Exempting Food and Agriculture Products from U.S. Economic Sanctions: Status and Implementation

Exempting Food and Agriculture Products
from U.S. Economic Sanctions:
Status and Implementation
June 29, 2006
Remy Jurenas
Specialist in Agricultural Policy
Resources, Science, and Industry Division

Exempting Food and Agriculture Products from
U.S. Economic Sanctions: Status and Implementation
In approving the FY2001 agriculture appropriations act, Congress codified the
lifting of unilateral sanctions on commercial sales of food, agricultural commodities,
medicine, and medical products to Iran, Libya, North Korea, and Sudan, and
extended this policy to apply to Cuba (Title IX of H.R. 5426, as enacted by P.L. 106-

387; Trade Sanctions Reform and Export Enhancement Act of 2000, or TSRA).

Other provisions place financing and licensing conditions on sales to these countries.
Those that apply to Cuba, though, are permanent and more restrictive. TSRA also
gives Congress the authority in the future to veto a President’s proposal to impose a
sanction on the sale of agricultural or medical products.
Codifying the food and medical sales exemption for Cuba generated much
debate. Exemption proponents argued that prohibiting sales to Cuba 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 an exemption would
undercut U.S. policy to pressure the Castro government to make political and
economic reforms. Though top Cuban officials initially stated no purchases would
be made with TSRA’s conditions in place, food stock losses due to a hurricane and
a shift in Cuban strategy led to almost $1.25 billion in cash purchases by Cuba of
U.S. food and farm commodities from December 2001 to April 2006. Agricultural
sales to Iran, Libya, and Sudan under TSRA have totaled $313 million.
Congressional opponents of TSRA’s prohibitions on private U.S. financing of
agricultural sales, public financing of eligible exports, and tourist travel to Cuba have
introduced bills since 2000 to repeal these provisions. Though several amendments
to repeal or relax TSRA provisions relative to Cuba were adopted by committees or
passed during floor debate, all were dropped in conference action. The Bush
Administration’s policy is to allow sales under TSRA, but not to change any aspect
of the embargo until political and economic reforms occur in Cuba. Reflecting this,
Administration officials continually signal to conferees they will advise the President
to veto any bill that would change TSRA’s prohibitions against Cuba.
In the 109th Congress, H.R. 719/S. 328, H.R. 1339/S. 634, S.Amdt. 281 and
S.Amdt. 282 to S. 600, and amendments to appropriations bills seek to change a rule
issued in early 2005 which defined “payment of cash in advance” to mean that
payment must be received by the U.S. exporter prior to when agricultural products
are shipped from a U.S. port, rather than before title and control is transferred to the
Cuban buyer. Fearing lost sales, farm groups and some congressional opposition to
this rule has led to ongoing debate on this issue. Responding to congressional
pressure, the Bush Administration in July 2005, revised this rule slightly to allow for
goods to be shipped from a U.S. port once a third-country bank receives payment for
the U.S. exporter from the Cuban purchaser. In recent floor action, the House on
June 14, 2006, adopted an amendment to the FY2007 Transportation-Treasury
spending bill (section 950 of H.R. 5576) to prohibit implementation of this rule.
Conferees dropped identical language in FY2006’s Treasury’s bill (H.R. 3058) in
response to a presidential veto threat.

Recent Developments..............................................1
1999-2001 Changes in U.S. Policy Allowing Agricultural Sales to
Sanctioned Countries...........................................1
Debate on Agricultural and Food Exports in U.S. Economic Sanctions Policy..2
Provisions Enacted in 2000 to Exempt Food and Medical Products
from U.S. Economic Sanctions...................................3
Overview of TSRA............................................3
Status of Implementation....................................3
Extension of Food and Medical Exemption to Cuba...................4
Cuba-Related Regulations Issued.............................4
Codification of Food/Medical Exemption...........................4
Exceptions to Exemption....................................5
Export Licensing Requirement...................................5
Previous Licensing Rules....................................6
TSRA’s Changes to Licensing Rules...........................7
Debate over Proposed Licensing Regulations....................7
Regulations Published......................................8
Payment and Financing Terms of Exempted Sales....................8
Current Prohibition and Restrictions...........................8
Prohibition on U.S. Financing of Agricultural Sales to Cuba........9
Prohibition on U.S. Private Financing of Licensed Exports
to Other Countries.....................................9
Prohibition on U.S. Government Assistance for Export Sales..........10
Definition of Products Covered by Exemption......................10
Definitions in TSRA Regulations............................11
Congressional Role in Future Sanctions on Exempted Products.........11
The U.S. Role in Cuba’s Market under TSRA’s Policy...................12
Sales Activity to Date.........................................13
Legislative Developments..........................................13th
107 Congress (2001-2002).....................................13
Cuba-Specific Bills and Provisions...........................14
Bill Dealing with Other Sanctioned Countries..................15
Proposed Changes to Overall Food Sanctions’ Exemption Policy...15
Amendments to TSRA in Anti-Terrorism Legislation............16
108th Congress (2003-2004).....................................16
Cuba-Specific Bills.......................................16
Provisions in Appropriations Bills............................17th
109 Congress (2005-2006).....................................18
Debate over Cash in Advance Payment Definition...............18
For more information, please see the following CRS product:
CRS Report RL32730, Cuba: Issues for the 109th Congress, by Mark P. Sullivan.

Exempting Food and Agriculture Products
from U.S. Economic Sanctions:
Status and Implementation
Recent Developments
On June 22, 2006, the Senate Appropriations Committee, during markup of its
FY2007 agriculture spending measure, adopted by voice vote an amendment (section
755 of H.R. 5384) to facilitate travel related to licensed sales of agricultural and
medical goods to Cuba. There is no similar provision in the agriculture
appropriations bill passed by the House.
On June 14, 2006, the House by voice vote approved an amendment to prohibit
the use of appropriated funds to enforce a U.S. Department of Treasury regulation
prescribing how sales of U.S. agricultural products to Cuba are to be paid. This
provision is included as section 950 of H.R. 5576, the Transportation-Treasury
Appropriations Act for FY2007. This rule as issued in February 2005 by Treasury’s
Office of Foreign Assets Control (OFAC), which administers the financial and
related rules governing U.S. agricultural export sales to Cuba. It clarified the
meaning of the term “payment of cash in advance.” It requires that payment be
received by the exporter or the seller’s agent prior to the goods being shipped from
the U.S. port rather than before title and control is transferred to the Cuban buyer.
This provision is identical to one that both the House and the Senate included in the
FY2006 Transportation-Treasury appropriations bill, which was dropped by
conferees in response to a veto threat (for background, see “Legislative
Developments — 109th Congress — Debate over Cash in Advance Payment
1999-2001 Changes in U.S. Policy Allowing
Agricultural Sales to Sanctioned Countries
Falling agricultural exports and declining commodity prices in the late 1990s
led farm groups and agribusiness firms to urge the Executive Branch to drop, and
calls for Congress to pass legislation to exempt, food from U.S. economic sanctions
against certain countries. The Clinton Administration on April 28, 1999, announced
it would lift prohibitions on U.S. commercial sales of most agricultural commodities
and food products to three countries — Iran, Libya, and Sudan. Moreover, it
indicated that it would not include these products in announcing future sanctions on
other countries. The Administration’s decision reflected its view that food should not
be used as a foreign policy tool and officials’ acknowledgment that U.S. sanctions
policy had hurt the U.S. farm economy. On July 27, 1999, the U.S. Department of

Treasury issued country-specific export licensing regulations to exempt commercial
sales of food and medical products by U.S. companies that meet specified conditions
and safeguards to Iran, Libya, and Sudan. Licenses are issued by the Treasury’s
Office of Foreign Assets Control (OFAC). Regulations issued June 19, 2000, to
implement a White House decision announced in September 1999 now permit sales
of agricultural products to North Korea without an export license. Licensed
agricultural sales to Cuba under a policy announced in May 1999 were restricted only
to private and non-governmental entities (but were broadened under a statutory
change that went into effect in July 2001).
For the two years that the Clinton Administration’s policy was in effect,
Treasury approved licenses that resulted in U.S. sales of corn to Iran, durum wheat
to Libya, and hard red winter wheat to Sudan. Also, President Clinton, in issuing
executive orders in 1999 to impose U.S. economic sanctions on Serbia and the
Taliban in Afghanistan, specifically exempted commercial sales of food and medical
products from prohibitions imposed on all U.S. exports to these destinations.
Congressional efforts to expand this policy to also cover sales to Cuba and to
remove uncertainties in Executive Branch implementation of U.S. sanctions policy
resulted in passage of the Trade Sanctions Reform and Export Enhancement Act of

2000 (Title IX of H.R. 5426, as enacted by P.L. 106-387 on October 28, 2000;

referred to below as TSRA). TSRA codified the lifting of U.S. sanctions on
commercial sales of food, agricultural commodities, and medical products to Iran,
Libya, North Korea, and Sudan, and extended this policy to Cuba (see below). Such
sales are now subject to export licensing procedures laid out in administrative
regulations. In a significant policy change, Congress has future veto power on a
President’s proposal to impose a unilateral agricultural or medical sanction.
Debate on Agricultural and Food Exports in
U.S. Economic Sanctions Policy
Farm organizations, agricultural commodity associations, and agribusiness
firms, since the 1980 grain embargo on the Soviet Union, have favored changing U.S.
policy to exempt export sales of agricultural commodities, food products, and
agricultural inputs from the broad economic sanctions currently imposed on targeted
countries. They argued that prohibitions hurt only U.S. farmers and business,
undermine this country’s reputation as a “reliable supplier,” and do not change
targeted countries’ behavior. In recent years, these groups joined with firms in the
pharmaceutical and manufacturing sectors to call for a comprehensive review of the
economic impact of these sanctions and for limits on the executive branch’s use of
sanctions to restrict trade.
Opposition to exempting sales of agricultural commodities and food products
from U.S. sanctions policy has been somewhat more diffuse. Opponents argued that
current law gives the President sufficient flexibility to permit food to be shipped for
humanitarian reasons, and that U.S. foodstuffs, if sold, could be misused by foreign
governments or not made available to those in need. Some objected to the loosening
of trade restrictions with certain countries, such as Cuba. Coming largely from the

foreign policy and defense community, they viewed sanctions as a “legitimate and
effective” policy tool, and drew little distinction between prohibiting sales of food
and prohibiting exports of all other products.
Provisions Enacted in 2000 to Exempt Food and
Medical Products from U.S. Economic Sanctions
Overview of TSRA
The most significant policy change made by the Trade Sanctions Reform and
Export Enhancement Act of 2000 exempts commercial sales of agricultural and
medical products to Cuba from the longstanding U.S. trade embargo on that country.
At the same time, TSRA made permanent a prohibition on Cuba’s access to U.S.
private and other public financing to purchase exempted products. Though press
coverage suggested that the debate was solely over a Cuba-specific measure, this act
codified an exemption for sales of agricultural and medical products in the conduct
of U.S. sanctions policy with respect to five countries and the terms under which this
exemption operates. It further codified Clinton Administration policy (based on
existing law) that prohibited making available U.S. government credits, credit
guarantees, and other financial assistance to facilitate agricultural and medical
product sales to certain sanctioned countries. Also, TSRA made changes to the food
and medical products exemption-from-sanctions policy exercised administratively
by the Executive Branch since mid-1999. This act (1) broadens the exemption to
allow sales of non-food agricultural commodities and fertilizers, and (2) streamlines
the process U.S. exporters follow to obtain licenses to sell exempted products to
sanctioned countries.
Other TSRA provisions require the President to secure future congressional
approval before he can impose for foreign policy or national security reasons a
restriction or prohibition on the sale of agricultural and medical products. The act
also limits the duration of any such approved sanction to not more than two years
unless Congress approves an extension.
Status of Implementation. The TSRA provisions that cover agricultural and
medical exports to countries subject to U.S. unilateral sanctions took effect on
February 25, 2001. However, interagency differences between the Department of
Commerce’s Bureau of Industry and Security (BIS) — then known as the Bureau of
Export Administration (BXA) — and Treasury’s OFAC over how to interpret these
provisions were not resolved until considered by the White House’s National
Security Council. Both agencies issued their interim rules to reflect TSRA’s
statutory changes on July 12, 2001; these took effect on July 26, 2001. From August
2001 through April 2006, U.S. exporters sold almost $1.6 billion in agricultural
products to Cuba, Iran, Libya, and Sudan under TSRA provisions.1 The $60 million

1 This total amount excludes commercial agricultural sales made to Libya after broad U.S.
economic sanctions were lifted in April 2004.

in agricultural exports to North Korea, and also most shipments to Sudan, most likely
were food donations and not commercial sales.
Extension of Food and Medical Exemption to Cuba
TSRA allows licensed commercial sales of agricultural and medical products
to Cuba. This policy change reflects the law’s requirement that the President
“terminate any unilateral agricultural sanction or unilateral medical sanction” 120
days after enactment. This provision effectively supersedes statutory provisions in
the Cuban Liberty and Democratic Solidarity Act of 1996 (P.L. 104-114). That law
codified the then-regulatory prohibitions on all U.S. export/import and other
transactions under the U.S. embargo imposed on Cuba in the early 1960s. Under this
embargo, commercial sales of U.S.-origin agricultural products (and medical
products at times) to Cuba generally were prohibited. Separately, the Cuban
Democracy Act of 1992 allows some commercial sales of U.S. medical products to
Cuba, but under tight conditions.
Though the Clinton Administration announced sanctions policy changes in 1999
and in 2000 to allow sales of agricultural and medical products to Iran, Libya, Sudan,
and North Korea, it did not have legal authority to do the same with respect to Cuba.
This explains why most of the congressional debate leading up to TSRA’s passage
revolved around whether this same exemption should be statutorily extended to apply
also to Cuba. As House debate and a compromise unfolded in early summer 2000,
those opposed to this opening in trade with Cuba succeeded in adding a number of
Cuba-specific provisions.
Under TSRA, agricultural and medical sales to Cuba are now subject to various
conditions and restrictions that are similar to those already in effect on similar
product sales to the other sanctioned countries. U.S. exporters must follow an export
licensing process before any product can be shipped. Further, a permanent
prohibition is in place against the use of any U.S. government export program or
financing provided by U.S. private banks or state and local governments to facilitate
licensed sales.
Cuba-Related Regulations Issued. BIS’s interim rules continue the pre-
2001 policy that requires medical product exports to Cuba be licensed. They also
establish an expedited process for handling agricultural product sales to Cuba, and
waive the restriction on the direct shipment of eligible products now permitted to be
sold to Cuba.2
Codification of Food/Medical Exemption
TSRA enacts as U.S. policy the principle that commercial sales of food, other
agricultural products, medicine, and other medical products shall not be used as a
tool to conduct foreign policy or to address national security objectives (see

2 Published in the Federal Register, July 12, 2001, pp. 36675-36683 (available at
[http://frwebga te.access.gpo.gov/cgi -bin/getdoc.cgi ?dbname =2001_regi s t e r & d o c i d =fr12j

“Definition of Products Covered by Exemption”). This law stipulates that this
principle apply to all countries now subject to U.S. unilateral sanctions; and require
that a President in the future justify to Congress why sales of these products to a
sanctioned country or foreign entity should be limited, and obtain congressional
approval before taking such action. Limits on agricultural sales are defined to be
“any prohibition, restriction, or condition on carrying out ... any commercial export
sale of agricultural commodities” or on using any U.S. Department of Agriculture
(USDA) program authorized under four specified statutes or any U.S. government
export financing (“including credits or credit guarantees”) to facilitate such sales.
For medical product sales, such limits are defined to be “any prohibition, restriction,
or condition on exports of, or the provision of assistance consisting of, medicine or
a medical device.”
In immediate and practical terms, TSRA: (1) codified earlier Clinton
Administration decisions to allow agricultural and medical product sales to four
countries (Iran, Libya, North Korea, and Sudan) and (2) amended the laws and related
regulations authorizing the U.S. embargo on Cuba to allow commercial sales of
agricultural and medical products.
Exceptions to Exemption. TSRA provides four exceptions to the general
principle discussed above. These exceptions are relevant when the United States acts
against a foreign country or entity to impose a sanction that includes these products
pursuant to (1) its involvement in a multilateral sanctions regime or a mandatory
decision of the United Nations Security Council; (2) a declaration of war, or specific
statutory authorization for the use, or the imminent or actual involvement in
hostilities, of U.S. armed forces; and (3) its export control to prevent potential
military use under the Arms Export Control Act, the Export Administration Act, or
other authority. President Bush tapped this exception authority in issuing Executive
Order 13224 (September 23, 2001) to prohibit transactions with designated terrorists
and their supporters. Section 4 states the determination that TSRA shall not affect
the imposition or continuation of any unilateral agricultural or medical sanction on
any individual or entity “determined to be subject to this order because imminent
involvement of [U.S.] Armed Forces ... in hostilities is clearly indicated by the
ci rcum st ances.”
Export Licensing Requirement
Under TSRA’s exemption, exports of agricultural and medical products to
governments and other entities in sanctioned countries are allowed only under an
approved export license. Section 906(a)(1) requires that this export licensing
requirement apply to sales to those countries that the Secretary of State (exercising
authority under three cited statutes) has determined “have repeatedly provided
support for acts of international terrorism.” In practice, this means that sales of
eligible products to governments of countries currently so designated (Cuba, Iran, and
Sudan), or to any other entity in each of these countries, must be licensed before any
shipment can be made. Though the Secretary of State has determined that the
governments of North Korea and Syria also are sponsors of international terrorism,
Section 906(a)(2) explicitly states that the license requirement does not apply to sales
to these two countries. The Secretary has discretion to drop this licensing
requirement for Iran, Libya, and Sudan if the determination is made that its

government no longer supports international terrorism.3 No such discretion is
permitted for Cuba, meaning this licensing requirement is made permanent for
eligible sales to Cuba.
Relevant provisions in the act seek to streamline and simplify the type of license
an exporter must obtain to sell permitted products to sanctioned countries. These
address concerns expressed by U.S. agricultural exporters that the Treasury
regulations governing the licensing of agricultural sales to Iran, Libya, and Sudan had
been cumbersome and time consuming. Differences between the pre-2001 licensing
rules and the relevant enacted provisions that modify the earlier rules are described
Previous Licensing Rules. For countries covered by the Clinton
Administration’s 1999 food and medical exemption policy (Iran, Libya and Sudan),
the Department of Treasury’s OFAC issued two types of export licenses — general
and specific. The type required, and the relevant conditions and procedures that
apply to each, depended on the nature of the product the exporter wanted to sell, the
end user of the proposed sale, the details of the terms of a sales contract, the date of
contract performance, and on how the sale would be paid for (see “Payment and
Financing Terms of Exempted Sales” for important related conditions). A general
license authorizes certain transactions without the need for an exporter to file an
application providing all the details of each individual transaction. A specific license
is issued on a case-by-case basis to an individual or company allowing an activity or
transaction to take place.
OFAC’s food exemption regulations set up two different procedures for
obtaining licenses, depending on the product to be sold. The conditions that an
exporter must meet varied according to which procedure is followed. An expedited
licensing process applied to prospective sales of specified bulk agricultural
commodities. A “specific license” authorized an exporter to enter into “executory
contracts” (i.e., respond to requests for bids, enter into binding contracts, and perform
against contract terms), and covered transactions over a specified time period.
Certain conditions had to be met to obtain this license. For sales of all other food
products, medicines and medical equipment, OFAC used a two-step licensing
procedure to review each contract on a case-by-case basis. First, an exporter had to
obtain a “general license” to enter into an executory contract that made performance
contingent upon prior approval by OFAC, disclose all parties with an interest in the
sale, and lay out all terms of the sale. Second, the exporter had to apply for a
“specific license” permitting performance of the executory contract before the sale
can be completed. OFAC issued these regulations under the authority of the Export
Administration Act of 1979 (as extended) that requires a “validated license” to export
any good to a country determined to be a sponsor of international terrorism.

3 In practice, the State Department under these statutes has rarely changed, or reversed, a
“sponsor of international terrorism” determination made with respect to a foreign
government. With the easing of most U.S. sanctions on Libya announced in April 2004, and
the Bush Administration’s announcement on May 15, 2006, of its intent to rescind listing
Libya as a “sponsor of terrorism,” U.S. exporters of agricultural products no longer need to
secure licenses to sell to Libya.

Cuba. Through July 2001, Commerce’s BIS administered different licensing
rules for Cuba applicable to U.S. shipments of eligible food and agricultural
commodities, farm inputs, and medical products. Though various statutes and
regulations prohibited most exports of U.S. origin to Cuba, these exceptions allowed
for the donation and sale of food and agricultural products to individuals, eligible
non-governmental entities, and private businesses. TSRA, though, effectively
supersedes these provisions to now allow for the commercial sale of agricultural and
medical products to Cuba under prescribed terms (see below).
TSRA’s Changes to Licensing Rules. Section 906(a) of TSRA allows
sales of exempted agricultural and medical products to sanctioned countries on terms
that are less restrictive than under previous policy (see above). The law stipulates
that such exports “shall only be made pursuant to one-year licenses ... for contracts
entered into during the one-year period of the license and shipped within the 12-
month period beginning on the date of the signing of the contract” and that “such
one-year licenses shall be no more restrictive than license exceptions administered
by the Department of Commerce or general licenses administered by the Department
of Treasury.” The wording appears to require BIS and OFAC to consider license
applications on a streamlined and less conditioned basis rather than on the present
case-by-case and highly regulated basis. In other words, the apparent aim was to
move away from a complex and time consuming process that may require an exporter
to walk through a multiple step process to seek approval for the several transactions
involved in completing one sale.
TSRA also removes executive branch discretion in determining the time period
that applies to transactions covered by an export license, by placing a defined time
parameter on the period during which an approved license covers eligible product
transactions. One related provision is intended to ensure that other licensing
conditions and procedures cover multiple types of transactions (e.g., an exporter
submits one application providing the information required for all of the sales
transactions covered by a license). Another requires that regulations must ensure
procedures that will deny licenses for exports to any entity, or “end user,” within an
affected country that promotes international terrorism.
Debate over Proposed Licensing Regulations. In early 2001, BXA and
OFAC had drafted licensing rules to implement the new law’s exemption. These,
reportedly, differed in some key respects. BXA proposed for the countries under its
jurisdiction (Cuba, North Korea, and Syria) an “arrangement” to allow companies
during a one-year period to export eligible products without the need to secure an
individual license for each shipment. BXA reportedly would have granted a “license
exception” if a company agrees to monitor sales of eligible products using a
prescribed set of parameters. Under this exception, sales would still be subject to a
government audit. OFAC proposed for all affected countries (Cuba, Iran, Libya,
North Korea, Sudan, and Syria) a case-by-case licensing system that includes end use
verification. Its proposal was similar to rules already in effect for Iran, Libya, and
Sudan. This two-step licensing process would involve first approving a license to
allow an exporter to enter into negotiations to make sales, and then issuing another
license to cover actual shipments. The reported differences in these draft regulations
reflected conflicting views on how to interpret TSRA’s provisions as well as
language that some observers suggested was unclear and contradictory. As these

differences became known during February 2001, Members of Congress and interest
groups weighed in with their views.
Regulations Published. BIS’s rule allows for the sale of eligible
agricultural products to Cuba without an export license (subject, though, to a review
of a written contract) if other federal agencies do not object within 11 days. In other
words, BIS will administer a licensing exception with respect to only those products
that are covered by the regulation’s definitions of agricultural and medical products.
OFAC’s rule requires an exporter to obtain a one-year export license for sales of
agricultural and medical sales to Iran and Sudan. 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. Under the Bush Administration’s Libyan
sanctions policy change announced April 23, 2004, most U.S. exports to Libya no
longer require an export license.
Some agricultural exporters have since expressed concern that the requirement
to have OFAC check each time that the end user (e.g., buyer) in Iran and Sudan is not
involved in promoting international terrorism slows down the licensing process.
They have urged that OFAC change its rules to reflect the more flexible licensing
system implemented under Clinton’s 1999 executive order.
Payment and Financing Terms of Exempted Sales
U.S. policy seeks to ensure that sanctioned countries do not receive any financial
benefit from permitted, or licensed, transactions. It also prohibits such countries
from accessing bank accounts and other assets that their governments, or
organizations or firms in these countries, hold in the United States. TSRA did not
change current policy, meaning that U.S. banks cannot offer trade financing to
facilitate export sales of exempted products to such countries. With respect to Cuba,
TSRA codifies two of the three types of financial transactions that OFAC regulations
permit to facilitate licensed food and medical product sales to Iran and Sudan. Other
provisions prohibit U.S. government support of such sales to all sanctioned countries
(see “Prohibition on U.S. Government Assistance for Export Sales”).
Current Prohibition and Restrictions. OFAC regulations specifically
prohibit U.S. banks from extending financing to countries subject to U.S. unilateral
economic sanctions. This policy is reflected in the current payment and financing
rules that apply to licensed sales of agricultural and medical products to Iran and
Sudan laid out initially by Clinton Administration policy, and to Cuba under embargo
regulations. With respect to the first two countries, OFAC regulations allow only for
payment of cash in advance to be made to the U.S. seller for a sanctioned country’s
purchase of exempted products. The two permitted trade financing, or credit, terms
are (1) sales on open account4 with certain limitations, and (2) financing by third

4 Sales on open account refers to a transaction in which goods are released to a buyer prior
to payment, or a promise of payment. Because the exporter bears all the risk of non-
payment by the buyer, this type of transaction requires a high level of established trust
between both parties. An exporter, however, may view sales on these terms as providing

country banks that are neither an overseas office of a U.S. bank nor entities of the
governments of these three countries.5 U.S. banks are permitted to advise or confirm
letters of credit6 issued by third country banks, but are prohibited from providing any
trade financing. An exporter must obtain a general license from OFAC for each of
these payment or credit terms. OFAC also will consider an application from U.S.
banks for a specific license to participate in financing sales on a case-by-case basis,
where such financing arrangements would not undermine overall compliance with
U.S. sanctions.
Prohibition on U.S. Financing of Agricultural Sales to Cuba. Section
908(b) of TSRA prohibits the financing of agricultural sales “to Cuba or any person
in Cuba” by U.S. banks, any state or local government, the federal government, or
any other U.S. private person or entity. This prohibition effectively codifies a
provision in the Cuban embargo regulations (31 CFR 515.533(f)) that does not allow
trade financing for the commercial sale of food or agricultural commodities to non-
governmental entities in Cuba that BIS is authorized to license under a 1999 policy
change. TSRA language stipulates that licensed sales can occur only if paid in “cash
in advance,” or if financed by a third country bank. In codifying this financing
prohibition, the Executive Branch no longer has discretion to revise the financing
rules should it determine the nature of the U.S.-Cuban relationship is changing. In
practical terms, this financing policy treats Cuba no different than other sanctioned
countries under pre-2001 regulations with respect to licensed sales. (See also
“Legislative Developments - 109th Congress - Debate over Cash in Advance
Payment Definition”).
Prohibition on U.S. Private Financing of Licensed Exports to Other
Countries. The issue of prohibiting any U.S. private financing of agricultural
exports to Cuba received much attention during the legislative debate. However,
none of TSRA’s provisions require any change in OFAC regulations that prohibit
U.S. private financing of agricultural and medical product sales to Iran and Sudan.7
With respect to these two countries, OFAC will continue to implement its current
policy prohibiting U.S. private financing of licensed sales. Though some thought that
TSRA would allow these countries to take advantage of U.S. private financing
despite the statutory prohibition imposed on Cuba, no provision in the act explicitly

4 (...continued)
entry to a potential market that outweighs such risk. Such terms allow a buyer to delay
payment until the imported products have been examined.
5 An example of third country financing would be a French bank providing trade finance for
a U.S. exporter’s sale of wheat to Iran. This bank must not be an affiliate of a U.S. bank nor
of any Iranian state financial institution.
6 A letter of credit (L/C) is used when the importer/buyer’s ability to pay is uncertain, or
when the exporter/seller needs it to obtain financing. A L/C gives the buyer the financial
backing of an issuing bank, which makes payment within a specified time period to the
seller via the seller’s bank upon presentation of certain documents (e.g., those that reflect
the carrying out of a sales contract’s terms).
7 Under the Bush Administration’s Libyan sanctions policy change announced April 23,
2004, TSRA requirements no longer apply with respect to the financing of sales of
agricultural and medical products.

addressed this issue in a way that would require a change to be made to existing
regulations. Members supportive of the financing exemption argued that since
Congress did not place in the law any restrictions on commercial financing for these
countries, new administrative regulations should not include restrictions that run
counter to the congressional intent to eliminate sanctions on those tools (e.g., credit)
that can facilitate eligible commercial sales. OFAC’s reported view was that since
the thrust of U.S. policy is to restrict currency flows to sanctioned countries, it would
be burdensome to set up a mechanism to allow for the financing of agricultural and
medical product sales, and thus better not to permit it.
Prohibition on U.S. Government Assistance for Export Sales
Section 908(a) of TSRA prohibits making available any U.S. government
assistance (including foreign aid, credit or guarantees, and export assistance) “for
exports to Cuba or for commercial exports to Iran, Libya, North Korea, or Sudan.”
Wording grants the President authority to waive this prohibition for humanitarian
reasons, or if he determines it is in the national interest to do so with respect to Iran,
Libya, North Korea, and Sudan. This waiver authority does not extend to Cuba.
Statutory wording further differentiates among the 5 above-cited countries by
applying this prohibition on all exports (and not just commercial exports) to Cuba.
Clarifying language also stipulates that this U.S. government assistance prohibition
does not “alter, modify, or otherwise affect” certain provisions of the Cuban Liberty
and Democratic Solidarity Act of 1996 that authorizes the President “to furnish
assistance and provide other support for individuals and independent non-
governmental organizations to support democracy-building efforts for Cuba” and that
require the President to “take all necessary steps to ensure that no funds or other
assistance is provided to the Cuban Government.”
In the regulations issued, the Bush Administration chose not to exercise
Presidential waiver authority on this issue. Although some Members of Congress in
1999 and 2000 urged that credit guarantees be made available to facilitate agricultural
sales to Iran, U.S. policy (reaffirmed by TSRA) is to prohibit any government
assistance for permitted commercial sales to a sanctioned country listed as a sponsor
of international terrorism. This position is primarily based on the statutory
prohibition found in Section 620A of the Foreign Assistance Act of 1961 (22 U.S.C.

2371), which TSRA reaffirms.

Definition of Products Covered by Exemption
Compared to OFAC’s 1999 policy, TSRA broadens the types of agricultural
products covered by the enacted exemption (Sections 775 and 902(1)). Such
products are defined to include “any agricultural commodity, food, feed, fiber, or
livestock,” and any derived product. Livestock is defined to include “cattle, sheep,
goats, swine, poultry (including egg-producing poultry), equine animals used for food
or in the production of food, fish used for food, ... other animals designated” by the
Secretary of Agriculture, and insects. Conferees on October 5, 2000, accepted an
amendment that added “fertilizer” and “organic fertilizer” to the definition of an
agricultural commodity. Exports of these inputs are allowed, unless subject to export
control under other specified statutes. Section 902(4) and (5) defines medicine and

medical devices referring to terms used in statutes administered by the Food and
Drug Administration.
Treasury regulations followed to implement the Clinton Administration’s 1999
policy governing sales to Iran, Libya, and Sudan listed the bulk agricultural
commodities and some food products eligible to be licensed. OFAC’s list
encompassed most of the products covered by the 2000-enacted definition, but did
not allow for sales of non-food commodities like cotton (a fiber), tobacco, and wood
products. Treasury’s stated rationale for excluding these non-food commodities was
that they could be used for military purposes. OFAC’s regulations did not detail the
other food products nor specify any medical product that could be sold, and thus
required an exporter to apply for a license to ascertain whether a product could be
sold. Concern about the use of fertilizer and agri-chemicals for military purposes
was reflected also in OFAC regulations, which did not allow sales of these items
(including insecticides and pesticides) as agricultural products to sanctioned
Definitions in TSRA Regulations. Both Commerce’s BIS and Treasury’s
OFAC agreed upon common definitions for agricultural and medical products in
implementing their respective new export licensing exceptions and requirements.
Based on the statutory language, the rules spell out that agricultural commodities
include food commodities, feed, fish, shellfish and fish products; beer, wine, and
spirits; soft drinks; livestock; fiber, including cotton, wool, and other fibers; tobacco
and tobacco products; wood and wood products, including lumber and utility poles;
seeds for food; reproductive materials such as fertilized eggs, embryos and semen;
vitamins and minerals; food additives and supplements; and bottled drinking water.
This definition also includes fertilizers and organic fertilizers, but excludes furniture
made from wood; clothing manufactured from plant or animal materials; agricultural
equipment (whether hand tools or motorized equipment); pesticides, insecticides, or
herbicides; and cosmetics (unless derived entirely from plant materials). Both
agencies require sales of three products to meet stringent export control rules:
fertilizer, western red cedar, and live horses.
Congressional Role in Future Sanctions
on Exempted Products
TSRA, in effect, gives Congress veto power over a President’s proposal to
impose a future unilateral agricultural or medical sanction. Section 903(a) requires
a President to first secure congressional approval before he can restrict or prohibit the
sale of agricultural and medical products to a targeted country for foreign policy or
national security reasons. It requires the President to report to Congress no later than
60 days before he plans to impose a sanction, describing the proposed sanction and
the activities by the foreign country or entity that justify the sanction. Section 904
specifies that the requirement for the President to report to Congress on a proposed
sanction does not apply when the United States is at war or involved militarily
against a target country, when the sanctioned product is controlled under specified
export control laws or could be used to facilitate the development or production of
a chemical, biological, or nuclear weapon, or when it is imposed as part of a
multilateral sanctions regime or a mandatory decision of the United Nations Security

Council. Section 905 provides that any unilateral agricultural or medical sanction
approved by Congress (described above) automatically ends not later than two years
after it goes into effect. The President may request that Congress extend the sanction
for another two years.
The U.S. Role in Cuba’s Market
under TSRA’s Policy
Though sales to Iran, Libya, and Sudan under the Clinton Administration’s 1999
exemption policy were small relative to their total agricultural imports, U.S. farmers,
commodity groups, and agribusiness eyed Cuba as a promising market. Calling for
a broadening of U.S. policy to exempt food from sanctions in Cuba, they argued that
U.S. agriculture had lost out to foreign competitors in making sales to a sizable,
nearby market.
Total Cuban agricultural imports averaged about $800 million annually in the
2000-2002 period, according to the Food and Agriculture Organization. Leading
commodities imported in 2002 were rice, chicken meat and products, wheat and
flour, whole dry milk, lentils and corn. Food and agricultural imports in recent years
have represented 17% of total Cuban merchandise imports, and have declined as a
share of total imports since the early 1990s. Top suppliers in 2002 (as Cuba took
advantage of the U.S. embargo exemption under TSRA) based on preliminary data
were Canada, the United States, France, China, and Brazil. In addition, Cuba’s
tourism industry reportedly imports an additional $100 to $250 million in food
products to cover the needs of visiting tourists.
U.S. agricultural interests argued that exempting agricultural exports from the
U.S. embargo on Cuba would result in an opening that yields substantial sales.
Various studies projected annual sales could range from $100 million to over $1
billion, depending on the time frame looked at and the extent of liberalization that
occurred in U.S.-Cuban trade. These interests also held that such a policy change
will give U.S. exporters (particularly of rice and wheat) a competitive edge if Cuba
takes advantage of its proximity to buy from its nearest supplier in order to save the
cost of transporting commodities and food from its more distant current suppliers
(France, Canada, Argentina). Cuba reportedly could save up to $100 million in
transportation costs if officials decided to buy primarily from U.S. agricultural
Expectations in 2000 of large immediate U.S. sales to the island were viewed
as unrealistic, according to other analysts. Analysts pointed to Cuba’s limited
financial resources, its reliance on barter and credit transactions to finance
agricultural imports, its denial of access to U.S. government programs and to all U.S.
public and private financing, and the possible application of other restrictive rules
under current embargo regulations that could hamper such sales. They also suggested
that it was uncertain that Cuba would purchase from the United States, pointing out
there may be pressure to maintain trade ties with some of its “socialist partners”
supplying such key commodities as rice, as well as resistance to relying on just one
single supplier. Some also observed that the Cuban government may not have been

prepared for, or interested in taking advantage of, this possible U.S. trade opening.
Top Cuban officials, including Castro himself, initially rejected the enacted measure.
They strongly criticized its financing, travel, and other prohibitions as “unworkable”
and “insulting.” They viewed it as a tightening rather than an easing of the embargo,
and stated that Cuba will not buy any U.S. product with such conditions in place.
Sales Activity to Date
Notwithstanding this position, the Cuban government on November 13, 2001,
signaled interest in buying U.S. agricultural commodities to quickly rebuild food
reserves damaged or lost due to the devastation caused by Hurricane Michelle. This
move followed an earlier U.S. government offer of humanitarian assistance, to which
Cuba responded on November 8 with a request that the United States temporarily
suspend TSRA’s licensing requirements to purchase foodstuffs and allow Cuban
vessels to transport them from U.S. ports. The State Department agreed only to
speed up the licensing process, and noted some problems might arise if Cuban ships
were used.
In late November and early December 2001, negotiations between several U.S.
agribusiness firms and Alimport, Cuba’s food import agency, led to the signing of
contracts to sell U.S. wheat, corn, soybeans, soymeal, soyoil, poultry, and rice and
other food products valued at $35 million. The first shipment of corn and poultry
arrived in Havana on December 13, 2001. U.S. farm groups, agribusiness firms, and
anti-embargo groups hailed these sales under the new sanctions policy, and hoped
they would lead to additional sales and represent a symbolic beginning of a changing
relationship, respectively. Though top Cuban officials initially stated these cash
purchases were a one time event, this stance changed in the following months.
Additional export sales occurred in spring 2002, and have since continued on a
regular basis. From December 2001 through April 2006, U.S. exporters have shipped
to Cuba $1.25 billion in agricultural and food products. (See “Legislative
Developments - 109th Congress - Debate over Cash in Advance Payment Definition”
for details on the latest policy developments and congressional debate related to this
change in U.S. policy.)
Legislative Developments

107th Congress (2001-2002)

Members introduced several bills and amendments in 2001 and 2002 to revise
U.S. policy on how food products are handled in sanctions regimes. Most sought to
repeal the export financing and travel prohibitions imposed on Cuba by TSRA;
conferees dropped one such provision included in the Senate’s 2002 farm bill. The
Bush Administration continued to reiterate that any bills with provisions that relax
the Cuban trade embargo would be vetoed. Two bills revisited the broader issue of
the parameters and process to be followed to exempt agricultural sales from U.S.
sanctions policy. Bush Administration efforts to amend TSRA in light of the
September 11, 2001 terrorist attacks were reflected in compromise language included
in anti-terrorism legislation.

Cuba-Specific Bills and Provisions. Proposals varied in approach and
in scope. H.R. 173 and Section 335 of S. 1731 (the Senate Agriculture Committee’s
farm bill) simply would have repealed the prohibition on private U.S. financing of
agricultural sales to Cuba. Seven measures (Section 2(h) of H.R. 174; H.R. 797/S.
402; Section 3(f) of H.R. 798/S. 400; Titles I and II of H.R. 2138/S. 1017; Section
1(f) of H.R. 2662; S. 171; and S. 239) were broader in their coverage, proposing to
drop 3 provisions in TSRA. These are (1) the requirement that eligible exports to
Cuba be licensed in advance, (2) the prohibitions on U.S. government
assistance/financing of food and medical product sales and on private financing of
agricultural sales to Cuba, and (3) the prohibition on tourist travel to Cuba. Some
bills would have repealed specific provisions; S. 239 broadly stated that irrespective
of TSRA, “the prohibition or restriction on trade or financial transactions with Cuba
shall not apply” to the export of agricultural and medical products, or to travel related
to the sale or delivery of these products, to Cuba. Additional language found only
in H.R. 797/ S. 402; H.R. 798/S. 400; and S. 239 effectively would have repealed the
current restriction that ships entering Cuba cannot enter a U.S. port for six months.
This would allow such vessels to transport U.S. agricultural and medical shipments
to Cuba. Some bills would have retained restrictions or prohibitions on
agricultural/medical product exports to Cuba to meet broader export control and
national security objectives. In most of these bills, the referenced provisions were
part of broader legislative efforts to modify or terminate some or all aspects of the
U.S. embargo on Cuba. Among other recommendations offered to change U.S.
policy toward Cuba, the bipartisan House Cuba Working Group on May 15, 2002,
proposed (1) allowing the private financing of U.S. agricultural and medical exports,
and (2) repealing the statutory ban on any ship that visits Cuba from calling on an
American port for 180 days.
Debate on 2002 Farm Bill Provision. The Bush Administration “strongly
opposed” the Senate-passed farm bill provision (Section 355 of S. 1731) that would
have repealed the prohibition on private U.S. financing of U.S. sales of agricultural
commodities to Cuba. The Administration based its stance on its view that Cuba
continues to deny basic civil rights to its citizens and rejects global efforts to combat
terrorism. Reflecting this perspective, Senator Bob Smith during floor debate offered
an amendment to require the President to certify to Congress that Cuba’s government
is not involved in supporting acts of international terrorism before the Cuba-specific
prohibition is repealed. A second-degree amendment offered by Senator Torricelli
to also require Presidential certification that all convicted felons living in Cuba have
been returned to the United States before the prohibition is removed fell, when the
Senate on December 18, 2001 tabled the Smith amendment (61-33). The Senate
provision was a contentious issue in the subsequent farm bill conference held to
resolve differences with the House measure, which did not contain a comparable
provision. With reports surfacing that the House leadership would make the final
decision on this matter, Representative Dooley (one conferee from the House
Agriculture Committee) on April 17, 2002, offered a motion to instruct House
conferees to accept the Senate position. Following debate on the motion on April 18,
the House on a roll call vote of 273-143 agreed to this motion to instruct (non-
binding on conferees) on April 23. In final action, Senate conferees receded to the
House position, leaving the private financing prohibition in place.

Amendment to FY2003 Treasury Appropriations Bill. Representative
Jerry Moran on July 23, 2002, proposed an indirect approach to relax the prohibitions
and stipulations on private commercial agricultural and medical product sales to
Cuba. His amendment (Section 646 to H.R. 5120, FY2003 Treasury
Appropriations), accepted by voice vote, would have effectively cut off funding for
one year to Treasury’s OFAC for administering only those tasks involving the private
financing prohibition and current shipping restrictions, among other Cuban embargo
regulations that apply to agricultural and medical product sales. It would not apply
to TSRA’s licensing requirements that cover agricultural sales to Cuba, because they
are administered by Commerce’s BIS which is not funded by the Treasury
appropriations bill. Final action on this measure did not occur before Congress
adjourned. In the 108th Congress, House and Senate leadership dropped the OFAC
provision in H.J.Res. 2, the omnibus spending bill that also funded Treasury
operations in FY2003, in sending this measure to the floor for action in January 2003.
Administration’s Position. On May 20, 2002, in a major Cuba policy
speech, President Bush 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 a series of specified reforms. Secretary of State Powell and Treasury
Secretary O’Neill followed up in a July 11, 2002, letter to House appropriators to
state they would recommend a presidential veto of any bill that eased restrictions on
trade and travel to Cuba.
Bill Dealing with Other Sanctioned Countries. One measure seeking to
amend TSRA was broader in the range of countries to be covered. S. 171 would
have repealed the TSRA’s prohibition on U.S. government assistance and financing
of sales not just with respect to Cuba, but also with respect to Iran, Libya, North
Korea, and Sudan.
Proposed Changes to Overall Food Sanctions’ Exemption Policy.
Three legislative initiatives to address broad U.S. policy on the issue of exempting
agricultural exports from export control or sanctions regimes. Title IV of S. 149, as
introduced, proposed to exempt agricultural commodities, medicine, and medical
supplies from export controls imposed for foreign policy reasons. Language
specified that this exemption would not apply to any such items subject to national
security export controls imposed under Title II of this bill or listed on the U.S.
Munitions List, nor to their export to a country against which an embargo is in effect
under the Trading With the Enemy Act (Cuba and North Korea). Second, during
Senate Banking Committee markup on March 22, 2001, all of Title IV was deleted.
Concerned the Executive Branch might exercise the bill’s broad authorities in ways
that undercut TSRA’s intent to exempt food and medical products from unilateral
sanctions, Senator Roberts succeeded in including language in a manager’s
amendment that addressed this issue. Third, section 603 (as adopted by the Senate
in early September 2001) stated that S. 149 does not authorize export controls on
food for national security purposes. It also stated that such controls cannot be used
to restrict food exports for foreign policy reasons, unless Congress in advance
approves such action following TSRA’s provisions, and explicitly stated that nothing

in S. 149 authorized the exercise of authority to restrict agricultural and medical
product exports contrary to any TSRA provision.
Amendments to TSRA in Anti-Terrorism Legislation. The package of
anti-terrorism measures (P.L. 107-56; H.R. 3162) signed into law on October 26,
2001 amended some TSRA provisions. The compromise struck between the Bush
Administration and key Senators modified one circumstance under which TSRA’s
food/medical exemption would not apply, codified that agricultural and medical
product sales to the Taliban-controlled area of Afghanistan are subject to TSRA’s
export licensing requirements that apply to Cuba and to governments of other
countries determined to be sponsors of international terrorism, and expressly allows
eligible export sales to be made also to any other entity in Syria or North Korea
without the need for an exporter to secure a license. Other provisions stated that no
TSRA provision limits the application of criminal or civil penalties on those who
unlawfully engage in the export of agricultural and medical products to designated
foreign organizations, groups, persons, or entities, nor affects the statutory
prohibitions against providing material support or resources to designated foreign
terrorist organizations.

108th Congress (2003-2004)

Members introduced seven measures, and offered amendments to spending bills,
to relax TSRA’s Cuba-applicable provisions in the 2003-2004 period. Conferees
dropped two provisions in FY2005 spending bills that would have relaxed TSRA
Cuba-Specific Bills. None of the measures introduced pertinent to Cubath
were enacted during the 108 Congress. H.R. 187 proposed to repeal TSRA’s
prohibition on the use of private financing for agricultural and medical product
exports to Cuba. H.R. 188 and S. 403 were broader in scope, repealing the private
financing prohibition, ban on travel, and licensing requirement provisions, among
numerous provisions intended to end the U.S. trade embargo on Cuba. H.R. 1698
and H.R. 3422 would have repealed or superseded all TSRA provisions that apply
to Cuba, respectively. H.R. 4457/S. 2449 proposed to terminate TSRA’s restrictions
with respect to Cuba (among other features of the U.S. embargo on Cuba) unless
Congress passes a resolution to renew them.
Opponents of liberalizing trade with Cuba introduced H.R. 3670 to penalize
U.S. exporters and others who sell products or services to Cuba if such trade is
explicitly conditioned on their lobbying Congress to remove trade and travel
restrictions on Cuba. The bill’s intent is to address a U.S. farm organization8
reportedly agreeing in a memorandum of understanding to press Congress to engage
with Cuba and to seek repeal of these restrictions in return for Cuban purchases of
$15 million worth of agricultural products from Indiana-based businesses. Other
members indicated their intent to introduce related bills, or offer amendments, to
amend TSRA to (1) allow farm machinery sales to Cuba on a cash-only basis, and (2)

8 Cuba Trader, “House Members Seek to Punish Trade-for-Lobby Deals Between Cuba and
U.S. Entities,” December 8, 2003.

repeal U.S. travel restrictions (viewed by U.S. agricultural groups among others as
a way for Cuba to generate dollar earnings to purchase U.S. food products).9
Provisions in Appropriations Bills. In mid-November 2003, conferees on
the FY2004 agriculture appropriations measure (H.R. 2673), part of the FY2004
omnibus spending package, dropped a Senate amendment (Section 760 of S. 1427)
that would have facilitated the process of securing permission to travel to Cuba under
TSRA to promote and sell U.S. agricultural and medical products there. The
amendment was added by voice vote on July 17, 2003, during Senate Appropriations
Committee markup of this spending bill; Senator Dorgan’s intent was to address such
situations as OFAC’s 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.
The White House opposed this provision, arguing that it would weaken current
sanctions imposed against the Cuban government. Its position, laid out in its
“Statement of Administration Policy” on S. 1427, is that “travel to Cuba should be
further policed to ensure that those traveling [there] are doing so for legal purposes
and not simply using legal categories to disguise travel for other purposes.”
An identical provision was included in the FY2005 agriculture appropriations
bill (Section 776 of S. 2803). Introduced by Senator Dorgan during markup, this
amendment was adopted by the Senate Appropriations Agriculture Subcommittee by
voice vote on September 8. Language would require the Treasury’s OFAC to give
“general licenses” for U.S. exporters and others seeking to travel there on eligible
business. Current policy requires them to apply for a “specific license” for each
prospective trip. Amendment supporters argued that the Bush Administration has
used the rules to delay or to refuse to issue travel licenses to those seeking to make
farm sales in Cuba. Seeking to head off a possible similar initiative in the House in
June when its agriculture appropriations was considered, the Administration stated
the bill would be vetoed if this provision was included. Administration officials
argued the current licensing process “helps to ensure that travel to Cuba serves
appropriate purposes and that sales to Cuba are done within the boundaries of the
law.” Just before conferees completed work in November 2004, the Director of the
White House Office of Management and Budget signaled that including in the
omnibus appropriations measure (H.R. 4818) any provision to weaken existing
sanctions against Cuba (such as restrictions on commercial exports of agricultural
and medical goods) would result in a presidential veto. In final action, appropriators
dropped this provision from the bill.
An amendment to the FY2005 transportation/treasury spending bill (Section 649
of H.R. 5025), adopted by the House during floor debate on September 22, 2004,
would have prohibited the use of appropriated funds to implement any U.S.-imposed
sanction on private commercial sales of agricultural commodities to Cuba.
Representative Waters, its sponsor, stated that TSRA’s financing restrictions on these
sales “make trade ... unnecessarily expensive, bureaucratic and complicated” and
argued that with their removal, small businesses would be in a better position to

9 For additional information on legislative efforts to amend TSRA’s restrictions on travel
to Cuba, see CRS Report RL31139, Cuba: U.S. Restrictions on Travel and Remittances, by
Mark P. Sullivan.

increase U.S. market share. An opponent acknowledged that since U.S. agricultural
sales are now legal, exporters have indicated they like to be paid under the current
policy in place. Allowing financing for such sales would simply “reward the
dictatorship,” he argued. Conferees also dropped this provision from the same
FY2005 omnibus spending package considered during the November 2004 lame
duck session.

109th Congress (2005-2006)

Debate over Cash in Advance Payment Definition. Concerned that
some reported late payments from Cuba constituted a form of financing and possibly
violated TSRA’s financing prohibition, Treasury’s OFAC on November 12, 2004,
instructed U.S. banks to stop all transfers of Cuban payments to U.S. exporters while
it investigated recent sales transactions. OFAC subsequently released some
payments on a case-by-case basis, which allowed banks to forward funds to
exporters. The Bush Administration also indicated plans to announce new rules on
the payment issue by late December 2004. In letters to the Secretary of Treasury and
Secretary of State in late November and early December 2004, some Members of
Congress questioned or expressed opposition to the Administration’s plans. They
noted that the change being considered to require a seller to receive payment before
a shipment leaves a U.S. port would be much more restrictive than current practice
and would “impede” agricultural sales to Cuba. One Senator argued that a more
restrictive rule would constitute a new sanction that in itself would require
congressional approval under TSRA provisions in order to take effect. Separately,
a coalition of agricultural groups and businesses in a December 8, 2004, letter to
President Bush stated that U.S. exporters have “followed explicitly both the letter and
spirit of the law” in selling food products to Cuba. They argued the proposed
restrictive guideline would “run counter to the norms of international trade,” which
simply require payment to be received prior to the shipment’s release to the buyer
(e.g., payment before transfer of title to the buyer, even if the ship is docked in
To signal continued opposition to the Administration’s intent to change the
timing of payment for U.S. agricultural product sales to Cuba and to amend certain
TSRA provisions, some Members of the House and Senate introduced identical
measures (H.R. 719/S. 328) in early February 2005. Section 5 would clarify that
“payment of cash in advance” means payment by the purchaser (e.g., the Cuban
government) and the seller’s receipt of such payment, before the product’s title and
control is transferred and released, respectively, to the purchaser. H.R. 1339/S. 634
would only redefine this term, using language identical to Section 5 in H.R. 719/S.
328. With Treasury’s publication on February 25, 2005, of the rule to require
payment before shipment from a U.S. port (with an effective date of March 25), some
Members responded they would explore all available options to change this policy
or to block Senate consideration of significant Treasury nominees. One legislative
initiative to accomplish this (in S.Amdt. 281 and S.Amdt. 282) is pending in Senate
consideration of S. 600 (Foreign Affairs Authorization Act for FY2006 and FY2007).
Also added as an amendment to the FY2006 Transportation-Treasury appropriations
bill (Section 945 of H.R. 3058 as passed by the House, and Section 721 as passed by
the Senate) was a prohibition on using funds to implement OFAC’s rule. With the
White House threatening to veto the bill if included, conferees dropped this provision

in the enacted measure. This occurred after almost 40 House members urged
conferees to retain it. Five of the 23 Senate conferees signed the conference report,
noting their opposition to dropping the Cuba trade language. On June 14, 2006,
identical language was added by voice vote as an amendment to the FY2007
Transportation-Treasury appropriations bill (Section 950 of H.R. 5576).
Farm groups and agribusiness firms in a letter to four House members on June
27, 2005, called for restoring the option to allow receipt of payment before title is
transferred. They presented data on the decline in U.S. agricultural sales this year
compared to 2004 because of the OFAC rule, and detailed the loss of sales of rice and
other commodities to such other countries as Vietnam and China.
OFAC’s announcement on July 29, 2005, allowing for the shipment of goods
once the seller’s agent (if located in a third country) receives payment from the
Cuban buyer. This could make it slightly easier for some U.S. sellers to make sales,
according to some analysts. Others question whether this clarification will make any
difference. Opponents of the rule have signaled their intent to continue to work with
Congress to overturn it. This slight shift in policy prompted Senator Baucus to lift
his hold on six Treasury nominees, who were then confirmed by the Senate later that
day. Though exports in the first four months after OFAC’s rule change (April to July
2005) were below 2004 levels, exports since August 2005 have been higher in all
months but one compared to year-earlier levels. This may be attributable to OFAC’s
rule modification in late July 2005 and a reported willingness by Alimport to work
with U.S. exporters under these new payment procedures.