Rum subsidies in U.S. Caribbean islands have sparked an internal trade war and are inviting a World Trade Organization (WTO) challenge from ill-affected countries in the region. According to an envoy representing a number of Caribbean countries that recently came to Washington, the U.S. government is unwittingly funding industrial policy in the U.S. Virgin Islands and Puerto Rico by tying aid dollars to rum production in a way that is inconsistent with our trade obligations and may cause the destruction of the entire foreign Caribbean rum industry. Under current law, U.S. Caribbean islands receive money from the U.S. treasury based on how much rum they import to the mainland. In recent years, they’ve begun to use that money to increase the amount of rum they produce, so they can get even more money. Although the total amount of money involved is low enough to keep it under Congress’s (myopic) radar, the resulting subsidies are too high for independent Caribbean economies to compete against. Unless Congress places restrictions on how the money can be used, the United States could once again find itself in the embarrassing position of being taken before the WTO for accidentally ruining the economy of a small Caribbean island.
The antagonist in this saga is something known as the “rum cover-over” program. As it does with all distilled spirits, the federal government charges an excise tax of $13.50 per proof gallon of rum sold in the United States. This equates to roughly $2 per bottle. Under the cover-over program, almost all of that money is directly granted to the U.S. Virgin Islands and the Commonwealth of Puerto Rico using a complex formula so that each receives a share of the money based on how much rum it produces relative to the other. The tax is collected from sales of all rum imported to the mainland, even from other countries, and in 2010 the cover-over amounted to approximately $450 million—$100 million to the Virgin Islands and $350 million to Puerto Rico.
No comments:
Post a Comment