A threatened World Trade Organization (WTO) filing by some vocal CARICOM countries against the United States over the U.S. Virgin Islands' and Puerto Rico's use of the U.S. rum cover-over program begs the questions: Is taking this issue to the WTO justifiable or worthwhile, and who is really behind it? First and foremost, a WTO claim appears to lack legitimacy because the rum cover-over program does not violate WTO rules. Critically, one cannot claim use of an export subsidy (the violation under WTO rules, which appears to be a chief claim against the program by some) because the U.S. Virgin Islands (USVI), Puerto Rico and the mainland are part of the same country.
Therefore, rum sent via the U.S. intra-trade system is not an export. In fact, one could argue that the use of the program by the USVI and Puerto Rico to develop beneficial and creative public-private sector initiatives has served nothing more than to lock in long-term operational arrangements, which have ensured that companies have a secure home in the United States and helped to stabilize the economies of its territories. All this, while the program continues to provide essential tax revenue to the USVI and Puerto Rico governments to fund infrastructure, public schools and human services - all in line with what the program was supposed to do when created back in 1917.
While CARICOM countries have long enjoyed preferential access to rum markets in the European Union, the winding down of these arrangements is causing concern that does not warrant unnecessary trade actions. Moreover, a country or countries bringing an actionable subsidies claim to the WTO must demonstrate adverse effects or harm to its trade. A review of the numbers raises real questions as to whether there have been adverse effects or harm. According to the U.S. Department of Commerce, the International Trade Commission and the U.S. Census Bureau, CARICOM's 2012 rum exports to the U.S. increased by 17 percent in volume compared to 2011, while CARIFORUM's U.S. rum exports (CARICOM and the Dominican Republic) grew 15 percent in volume during that same time period.
In fact, over the last five years, the numbers show an increase of 112 percent in volume for CARICOM and a 100 percent growth in volume for CARIFORUM. A pragmatist would argue that a formal WTO action would neither be worthwhile nor in the best interest of all parties concerned. Specifically for the Caribbean, the cost of pursuing a WTO complaint is not inexpensive, with base estimates for the filing country at well over US$1 million and each additional country that participates likely to invest more than US$200,000.
A case may take as long as five years to resolve, while at the same time opening a Pandora's box that would focus unwanted scrutiny on the tax, subsidy and tariff structures of the very countries making the claim. One can also expect that it will sour relations among the Caribbean's friends in Washington, San Juan and St. Thomas. On the issue of tax and tariff structures, there are already questions being posed as to whether some countries that are considering an action may themselves have biased and non-competitive systems in place.
Notable are regimes that appear to be structured to benefit local producers, which may in fact violate WTO rules. The fact that many of these "local" companies are owned by large multinational producers of rum leads to questions as to whether the region is being led into a proxy war - with the agenda being driven by multinationals who own facilities in various Caribbean nations - making the issue far from the inter-governmental dispute that it is being presented as. In the final analysis, a case as being pursued seems without merit, costly and could serve to damage an already challenged U.S.-Caribbean relationship.
Work on strengthening trade and addressing common issues of crime, border control and immigration within the extended Caribbean family could also be affected at a time when unity is needed, not action that can drive it apart. o Anton Edmunds is the head of The Edmunds Group International, a consulting firm focused on the Caribbean region, and a senior associate at the Center for Strategic & International Studies (CSIS). Published with the permission of caribbeannewsnow.com.
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