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CARICOM to take US rum subsidies to WTO dispute settlement

01 July 2013

In May 2013, CARICOM ministers formally agreed to take the issue of the United States’ use of subsidies to US Caribbean territories (supporting the expansion of the commercial operations of international rum producers) to WTO dispute settlement. The CARICOM Secretary General pointed out that the CARICOM objection was not to the provision of subsidies to these US territories, but to their use in ways that placed Caribbean rum producers “at a distinct disadvantage”. This followed the failure of bilateral government-to-government efforts to resolve the dispute over the last 2 years.

The CARICOM Council for Trade and Economic Development (COTED) nevertheless stressed “the need for an amicable solution to the dispute with the United States”, but committed CARICOM to exploring “all avenues to address this serious matter with the United States and other relevant parties”.

The decision to take the issue to WTO dispute settlement – despite appeals from the governor of the US Virgin Islands to refrain from such a course of action, which could lead to “a prolonged legal case that could be divisive and difficult to win” – comes against the background of the importance of the rum industry in the Caribbean ACP states. According to COTED, the rum industry is “a substantial employer and a major contributor to foreign exchange earnings and government revenues”.

Editorial comment

The decision to take the US “cover over” programme payments used to subsidise rum producers in the US Caribbean territories to WTO dispute settlement not only promises to give rise to an acrimonious dispute with the United States, but also could potentially lead the company most affected, Diageo (majority owner of the popular Red Stripe brand of beer in Jamaica), to review its investment strategy in the ACP Caribbean (see Agritrade article ‘ Caribbean rum sector facing serious challenges in US and EU markets’, 16 December 2012). While the use of “cover over” payments to subsidise rum producers has so far focused on Diageo, there are other beneficiary companies, such as Serralles in Puerto Rico.

Any CARIFORUM WTO action would need to prove that the “cover over” payments demonstrably cause harm to CARIFORUM rum producers. It must be demonstrated that there has been market impairment in the US, or in other markets, with either a decline in prices or a reduction in export volumes occurring over the relevant period. According to informed rum industry sources, it would seem that such price or volume effects have not been felt by CARIFORUM rum exporters to the US market in 2011 or 2012, although this would need to be subject to further analysis.

The extent to which the use of “cover over” payments in support of rum producers in the US territories violates WTO subsidy disciplines also needs to be demonstrated. However, if these US territories form part of the US customs territory then WTO export subsidy disciplines do not apply. If WTO export subsidy rules do not apply, then the issue arises of which elements of the WTO subsidies agreement are being violated by the “cover over” payments.

Given these complexities, the question arises as to whether private sector to private sector consultations could not be fostered between rum producers in CARIFORUM and the US territories to try to find a solution. This would be in line with the COTED call for “an amicable solution”.


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