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    September 19

  • 01:57 PM

BEHIND THE HEADLINES: Saving the rum industry

Tony Best,

Added 04 December 2014

newbehindtheheadlines

“We have lost the banana industry, now rum is on the line.”

And what is pushing the important rum industry down the slippery export slope to severe damage if not oblivion ais the subsidies which the United States Virgin Islands (USVI) is providing to Diageo, the British-owned rum producer and spirits distributor.

That bleak assessment came from Barbados’ Ambassador to the United States, John Beale, the point person in Washington leading the fight for rum Caribbean producers.

“The level of subsidies introduced by the USVI is so huge that it covered 100 per cent of the construction cost of the rum facilities (in St. Croix); all production, marketing and distribution costs; as well as customs duties, corporate income taxes and exemptions from all sales taxes and property taxes,” Beale explained in an aide memoire distributed on Capitol Hill. “This has created a disproportionate and unfair competitive advantage. Who can compete with zero costs”?

Certainly, Barbados can’t. In fact, no country can compete on those terms. Basically, what needs to be done is for the region to mount a successful campaign in Congress to curb the abusive use of “the carry-over” funds that are boosting Diageo’s profits. That battle must be fought in the House of Representatives and the Senate, both of which will be in the hands of Republicans come January. Philosophically, the Republicans, who won control of Congress a few weeks ago in the mid-term elections, should be the natural allies of the Caribbean in the effort to reduce the subsidies, but with Diageo as a powerful lobby, political campaign financing to both parties may win out over what’s legally and morally right.

A major challenge for Beale, Barbados and the rest of the region will be successfully encouraging a sufficiently large number of conservative and center-right newly elected Republicans on Capitol Hill to force the USVI to slash, not eliminate altogether, the subsidies.

Having jettisoned early plans to haul the United States before the World Trade Organisation (WTO) in Geneva for providing illegal subsidies under international law, Barbados and other countries are left with a single option: pressing for a change in US law to prevent the USVI from continuing to use taxpayer’s money to finance the production and distribution costs of rum mad.

“I am sure we would win the case if we turned to the WTO. But going there would be costly, given the legal and other fees we would have to pay to present our case,” said Beale. “But even if we won the case, there is no guarantee that the US would compensate us if ordered by the WTO to do so.”

Just look at what happened to Antigua and Barbuda when it took the US to the WTO over the damage Washington did to Antigua’s legitimate Internet gaming industry. The Eastern Caribbean state won but the US used its financial muscle and influence to decline to compensate the small nation.

Clearly, the excise taxes the USVI is diverting to Diageo were never intended to be used as corporate subsidies to foreign-owned corporations. They were originally given to USVI and Puerto Rico to improve their infrastructure.

“Our focus must be on placing limits on the use of the cover-over” funds, not eliminating them altogether,” Beale told the Business Authority the other day. “Interestingly, Puerto Rico, a beneficiary of the funds, is supporting the Caribbean because it would prefer to use the money from Washington to improve the quality of its people’s lives instead of being forced to turn it over to rum producers to boost their profits. Puerto Rico was  forced into subsidizing rum production in order to compete against USVI.”

As Beale sees it, the Caribbean’s must get its diaspora in Florida, New York, Massachusetts, Connecticut and New Jersey to change the US “cover-over” law. They can do that by reaching out to their federal lawmakers, especially the Republicans in the House and the Senate to change the way the taxes are being used.

In an address at an Independence gala in Orlando organised by the Barbados Association of Central Florida in November, the ambassador said that the diaspora should undertake a lobbying campaign that encourage their Congressional representatives in Congress to amend the cover-over law.

“Barbados needs your support as we try to safeguard our rum industry from the unfair trade practices of the US, which heavily subsidies rum production in its Caribbean territories to such an extent that it is making Barbados rum uncompetitive in the US market,” he told the Bajans. “Indeed, this is a very serious issue which will impact not only on the economy of Barbados but also on the economies of all Caricom countries which produce rum.”

The export figures tell much of the story about rum. Between January and August this year Barbados’ rum sales to the US amounted to US$12.4 million, down from US$16.8 million earned in the first eight months of 2013, a 26 per cent drop.  Rum imports into the US remained steady in the January-August period, amounting to US$61.8 million, virtually the same as a year before.

With hundreds of people employed in Barbados’ rum production, any further declines in the years ahead would be devastating to the industry.

And that’s where the banana industry comes in. For it was Washington that pushed the WTO to order a dismantling of the special concessions given to St Lucia,

St Vincent and other banana producing countries by the European Union that eventually wiped out the banana industry. Now American subsidies are threatening the viability of rum exports.

Perhaps the Republicans on Capitol Hill may be the Caribbean’s last hope to save rum from being pushed out of its most lucrative market, the US.

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