Wednesday, July 18, 2012

New import fees to hammer Cuba’s small businesses

Posted on Tuesday, 07.17.12

New import fees to hammer Cuba's small businesses

Cuban small businesses, most of which work with goods that arrive with
travelers or in shipments from the United States, are experiencing
higher import fees from the government, which the businesses intend to
pass along to customers.
By Juan O. Tamayo

The Havana manicurist gets her nail polish from a sister in Tampa, and a
restaurant owner says he gets his Goya seasonings through a Miami mule —
someone who flies to Cuba just to deliver packed suitcases.

A Miami woman ships packages averaging 20 pounds of food and clothes for
resale to her widowed mother in Cuba, and teacher in Havana says he
bought his new jeans from a friend who resells clothes brought in by
relatives in Hialeah.

In many different ways, Cubans benefit abundantly from the torrent of
U.S. goods flowing in since President Barack Obama lifted virtually all
restrictions on Cuban Americans who travel or send packages to the
island in 2009.

But now Raúl Castro's government is hiking the import fees on those
goods, apparently trying to force émigrés to send badly needed cash
instead, to control the trade in imported items and counter the drop in
sales of those types of goods at state-owned stores.

The hikes will fall especially hard on the thousands of mini-businesses,
from corner pizza stands to beauty parlors, that blossomed across the
island as Castro tries to encourage private enterprise and slash
spending by the communist-run government.

"This is going to be a big hit in Cuba. A strong, strong, strong hit,"
said Alberto Dieguez, owner of Caribe Express in Miami, who estimated he
will have to raise the price of the packages he ships to Cuba to $5.50
per pound, from $3.50 per pound.

The goods flowing to Cuba — from computers to TVs, video games, tools,
DVDs and perfume to spare parts for cars and motorcycles — were valued
at $2 billion to $2.5 billion in 2011 alone by Emilio Morales, president
of the Havana Consulting Group in Miami. About 90 percent of the goods
left from the United States, he added.

Dieguez said the new fees — one enacted June 18 and others taking effect
Aug. 2 and Sept. 3 — fall hardest on the larger batches of goods
arriving because of suspicions that they are destined for commercial
use. Residents returning from abroad will more often pay in Cuban pesos,
while U.S. visitors will pay in CUCs, worth 26 pesos.

More than 400,000 Cubans living in the United States visited the island
last year. Others who live in third countries, especially Ecuador and
Mexico, as well as Cubans returning home from trips abroad, also
jam-pack their bags for their flights to Havana.

With no wholesale stores on the island, the goods arriving with
travelers and in packages supply many of the new businesses, including
leather for shoe repair shops, balloons for party clowns, and the
clothes and costume jewelry sold in street kiosks.

Jose Antonio, who owns a paladar in Old Havana, complained he already
must pay fixed taxes and fees, regardless of his actual income, and now
will have to pay more to the "mule" who brings in his Goya seasonings
and Coffeemate.

Nelly, a Havana manicurist, said she prefers to get her nail polished
abroad because those in state-owned stores are more expensive and often
run out. Enrique says he paid a mule $19 for jeans of much better
quality than those sold in state stores for $25.

"If you want something of quality at a good price, you go to your
friends, never to the state stores," said Nelly, who, like other island
residents interviewed for this story, asked to remain anonymous because
their business activities are not always legal.

The increase in import duties and fees has raised questions about why
the Cuban government would cast such a dark cloud over the small private
enterprises that Castro has been trying to promote since he succeeded
brother Fidel Castro in 2008.

Morales said he believed the hikes are part of a drive by Communist
hardliners to regain a measure of control over the private businesses
and force émigrés abroad to send less goods and more cash — which Cubans
must then spend on state stores.

"This is the fear of an (economic) opening that they have always had,"
he told El Nuevo Herald. "They don't like too much money floating on the

Some of the new businesses have complained of increasing state controls,
such as more and tighter inspections, and government officials have
reportedly called for forcing the "self-employed" to join neighborhood
activities such as cleaning streets.

Miami economist Marzo Fernandez said Havana "needs cash with extreme
urgency" and noted that Cuban bank assets abroad reported by the Bank
for International Settlement plunged from $5.65 billion to $4.1 billion
in the last three months of 2011.

Dissident Havana journalist Ivan García wrote recently that the
government is trying to "milk more cash out of Cubans living abroad"
because "deep down they hate the émigrés. They see them as traitors who
fled … and took refuge in the land of their No. 1 enemy."

The Cuban government is expected to soon approve changes in migration
regulations that would make it more attractive for émigrés to invest in
and return to the island.

Castro opened a window to private enterprise as part of a drive to
energize the economy by slashing nearly one million workers from state
payrolls, cutting state spending on health, education and food imports,
handing out millions of acres of state lands to private farmers and
attracting increased foreign investments.

But he has taken a slow and steady approach, warning over the past two
years that while Cuba stands on the edge of economic chaos, his economic
reforms must be carried out "without hurry but without delay."

Few changes have been visible since a crucial Communist Party Congress
in April of last year endorsed Castro's reform package, while complaints
have mounted against bureaucrats and corrupt officials who oppose the

Paladar owner Jose Antonio recalled that he opened his doors in the
early 1990s, when the collapse of Soviet subsidies to Cuba forced Fidel
Castro, who nationalized all island businesses in 1968, to approve a
limited reopening of private enterprise.

But as Cuba recovered from the shock in the last half of the 1990s,
Castro began to row back on the opening, with tax and health inspectors
tightening the controls on the small businesses until many of them
closed their doors.

"I've had some years of experience, and that's why I worry," said Jose
Antonio. In the early 19990s, "we were 30 paladares in Old Havana, and
at one point we were only five. Today, I just don't know if I will be
able to continue, with these rising costs."

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