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Rum, rivalry, resistance

Sir Ronald Sanders

Sunday, December 23, 2012    

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THE Caribbean Community (Caricom) trade ministers issued a statement on December 11 stating that "Caricom countries continue to have serious concerns about the threat to the competitiveness of Caribbean rum in the United States market resulting from the massive subsidies provided by the governments of the United States Virgin Islands (USVI) and Puerto Rico to multinational rum producers in those territories".

After seven months of writing about this matter, I welcome this statement from the trade ministers underlying that "rum production and export are critical to the social and economic well-being of the region".

Much valuable time has been lost and much has to be done quickly if the rum industry of the CARIFORUM countries is not to be displaced in the US market. CARIFORUM consists of the 14 independent Caricom countries and the Dominican Republic.

In previous commentaries I drew attention to the adverse effects on CARIFORUM countries if the USVI and Puerto Rico governments continue to provide massive subsidies to rum companies in their territories — derived from a tax refund from the US Federal Government called a "cover-over" tax. To recap, CARIFORUM countries 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 have also pointed out that bulk rum producers in some Caricom states have already lost contracts in the US market valued at millions of dollars because of the cheaper prices of the heavily subsidised USVI rum producers.

This situation will get far worse as these heavily subsidised companies increase production.

Because I had also pointed out that the CARIFORUM country that would be the biggest loser is Barbados, it is encouraging to see Barbados Prime Minister Freundel Stuart stating in Parliament on December 18 that, "We cannot rule out the prospect of this matter reaching the WTO", although he added, "but that is not the first-resort expedience". Rum exports to the US market in 2010 were worth US$17.2 m to Barbados -- twice as much as its exports to the European Union market.

Delay in taking firm action is not in the interest of CARIFORUM countries. The longer they wait to stop these subsidies, the more unfairly entrenched the subsidised companies in the USVI and Puerto Rico will become in the US market.

Diplomatic efforts have been made consistently during the past few months and, by all accounts, the Barbadian ambassador to the US, John Beale, has been particularly active. But these efforts have produced no meaningful results. A letter written on August 24 to US President Barack Obama by St Lucia Prime Minister Kenny Anthony, as chairman of Caricom, has remained unanswered, and a previous letter on August 9, sent by CARIFORUM ambassadors in Washington to the US trade Representative, Ron Kirk, received a non-committal reply in October.

This led Caricom trade ministers, at their December meeting, to call on the US Government "to engage early with Caribbean rum-producing countries with a view to achieving an outcome that will support the continued competitive access for Caribbean rum to the US market".

Frankly, there is not much chance of the US Government responding to that call, anymore than anyone should expect — as has been suggested — US Attorney-General Eric Holder to be helpful because "his parents were born in Barbados".

The US Government did not pick this fight. Neither did the CARIFORUM countries. The local governments of the USVI and Puerto Rico have created the situation. Unfortunately for the US Federal Government, it has responsibility for the actions of its territories under international law and treaties. So, inasmuch as neither the US Government nor the CARIFORUM governments like it, they have a dispute on their hands, and it cannot be solved by diplomatic consultations alone. In the US, this is not a matter for the Government only; Congress also has a hand in it. And little or nothing will be done without compulsion.

The only compulsion is what some CARIFORUM governments appear reluctant to invoke, and that is to take the matter to the Dispute Settlement Body of the World Trade Organisation (WTO).

CARIFORUM governments have received at least three expert legal opinions that WTO rules have been violated by the actions of the USVI and Puerto Rico governments, and they have an eminently winnable case against the US at the WTO. There should be no stopping them now.

Throughout its history, rum producers from Caricom countries have faced unfair rivalry. They have been compelled to resist, as recorded in the excellent account, Rum, Rivalry and Resistance by Tony Talburt, published by Hansib in 2010.

Resistance continues to be necessary to safeguard this spirit which is so deeply intertwined with our Caribbean civilisation. The Government of the Dominican Republic has shown its readiness to proceed to the WTO; indications are that Barbados may now be willing to join. All of the governments of the CARIFORUM countries have a duty of care to their people; they will be doing no more than fulfilling that duty by going to the WTO. At the very least, the governments of Guyana, Jamaica and Trinidad and Tobago should throw their weight behind the Dominican Republic and Barbados.

Those CARIFORUM countries that do not join resistance at the WTO will not only show no spirit, they will also be entitled to no benefits that may be awarded. And, if none of them do anything other than engage in the delaying exercise of diplomatic consultations with the US, more than the spirituous Caribbean rum will die; the Caribbean spirit of resistance will die too.

The US Trade Representative's Office is expert at prolonging "consultations" and delaying WTO arbitration. But time is not on the side of CARIFORUM rums, as trade ministers agreed.

Sir Ronald Sanders is a consultant and visiting fellow, London University

Responses and previous commentaries: www.sirronaldsanders.com

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