CARICOM may take USVI rum subsidies case to the WTO

By Admin Wednesday May 16 2012 in Caribbean
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GEORGETOWN, Guyana: Rum producers in the Caribbean Community (CARICOM) are concerned over subsidies and preferential access into the United States market being given to foreign rum producers in the United States Virgin Islands (USVI). And they may take their complaints to the World Trade Organization (WTO).


Following two visits by CARICOM delegations to Washington in March and April to plead their case, CARICOM rum producers say that the next step could be to go before the WTO, if there is little success from a meeting with U.S. Trade Representative, Ron Kirk, on Capitol Hill this month.


CARICOM countries that have been exporting well-known rums to the U.S. for decades are lobbying against heavy subsidies being given to British spirits producer, Diageo, in the USVI. The company’s rum and spirits enjoy preferential entry into the U.S. because the mainland recognizes them as regional products.


The complaint is that authorities in the Virgin Islands have given Diageo generous tax and other incentives and helped the company build a new heavy-duty distillery that would produce and export Captain Morgan Rum to the U.S. much cheaper than many of the spirits made by the CARICOM bloc producers.


The bloc also said they believe 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 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 which, in this case, are CARICOM members.


Rum is CARICOM’s largest agriculture-based export industry. It generates an estimatedUS$500-million in foreign exchange and over US$250-million 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 U.S. government’s “cover-over” program, which remits 98 per cent of all excise duties raised on rums sold in the U.S. back to the U.S. territories of Puerto Rico and the USVI.


Concerns are that Caribbean producers will see their presently significant share of the U.S. market wiped out by subsidized product and other large international distilling groups looking 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 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 a greater amount of this “cover-over” support.


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