Diageo has warned that a CARICOM (Caribbean Community Secretariat) WTO complaint over alleged US government rum subsidies for multinationals could lead it to ‘re-evaluate’ its Caribbean activities.
No World Trade Organisation (WTO) challenge has yet been launched, but CARICOM and non-US Caribbean rum producing countries are upset by allegedly illegal US subsidies given to multinationals in its territories for production and marketing.
Namely in the US Virgin Islands (USVI) and Puerto Rico, with CARICOM upset that the US territories are passing millions of dollars in rum ‘cover over’ taxes back to the multinationals, in alleged violation of WTO rules.
In a July 26 op-ed piece for the Huffington News, executive and former Caribbean diplomat Sir Ronald Saunders claimed that USVI subsidies of $133.5m alone would add 28m gallons of capacity (around 80% of current US consumption) for US sale at little or no cost.
Such activities led CARICOM to complain to the US Trade Representative (USTR) on June 14, although BeverageDaily.com understands the body has yet to receive a response.
Frank Ward, chairman of the West Indies Rum and Spirits Producers’ Association (WIRSPA), told this publication: “The governments of CARICOM member states and the Dominican Republic have already expressed their concerns in writing to the USA.”
Threat to competitiveness
Their rum industry competitiveness was threatened by “huge subsidies being given by the USVI and Puerto Rico to their respective rum industries,” Ward said. The inference is that other nations cannot compete on price.
CARICOM heads of government communique issued following a July meeting underlined their serious concerns regarding such subsidies, Ward said. The body also stated that they violated WTO rules and called on the US government to rectify discriminatory measures and restore competitive balance.
“Given the above, the matter is now between sovereign governments I am not at liberty to comment on any aspect of that process,” Ward said.
While Diageo bought bulk rum from producers whose national associations were WIRSPA members, Ward said he was not able to comment on commercial relationships, and was “not in a position to determine whether or not there is cause for concern”.
He also declined to comment on Diageo’s ‘re-evaluation’ comment, stating: “The concern is about the magnitude of the subsidies which are being given by the USVI and Puerto Rico governments and I am not going to comment on opinions expressed by individual companies.”
Diageo denies ‘flooding’ US market
Diageo told BeverageDaily.com that the firm sourced the same amount of rum from Caribbean producers that WIRSPA reported its members exported to the US market.
CARICOM rum exports to the US also rose 39% in the first four months of 2012, the firm said, before adding: “These valuable relationships could be disrupted by a CARICOM challenge at the WTO, which would force Diageo to re-evaluate its activities in the Caribbean.”
Diageo defended the US governments 100+ year-old ‘cover over’ programme, which it said granted the USVI and Puerto Rico much-needed revenues to promote economic stability and fiscal autonomy.
The USVI-Diageo partnership conformed to the law, and cover-over revenue (which the USVI could increase if it wished), was generated by a manufacturer tax on US sales of spirits. This then became discretionary government spending that benefited the USVI economy, the firm said.
Diageo said its new USVI distillery in St.Croix replaced rum volumes it had bought from Serrallés in Puerto Rico, and to date had only produced branded rum for the premium US market.
“This means that Diageo is not flooding the US market with rum, and Diageo’s premium rum does not compete with, much less displace, the bulk rum produced by WIRSPA members,” Diageo said.
“And none of Diageo’s USVI rum is sold outside of the United States.”