British multinational alcoholic beverages company Diageo may “re-evaluate its activities in the Caribbean” over a brewing trade dispute between Caricom and the US government, a spokesman for the company said on Friday. In an e-mailed response to inquiries about Diageo’s purchases from regional rum producers, Stuart Kirby, spokesman for Diageo Latin America and the Caribbean, wrote: “Diageo does purchase bulk rum from multiple Caribbean producers. “In fact, Diageo currently sources the same amount of rum that West Indian Rum and Spirits Producers’ Association (WIRSPA) reports that its members export to the US market. “In addition, Caricom rum exports to the United States have increased by more than 39 per cent in the first four months of 2012. These valuable relationships could be disrupted by a Caricom challenge at the WTO (World Trade Organisation), which would force Diageo to re-evaluate its activities in the Caribbean.” Asked on Monday if he could explain the increase, WIRSPA chairman Frank Ward said he was not aware of the figures but if they are correct, “there could be any number of reasons for that” but would not offer any.
“What I can say is that one of our distilleries has lost substantial market share in the US,” since Diageo started exporting from St Croix. He said he was not at liberty to disclose which distillery. Asked about Diageo’s threat to disrupt “valuable relationships” over a WTO challenge, Ward said, “They have been saying that for the better half of the year,” and WIRSPA remains unfazed. Caribbean rum producers have been saying that in exporting to the US market, they are subjected to unfair competition as the Diageo plant in the US Virgin Islands was built with US taxpayer funds, and this constitutes a de facto subsidy on Diageo’s exports to the US from St Croix. In response to the use of cover-over funds as a subsidy, Kirby said: “Congress enacted the cover-over programme nearly a century ago, with the goal to provide the USVI and Puerto Rico with revenues to promote economic stability and fiscal autonomy. “The cover-over programme does not promote unfair competition for a number of reasons provided herein. Cover-over revenue is generated by a manufacturer’s excise tax when its products are sold in the US and, since its inception, has been considered locally-generated revenue that is designated to be expended however the governments of each territory choose.
“The USVI-Diageo partnership is structured to conform strictly with the rum cover-over law and with the congressional purpose. The agreement between Diageo and the USVI enables the USVI to increase the amount of cover-over they receive, which has a direct financial benefit to the island and its economy, which faces severe deficits and debt.
“The incentives embodied in the USVI-Diageo agreement are patterned after various economic incentive programmes employed by mainland states to strengthen and diversify their economies, such as Alabama, Tennessee and Georgia, which used economic incentives to attract auto manufacturing. “Diageo’s USVI distillery replaces rum that Diageo previously purchased from Serrallés in Puerto Rico and, to date, it only produces branded rum for the US premium rum market. This means that: Diageo is not flooding the US market with rum; Diageo’s premium rum does not compete with, much less displace, the bulk rum produced by WIRSPA members; and none of Diageo’s USVI rum is sold outside of the United States.” Captain Morgan spice rum was made by Serrallés for Diageo, until the USVI government wooed Diageo with cover-over funds to set up its own mega-facility in St Croix. In an earlier interview, Ward told the Business Guardian the St Croix facility can produce more rum than any other distillery in the Caribbean.
US Congress to decide
On June 14, Caricom officials met with representatives of the US Trade Representative (USTR) office over the rum subsidy issue. Caricom officials delivered an hour-long presentation and US government officials undertook to hold internal consultations among the related US agencies, in order to take the matter to Congress for its consideration and get back to Caricom. The Caribbean’s caucus of Ambassadors in Washington are to follow up. Though not a Caricom member, the Dominican Republic was also represented at the meeting. Ward attended on behalf of West Indian rum producers. For the US, representatives of the USTR, the Department of State, the Department of Treasury, the Department of Commerce, and the Department of the Interior attended the meeting. No representatives from the USVI or Puerto Rico attended, but the Department of the Interior is responsible for both of those island territories. Recognising the challenge it would have faced, Puerto Rico is also doing the same as the USVI and offering de facto subsidies using cover-over money to their rum producers. Puerto Rico now has three major rum distilleries operating within the cover-over framework: Bacardi, Serrallés, and a new distillery, Club Caribe, which was built within the last year with cover-over funds according to Ward.
To date, there has been no indication of what redress Caribbean rum producers may or may not receive. At the June 14 meeting, the US officials listened, asked questions, and made no promises other than to get back to Caricom on the issue. Caricom is asking for the de facto subsidies to be discontinued immediately, and for compensation for the subsidies already provided to restore the competitive balance. Though aware of the rum battle, because it previously caused contention between the USVI and Puerto Rico, the US Congress, which will ultimately decide on what position that country will take, has so far lent a deaf ear to the issue. In an earlier interview, Ward said that both Diageo and Bacardi have lobbyists in Washington to ensure that Congress continues to take that stance to maintain the status quo.
“This is easy because to the US, this is small money, and does not appear on their radar,” he said. “The fight between Bacardi and Diageo has been going on for years and traditionally Congress has declined to get involved. We are hoping that would change.”He said that if not resolved, “(In the) long term, it would have a trade-distorting effect globally.”
Cuba, another major Caribbean rum producer, has been left out of the talks on the issue because of the US trade embargo against the communist island.Bacardi markets a “Havana Club” in the US market where it has the Cuban brand registered as a US brand. With the US trade embargo against Cuba still in full effect, the US government upholds that Bacardi may continue.
On July 18, Diageo announced that Stephon Scott, a T&T bartender from the On Deck Pub at Tradewinds Hotel in St Joseph Village, San Fernando, won the 2012 Diageo Reserve World Class Bartender of the Year award for Latin America and the Caribbean. This took place around the same time Caricom trade officials were negotiating with their USTR counterparts. Asked about this timely announcement, Kirby wrote, “Diageo’s Reserve World Class bartending competition, recently held in Rio de Janeiro, Brazil, is a global campaign that has been held in more than 50 countries around the world for the last five years. There is no connection between this event and our operations in the US Virgin Islands.” In a release, Randy Millian, president, Diageo Latin America and the Caribbean, said: “We were truly impressed by Stephon’s performance in Brazil. He is the perfect embodiment of the passion, flare and zest that represents T&T so well, and we are delighted to call him the 2012 Diageo Reserve World Class Bartender of the Year for our region. As Latin Americans continue to embrace the cocktail culture, Diageo remains committed to growing local talent like Stephon and further establishing bartending as a serious profession.” The company said 15,000 bartenders from 50 countries “have shaken, stirred and poured their way through national heats, until only the most talented remained to compete over the final four days of world-class challenges.” The global final of the competition took place from July 8 to 12. From its portfolio of spirits, Diageo said competitors used Ketel One, Ciroc, Tanqueray, No Ten, Don Julio, Ron Zacapa, Johnnie Walker Gold Label and Blue Label.