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RR RUEHGA RUEHHA RUEHQU RUEHVC
DE RUEHOT #2420/01 2241230
ZNR UUUUU ZZH
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FM AMEMBASSY OTTAWA
TO RUEHC/SECSTATE WASHDC 3445
INFO RUCNCAN/ALL CANADIAN POSTS COLLECTIVE
RUEHUB/USINT HAVANA 0008
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC

UNCLAS SECTION 01 OF 03 OTTAWA 002420 
 
SIPDIS 
 
SIPDIS 
 
STATE PASS USTR 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EAGR CU CA
SUBJECT: THE PROSPEROUS CANADA-CUBA ECONOMIC RELATIONSHIP 
 
REF: A. OTTAWA 2258 
 
     ¶B. OTTAWA 1245 
     ¶C. 05 0TTAWA 3518 
 
¶1.  (SBU) Summary:  Canada,s economic relationship with Cuba 
began in the late 19th century, long before the U.S. embargo. 
 Today, Canada-Cuba economic ties continue to be strong. The 
annual two-way trade between the countries is around $1 
billion USD.  About 22 percent of Cuban exports (mostly 
nickel, cigars, and seafood) go to Canada, second only to the 
Netherlands.  Cuba generally imports oil and food, and from 
Canada it gets mainly computer equipment, mining and oil and 
gas machinery, and wheat.  Foreign direct investment in the 
form of oil exploration and production is expanding, and at 
least one Canadian company, Sherritt International, is 
involved.  Tourism is also a big part of the economic 
relationship, as Canadians make up the largest group of 
travelers to the island. The number of Canadians visiting 
Cuba also continues to grow.  And despite possible sanctions 
under the U.S. Libertad Act, around 85 Canadian companies 
continue to do business in Cuba. End summary. 
 
BRIEF HISTORY 
-------------- 
 
¶2.  (U) The economic relationship between Canada and Cuba is 
not merely an opportunistic response to the U.S. embargo. 
The two countries have enjoyed economic ties dating back to 
the late 19th century when vessels from Canada,s east coast 
traded cod and beer for rum and sugar. As early as 1910, a 
trade commissioner was posted in Cuba to promote Canadian 
products.  After the Revolution in 1959, Canada was one of 
only two countries (Mexico being the other) to maintain 
formal relations with Cuba.  Cuba,s tourism industry grew 
steadily starting in the 1970s, and today Canadians compose 
Cuba,s largest group of visitors, with more than 600,000 
flocking to the island last year. 
 
CANADIAN IMPORTS FROM CUBA 
--------------------------- 
 
¶3.  (SBU) Canadian imports from Cuba in 2005 were 456 million 
USD, an increase of less than one percent over the previous 
year. Almost all, 97 percent by value, was nickel.  Other 
imports were cigars, seafood, scrap-metal, alcohol, and 
coffee.  Trade analysts in Canada are fond of pointing out 
that Cuba is "one of the few export markets not dominated by 
the United States", thanks to the U.S. trade embargo on Cuba. 
 For Canadian exporters, who see in the U.S. both their 
largest market and their largest competitor, this situation 
is appealing despite the continuing difficulties of doing 
business with a country "constrained by deep structural 
problems." 
 
CANADIAN EXPORTS TO CUBA 
------------------------- 
 
¶4.  (U) In 2005, Canada's exports to Cuba totaled 369 million 
USD, which made up 0.1 percent of its total exports, roughly 
equal to U.S. exports to Cuba.  The two biggest exports were 
computer and peripheral equipment, and mining and oil and gas 
field machinery; each accounted for about 10 percent of total 
exports.  The leap in mining, oil, and gas equipment 
shipments (38 million USD in 2005 versus 4.7 million USD in 
2000) has been stimulated by the recent offshore oil 
exploration effort in Cuba. Wheat was the third largest 
Canadian export, accounting for 7.4 percent of the total. 
Agricultural products, machinery parts, and sulfur make up 
the majority of the rest of the exports. 
 
¶5.  (SBU) The current level of exports to Cuba represents an 
increase of 47% over 2004 levels, with much of the growth in 
the agricultural sector.  The Canadian Wheat Board, the 
largest single seller of wheat and barley in the world, is 
working with ALIMPORT, Cuba's state importing agency for 
Qworking with ALIMPORT, Cuba's state importing agency for 
agricultural products, to increase Canadian wheat exports to 
Cuba.  The Canadian Agri-Food Trade Service of Agriculture 
and Agri-Food Canada reports that Canada is currently Cuba's 
second largest supplier of wheat after France.  At ALIMPORT's 
request, the Canadians are also providing information on 
Canadian barley and oats for food uses.  Agricultural exports 
to Cuba are closely linked to the tourism trade, since with 
the exception of basic foodstuffs and commodities for the 
local population, the government of Cuba imports food 
products to meet the demands of tourists, and the demand for 
imported food is expected to increase with the tourism trade. 
 Cuba also lifted a BSE-related ban on Canadian beef exports 
in 2005, which may account for some of the increase in 
 
OTTAWA 00002420  002 OF 003 
 
 
agricultural exports. 
 
¶6.  (SBU) Canadian machinery exports to Cuba, which also 
increased between 2004 and 2005, are less likely to continue 
to increase.  The Canadian equipment sector is geared toward 
contract work, so exports to a country can fluctuate 
significantly year-to-year, as contracts are filled and are 
sometimes not renewed.  Export Development Canada lists Cuba 
as a notable example of this trend, where exports grew in 
2005 but are expected to fall in 2006. 
 
OIL 
---- 
 
¶7.  (SBU) Canadian oil companies have taken an interest in 
Cuba in recent years.  While Cuba does produce its own oil, 
mostly from a reservoir off the north coast discovered in 
1971, that oil is poor-quality &sour8 crude.  However, 
thanks to foreign investment from places like Canada and 
Spain, Cuban oil production has taken off lately. According 
to press reports citing public and confidential records, 
Cuba,s Economic Exclusionary Zone, which lies in the North 
Cuban Basin between Key West and Havana, potentially holds 
petroleum reserves amounting to an estimated 4.5 to 9 billion 
barrels. While Canadian, Brazilian, and Spanish companies 
have carried out test drilling in the zone for years, 
although usually with only minimal returns, new exploration 
efforts could soon be paying off.  In conjunction with its 
increased oil investment, Cuba plans the construction of 36 
new oil rigs built in partnership with Canadian and Chinese 
companies within territorial waters. 
 
¶8.  (SBU) Sherritt International is involved in the oil 
production off Cuba,s northern coast. We are also aware of 
one other Canadian entity, Pebercan, which exploits offshore 
drilling licenses in Cuban waters.  The Cuban government has 
divided its exclusive drilling zones to the north and west of 
the island into 59 deep-water blocks, and Sherritt has 
acquired the rights to four of them. 
 
TOURISM 
-------- 
 
¶9.  (SBU) Like sugar, tourism is a pillar of the Cuban 
economy.  Canadian tourists to Cuba, attracted mainly by low 
cost vacations, account for roughly a third of Cuba,s 
tourist trade and compose the largest single group of foreign 
visitors to the island. Canadian tourists also are Cuba,s 
largest source of tourism revenue. Cuba is the fifth most 
popular international destination for Canadians, after the 
United States, Mexico, United Kingdom, and France. 
 
¶10.  (SBU) In 2003, approximately 494,000 Canadian tourists 
visited Cuba, and that number is expected to increase to 
nearly 640,000 this year.  Half of Canada,s tourists are 
from Quebec.  Air Canada currently runs 10 flights a week to 
Cuba, including to the island of Cayo Coco and the resort 
town of Varadero.  During Cuba's busy winter season, Air 
Canada increases its operations to 28 weekly flights, 
including daily service from Toronto to Havana. 
 
¶11.  (SBU) Canadian companies are active in the Cuban tourism 
industry through hotel supply-contracts.  Two Canadian-based 
tourism-related companies have recently been listed as 
Specially Designated Nationals under the Cuban Assets Control 
Regulations. 
 
OTHER FDI 
---------- 
 
¶12.  (SBU) Canada is also the largest foreign investor in 
Cuba.  There are about 85 Canadian companies operating in 
Cuba, including Labatt, a brewing company, and Pizza Nova, a 
fast-food pizza chain which has six locations in Cuba.  The 
U.S.-Cuba Trade and Economic Council lists the companies 
which do business or have done business with Canada (listing 
available at www.cubatrade.org). 
 
¶13.  (SBU) The largest Canadian investor in Cuba is Sherritt 
Q13.  (SBU) The largest Canadian investor in Cuba is Sherritt 
International, a natural resources company based in Toronto 
that earned more than C$100 million in the first quarter of 
this year.  State-owned Cubaniquel and Sherritt jointly 
operate a nickel and cobalt facility in Moa, Cuba, in 
addition to Sherritt,s oil production efforts mentioned 
above.  Nickel accounts for 20% of Sherritt,s earnings.  As 
of 1997, there were over 200 foreign investment operations, 
valued at US $2.1 billion, and over 30 Canadian joint 
ventures. 
 
OTTAWA 00002420  003 OF 003 
 
 
 
¶14.  (SBU) Canadian contacts say that the mere threat of the 
Title III implementation has acted as an obstacle to 
investment in Cuba.  Because of the high-level of 
cross-investment between Canada and the United States, most 
major Canadian enterprises already have some legal exposure 
to the Libertad Act through their U.S. affiliates (40 percent 
of Canadian foreign direct investment overseas is in the U.S. 
and U.S. investors account for 64 percent of foreign direct 
investment in Canada.)  U.S. entry restrictions on key 
Canadian corporate officials under Title IV of the Libertad 
Act (for example, a number of Sherritt executives are barred 
from entry) already create a significant disincentive to 
Canadian investment in potentially expropriated properties 
and effectively underscore U.S. opposition to such 
investments. 
 
¶15.  (SBU) Given Canada's location, and the degree of its 
economic, social, and cultural integration with the U.S., an 
entry bar to the U.S. is a major logistical and social 
headache for a Canadian.  Canadian officials have 
consistently complained about the extraterritorial reach of 
the Libertad Act, and Canada's Foreign Extraterritorial 
Measures Act attempts to counteract U.S. laws by enabling a 
clawback of any losses awarded in U.S. courts, enforceable 
against American assets in Canada (although this provision 
has not yet been enforced.) 
 
¶16.  (SBU) Still, fear of Title III implementation is often 
not enough to stop Canadian companies from investing in Cuba, 
according to the press.  For instance, the Ministry of 
Economic Development for the Quebec provincial government 
leads a trade mission of about 10 provincial companies to 
Cuba each year. 
 
¶17.  (U) Since June 1994, Cuba has been eligible for benefits 
from the Canadian International Development Agency,s 
Industrial Co-operation Program (CIDA-INC).  Under CIDA-INC, 
Canadian firms can apply for co-financing for feasibility 
studies of potential joint ventures or partnerships.  The GOC 
also guarantees Cuban purchases from Canadian companies 
through the Canadian Export Development Agency. 
 
¶18. (U) Summer intern Andrew Jaynes researched and drafted 
this report. 
 
Visit Canada's Classified Web Site at 
http://www.state.sgov.gov/p/wha/ottawa 
 
WILKINS