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Fiscal cliff pact might prolong Caribbean rum wars
BRIDGETOWN, Barbados—As the world watched the United States draw back from the edge of its so-called ‘fiscal cliff’ at the nth hour once again, some small agreements reached could have big ramifications for Caribbean Forum (CARIFORUM) rum producers. The last-minute budget deal passed by Congress includes a package of tax extensions that has the governments of the United States Virgin Islands and Puerto Rico very happy.
The excise tax of US$13.50 per proof-gallon on rum has been extended by another two years. The substantial revenue from this tax goes into the coffers of the treasuries of the territories of Puerto Rico and the US Virgin Islands. This excise tax has allowed these US territories in the Caribbean in turn to offer extensive tax breaks to international rum producers who have set up plants on their islands.
CARIFORUM rum producers have argued that the substantial tax breaks offered to Diageo and others are tantamount to subsidies, which are in contravention of World Trade Organisation rules.
Several senior delegations from the Caribbean Community, the bloc of Caribbean countries that make up the majority of CARIFORUM, have approached US officials in Washington to come to an arrangement that would not put their rum producers at such a disadvantage on the world market, but so far to no avail.
According to a 2010 report by the Congressional Research Service, Puerto Rico raked in US$371 million from the tax in 2008, while the US Virgin Islands received almost US$100 million. In a statement released last week, USVI Governor John P de Jongh, Jr expressed gratitude that the rum cover was extended, which is a critical to its rum manufacturing industry, he said.
Rum is CARICOM’s largest agriculture-based export industry, which generates an estimated US$500m in foreign exchange and well over US$250m in tax revenues. Concerns are that Caribbean producers will see their presently significant share of the US market wiped out by subsidised product, and other large international distilling groups seeking to locate in the USVI and Puerto Rico to seek a similar advantage. Caribbean360.com
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