USVI: Let's talk rum subsidies

USVI Governor John de Jongh
By Tony Fraser
 
In case you missed it, there has been a storm brewing over rum subsidies in the Caribbean between US Caribbean territories and other traditional rum producers.
 
Some have argued that Caribbean rum producers from the former West Indies should take the United States to the World Trade Organisation over its subsidies for US rum-producing Caribbean territories.
 
The American “cover-over” programme, extended for two more years and voted through the House of Representatives and the Senate in April 2012, provides US excise taxes on rum to go to the US Virgin Islands (USVI) and Puerto Rico for another two years through to 2014.
 
Under this programme, the $13.25 tax per gallon on all rum imported into the US is handed to Puerto Rico and the USVI on the basis of their rum production.
 
Other Caribbean rum producers, represented by the West Indies Rum and Spirits Producers Association (WIRSPA), have argued that these subsidies are inconsistent with WTO rules and make use of discriminatory taxation to subsidise the rum competition.
 
In a series of articles for Caribbean Intelligence©, former trade diplomat Edwin Laurent looked at the options facing Caribbean rum producers as they fight for market share in the global market.
 

The USVI Governor responds

 
In an October 2013 interview with Caribbean Intelligence’s Tony Fraser, USVI Governor John De Jongh answered questions about what the subsidy means to his islands’ rum industry and his responses to the position of other rum producers in the rest of the Caribbean. 
 
Caribbean Intelligence:  This question is against the background of you, Governor, talking about a Caribbean identity and cooperation with Caricom countries. However, those countries feel their rum industry and economies have been damaged by the fact that the USVI benefits directly from the tax applied to Caribbean rum exported into the United States.  Put differently, your country is benefiting from the taxes applied to their exports of rum. What do you tell such governments, while you are expressing an interest in Caricom?
Governor de Jongh -- What we do with the rum tax is all part of the economic development of the US Virgin Islands.  It is part of the strategy that Congress gave to us first in 1917 and then in 1964.  I still maintain that what we are doing is all within the US context; what we receive only applies to the imports into the US context.  So we are not attempting to grow our rum industry beyond the US market. We are not looking to international markets, so it is all part of our economic development. It’s a strategy, it is a means Congress gave us when they purchased the territories in 1917; and coming up on 2017, it is a strategy we are trying to execute in a way that is great for us in terms of being able to fulfill our needs, given our financial situation. 
 
Caribbean Intelligence:   So what do you say to the rum producers in the English-speaking Caribbean who feel that the subsidy comes from the taxes they pay on their rum exports and feel disadvantaged by it?
Governor de Jongh: Not at all, because their products which go into the US market continue to be extremely competitive. In fact, quite a number of those Caribbean countries have experienced growth in the export of their products over the last several years, so we have not harmed them, if you look at the statistics on the products.
 
Caribbean Intelligence:  The USVI is calling for dialogue in the face of a threat by the Caribbean countries to take their contention to the World Trade Organisation for settlement.
Governor de Jongh: I am doing so only because I think that is equitable.  If you are going to oppose a US programme and oppose it at the WTO or oppose it at the US Trade Representative Office, does it make sense first to talk about it and to hear my opinion?
No Caribbean minister, no Caribbean ambassador has reached out and spoken to me on the matter.  And I have written to all Caribbean leaders, reached my hand out to all of them and said I would like to have a dialogue with you before you decide on the necessity to take the action.  Other than the response I got from the Chair [of Caricom], I have never had any dialogue with anybody.  I have outreached to the prime ministers of St Lucia, Dominica and Prime Minister Baldwin Spencer [of Antigua and Barbuda], but other than that, no one else has spoken to me.
 
Caribbean Intelligence: And what has been the reaction of those you have reached out to?
Governor de Jongh: They are concerned. They very forcefully put their position on the table and I told them and I told them in no uncertain terms that it is a very important part of our economic development.  If I do not have those revenues at the time that I needed them during the time of the recession, when the US Virgin Islands lost about US$200m, I could not afford not to have the revenue from the rum taxes.  And this programme is what helped sustain the USVI.
 
Caribbean Intelligence:  Do you think the rum taxes will serve to widen the distance between the USVI and Caricom, now that an attempt is being made for the region to get closer to each other?
Governor de Jongh:  I hope not, because I think there is a lot of other matters on which we can do partnerships and have dialogue, and I still think we should have the opportunity to sit down and talk about that issue.    
One such issue is the proposal I made earlier this year to have Caricom nationals come into to the USVI without having to have an American visa.  We have spoken to the US Department of Homeland Security to come up with a regime which they will feel comfortable with for countries within Caricom. We have written the bill and submitted legislation, we have the support of the House, I have the support of Democrats and Republicans, so we are just looking for the right vehicle to have it passed into law.  And this is because we recognise with regard to sports tourism, with respect to just economic factors, the region represents a tremendous opportunity for the traffic to go back and forth without being overburdened by some of the regulations that now exist.
 
 
For the background to the rum subsidy issue, read our September 2012 story about the American cover-over programme and WIRSPA’s arguments.
 
And check out Edwin Laurent’s series exploring the options for Caribbean rum producers.
 
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