Trading Cubans for Corn

Trading Cubans for Corn

By Clinton J. Woods and William F. Collins Monday, August 6, 2007

Lifting the embargo could help us move beyond the current regime of domestic agricultural subsidies.

The loud partisan wrangling on Capitol Hill over how much money to give mohair, chickpea, grain sorghum, and soybean producers has drowned out a study released in late July that may offer hope for a bipartisan answer to our current farm fiasco. The study, conducted by the United States International Trade Commission, highlights a significant and untapped source of income for American farmers: trade with Cuba. The report argues that the easing of restrictions on business travel, financing and shipping transactions between the United States and Cuba could nearly double agricultural exports to the island. The lifting of politically-useless trade barriers would provide a new market and sizable revenue for American farmers and exporters (at least $300 million annually), possibly greasing the wheels for real agricultural reform.

The study, compiled at the request of the Senate Finance Committee, predicts the economic after-effects of eased restrictions on travel licenses and agricultural exports to Cuba. Since 2000, American agricultural exporters have been limited to cash-only sales to Cuba. Despite this limitation, the report indicates that the U.S. is the largest supplier of agricultural products, accounting for nearly 30 percent of Cuban consumption last year. The report suggests that American farmers are missing out on an additional $176 million to $350 million as a result of status quo restrictions. The current limitations on financing and shipping add between 2.5 percent to 10 percent to the costs of American goods, a burden that is particularly damaging to smaller farmers. Easing these barriers, on the other hand, would offer tremendous benefits to 15 out of 16 agricultural commodities studied (the United States already provides nearly 100% of the Cuban soybean market). Further, these predictions may substantially underestimate the Cuban market; they assume no change in the U.S. prohibition on investment in Cuba, or in Cuban import policies. Also, the corresponding expansion of Cuban economic growth and tourism that would result from unfettered trade would magnify the benefits.

The embargo only functions as a symbol of lost economic opportunity for U.S. businesses and a rallying point for anti-American unrest in Cuba.

Blind to the benefits of open agricultural commerce, the Bush administration has tightened the embargo and imposed new limitations on U.S. bank operations in Cuba. This administration continues to ignore the economic reality that restrictions on trade with Cuba are unnecessary and outdated. The last half-century has demonstrated that economic isolation is not an effective tool for improving Cuba’s behavior, in terms of human rights and democracy. The embargo only functions as a symbol of lost economic opportunity for U.S. businesses and a rallying point for anti-American unrest in Cuba. With the Cold War a receding memory and a post-Castro government on the horizon, it is high time to reconsider our policy towards Cuba. As Senator Max Baucus (D-Montana), Chairman of the Finance Committee, stated, “it is clearly time for Congress to curb the overzealous trade embargo on Cuba so that American ranchers and farmers can benefit to the tune of over $300 million a year.”

While Congress is conferring over the details of a massive handout to large American farms and debating what constitutes “reform,” this strategy of trade liberalization could give rational legislators the political courage to stand up to agricultural subsidies. It is increasingly evident that United States’ gargantuan farm subsidies actively hinder global trade agreements. Local political pressures, however, have prompted many reform-minded politicians to reluctantly endorse agricultural handouts rather than risk their political livelihood. Senator Baucus has pledged to introduce legislation later this year that repeals the restrictions identified by the Commission, but Washington insiders give the effort little chance of passage. Linking Cuban trade policy and the current farm reform effort may make both options more politically palatable. The opening of new export markets would soften the blow of removing trade-distorting subsidies to farmers. Furthermore, an elimination of these barriers would generate substantial revenues for the commodities receiving a large chunk of Washington’s largesse in the current House farm bill: dairy products, wheat, meats, processed foods, and fruits and vegetables.

The International Trade Commission study also points to a broader strategy linking trade and agricultural issues. Cuban markets are not a panacea, as the revenues available are dwarfed by the size of massive direct farm payments. But this debate over Cuba is a microcosm of a larger campaign for open markets; the passage of unqualified free trade agreements and global trade talks will enhance the standing of the American farmer. Whatever else may happen, following the Trade Commission's recommendations will help to re-establish American credibility on global trade questions. The study indicates that the best way to help domestic producers is through the expansion of export opportunities, not by punitive restrictions on legitimate international competitors. The necessity of eliminating U.S. farm subsidies in order to jumpstart the Doha round of World Trade Organization negotiations has been often discussed, but the reverse also holds true. The elimination of costly and outdated trade barriers creates exceptional opportunities to advance the competitiveness of the American farm sector. Open markets (not protectionist and market-distorting pork) are necessary to buoy American agricultural producers and demonstrate a sensible hemispheric trade policy.

Clinton J. Woods is a legislative analyst and William F. Collins is the communications director for the Center for Trade Liberalization.