Nation e-Edition

Rum subsidy a tall order

Sun, November 04, 2012 - 12:01 AM

Issues that range  from security, loans  from the Inter-American Development Bank (IDB), the banking sector and taxes, rum subsidies and trade, to the financing  of the Organization  of American States are all on the table for discussion by the United States and Barbados. John Beale, Barbados’ Ambassador  in Washington, is well placed to talk about how  they can be resolved.

In New York recently to attend the Young Barbadian Professional Society’s entrepreneurial awards luncheon, Beale, a former bank executive in Bridgetown, talked about these matters with THE NATION’s North American Correspondent Tony Best.

• You have been Barbados’ top diplomat in Washington for the past three years. How do you assess relations between Barbados and the US?

Beale: I would say relations continue to be very good. That doesn’t mean they are perfect. I don’t believe in a perfect world. We have strong and common interests in security, for instance. The US has certainly demonstrated in every area that’s their concern. There is tremendous work being done.

• What about the areas of weakness?

Beale: One of them is the rum issue [and  the concerns] we have over the subsidies being given by the US Virgin Islands (USVI) to rum producers. Another is the funding questions with  the Inter-American Development Bank. Thirdly,  the Foreign Accounts Compliance Tax Act.  These are some of the difficulties we encounter.

• Let’s take each in turn. First, rum.

Beale: The rum issue stems from the fact that  St Croix in the US Virgin Islands has created a level  of subsidies to companies there that, de facto, makes  it totally uncompetitive for Barbados or any other Caribbean country to compete in the US market  [with bulk rum].

Producers in the Caribbean are not opposed  to some form of subsidy; governments have  that right. Indeed, the World Trade Organization (WTO) allows some of it.

In this case, it isn’t the subsidy itself but the quantum. Giving [subsidies to] a company such as Diageo, which is a large United Kingdom corporation with sales that are larger than the gross domestic products of some Caribbean states, they are not really helping someone that needs so much assistance.

Diageo has been given subsidies through the return of excise taxes that are paid back to the government of St Croix when the rum is shipped to the United States. The USVI then passes almost all of it to Diageo,  giving them an incentive to operate from St Croix.

The problem is that the incentive Diageo gets is equal to roughly the production cost. So, can you imagine if you are a competitor of Diageo and they are getting a refund equal to their production cost? The question is, how can you compete in that situation?

We have had extensive discussions with them  and we have had a letter from our Minister of Foreign Affairs [Senator Maxine McClean], who is responsible for that area of foreign trade, sent to Ambassador Ron Kirk, the US Trade Representative (USTR).

The fact is that they [Washington] haven’t taken much action on it. In fact, I would say his [Kirk’s] late reply indicates it’s not an issue for him. We have had technical meetings in Washington with lawyers questioning the right of St Croix to do this.

• Isn’t this a matter for the WTO to resolve?

Beale: The feeling is that if we took it to the WTO, we would win the case. The problem is that to go to the WTO takes years and a lot of money. By the time a decision is made the (Caribbean) companies would be out of business.

Two months ago we (14 Caribbean ambassadors) sent a letter to Kirk but we haven’t really gotten a response from his office. I have discussed this matter with the US Commerce Department and officials of the USTR and they were not even aware of it.

In an election year, it is very difficult to get attention. To most of these people, it’s a non-issue. If nothing happens, it’s going to have a serious impact in the Caribbean on jobs, foreign exchange earnings and the whole (bulk rum) industry.

• How about the IDB issue, where does that stand now?

Beale: This has been going on for a long time. Barbados is perceived as having a high per capita income. That’s the only criterion they use in graduating a country.

But if you talk to the technical people at the IDB, the World Bank and the International Monetary Fund, they would tell you other factors should be taken into consideration.

We did get a loan approved at the IDB recently dealing with the Four Seasons project. It took a long time and was very complicated but what happened set a tone in that, for the first time, the US did vote against a loan to Barbados. In the past, the US would abstain.

The decision by the US to vote “no” creates a new situation for us. I have met with the US executive director at the IDB and I am to meet with the US Treasury Department because they are the ones who give information to the IDB about what to do.

That’s something we would like to get some positive feedback on so we in Barbados don’t get blocked.

• Next is the Foreign Accounts Compliance Tax Act. What’s happening there and why is Barbados concerned?

Beale: The Foreign Accounts Compliance Tax Act is quite a remarkable act that comes into effect, in theory, next year. I understand it is being postponed for another year.

What that does is that it enables the US to tell other banks around the world, whether in London, Moscow, Brazil or Barbados, that they must comply with reporting on American banks with a certain volume of business.

That in itself is against the laws of many countries. It is cumbersome but not reciprocal. You have to comply with the US but they don’t have to give you information about your people. That has become a big issue.

The UK has signed off with the US and Switzerland is about to sign off too. Germany and Spain are also expected to sign off on it.

• What’s the thinking in Barbados on this?

Beale: We have had discussions in Barbados with Dr DeLisle Worrell, Governor of the Central Bank, and in Washington with our lawyer, Bruce Zagaris.

The concept is that Barbados should sign an agreement with the US as quickly as possible. The model we are likely to have is for the Barbados Government to do the reporting so as to get this behind us.

In other words, the banks of Barbados would pass the information to the Government, which would then pass the information to the US.

• What would happen if Barbados doesn’t comply?

Beale: Your banks would be shut out of the US market. You cannot negotiate this by saying you will not be complying. You would be out of business.

Our tax adviser here (in Washington) believes we probably should sign off with the Treasury Department as soon as possible. There would be some cost implications which we can negotiate. For us to provide this kind of information, it would have some costs.

It’s not a matter of if we are going to have this agreement, it’s a matter of when. There is a small percentage of American taxpayers who may have offshore accounts that they don’t report and somebody figures there is so much money out there that they have to go after it.

If the bank or Barbados didn’t report, in theory, and the US Treasury found out about it, they could then take action and fine a bank in Barbados for not reporting on an account by an American citizen.

• Can this action by the US imperil Barbados’ offshore financial services sector?

Beale: This is quite a complex thing but I do believe the international financial services sector will always exist. It is an area that will become more sophisticated. Sometimes the reasons may shift but I believe there will always be a market.

It is an area in which Barbados should try to do more and more by expanding our treaty network and trying to explore more areas from which we can get more.

The offshore sector, to my mind, is a knowledge-based industry and involves the University of the West Indies (UWI). If we can bring more of the brains of that sector to Barbados, then we would receive more benefits.

I don’t want the people who are now involved in it to leave Barbados when they retire. They have the knowledge and can encourage more people with the knowledge and experience to come to Barbados.

The country can be seen as a place where you can have seminars and conferences on everything. Sir Hilary Beckles (of the UWI) has signed an agreement so that the old Barbados Mutual building in Bridgetown can become their (UWI) centre.

Education is an area in which we can do well. The more students come to Barbados to study and bring their families and friends, [the more] foreign exchange [they bring].

Sir Hilary, I believe, has signed up with the University of Frankfurt so they can have an association. I have spoken to one or two universities in the US about having an association in Barbados. All of these things can put Barbados more on the forefront.

• We are witnessing a vigorous presidential and congressional election campaign in the US. Is it affecting the resolution of issues with Barbados and the rest of the Caribbean and Latin America?

Beale: That’s an interesting observation. There is a saying in Portuguese that the baby that doesn’t cry, doesn’t get fed. To some extent, things in South and Central America have been going very well. They don’t have the coups which occurred in the past and the financial disruptions that once occurred.

Panama has a [gross domestic product] growth of more than nine per cent; Peru is also doing well. The ones that are not doing well are in the Caribbean.

A lot of times they say Latin America and the Caribbean but when I go to the World Bank, it is really 99.9 per cent Latin America. So to some extent I think that President Obama and the US government have to be more concerned about those places that are in your face and creating problems. Unfortunately, places like Barbados are being pushed not on the back-burner, but off the stove. We have to try to improve that situation. It’s a real challenge.

• What about the outcome of the election?

Beale: Personally, I think President Obama will win the election. People here tell me that the Caribbean does better under a Republican presidency. Personally, I don’t think it makes a heck of a difference at this stage who is in charge.

They look to the Caribbean more in terms of security. They have bigger fish to fry. That’s where we are. The days of great assistance are getting tougher and tougher.

• It took the Obama administration three years to select an Ambassador in Barbados and the Eastern Caribbean. Was that a bad sign of the times?

Beale: I think it is indicative of government importance. Would you seriously not have an ambassador in a country that you value? Irrespective of what the reason was? I understand there were some difficulties, but if it is important, you find a solution.

The person the US had in Barbados during those years as chargé d’affaires was brilliant. But that’s not the point. The fact that he was good, very good, is one level of interest. Having a designated ambassador is another. You must have someone as an ambassador. Not to have an ambassador in Barbados was a disappointment.

Let me say this. The existing ambassador, Dr Larry Palmer, a person I have met, I think he is an absolutely great person and I am definitely sure he would do as good a job as anyone can do there.

Unfortunately, it took a long time to get him. Let’s hope he can make up for some lost time. He is a different type of ambassador who has come to Barbados. He is a professional one as distinct from a political ambassador. True, sometimes the political ones can do more in terms of investments and so on but I think overall that Larry Palmer is the right person for Barbados.

• What are your priorities as ambassador?

Beale: As ambassador I wear two hats – the US and the Organization of American States (OAS). On top of that, I am supposed to look at Panama, Mexico, Costa Rica. Of course, we have the diaspora.

If you look at the population of Barbadians in the US, the diaspora in New York is crucial. I don’t know what the actual percentage is but it would have to be over 60 per cent.

We recently had the diaspora conference in Barbados and we have the question of remittances, investments and so on. There is a whole host of things that can be done. My job is working on these several fronts. The OAS can take you all day, any issue.

• Are Caricom countries united in Washington?

Beale: In Caricom, we don’t necessarily have a single front. If Caricom was Caricom voting together all the time, we would really be a major force in the OAS.

We have 14 votes out of 34. But we have other considerations. You get conflicting positions. Sometimes in Caricom with 14 members, it doesn’t mean 14 votes; not at all.

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