THE United States and Cuba moved to end five decades of Cold War hostility on Wednesday (Dec 17, 2014), agreeing to revive diplomatic ties in a breakthrough that would also ease certain US restrictions on Cuba.

The agreement came at the end of 18 months of secret talks that produced a prisoner swap negotiated with the help of Pope Francis and concluded by a telephone call between US President Barack Obama and Cuban President Raúl Castro.

Here's what you should know about the US embargo and the US-Cuba agreement:

Why did US impose embargo on Cuba?

The US began imposing sanctions on Cuba after dictator Fidel Castro and his revolutionaries seized power in 1959 and nationalised more than US$1 billion (S$1.3 billion) in US-owned assets the following year, which prompted the US to impose a partial economic embargo on Cuba that excluded food and medicine. Washington later broke off diplomatic ties with Cuba on Jan 3, 1961. Relations became even worse soon after when Castro declared on April 16, 1961, that his revolution was socialist and the next day, CIA-backed Cuban exiles tried to invade Cuba at the Bay of Pigs, but were defeated.

In 1962, President John F. Kennedy broadened the partial trade embargo to a ban on all trade with Cuba. The embargo not only kept American companies from doing business in Cuba, but also prohibited most Americans from travelling directly there or spending money as tourists. American citizens could face up to a US$65,000 (S$84,737) fine for spending money in Cuba, according to the US Treasury Department. The embargo also limited the amount of money individuals can send to family living in Cuba.

For more than five decades, both sides have been embroiled in various conflicts, including the Cuban Missile crisis in 1962 where the presence of Soviet missiles in Cuba provoked a standoff between Moscow and Washington. Many feared a world war at the time, but Russia reached a compromise deal with the US and withdrew the missiles. In November 1999, the US and Cuba were in a custody dispute over Elian Gonzalez, a Cuban boy rescued at sea off US coast after surviving a shipwreck that killed his mother and 10 other Cuban migrants. After a bitter seven-month dispute, Elian, then six years old, returned to Cuba to be with his father.

The US embargo's crippling effects on the Cuban economy prompted Raul Castro, the brother of Fidel Castro, to beef up efforts to end the embargo once he took the helm in 2008. His efforts included economic reforms and mediating between Colombia and Farc rebels. Earlier this year, Cuba said its economy was suffering a "systematic worsening" due to the US embargo, the consequences of which it estimated to be US$1.1 trillion.

Some American businesses had also rallied for the lifting of the US embargo, citing the loss of business opportunities in Cuba. The US Chamber of Commerce estimated that the cost to the US economy was about US $1.2 billion a year

What's in the US-Cuba agreement?

The basic pillars of the deal include:

Prisoner exchange:

Two American prisoners held in Cuba were returned to the United States. One of them is Alan Gross, who was arrested in 2009 for distributing communications equipment to members of Cuba's Jewish community while working as a contractor for the US Agency for International Development (USAID). The other, a long-imprisoned US intelligence agent, was freed as part of an exchange for three Cuban agents.

In return, Cuba will free 53 political prisoners and significantly relax its restrictions on Internet access.

Diplomatic relations:

Both countries will work toward re-establishing embassies. The United States will also review whether Cuba should still be considered a state sponsor of terrorism.

Easing of travel restrictions:

The administration will make it easier for Americans to go to Cuba under any of 12 exceptions in the current law, including for family visits, education, research, journalism, professional meetings, religious activity, athletic competitions, information transmission and export transactions.

Ordinary travel by tourists will still be against the law unless Congress acts to lift the embargo.

Financial/economic activities:

Obama will allow greater banking ties, making it possible for Americans to use credit and debit cards in Cuba. US travellers will be allowed to bring home up to US$400 worth of goods from Cuba, including up to US$100 in tobacco and alcohol products. Limits on Cuban-Americans' remittances to relatives in their homeland will jump to US$8,000 from US$2,000 annually.

US companies will be permitted to export an expansive list of goods including building materials and allowed to build telecommunications infrastructure on the island. Exports will mainly be permitted to Cuba's emerging private sector, including residential goods and equipment for small businesses and agriculture.

Why now?

In his televised statement, Obama said he was ending what he called a rigid and outdated policy of isolating Cuba that had failed to achieve change on the island. "We will end an outdated approach that for decades has failed to advance our interests and instead we will begin to normalise relations between our two countries," he said. "Through these changes, we intend to create more opportunities for the American and Cuban people and begin a new chapter among the nations of the Americas."

Internal political changes in both countries have already created a climate where detente is conceivable. In the US, demographic shifts in Miami have softened the political influence of the anti-Castro exiles: younger Cuban Americans and recent immigrants are more open to engagement. In Cuba, limited economic reforms carried out by Raul Castro have begun to relax the tight grip of the state, and pique the interest of American business.

Cuba has stopped exporting revolution to Latin America. In fact, it's mediating the most successful attempt so far to achieve peace between the Colombian government and Farc rebels, making its inclusion on the US list of states that sponsor terrorism look increasingly outdated. Latin American countries have also reintegrated Cuba into regional bodies by inviting it to the Summit of the Americas in April.

SOURCES: BBC, CNN, REUTERS, AFP, BLOOMBERG, NEW YORK TIMES