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Caribbean concern over rum subsidies

Tuesday, February 5, 2013

Caricom has reiterated its concern over the threat posed to the competitiveness of Caribbean rum in the United States market by subsidies granted to rum producers by the United States Virgin Islands (USVI) and Puerto Rico (PR). United States has been running a Rum Cover-Over Programme since 1917. This consists of a tax levied on sales of the spirit in the US market, most revenue from which is transferred to USVI and PR to aid these territories’ economic development. 


However, according to the Finance Committee of Puerto Rico’s Chamber of Representatives, USVI has, since 2007, used much of the reimbursement to encourage the local rum industry. 



Faced with this situation, Puerto Rico has sought to limit the impact of such measures. It has submitted a bill to the Chamber of Representatives to prevent PR and USVI from using the reimbursements to provide unreasonable subsidies for rum producers and has pledged to provide incentives for certain firms to maintain minimum production in its territory. 


These incentives consist in reimbursing the beneficiary companies for around 50 per cent of levies from the US import tax on their products. This is at the expense of other competitors, such as producers in Caricom countries. At its 35th meeting in Georgetown, Guyana, in December, a Council for Trade and Economic Development (Coted) communiqué called on the United States to work together with Caribbean countries to restore the competitive access of Caribbean rum to the US market. 


This concern was also voiced at the 33rd Regular Meeting of the Conference of Heads of Government of the Caribbean Community in July 2012, where leaders said such subsidies are contrary to WTO provisions. The Agreement on Subsidies and Countervailing Measures (ASCM) of the World Trade Organization (WTO) provides requirements for a measure to be defined as a subsidy: it must be a financial contribution made by a government, which involves the granting of a benefit. (Intal)


It must also comply with the criterion of specificity—targeting certain companies or a particular sector. These requirements apply to subsidies granted by PR and USVI to rum-producing companies installed in their territories. However, not being tied to export performance, they do not fall within the group of prohibited subsidies. However, they can be considered reviewable and can only be applied as long as they have no adverse effects on the other members’ interests.


Rum is Caricom’s biggest agro export. According to data from the US International Trade Commission (USITC), the Caribbean bloc’s share as a supplier of rum to the US market has fallen in recent years. In 2000, it accounted for around 70 per cent of the total, 50 per cent in 2008, and 42.3 per cent in 2011, equivalent to US$38.7 million.


Barbados and Jamaica are responsible for most of the deliveries (two thirds), followed by Guyana and Trinidad and Tobago. In 2011, PR recorded US sales of US$148 billion, four times more than Caricom.





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