Soft drink makers are considering taking legal action against the government over its controversial sugar tax as George Osborne’s budget shows further signs of unwinding. Suing the government is one option that companies are considering as they await more details on the tax, which will come into force in 2018 and cost £1bn to implement, almost double the amount that it is expected to raise. The cost of the sugar tax has been revealed in documents published by the Office for Budget Responsibility alongside the budget. The extra cost will come from a predicted rise in accrued interest that the government will have to pay on debt that is linked to the rate of inflation. The new tax will add 24p a litre to soft drinks with the highest sugar content, a cost that could be passed on to shoppers through higher prices, meaning inflation would rise. The chancellor has predicted the tax will raise £520m in its first year, far less than the cost of introducing the levy. Gavin Partington, director general of the British Soft Drinks Association, said: “This just reaffirms our view that this tax is ill-considered. The evidence does not suggest it will be effective and taxpayers will be left paying a heavy price for it.” The announcement of the sugar tax led to sharp falls in the share prices of major drinks companies, such as Britvic, the maker of Robinson, and AG Barr, the maker of Irn-Bru. The leading companies are now considering how to respond to the tax, with legal action against the government one option. The soft drink makers could sue the government through European courts on the basis that other types of food and drink – such as fruit juice and milkshakes – are not included. Similar taxes in Scandinavia have been successfully challenged. Partington added: “At this stage all options are on the table. We need clarification about how this tax is going to work, exactly what’s excluded and what’s not. Nothing can be ruled out at this stage.” Coca-Cola also refused to rule out legal action. A Coca-Cola Great Britain spokesperson said: “We need to know more about the levy and how the government plans to implement it. Once this is clear to us, we’ll decide on what steps to take as a business and how best to continue the work we have done to help people consume less sugar and calories from our drinks.” However, the government defended the tax, claiming the chancellor was putting the next generation first, and that the soft drink makers had two years to cut the sugar content in their products. A HM Treasury spokesperson said: “He introduced a new levy on the soft drinks industry to pay for a doubling of dedicated sport funding for every primary school in the country, a huge expansion of breakfast clubs to ensure that every child gets the best start to the day, and new funding for a longer school day. “The chancellor also made clear that this was a policy aimed at driving meaningful change. The new levy will not be introduced until 2018, giving companies plenty of time to change product mix and reduce sugar content.” Thanks for reading.
Drinks makers consider legal action against sugar tax
Soft drink makers are considering taking legal action against the government over its controversial sugar tax as George Osborne’s budget shows further signs of unwinding. Suing the government is one option that companies are considering as they await more details on the tax, which will come into force in 2018 and cost £1bn to implement, almost double the amount that it is expected to raise. The cost of the sugar tax has been revealed in documents published by the Office for Budget Responsibility alongside the budget. The extra cost will come from a predicted rise in accrued interest that the government will have to pay on debt that is linked to the rate of inflation. The new tax will add 24p a litre to soft drinks with the highest sugar content, a cost that could be passed on to shoppers through higher prices, meaning inflation would rise. The chancellor has predicted the tax will raise £520m in its first year, far less than the cost of introducing the levy. Gavin Partington, director general of the British Soft Drinks Association, said: “This just reaffirms our view that this tax is ill-considered. The evidence does not suggest it will be effective and taxpayers will be left paying a heavy price for it.” The announcement of the sugar tax led to sharp falls in the share prices of major drinks companies, such as Britvic, the maker of Robinson, and AG Barr, the maker of Irn-Bru. The leading companies are now considering how to respond to the tax, with legal action against the government one option. The soft drink makers could sue the government through European courts on the basis that other types of food and drink – such as fruit juice and milkshakes – are not included. Similar taxes in Scandinavia have been successfully challenged. Partington added: “At this stage all options are on the table. We need clarification about how this tax is going to work, exactly what’s excluded and what’s not. Nothing can be ruled out at this stage.” Coca-Cola also refused to rule out legal action. A Coca-Cola Great Britain spokesperson said: “We need to know more about the levy and how the government plans to implement it. Once this is clear to us, we’ll decide on what steps to take as a business and how best to continue the work we have done to help people consume less sugar and calories from our drinks.” However, the government defended the tax, claiming the chancellor was putting the next generation first, and that the soft drink makers had two years to cut the sugar content in their products. A HM Treasury spokesperson said: “He introduced a new levy on the soft drinks industry to pay for a doubling of dedicated sport funding for every primary school in the country, a huge expansion of breakfast clubs to ensure that every child gets the best start to the day, and new funding for a longer school day. “The chancellor also made clear that this was a policy aimed at driving meaningful change. The new levy will not be introduced until 2018, giving companies plenty of time to change product mix and reduce sugar content.” Thanks for reading.
Brexit could trigger credit downgrade for UK’s biggest firms
Britain’s biggest companies could face a credit downgrade – potentially forcing up their borrowing costs – should the UK vote to leave the EU in June, according to a report by a leading ratings agency.
Moody’s said the prospect of lengthy and uncertain negotiations would deter foreign investors and limit the profits of mainstream corporations that trade with the rest of the EU. But banking and insurance would be less affected than non-financial companies.
The warning came as the Oxford Economics thinktank said Britain could quit the trade bloc largely unscathed only if it “cut a good trade deal with the EU, adopted a raft of tax cuts and deregulation measures, and continued to allow a high level of immigration from the EU”.
And a report by the CBI said the savings from reduced EU budget contributions and regulation were greatly outweighed by the negative impact on trade and investment. The business lobby group said by 2020, the overall cost to the economy could be up to £100bn and 950,000 jobs.
If, as Moody’s suggests, companies would have their ratings downgraded after Brexit, it could increase the borrowing costs of British business and limit their investment in new projects. While many companies have enough cash to fund investment, shareholders are likely to be concerned about backing investments that will carry higher loan repayments.
Moody’s previously warned that it may be forced to downgrade the government’s credit rating after analysis showed growth was likely to slow after a no vote, hitting tax receipts.
In the latest report it scrutinised four main areas of economic activity – trade, migration, investment and regulation – to judge the impact on British business. It found that while the banking sector would be largely unaffected in the short term, the additional trade barriers, possible downturn in foreign investment, regulatory changes and curbs to migration would hurt other firms selling goods and non-financial services in the EU.
It said: “For non-financial corporate issuers in the UK, Brexit would be credit negative, reflecting the weakened macroeconomic outlook. While Moody’s believes the UK and the EU would preserve most of their existing trading relationships, any substantial new barriers to trade would pose a more significant threat to corporate creditworthiness. Infrastructure companies could face uncertainty around new regulatory regimes.”
The impact of a British withdrawal on the EU also features in the report, echoing the concerns of many in Brussels that Brexit will trigger political and economic turmoil in what remains of the trade bloc.
The German finance minister suggested on a recent visit to Britain that the EU would suffer should the UK leave, hitting British exports to the EU and slowing growth even further. Wolfgang Schäuble also said it was unlikely the UK would secure a free trade agreement that matched the single market, adding that “there would be a cost” to British business for leaving the EU.
Moody’s said: “The general uncertainty following a Brexit vote would likely hit confidence across the EU and could weigh on economic growth. Brexit would also be credit negative for the EU as it could increase the risk of further exits from the bloc and heighten support for independence movements elsewhere.”
Oxford Economics played down the impact on the EU, saying the the union “had nothing to fear” in the longer term from the exit of the UK – which would suffer slower growth and weaker public finances.
It said that while the UK stood to benefit from the elimination of EU budget contributions, this was likely to be a false economy. “In any scenario involving a significant clampdown on immigration, the overall fiscal position deteriorates markedly by 2030. This would require further annual tax rises or spending cuts equivalent to between £22bn and £31bn today, a fiscal hole that could be closed by raising VAT by between 4% and 6%,” it said.
“The only way to avoid a deterioration in economic fortunes would mean entering a trade settlement involving continued contributions to the EU budget, like Norway and Switzerland, or the UK having limited access to the single market.”
Henry Worthington, an analyst at Oxford Economics, said: “The long-term impact of Brexit on the UK need not be severe. But benign scenarios involve retaining some of the least popular aspects of EU membership: continued high levels of immigration, restrictions on our ability to make trade deals with non-EU countries, and continuing to pay money to Brussels.”
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TVR to create 150 jobs with new car factory in south Wales
A second British sports car brand has announced that it is to open a factory in south Wales, creating much-needed jobs and giving a boost to the Labour-led devolved government.
TVR, the independent sports car manufacturer, will open a base in Ebbw Vale, 40 miles north of the plant where Aston Martins are to be built in the Vale of Glamorgan.
The TVR investment is expected to create 150 jobs in an area due to be transformed by the building of the £315m Circuit of Wales project, which includes a racetrack and a motor sports centre of excellence.
Last month Aston Martin announced it would build its new DBX crossover model at a plant in St Athan from 2020 after a worldwide search for a new manufacturing facility.
Founded in 1947 in Blackpool, TVR became a leading light in the British niche sports car market, building an international reputation for high-performance vehicles and innovative design.
Aston Martin to open Wales factory for new DBX model
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The current management team acquired the brand in 2013 and has been looking for a base in which to build a new version of the car.
The Welsh first minister, Carwyn Jones, said: “This is yet another fantastic high-profile investment for Wales and a great boost for our automotive sector. TVR is another iconic and much-loved, world-class brand that still commands a strong and loyal international following. I am delighted the next generation of TVRs will proudly bear the label ‘made in Wales’.
“Today’s news follows hot on the heels of the Aston Martin announcement and sends out a strong, clear message that Wales is the location of choice for advanced manufacturing.”
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According to the Welsh government, there are more than 150 companies involved in the automotive supply chain, employing 18,000 people and generating more than £3bn for the Welsh economy.
The TVR chairman, Les Edgar, said: “This is a fantastic opportunity both for TVR and the Welsh government. South Wales is becoming a major hub for automotive and motor sport technology and development and I am delighted TVR is investing here.”
Edgar said the company already had enough orders for the new car to keep it busy until the end of 2018, and planned to be making 2,000 vehicles a year by 2022.
The announcement will go down well in Ebbw Vale, where high-quality jobs have been in short supply since the vast steelworks closed a decade ago.
The Circuit of Wales CEO, Martin Whitaker, said: “Today’s news regarding TVR’s production facility in the Ebbw Vale is fantastic news for the region. Paired with Aston Martin’s recent announcement, it reinforces our vision of Ebbw Vale and the south Wales region growing into a cluster of excellence for automotive and related industries.”
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IFS analysis chimes with Duncan Smith's budget warning
Iain Duncan Smith’s warning that George Osborne’s budget will hit poorer families hardest while preserving the incomes of the better off and pensioners has been backed up by an influential thinktank. Analysis The IDS way: Victorian morality, reforming zeal and gross incompetence Iain Duncan Smith established a raft of welfare reforms none of which will be remembered for the right reasons Read more Sustained benefit cuts will result in many households in the bottom 20% of earners losing up to 12% of their income by 2019, according to a report published on Monday by the influential Institute for Fiscal Studies (IFS). Meanwhile, households in the top half of income brackets will be no worse off and even the poorest pensioners will be 2% in the red at most. The former work and pensions secretary resigned on Friday, accusing Osborne of delivering a “deeply unfair” budget that inflicted substantial reductions in disability benefits while offering tax cuts for the most affluent. The report said the tax and benefit changes from April last year to 2019 would end a period when income distribution was squeezed, mainly as a result of top earners paying higher taxes and suffering the withdrawal of generous pension-saving subsidies.
Paul Johnson, the director of the IFS, said: “Raising the threshold for paying higher-rate tax is clearly helping people in the middle- and upper-income brackets, while the cuts to benefits reduce the incomes of families on lower incomes.” He highlighted the switch from tax credits to universal credit as a major blow to working households at the bottom of the income scale. “Once universal credit is in place, the benefit system is much less generous,” he said. Duncan Smith was responsible for introducing universal credit and unsuccessfully fought Treasury demands for it to be less generous than the current tax credit system. In recent years, he has argued for some pensioner benefits such as the winter fuel allowance to be means tested so the government could show that all groups are sharing the pain of austerity. A chart in the report illustrating the impact of tax and benefit changes until the end of the current parliament shows the lowest 10% of households with children losing almost 10% of their income, while the next band lose more than 12%. The poorest 10% of pensioners lose 2% of their income; pensioners in the top 20% of earners gain or avoid losing any income at all. The IFS report stated: “Pensioners are protected while poorer working-age households are hit hard, especially those with children. This is the result of the continued protection of pensioner benefits (including maintaining the ‘triple lock’ on the basic state pension) while making further deep cuts to working-age benefit spending. “Households in the upper half of the income distribution (but below the very top) are likely to see little direct impact of tax and benefit changes on their incomes on average, as some benefits cuts and small tax rises are offset by further increases in the income tax personal allowance, and the raising of the higher-rate threshold.” Thanks for reading.
South Korea reports first case of Zika virus
South Korea on Tuesday reported the country’s first case of the Zika virus, a mosquito-borne disease that has been linked to birth defects and other health issues.
A 43-year-old man who recently returned from Brazil was diagnosed with the virus after suffering fever, muscle pain and rash, according to a statement from the state-run centres for disease control and prevention.
Zika virus: pregnant women warned against travel to affected areas
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The tropical disease, which has become epidemic in Latin America and the Caribbean, usually causes a mild illness.
But the World Health Organisation last month declared the explosive spread of Zika in the Americas to be a global emergency, due to its link to the spike in the number of babies born with abnormally small heads, a condition known as microcephaly, and the rise in a rare neurological syndrome, Guillain-Barré, that can cause paralysis and death.
The virus has so far triggered outbreaks in more than 40 countries.
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Boris Johnson: Osborne made ‘mistake’ over personal independence payments
George Osborne made a mistake in placing cuts of £1.3bn from personal independence payments (PIP) to disabled people in his budget in a move which triggered the resignation of Iain Duncan Smith, Boris Johnson has said.
As the chancellor’s close political allies warned that he will need to rebuild his reputation with Tory MPs after watching his second budget in a row run into trouble, the London mayor hailed the decision to “push” the welfare cuts to one side.
Speaking on ITV’s The Agenda with Tom Bradby, Johnson said: “The government has decided collectively and quite rightly to take the PIP aspect of it [the budget] and try to sort it out. It’s obvious from what’s happened that its admitted that it was a mistake.”
The London mayor praised the decision by Downing Street and the Treasury, in the hours leading up to the announcement of Duncan Smith’s resignation on Friday night, to shelve the reforms to PIP which are made to disabled people to help with the costs of aids and appliances.
The former work and pensions secretary agreed with the Treasury to reform the system of PIP after a series of court cases led to a growth in the PIP budget by easing the tests in 10 daily activities for disabled people. But Duncan Smith resigned after saying that it was wrong to cut benefits to disabled people in a budget which also introduced tax cuts for wealthy people in the form of a reduction in capital gains tax.
Johnson, who has joined Duncan Smith in campaigning for a British exit from the EU, indicated that his sympathy for the former work and pensions secretary was limited when he distanced him from some of his criticisms of the Treasury.
The London mayor said: “It would have been much better quite frankly if he had stayed in and fought his point of view from within the cabinet ... I have to say where I do part company from some of the criticism is that I don’t think you can reasonably say this government has lost touch with its mission to help all the people in this country or to be a one nation Conservative government and that is what some people are now saying and I totally and utterly reject that.”
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Lord Hague, Duncan Smith’s predecessor as Conservative leader, went further and described his resignation as “unequivocally wrong”. In his weekly Telegraph column, the former foreign secretary challenged Duncan Smith’s criticism of the chancellor for cutting taxes at the same time as cutting disability benefits.
Hague wrote: “Depicting the budget as a zero-sum reduction in welfare spending to pay for tax cuts – or juxtaposed with them, as Iain Duncan Smith put it – is simply playing into the hands of a left wing fallacy that would take us back to Gordon Brown’s policies if put into practice.”
The interventions by Hague and Johnson came as friends and allies of the chancellor said in private that Osborne has been damaged by the resignation of Duncan Smith. His suggestion that the chancellor is failing to act as a one nation Tory, by appearing to show he had little interest in non-Tory voters, has raised concerns about Osborne’s political touch.
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Allies say that Osborne, who takes great pride in his reputation as the government’s master strategist, is proving increasingly accident-prone. The chancellor was forced to row back on planned cuts to tax credits, outlined in his summer budget, in his autumn statement in November.
Osborne has told friends in private that Duncan Smith had acted unreasonably. They had agreed the changes to PIP payments after tough negotiations around two weeks before the budget. Duncan Smith then reportedly raised no objections after their agreement.
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But the chancellor is understood to be aware of the concerns and realises he is entering a difficult period. Osborne thought hard whether he should have responded to an urgent question in the House of Commons by the shadow chancellor John McDonnell. In the end he decided to leave it to David Gauke, the third most senior member of his Treasury team, after deciding it would set an unhelpful precedent for a chancellor to respond to an urgent question.
Osborne was also wary of appearing in the Commons amid concerns in the Treasury that pro-Brexit Tory MPs could have tried to ambush the chancellor. Gauke, a popular figure who is admired for a light but authoritative touch, received a relatively warm reception from Tory MPs.
One old friend thought the chancellor had made a mistake by not appearing in the Commons. “This was his moment to show us a new George and he has missed his chance,” the friend said. “If he wants to be prime minister, he should be able to turn round a moment like this.”
One ally thinks Osborne is in trouble. “This is damaging for George. He has misjudged a budget again. He has lost a lot of support. You can feel it. He will need to rebuild.”
The chancellor’s old friend believes he is experiencing a bumpy period, but fully expects him to bounce back. “This is not terminal for George. Things come and go. There are waves. Better to have bout of scarlet fever now than in 2018.”
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Castro demands return of Guantánamo Bay during historic Obama visit
President Raúl Castro of Cuba demanded that Barack Obama hand back Guantánamo Bay and fully end the US trade embargo as their historic first summit in Havana witnessed an unexpectedly spirited clash of political values.
Obama lands in Cuba as first US president to visit in nearly a century
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Despite emotional scenes of reconciliation that earlier saw the Star Spangled Banner played to spine-tingling effect by a Cuban band in Revolution Square, the two leaders made clear that rapprochement had only come so far.
“There are profound differences between our countries that will not go away,” said Castro as he turned the tables on the question of human rights and criticised the US for its failures to ensure universal healthcare and equal pay for women.
“In our view, civil, economic, social and cultural rights are indivisible, interdependent and universal,” he added. “We find it inconceivable that a government does not defend and secure the right to healthcare, equal pay and the rights of children. We oppose political double standards in the approach to human rights.”
The Cuban leader also angrily rejected questions by a US journalist who questioned his country’s human rights record, a subject he said should not be “politicised”.
When asked why Cuba still held political prisoners, a visibly irritated Castro responded by asking: “What political prisoners? Give me a list of the political prisoners and I will release them immediately.
“If we have those political prisoners they will be released before tonight.”
The Cuban government released 53 political prisoners soon after announcing the restoration of diplomatic relations with the US in December, but human rights groups say that dozens more remain in the country’s prisons.
Obama agreed that the two countries still had much to disagree about and said the two had “frank and candid” exchanges during nearly three hours of bilateral meetings earlier on Monday.
“After five very difficult decades, the relationship between our two countries will not be transformed overnight,” said the US president. “We continue to have significant differences … and that includes democracy and human rights.”
Che Guevara's son on Obama in Cuba: 'Maybe we can influence US in a positive way'
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But the US president stressed that the “normalising” of relations with Cuba should allow discussion of such disagreements – some of which he personally sympathised with.
“President Castro spoke about what he believes are shortcomings in the US: around basic healthcare and race relations. We welcome that constructive dialogue.”
“Cuba’s destiny will not be decided by the United States or any other country,” Obama added. “Cuba has great pride and the future of Cuba will be decided by Cubans … but the US will continue to speak out on behalf of democracy and human rights.”
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Obama’s conciliatory remarks – in which he predicted Congress would soon lift the embargo – may anger critics back home, who claim he has given away too much for too little by restoring diplomatic relations without guarantees of political reform.
But the president, who steps down in nine months’ time, insisted the US needed to play a longer game.
“We might disagree today on something that we may agree on tomorrow,” Obama said.
The White House suggested the administration would not immediately respond to Castro’s call for a list of people who the US claims are political prisoners.
National security adviser Ben Rhodes told reporters at a briefing in Havana: “I have shared many such lists with the Cuban government over two and a half years of dealing with them. We shared 53 who they released around the time of the December 15 announcement. Some more were addressed ahead of this visit. However there are certainly additional names that we raise almost every time we meet.”
Castro defends Cuba: 'Not one country' complies with all human rights – as it happened
Obama welcomed by Cuban president on three-day trip to Cuba, the first by a US president since Calvin Coolidge visited in 1928
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“It’s not their lack of awareness, it’s their belief that they are not political prisoners: that they are in prison for crimes and offences against Cuban law,” added Rhodes.
“What we have said is, if someone is detained for a non-violent political offence, like expressing yourself or taking part in protest, those people are inherently political prisoners.”
The White House also insisted Obama will not be meeting Fidel Castro this week, despite an interview in which the president said he was open to the idea.
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“On this trip the president will not be meeting Fidel,” said Rhodes. “He was speaking generally about the potential.”
The contrasting styles of the consummate communicator Obama and the gruff former general Castro made for absorbing viewing, particularly among a domestic audience hungry for news of progress in relations.
Restaurant waiter Víctor Aguilar said it was unusual to see Castro asked about human rights at a press conference. “It’s good, really good. Cuba needs a free media,” said the 21-year-old, who hopes to go to the US for the first time later this year. “It’s a change and we need a change.”
Jean Robert, who works in a photography studio in central Havana, said both leaders came across well. “Raúl and Obama are trying to do the right thing,” he said. “I was very happy that they talked about political prisoners and internet freedom. That’s really important for us. If Raúl says he will release prisoners, then he will. I believe him.”
Pro-democracy activist Rosa María Payá said the spectacle was ridiculous but revealing, particularly with regard to questions on human rights. “This is the first time I have seen Raúl trying to avoid these kind of questions ... This regime and the dynastic old general can no longer hide their oppressive methods. From now on the democratic world should choose between accepting the rules of the Cuban dynasty or, as Obama, said, supporting the right of all Cubans to decide.”
She said she hoped the US president will make a still clearer statement of support for a national plebiscite in his speech tomorrow.
On a day many thought they would never live to see, the presidents of the former cold war enemies grinned as they shook hands in Havana ahead of a summit that aims to foster a new era in bilateral relations.
The genial encounter between Obama and Castro at the presidential palace was the highpoint of an emotionally and historically charged morning that also saw a Cuban military band play the US national anthem and US officials standing respectfully in front of giant portraits of revolutionaries Che Guevara and Camilo Cienfuegos.
Some among the huge visiting delegation of officials and journalists said they felt chills down their spines at a wreath-laying ceremony in which Obama paid his respects to José Martí, the intellectual leader of the Cuban independence movement in the 19th century.
“It is a great honour to pay tribute to José Martí, who gave his life for independence of his homeland,” Obama wrote in the museum guest book. “His passion for liberty, freedom and self-determination lives on in the Cuban people today.”
Obama’s Cuba visit is latest step towards ‘new alliance of the Americas’
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The show of respect for the host nation’s sovereignty set the stage for a visit that aims to reset neighbourly ties that have long been marked by confrontation and threats. No serving US president has visited Havana since Calvin Coolidge in 1928.
In the intervening years, a revolution led by Fidel Castro brought a communist one-party government to Cuba, briefly brought the nuclear frontier of the cold war to the doorstep of the United States, and led to a US embargo that has contributed to the dismal condition of the Cuban economy today.
Having broken the ice with a surprise bilateral deal with President Castro on 17 December 2014, the Obama White House has steadily relaxed controls on trade, travel and finance. This week’s visit is the most tangible sign yet of warming ties and ensures that Washington’s new Cuba policy will be one of the president’s main legacies.
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Obama rolled into the Cuban capital at the head of a huge delegation, estimated at somewhere between 800 and 1,200, that includes four state secretaries, dozens of congressmen, secret service agents, logistics staff and journalists. As well as the summit between the two leaders, top officials from the State, Commerce and Agriculture departments will hold bilateral talks on Monday.
Many thorny issues remain unresolved. Cuba is adamant that no full rapprochement is possible unless the US lifts its embargo and returns the US navy base at Guantánamo Bay. Neither are acceptable to the Republic-controlled US Congress.
Washington, meanwhile, is encouraging Havana to press forward with market reforms, improve human rights and allow the Cuban populace more say in decision making. The challenges in this area were apparent just hours before Obama arrived on Sunday, when dozens of pro-democracy protesters were arrested by police.
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