Diageo not happy with CARICOM rum row

CARICOM rum complaint could see Diageo ‘re-evaluate’ regional activities.

BRIDGETOWN, Barbados, Thursday, August 9, 2012 – Leading rum and sprits producer Diageo has reportedly warned that should the Caribbean Community (CARICOM) mount a complaint to the World Trade Organization (WTO) over alleged United States government subsidies for rum produced in US Caribbean territories could lead it to ‘re-evaluate’ its Caribbean interests.

CARICOM countries that have been exporting well-known rums to the United States for decades are lobbying against heavy subsidies being given to British spirits producer Diageo in the USVI because its rum and spirits have preferential entry into the US as they are recognised by the mainland as regional products.

However, according to the website BeverageDaily.com, Diageo has denied ‘flooding’ the US market and in fact countered that sourced the same amount of rum from Caribbean producers that the West Indies Rum and Spirits Producers’ Association (WIRSPA) members reportedly exported to the US market.

The CARICOM complaint is that authorities in the Virgin Islands have given Diageo generous tax and other incentives and helped the company to build a brand-new heavy-duty distillery that would produce and export Captain Morgan Rum to the United States much cheaper than many of the spirits made by the CARICOM bloc’s producers. Rum is CARICOM’s largest agriculture-based export industry, which generates an estimated US$500m in foreign exchange and well over US$250m in tax revenues.

However, Diageo pointed out to BeverageDaily.com that CARICOM rum exports to the US also rose 39% in the first four months of 2012. Diageo then went on to add: “These valuable relationships could be disrupted by a CARICOM challenge at the WTO, which would force Diageo to re-evaluate its activities in the Caribbean.”

According to Diageo’s website, Diageo Latin America & Caribbean has over 1,800 employees and operates across 43 different markets.

Diageo defended the US governments 100+ year-old ‘cover over’ programme, which it said granted the USVI and Puerto Rico much-needed revenues to promote economic stability and fiscal autonomy.

The USVI-Diageo partnership conformed to the law, and cover-over revenue (which the USVI could increase if it wished), was generated by a manufacturer tax on US sales of spirits. This then became discretionary government spending that benefited the USVI economy, the firm said.

Diageo said its new USVI distillery in St Croix replaced rum volumes it had bought from Serrallés in Puerto Rico, and to date had only produced branded rum for the premium US market.

“This means that Diageo is not flooding the US market with rum, and Diageo’s premium rum does not compete with, much less displace, the bulk rum produced by WIRSPA members,” Diageo said.

“And none of Diageo’s USVI rum is sold outside of the United States.”

The bloc has said that they believe that the level of incentives granted to Diageo might be in breach of WTO rules. Their argument is that the subsidies offered by the USVI to the multinational rum producer Diageo are inconsistent with WTO rules because they make use of discriminatory taxation, offer export subsidies, and use such subsidies to cause adverse effects to the interests of other WTO members, in this case being the CARICOM members.  Click here to receive free news bulletins via email from Caribbean360. (View sample)