar initiatives pursued in the 107th Congress, all of which failed. The President, on May 20, 2002, in a major Cuba policy speech reiterated his opposition to any repeal of the prohibition on private financing of agricultural sales, stating it "would just be a foreign aid program in disguise, which would benefit the current regime." Bush stated he would veto legislation that relaxes the embargo in any way until the Cuban government introduced reforms. The Administration held to this stance, and with its allies in Congress, succeeded in dropping provisions added to the 2002 farm bill, and FY2003 spending bills that would have repealed the prohibition on the use of private financing on agricultural sales to Cuba and limited Treasury's ability to enforce TSRA's trade and travel restrictions, respectively.

The changes proposed again in 2003 and 2004 reflect some of the recommendations made by those seeking a change in U.S. policy toward Cuba. The Cuba Policy Advisory Group of the Center for National Policy on January 23, 2003, issued recommendations for steps the United States should initiate immediately as part of beginning a "negotiated normalization" process with the Cuban government. These include, among others: streamlining or eliminating U.S. export licensing and reporting requirements, shipping restrictions, and other bureaucratic regulations to make it easier to sell food, medicine, and medical products to Cuba; expanding the types of products that may be sold to include agricultural equipment and supplies; and permitting private (but not public) financing for commercial transactions (e.g., food sales) now allowed on a cash-only basis. The House Cuba Working Group on March 10, 2003, reiterated its interest in expanding two-way trade with Cuba and ending the travel ban -- its top priority. Members of the Group also are reportedly considering statutory changes to allow Cuba (1) to use U.S. dollars to complete cash purchases of U.S. food purchases (rather than incur currency exchange fees to pay U.S. exporters); and (2) to address the additional costs Cuba incurs as exports wait to be unloaded from ships until U.S. firms actually receive payment from the Cuban buyer. Some observe, though, that these initiatives may not be aggressively pushed, in light of the Cuban government's crackdown on dissidents in the spring of 2003 (see CRS Report RL31740, Cuba: Issues for the 108th Congress).

Resources

CRS Issue Brief IB10061. Exempting Food and Agriculture Products from U.S. Economic Sanctions: Status and Implementation.

For additional background on the Cuban embargo, see "Cuba Sanctions" in the CRS Electronic Briefing on Trade. For a broader perspective on, and a summary of congressional consideration of, sanctions reform proposals, see the "Economic Sanctions: An Overview," also in the Trade briefing book.

Text of Trade Sanctions Reform and Export Enhancement Act of 2000 (Title IX of H.R. 5426, as enacted by P.L. 106-387).

U.S. Department of Agriculture, Foreign Agricultural Service, "Economic and Trade Sanctions" and "Economic Impact of Sanctions on Cuba."

U.S. Department of Commerce, Bureau of Industry and Security, "Exports of Agricultural Commodities, Medicines, and Medical Devices to Cuba, Iran, Libya, and Sudan" and "Implementation of the Trade Sanctions Reform and Export Enhancement Act: Questions and Answers."

CRS Contact: Remy Jurenas (7-7281)

Page last updated September 17, 2004.

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