Major Impediments to the Cuban Cigar Industry

 

With President Obama’s just-completed historic trip to Cuba, he has become the first American president to visit since Calvin Coolidge in 1928. In light of this historic and controversial event, it is important to highlight some underlying issues that lurk behind the scenes and threaten the influx of fine Cigars into the American economy.

First, we are clearly at the beginning of a long process to reform Cuba from state control to a democracy.  The primary reason is that Raul Castro has put his military leaders into key government and industrial positions of control.  Once the Castro's are out of the picture (Raul is turning 85 this year) these leaders will likely move from a military controlled government to one similar of Batista, or even Egypt today.  These captains of industry will be hailed as champions of Democracy, and the facilitators of real social change, when in fact not much will have changed at all, they will be incredibly wealthy men, and the people will continue to suffer.

Obama's trip will be looked back as the catalyst to social upheaval in Cuba, and the people will enjoy the modest benefits of meager socio-economic change.  Sadly, the human rights policies that were so woefully cruel under the Castro regimes will make any minor advancement in a Democratic direction seem like a true social metamorphosis to the people. 

Hopefully, this will come with some trade-offs.  If Congress can move forward, and find concrete ways to validate any real progress, it will be a solid start.  If the monetary infusions from large American companies made into Cuba can be a tide that raises all ships, and if some of those ships are the rowboats and dinghy’s of the long suffering people, then maybe the strategy is worth pursuing.  It will be a complete leap of faith on our part, with the hope that in spite of corrupt government and corporate leaders, some change will be better than no change at all.  I think Obama saw this, and thought that he had nothing to lose by kicking off the process, while at the same time securing his own legacy.

Second, there has to be a commitment to the advancement of political reforms and civil liberties for the Cuban people before we pursue real economic and trade relations. Congress should assess where we are and will need to go, before advancing further legislation intended to normalize relations. No long-term advancement of a US-Cuban relationship can be sustained without this being the central and defining tenant.  Further, without a central focus on improvements to human rights, exactly what would have really changed, and as such, why do anything now?  Clearly, this has to be the path forward, but it may be a very bumpy road that will probably lead us in a series of circles before any sustained positive change is realized. 

Third, simultaneous to the president’s effort to improve this relationship, another wing of the administration is working on avoiding regulations that could complicate and potentially thwart any current or future progress.

 Since Dec. 17, 2014 when the president surprised the nation with his initiative to improve relations with Cuba, the one consistent image of the island nation has been the cigar. References to Cuban cigars, as a staple of their economy and international symbol of the country, began to surface throughout our national media. The immediate discussion turned to “When will we be able to get Cuban cigars into the United States?”.  Rules on this were being addressed by the Treasury Department recently, and Americans traveling to Cuba in recent months have been permitted to return with up to $100 worth of cigars for personal consumption.  During a February speech to the U.S. Chamber of Commerce, Cuban Trade Minister Rodrigo Malmierca called upon the administration to allow for exports of various Cuban products, specifically noting cigars.

On the other side of the Beltway, the Food and Drug Administration (FDA) is hatching sinister regulation targeted at premium cigars, which will decimate an exploding industry both in the US and in many Caribbean nations.  There are estimated to be 250,000 jobs within 50 Cigar manufacturing facilities in Cuba.  That only represents the tip of the FDA's death spear, as over 300,000 jobs form a bustling cigar industry in Honduras, Nicaragua, and the Dominican Republic.  This misguided legislation will finally kill off the US Cigar industry.  Tampa, Florida, who once thrived with over 80 Cigar Manufacturing plants in 1920, has now dwindled to a single Cigar manufacturing company. The bureaucrats at the FDA will not only stamp out the only remaining history of a once founding industry there, but they will also completely decimate the primary export of these poor Caribbean nations.

Twice, in a joint letter to six federal agencies, including Commerce, Agriculture, State, Homeland Security and the National Security Council, each respective ambassador to the United States from these three nations has voiced their concern over the FDA effort to regulate premium handmade cigars.

The ambassadors noted, “No regulatory measure should threaten such jobs, and hence raise the specter of political and economic consequences within our region.” The FDA’s own notice in the Unified Regulatory Agenda states, “This regulatory action will be likely to have international trade and investment effects.”

Jorge Alberto Milla Reyes, ambassador to the United States from Honduras, has clearly defined the impact of cigar regulation. He stated, “There are, indeed, international trade and economic implications with regulating premium cigars from Honduras and throughout Latin America. The government of Honduras values the investment and source of employment provided by the premium cigar industry, and knows well how it provides for over 35,000 families in Honduras and 300,000 in the region. We cannot underestimate how this contributes to stability, especially at this time of concern over such issues as immigration and security.”

The premium cigar industry also represents thousands of American jobs, through more than 2,000 retail businesses, and a supplier and logistics network that stretches from South Miami to the sales channels of the North East.  It is hundreds of family farms throughout small town America. These craft businesses could not sustain the crushing financial weight of federal regulation.

Regulating and attacking an industry enjoying such amazing growth, which is more of an art form than public health issue, is counter-intuitive to the efforts of Vice President Joe Biden to advance economic and trade opportunities. The FDA could single-handedly destabilize the sustained efforts to grow and advance a growing cottage industry.

In my review of the FDA proposal, I found this:

"Under this regulatory proposal, new cigar blends would have to submit to the FDA for “pre-market approval,” through a costly and cumbersome application process, that could take years for processing. One estimate is that it could take 5,000 hours, just for the application. And because of a “predicate date” of 2007, all cigars since then coming into the U.S. market, whether Cuban or from the rest of the Latin America and Caribbean Basin, would be subject to a “new product” set of standards to enter, which few could afford. It would destroy the boutique sector of the industry, and halt any limited release commemorative cigars. The Small Business Administration’s Office of Advocacy, in a comment letter to the regulatory docket, found FDA’s Initial Regulatory Flexibility Analysis “deficient — because it does not adequately describe the impacts on all types of newly covered small entities.” I could not agree more. Small businesses in America, Cuba and throughout Latin America would be devastated".

So, in summary, we have major issues that threaten the welcome news of potentially normalized relations with the island nation of Cuba.  There are threats from within the Cuban nation itself, and homegrown Governmental threats right here within our own capital.  Where in the former, we are facing the familiar face of greed, corruption, and exploitation, in the latter we face the same threats from an agency tasked with protecting our nation's health from real threats, and not controlling the systematic dilution of private industry both foreign and domestic. 

In spite of both these seemingly overwhelming problems, the hope is that we have hit on a foundation to build a better future for all involved.  We hope that Cuba can find a way to shed governmental industrial control and improve the lives of its people through civil rights advancements and booming economic growth.  We remain optimistic that the historic presidential trip will allow cooler heads to prevail in Washington, recognizing the Cigar industry as a safe form of pleasure, and not a misrepresented health crisis orchestrated to expand bureaucratic control.  The lives of so many within the Cigar industry will depend on it, along with our love of the incredible products they produce.