* Measure affects 20,000 small businesses
* Vendors demand licenses
* State seeks to defend import monopoly
By Rosa Tania Valdes
HAVANA, Oct 3 (Reuters) - The Cuban government appeared headed for its first serious clash with the island's newly created "non-state" sector of small businesses over a prohibition on the sale of imported clothing and other goods.
The decree issued last week potentially affects some 20,000 small businesses and their employees who sell clothing, hardware and other goods brought in informally by travelers, some of whom visit the Caribbean island regularly carrying merchandise from the United States, Spain and Latin American countries.
Three years ago the government of President Raul Castro, who replaced his brother Fidel in 2008, opened up retail services to "self employment" in the form of 200 licensed activities from clowns, seamstresses, food vendors, taxis and the building trades, to small businesses such as restaurants, cafeterias, bed and breakfasts and entertainment.
The government said the measure aimed at absorbing excess state labor, improving services, eliminating inefficiencies and bringing black-market activity above ground.
There are now 436,000 self-employed people, of which around 100,000 work as employees of small businesses, according to the government.
Enterprising residents have taken advantage of some of the categories, for example seamstress and household supplies salesman, to offer imported clothing and supplies in greater variety and at lower cost than the state.
Entrepreneurs, their employees and clients waxed furious over the clothing sale prohibition this week in the Central Havana district of the capital where a few dozen vendors had set up shop on a vacant lot to sell clothing, shoes and undergarments.
"We call on the authorities to reconsider. We have a lot of product and money invested in this," Justo Castillo, a representative of the official labor federation which has tried to organize the self employed, said.
"Banning this means unemployment for these people forcing them to do whatever. They will move into the black market, return to illegal activity," he said, as the crowd that had gathered applauded.
Castro has instituted a series of market-oriented reforms to Cuba's Soviet style economy where the state still employs 79 percent of the 5 million-strong labor force.
Last week's measure appears aimed at protecting the state's monopoly on the wholesale and retail sale of imported goods, which has resulted in widespread black-market activity due to exorbitant prices and shoddy quality.
The regulation includes a new list of authorized types of self employment and their descriptions, with the addition of phrases to stop the resale and importation of goods.
For example, the description of a seamstress now has added, "does not include the sale of manufactured or imported clothing."
The general public is also up in arms over the measure.
"There goes the chance to buy a pair of shoes or jeans that are worthwhile," said retiree Ramon, who asked his last name not be used.
The public clamor is so loud that it appears to have reached communist authorities.
Blogger Yohandry Fontana, who is closely identified with the government, released a series of tweets this week criticizing the measure.
"Bad news," he said in one of the tweets.
"Wouldn't it be easier, I ask, to approve the sale of imported clothing by the self employed than push this activity into the black market?"
The new measure has yet to be enforced, at least in Havana even though authorities say it is now the law of the land.
José Barreiro Alfonso, an adviser to the Ministry of Labor and Social Security, said in an interview on Thursday with the official Juventud Rebelde newspaper that vendors would be visited on an individual basis.
"It is an effort to have an individual conversation and gain their understanding of the law," he said.