Turbulent times for rum: The WTO route
By Edwin Laurent
This series began by celebrating the international successes of Caribbean rums and then looked at the threat to preferences in Europe and the problem of government subsidies to distillers in Puerto Rico and the US Virgin Islands.
It also discussed steps that the industry could take, with government’s help, to remain competitive and protect traditional European and American markets.
There seems to be scope for constructive engagement with Europe, but little chance of the US addressing Caribbean concerns in the absence of a World Trade Organisation (WTO) complaint.
This concluding article addresses some of the questions that need to be answered before launching a WTO dispute.
Does the Caribbean actually have a case?
Even if the subsidies damage Caribbean rum exports, a WTO complaint will be judged on whether any rules are actually breached.
This is not straightforward at all, given how arcane WTO law can sometimes be.
For that, an expert legal examination authoritatively assessing whether the case “will stand up in court” is essential.
Panels tend to get the legal side correct, so a sound case should prevail.
Having a strong case, though, is not a green light to rush to the WTO.
Instead, it gives options; first, of course, the confidence to proceed to a formal dispute aimed at getting the arrangements scrapped.
But also, political and diplomatic attempts to get the US to address the region’s concerns would be bolstered by a credible threat of WTO action.
The fear factor
Probably no country would admit that fear impedes WTO action, but can it be a consideration?
A government might be concerned that lodging a complaint could be construed as a hostile act and the target, if a much more powerful country, could “punish” it, whether politically or through withholding aid, for instance.
No doubt this does not reflect the policy of major trading nations such as the US and the EU, that have a more mature view of the WTO disputes mechanism and its value in clarifying and adjudicating on the rules.
Conceivably, though, their trade officials could play that card to dissuade weaker countries from going to the WTO.
But they should not be intimidated - and instead, have the courage to take up the matter at a higher level.
There is another less tractable aspect, though: commercial pressure.
The threat of retaliatory or punitive action could come, not from government, but a corporation fearing that it would be harmed by WTO action.
Debbie Ransome mentioned in A Rum Tale of Subsidisation, published last December in Caribbean Intelligence, that the world’s leading drinks company Diageo, a beneficiary of the US subsidies, has been seeking to dissuade the Caribbean from taking action and warning of dire consequences.
What of the cost?
WTO litigation is costly. There are travel and accommodation expenses in Geneva and specialist trade lawyers are not cheap.
True, modest support is available. The WTO Secretariat gives some legal aid, but that is far from adequate for a major and complex case.
And the Caribbean would be up against the mighty US, that deploys a battery of highly trained in-house legal experts.
While hefty litigation costs might be daunting, they pale into insignificance when compared to the value of Caribbean rum exports at stake.
Remember, the industry can share the bill.
Is a ruling against the US enforceable?
Why seek a judgment that might be ignored anyway?
Because all member countries are bound by a final WTO ruling, even when they lose.
This does not mean that big powerful America will always pay much heed, though.
Antigua won its WTO case for online gaming years ago and the US is still to implement the ruling or provide satisfactory compensation.
The problem stems from the way in which the system operates.
To put it simply, the WTO authorises the winning party to retaliate against the trading interests of the loser unless it complies.
But just imagine if national courts functioned like that, leaving it to the winner to enforce judgments.
Very small countries can be reticent about punishing major powers, for fear of damaging their own interests, and might anyway have difficulty imposing meaningful trade sanctions.
Regrettably, while the WTO dispute settlement process seeks to promote adherence by all to the rules, it ignores the realities of power imbalances in the world.
Of course, the system is infinitely superior to the previous free-for-all.
However, until it ensures that the enforceability of its judgements is not dependant on relative size, power and goodwill, particularly of the major party, it will lack universal credibility and will not deliver fairness and equality before the law
Rum is different
A rum subsidies complaint, however, does not have to go the way of Antigua’s gambling case against the US.
This time, the whole region could complain.
Further, given the interests of other rum and spirits exporters, such as the Latins, the EU and India, some might actually become co-complainants.
Then the US could not brush aside a negative ruling.
What’s in it for us?
The subsidies make Puerto Rican and USVI rum more competitive, not only against Caribbean rum, but all others on the US market.
Ending them will increase costs faced by these distillers, who would most likely have to increase their prices.
Along with all other suppliers to the US, Caribbean rum exporters can benefit. By how much would be a crucial calculation, determining whether the potential rewards justify a WTO battle.
Governments’ considerations, as they decide whether to lodge a WTO complaint against the US subsidies, are numerous and weighty.
According to information in the public domain, it is difficult to conclude that action should be initiated.
A decisive factor would be a reliable estimate of the actual impact on Caribbean rum sales of ending the subsidies.
Also, the Caribbean needs a serious and thoroughly tested examination of the legality of these subsidies.
If, as is likely, it authoritatively confirms a breach of the rules, then the governments and the industry should draw up a plan of action for engaging with the US on measures to safeguard the competitiveness of Caribbean rum in the US.
For credibility in these talks, the region would need to firmly commit to a clear roadmap for lodging and pursuing a WTO complaint.
Edwin Laurent has served as an Eastern Caribbean Ambassador to Europe and worked in London for the Commonwealth. He has recently been awarded the Cross of the Order of St Lucia for contributions to economic development.