TRADING WITH THE ENEMY - DISAPPOINTING CUBAN TRADE

C O N F I D E N T I A L SECTION 01 OF 04 HAVANA 000697

SIPDIS

STATE FOR WHA/CCA

E.O. 12958: DECL: 11/18/2019
TAGS: ETRD EAGR PGOV PINR PREL ECON CU
SUBJECT: TRADING WITH THE ENEMY - DISAPPOINTING CUBAN TRADE
FAIR 2009

REF: A. 08 HAVANA 863 (POMP AND CIRCUMSTANCE AT ANNUAL
TRADE FAIR)

B. HAVANA 322 (HOW MIGHT CUBA ENTER ANOTHER SPECIAL
PERIOD)

C. HAVANA 639 (A SPLENDID LITTLE VISIT)

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Classified By: Chief of Mission Jonathan Farrar for reasons 1.4 (b) and
(d)


1. (SBU) SUMMARY: Representatives of U.S. exporters told us
they received an unusually cool reception from the Cuban
Government at this year's Havana trade fair. While some
exporters reported business more or less as usual, we heard
more complaints than in previous years regarding everything
from late invitations, delayed visas, marginalized show
space, and little attention from Alimport, the lone
Government of Cuba (GOC) buyer of U.S. agricultural products.
Cuban Trade Minister Rodrigo Malmierca used his inaugural
address to try to allay continued concerns by non-U.S.
exporters regarding delayed payments and frozen accounts,
while at the same time confirming that total trade (exports
plus imports) is expected to fall by 36% in 2009. Despite
the grim news, countries such as Brazil, Russia and Iran, as
well as the European Union, continue to seek to strengthen
their commercial ties with Cuba. END SUMMARY.

U.S. EXPECTATIONS LOWER
--------------


2. (SBU) More than ever before, U.S. delegations attending
the 37th Havana International Fair (FIHAV-09) complained
about the attention and service they received from the Cuban
Government. Alimport delivered invitations just two months
before the Fair; much later than usual. Most travelers did
not receive their visas until one or two days before
departure, and several were told by CUBINT to go ahead and
travel without a visa and work out the entrance requirements
with Cuban immigration upon arrival in Havana. Similar to
2008 (Ref A),U.S. booths were relegated to the back end of a
pavilion on the outskirts of the fairgrounds. This is in
sharp contrast to the prominent position granted U.S.
delegations for the first several years after Congress
excluded the sale of agricultural products from U.S. trade
sanctions in 2001. This year, visitors to the Alimport
pavilion had to wade through twice the number of vendors from
other countries as in 2008 before reaching the U.S. booths,
and for about half the Fair the pavilion was only open to
Alimport employees. One businessman told us that the tepid
reception could only mean that Cuba was clearly recalculating
the political benefit of buying from U.S. businesses.


3. (SBU) Some U.S. delegations reported business more or
less as usual. Nielsen Citrus Products (lime juice) and
Quality Port International told us they renewed contracts.
Cargill and Bunge said they were pleased with their continued
relationship with Alimport, but refused to share any details
with USINT. Crowley Shipping continues to send one container
ship per week to Cuba, although the size of the shipments,
consisting mostly of chicken, is expected to shrink over the
next few months. Rice producers did not expect to sell U.S.
rice to Cuba for the second year in a row. Although the
overall price, including transportation costs and quality, is
competitive for the Cuban market, U.S. rice producers cannot
compete with the credit terms of 360 days Cuba receives from
Vietnam. Even absent the embargo, U.S. rice producers would
not offer credit more than 90 days to Cuba unless the
purchase was part of a U.S. foreign aid program. Several
U.S. exporters told us that enabling direct financial
transactions with Cuba and protecting those payments from
judicial attachment would be much more valuable than
permitting U.S. businesses to extend credit.

U.S. COMMERCIAL PRESENCE REMAINS SIGNIFICANT
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4. (SBU) U.S. companies have sold $415 million worth of
products to Cuba through September 2009. U.S. exports
exceeded the record levels reported in 2008 through the first
quarter of 2009, however sales have declined significantly
since then and are now 22% less than the same period last
year. Nevertheless, the United States is expected to remain
the fourth largest supplier of goods (closing the gap on #3
Spain) and the largest supplier of food to Cuba. Total sales
for 2009 are likely to reach between $500 and $600 million,
well below the $712 million sold in 2008 but still higher
than any previous year. (Note: Cuba reports higher trade
figures because they include transportation and other
transaction costs. End Note.)

MIXING BUSINESS WITH POLITICS
--------------


5. (C) Trade negotiations remain politically sensitive and a
small number of delegations at this year's Fair made it clear
that they wanted to keep their distance from the U.S.
Interests Section. Although the Charge hosted a breakfast
for 15 U.S. business representatives, where we had a chance
to engage much closer than in previous years, some stayed
away. The Virginia state delegation, for example, told us it
would not attend because it did not want to jeopardize its
growing and yet still delicate trading relationship with the
GOC. At the Fair itself, one otherwise friendly U.S. vendor
asked us to move along from his booth when he spotted the
president of the Cuban Chamber of Commerce and former
president of Alimport Pedro Alvarez approaching. A U.S.
businessman from New Jersey told us that, in years past, U.S.
government reps "harangued" him publicly for doing business
in Cuba. In the press, current Alimport president Igor
Montero threatened that imports from the United States were
unlikely to return to previous levels without the possibility
for Cuba to generate revenues through Cuban exports to the
United States, i.e. the end of the embargo.


6. (SBU) Thirty plus U.S. booths with up to 200
representatives participated in the 37th Havana International
Fair (FIHAV-2009). According to the official catalogue, U.S.
delegations (companies, state delegations, and federations)
represented 57 different U.S. companies. Only Italy (61),
Spain (68),Brazil (80),and Cuba (116) hosted more. Last
year, the official press claimed over 200 U.S. businessmen
representing 39 companies. Only Venezuela (52),Italy (59),
Spain (81),and Cuba (133) hosted more in 2008. U.S.
participation has been on the decline in the last few years
with more than 70 booths in 2007, 100 booths in 2006, and 188
booths in 2005. Brazilian participation more than doubled
from last year's total of 36 companies, while Venezuela
brought 16 fewer companies to this year's Fair.

GRIM CUBAN OUTLOOK
--------------


7. (SBU) FIHAV-09 was inaugurated on November 2 by Cuban
Minister of Foreign Trade and Investment Rodrigo Malmierca
(Note: Traditionally, the Fair was opened by Carlos Lage who
was dismissed from his post as Vice President in March. End
Note.) In his opening speech, Malmierca celebrated that,
despite the participation of fewer businesses (652) and fewer
countries (51) than last year, the fact that anyone came at
all in the current global economic recession was a testament
to "the lure" of the Cuban market. Cuban officials announced
(both before and after the Fair) the signing of contracts
worth $150 million, down from $350 million signed in 2008.


8. (SBU) In response to concerns of growing official and
commercial debt, Malmierca repeated previous GOC promises
that Cuba would continue to be "a reliable market that
fulfills its commitments." We continue to hear complaints
from foreign firms and other diplomats that even when

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companies are paid, the companies are not permitted to
convert the currency from the Cuban peso nor transfer the
funds outside of Cuba. A Canadian commercial officer told us
that he now starts his presentations to Canadian companies
with a note that the GOC is currently restricting the flow of
capital and not paying its bills on time (Ref B). "I suspect
that many of the businesses there were in the business of
collection rather than selling," a foreign diplomat told us.


9. (SBU) Malmierca confirmed that the global economic crisis
has hit Cuba hard. He reported a 36% decrease in total trade
(exports plus imports) through the third quarter of 2009. He
claimed imports represented 80% of the decline (Note:
Imports represent about 80% of total trade, so if they also
represent 80% of the decline then imports and exports have
actually declined proportionally, or about 36% each. End
Note.) Malmierca did not explain how Cuba might escape its
current financial woes. Rather, he informed the audience of
current and potential exporters that Cuba's focus remains on
reducing imports and encouraging investments that would
promote import substitution.

SOME COUNTRIES NOT DETERRED DESPITE MIXED RESULTS
-------------- --------------


10. (SBU) BRAZIL: In spite of the grim economic and
commercial outlook, several countries continue to extend
their commercial ties with Cuba. Brazil had a particularly
large representation at this year's Fair. Cuban president
Raul Castro met with Brazilian Foreign Trade Minister Miguel
Jorge and both countries committed to upgrade industrial
factories in Cuba and build pharmaceutical factories in
Brazil. Brazilian exports grew 57% in 2008 to make it Cuba's
sixth largest supplier. Brazil is also quickly becoming a
key investor with important projects including the
development of the Mariel port (with help from China and
Dubai) and oil exploration. The head of Brazil's one-year
old export promotion agency in Cuba told us that over 110
Brazilian businesses have visited Cuba in just the last six
months. The Brazilian ambassador told us official credit
lines are being services on time, but companies that have
offered private (commercial) credit have the same problems as
everyone else.


11. (U) VIETNAM AND CHINA: During the Fair, Cuba and Vietnam
signed a letter of intent between Cuban company Unecamoto and
Vietnamese company Nhat Trang to assemble trucks, buses and
cars in Cuba. Vietnamese exports to Cuba grew by 85% in

2008. China and Cuba committed to extend their relationship
beyond just trade, while highlighting Chinese investment in
telecommunications, electronics, tourism and mining. Chinese
total trade with Cuba actually fell 12% in 2008, and has
declined by almost 30% in 2009.


12. (U) IRAN AND RUSSIA: Iran bumped up its line of credit
available to Cuba from about $300 million to $740 million for
the purchase of Iranian goods and engineering services.
Total trade between Cuba and Iran doubled in 2008 to $46
million, but remained less than 0.3% of Cuba's total trade.
Russian exports to Cuba fell slightly in 2008 after nearly
doubling in 2007. At this year's Fair, the Russians signed
four agreements for oil extraction in the Cuban provinces of
Matanzas, Sancti Spiritus, Villa Clara and Ciego de Avila.


13. (SBU) CANADA AND SPAIN: The Canadian Commercial
Corporation announced the opening of an office in Havana to
promote and facilitate commercial cooperation. Canada
remains Cuba's largest source of tourists, third largest
investor and fourth largest trade partner. Total trade in
2009, however, is expected to fall by more than 50%. Spain
once again had a strong showing at the Fair. As Cuba's
largest investor and third largest trade partner, Spanish
businesses have been hit hard by Cuba's financial problems
with hundreds of millions of dollars in arrears and

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difficulties getting money off the island. It is not yet
clear how Spanish Foreign Minister Moratinos' October visit
has helped this situation (Ref C). Nevertheless, Prime
Minister Zapatero sent a message of congratulations to
Spanish businessmen "committed to Cuba's economic growth and
the increase of its social well-being."


14. (U) EUROPEAN UNION: EU Commissioner for Development and
Humanitarian Aid, Karel De Gucht, opened the first EU-wide
booth in eight years as part of an official visit (septel).
Both the EU and Cuba framed this participation as a positive
advance in the relationship. The booth highlighted trade
opportunities with the entire European community, and offered
space for countries such as the United Kingdom, Hungary,
Bulgaria, Greece, the Czech Republic, Romania and Sweden that
did not organize their own booths. France, Germany, Italy,
Belgium and Spain were all represented in their own
pavilions.


15. (SBU) VENEZUELA: Similar to last year, Cuba downplayed
the role of Venezuela in the Fair as its largest trade
partner. The Venezuelan pavilion was unimpressive with only
a few representatives from state owned companies, but with
reams of Chavez's literature and posters on offer. No high
level visitors from Venezuela attended the Fair. Venezuela
represented one-fifth of Cuba's total trade (in goods),more
than double Cuba's trade with number two China. The trade
value with Venezuela should decline in 2009 with
significantly lower oil prices. However, when you add
investments and trade in services Venezuela represents a
massive percentage of Cuba's external economy.

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COMMENT
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16. (C) Cuba has to be one of the most unattractive trading
or investment destinations. The treatment of foreign
companies is heavy-handed, and the GOC insists on controlling
nearly all business activity. The GOC is an unreliable payer
at best, and has very few sources of real or prospective
income. So, it is noteworthy that despite these setbacks,
U.S. and foreign businesses continue to flock to Cuba every
year to try to do a little bit of business and hopefully get
a foot in the door for an eventual economic opening. For
foreign exporters, 2008 was an anomaly with international
prices at record highs and a surge in imports due to damages
caused by three hurricanes. This year has been more
challenging with Cuba's liquidity problems and a renewed
focus on import substitution. Cuba has all but rolled up the
welcome mat to anyone not offering credit and the few
business opportunities that remain increasingly benefit those
Cuba considers its "closest friends."
FARRAR