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March 18, 2005 

House Agriculture Committee Holds Hearing on Cuba Cash in Advance Regulations

The House Committee on Agriculture held a hearing on March 16, 2005 on the final regulations recently issued by the Department of the Treasury's Office of Foreign Assets Control (OFAC) concerning the term "payment of cash in advance" and the effect of the redefinition of the payment policy on U.S. agricultural trade with Cuba. The Committee heard from two panels of witnesses, including OFAC Director Robert W. Werner and representatives from agricultural interests, including producers of rice, dairy and poultry products.

In his opening statement, Committee Chairman Bob Goodlatte (R-VA) noted "I find it disturbing that the Treasury Department’s Office of Foreign Asset Control is placing, with its February 22, 2005 regulations, what I see as unnecessary barriers regarding agricultural trade with Cuba. I am especially concerned about the impact these regulations may have on contracts already finalized. These contracts, including those with delivery dates after March 24, 2005, may have to be renegotiated to the disadvantage of United States exporters and ultimately United States farmers and ranchers." He also pledged his commitment to closely monitor the effects of this new policy to ensure minimal disruption of U.S. trade with Cuba and said "I do not want to see the United States government placing barriers in the way of agricultural exports. Nor do I want to see legitimate contracts, entered into willingly by a seller and a buyer, declared void because of a regulation issued without notice or comment."

Robert Wright, Executive Vice President of Sales and Marketing of Pilgrim's Pride, raised concern over the potential loss of exports due to OFAC's new regulation. He also added that "putting these exports at risk was not necessary" and asked "how do U.S. poultry exporters explain to the Cuban buyer that the contracts signed in good faith can no longer be honored?". He suggested that OFAC should have opted to allow existing contracts for exports to Cuba to remain valid.

OFAC Director Werner explained to the Committee that the guidelines were issued in response to "lingering confusion" among some U.S. exporters about the payment process they are legally required to follow when selling agricultural products to Cuba. He also provided some background information on what led to this policy change. He noted that some exporters were interpreting the term to allow for the shipping of goods to Cuba provided cash payment was received prior to delivery of title to the goods. In addition, U.S. financial institutions sought guidance from OFAC on the question of whether or not the shipment of goods prior to receipt of payment by U.S. exporters was permitted under the law. Werner said that because OFAC found itself unable to provide definitive guidance on the subject, officials began "extensive consultations" within the Treasury Department and with other executive-branch agencies "on the interpretation of the term 'payment of cash in advance.'"

Werner concluded his remarks by warning that "after the 30-day 'cash against documents' financing period ends, any transactions under financing terms resembling 'cash against documents' will be prohibited." But, he noted that "it is also important to emphasize that the provisions allowing for payment through letters of credit issued by third-country banks remain unaffected by the clarification of 'cash payment in advance.'"

The prepared remarks of the witnesses at the hearing can be found at the following link: agriculture.house.gov/hearings/statements.html.


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