GEORGETOWN, Guyana, Thursday May 10, 2012 – Rum producers in the Caribbean Community (CARICOM) are getting high-level support in their protest against subsidies that are giving foreign rum producers in the United States Virgin Islands (USVI) preferential access to the United States market.
Following two high-level visits mounted by CARICOM delegations to Washington in March and April to plead the CARICOM rum producers’ case, reports are that the next step could be a case before the World Trade Organisation (WTO) if there is little success from the meeting with the US Trade Representative Ron Kirk on Capitol Hill this month.
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.
The 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.
The bloc also 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.
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.
The CARICOM producers argue that excise taxes collected from the production of rum in the USVI are remitted back to the USVI for development purposes through the US government’s “cover-over” programme, which remits 98 per cent of all excise duties raised on rums sold in the US back to the US territories of Puerto Rico and the USVI.
Concerns are that Caribbean producers will see their presently significant share of the US market wiped out by subsidised product, and other large international distilling groups seeking to locate in the USVI and Puerto Rico to seek a similar advantage.
In 2010, the remittances amounted to approximately US$450 million and major multinational producers are being offered extremely generous concessions subsidies and long-term support by the USVI and Puerto Rico in exchange for the companies agreeing to site their distilleries and production facilities in their territories in order to secure the US territories a greater amount of this “cover-over” support.