In December 2012 at a meeting of the Council for Trade and Economic Development, CARICOM trade ministers recognised the serious consequences that US subsidies deployed in the US Virgin Islands (USVI) and Puerto Rico could have for Caribbean rum producers, not only on the US market but beyond. It was recognised that ‘time is not on the side of the Caribbean rum industry… given the likely deleterious effect of these subsidies on [its] long-term viability’. The US government support to investment in the rum sector in these two territories is provided under a 100-year old programme to provide ‘revenues to promote economic stability and fiscal autonomy’. CARICOM trade ministers have called on the US government ‘to engage early with Caribbean rum-producing countries with a view to achieving an outcome that will support the continued competitive access for Caribbean rum to the US market’.
According to press reports, there remains a reluctance on the part of CARICOM governments ‘to take the matter to the Dispute Settlement Body of the World Trade Organisation’, despite three separate expert legal opinions finding that the US subsidies violate WTO rules and that CARICOM governments ‘have an eminently winnable case against the US at the WTO’ (for the underlying basis for this reluctance, see Agritrade article ‘ Caribbean rum sector facing serious challenges in US and EU markets’, 16 December 2012). However, according to one press report, ‘the government of the Dominican Republic has shown its readiness to proceed to the WTO,’ and, according to another, in January 2013 the Prime Minister of Barbados indicated that ‘the situation is so serious that Barbados is prepared to take its case to the WTO if a solution is not forthcoming.’
High-level talks have been initiated with US officials to try to resolve the issue bilaterally. In January 2013, however, the issue became more complicated, with reports indicating that the budget deal passed by the US Congress to address the ‘fiscal cliff’ crisis included a further 2-year extension of ‘the excise tax of US$13.50 per proof-gallon on rum’, which provides the revenues to the authorities of the USVI and Puerto Rico for the extension of support to their rum sectors.
The reluctance of Caribbean governments to take the US rum subsidies case to a WTO dispute panel is indicative of the influence of economic power imbalances on the ability of small and vulnerable economies to fully utilise available WTO mechanisms. Considerations linked to wider trade and economic relations with the US (including the pending application of new US food safety standards and the challenges faced across the region in attaining full compliance) appear to be influencing the Caribbean approach, despite the potential harm that could be caused by the US subsidies to the ACP Caribbean rum sector.
How the WTO Secretariat and wider WTO system assists governments of small and vulnerable economies in fully utilising available trade mechanisms to resolve disputes related to the provision of potentially illegal subsidies, can be taken an litmus test of the practical value of a rules-based trading system for smaller and vulnerable economies in cases where disputes with large economic powers arise. This in turn could provide clear evidence of the need to further strengthen a trading system that is based on internationally agreed rules.