Stop Massive U.S. Rum Subsidies in the USVI and Puerto Rico

The future of Caribbean rum is under assault.

On January 1, 2013, U.S. President Barack Obama signed into law the bill averting the threatened "fiscal cliff" of higher taxes and spending cuts. Unfortunately the legislation included special gifts to a number of U.S. corporations.

Tuesday’s agreement included a provision extending a 1917 law that imposes a $13.50 tax on each gallon of rum produced in or imported into the United States. But the taxes paid by the rum distillers of Puerto Rico (PR) and the U. S. Virgin Islands (USVI) are returned to their benefit. Even taxes paid by other Caribbean distillers are rerouted to the USVI and Puerto Rico.

Worse yet Diageo (Captain Morgan) and Fortune Brands (Cruzan) have received huge special subsidies and incentives from the USVI totalling nearly $4 Billion dollars.

Diageo, based in Britain, will get a new plant built at taxpayer expense, exemption from all property and gross receipt taxes, a 90 percent reduction in corporate taxes, plus marketing support and production incentives totaling tens of millions a year.

These incentives are so rich they are double the cost of actually producing the rum.

Fortune Brands (Cruzan) was awarded $1 Billion dollars and will receive an assortment of tax-financed incentives, including $100 million for improvements to its distillery on the island and a wastewater treatment program. The agreement also ensures that the company will pay no more than 16 cents a gallon for molasses, the main ingredient of rum, now selling for more than $2 on the open market.

Big Winners: Bacardi, Diageo (Captain Morgan) and Fortune Brands (Cruzan).

Big Losers: All other Caribbean rums, especially distillers from the Barbados, Jamaica, Guyana, the Dominican Republic and the Bahamas who actually pay their taxes, and who receive no significant benefits.

Damage: Severe. According to Sir Ronald Sanders "The reduction of sales in the US market, and the EU due to this legislation will have an adverse effect on Caribbean CARICOM distillers financial capacity to survive, let alone continue to manufacture rum at a competitive price.

CARICOM (the Caribbean Community Common Market), speaking through its forum (CARIFORUM) speaks for 16 Caribbean members, plus 7 observer members and 3 French Departments. These include:

Antigua and Barbuda, The Bahamas, Barbados, Belize, Cuba, Dominica, Dominican Republic, Grenada, Guyana, Haiti, Jamaica, Suriname, Saint Lucia, St. Christopher and Nevis, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago - all member states.

Observers include Anguilla, Aruba, British Virgin Islands, Cayman Islands, Montserrat, Turks and Caicos Islands, and the Netherlands Antilles.

The French Departments include French Guiana, Guadeloupe and Martinique.

Needless to say the CARIFORUM is furious. Their legal opinions indicate at least three violations of WTO (World Trade Organization) Rules by the self-serving actions of the USVI, Puerto Rico, and the United States. CARICOM is well represented and feels that pursuing recourse by the WTO is both winnable and essential.

All lovers of rum in American and abroad are seriously affected as well, as this legislation will great reduce the availability of fine Caribbean rums both by their absence and/or greatly increased prices. These subsidies are opposed by smaller American distillers as well. Keen observers of your local stores shelves will have already noted the takeover by Bacardi, Captain Morgan, and Cruzan.

The U.S. legislation and special subsidies have struck at the both the heart and history of rum, particularly those from the Dominican Republic, Bahamas, Jamaica, Barbados and Guyana. This legislation is anti-competitive, anti-selection and anti-quality.

It must be reversed, now.

With greatest hope,
All true lovers of rum...