US Subsidies Continue to Hurt Caribbean Rum Industry

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Sir Ronald Sanders (Institute of Commonwealth Studies, University of London) expresses alarm that Barbados’ Ambassador to the United States, John Beale, publicly stated that CARICOM (the 15-nation Caribbean Community) is “inactive” and needs to take a position on the issue of Caribbean rums being wiped-out of the US market. Sanders focuses on U.S. subsidies given to companies such as Diageo and Cruzan Rum by the governments of the U.S. territories, USVI and Puerto Rico. 

Inactivity is not in the interest of CARICOM rum producers and governments.  They have much to lose if their US sales continue to decline because of unfair competition from rum-producing companies in the US Virgin Islands (USVI) and Puerto Rico.  These companies, the giant Diageo and Cruzan Rum, are given huge subsidies by the governments of the USVI and Puerto Rico.  The two US territories use US Federal Government tax refunds, called “cover over”, now in the sum of US$580 million annually to subsidize the operations of their rum producers.

But, there appears to be no enthusiasm for robust resistance by CARICOM governments collectively. Ambassador Beal revealed that Barbados’ rum exports to the US have dropped by 21 per cent and he warned that the industry is in danger of being ‘wiped-out’.  This latest statement from the Barbados Ambassador should be no surprise to anyone.  Throughout 2012, I and my friend and fellow columnist, David Jessop, wrote repeatedly about the grave dangers confronting the CARICOM rum industry by the subsidies to large rum producers in the USVI and Puerto Rico and we urged robust action by CARICOM governments collectively.

Amongst the vital considerations we pointed out were the following: CARICOM countries and the Dominican Republic (DR) – collectively known as ‘CARIFORUM’ – stand to lose US$700 million in foreign exchange annually, the jobs of 15,000 workers directly employed in the rum industry and another 60,000 jobs that benefit from it. Governments will lose over US$250 million in annual tax revenues.  I had also emphasised that the CARIFORUM country that would be the biggest loser is Barbados whose exports to the US market in 2010 were worth US$17.2 m – twice as much as its exports to the European Union market.   This latter observation has now come to pass as Ambassador Beale has confirmed.

On 18 December 2012, it was encouraging that Barbados Prime Minister, Freundel Stuart, stated in Parliament that, “We cannot rule out the prospect of this matter reaching the WTO” although he added “but that is not the first resort expedience”.  Clearly, while the Prime Minister had in mind challenging the US government in the World Trade Organisation (WTO) over the rum subsidies, he was inclined to pursue the route of consultations with the US government – most likely the US Trade Representative’s office.

Having personally been through the experience of ‘consultations’ with the US government on a trade dispute (the Antigua and Barbuda Internet Gaming case against the US at the WTO that I led in 2003-2004 as Ambassador), I was aware that such consultations on the rum subsidy issue would find little meaningful response.  After all, the US could hardly be expected to side with CARIFORUM countries against their own territories.

[. . .] Ambassador Beale, like the Barbados Minister for International Business, Donville Innis, in bemoaning the absence of strong action in defence of their rights by CARICOM countries, called on the private sector to join governments to fight what is clearly an injustice.  Regrettably, however, it would seem that by virtue of uncertainty, lack of cohesion and delay, the opportunity for such a fight may have passed to the detriment of rums produced in CARICOM and the DR.

For full article, see http://www.antillean.org/caribbean-rum-trade/

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