Rum battle heats up over U.S. subsidies

The lobbying fight over Caribbean rum subsidies is about to intensify as the National Puerto Rican Coalition is ready to lead six states in boycotting rum producer Diageo.

Organizations in Illinois, Florida, Pennsylvania, Connecticut, New York and New Jersey are expected to shun Diageo-made products, such as Johnny Walker, Baileys, Capitan Morgan and Jose Cuervo, until Congress approves legislation that essentially stops Diageo from moving to the Virgin Islands.

The National Puerto Rican Coalition is objecting to the rum producer’s plans to move operations from Puerto Rico to the U.S. Virgin Islands, a deal worth millions in tax subsidies that would endanger Puerto Rico’s rum industry.

“We’re going to talk to everyone and do an educational campaign from the community side ... to let the population know which member of Congress is being supportive of this [bill],” coalition president and CEO Rafael Fantauzzi told The Hill.

Puerto Rico and the U.S. Virgin Islands have bumped heads over this issue before. Tempers flared recently when Sen. George LeMieux (R-Fla.) offered an amendment to jobs legislation that benefited Puerto Rico and rum producers such as Bacardi at the expense of the U.S. Virgin Islands and a rival rum maker.

Both islands receive subsidies from the United States based on excise taxes paid by rum producers. Payouts are based on where the liquor is produced, and often benefit the rum producers themselves.
To stop the subsidy transfer, Puerto Rico Resident Commissioner Pedro Pierluisi (D) will reintroduce legislation capping subsidy payments to companies at 10 percent of the total excise tax received by the territory. Sen. Robert Menendez (D-N.J.) is expected to introduce similar legislation, Fantauzzi said.

U.S. Virgin Islands Gov. John deJongh blasted the bill as nothing more than an instrument to keep Diageo from moving to his island. He also questions why Congress has been injected into the situation.

“When a company leaves Washington state and goes to Illinois, the governments of both states are not asked to come down to Congress,” he told The Hill, adding, “Why all the sudden is Puerto Rico now trying to get Congress involved?”

LeMieux’s measure was especially vexing to deJongh since it would base subsidy payments on population, a change that would give Puerto Rico a greater payout since roughly 4 million people live on that island, as opposed to the 100,000 who live on the Virgin Islands. The proposal was not added to the bill.

“It was clearly a money grab,” deJongh said.

DeJongh plans to meet with tax writers in the coming weeks to blocks such efforts from becoming law. He argues bonds that rely on the excise tax could default under these proposals.

“We’ve got gaps that we have to fill in and the only way we can fill it in is by local tax and revenue bonds,” he said.

Revenue bonds will help build a water treatment plant on the island, which will go unfunded if the Diageo deal falls through, sources said.

Fantauzzi has already met with lawmakers and is gaining traction in winning their support.

Hispanic Caucus leader Raul Grijalva (D-Ariz.) believes Diageo is moving simply because of the subsidy it will receive.
“There is a fundamental feeling among the Hispanic Caucus that it is blatantly unfair to Puerto Rico,” he told The Hill. “It puts them at a horrible disadvantage [for the Virgin Islands] to be able to use that subsidy to give back to the company.”

Reps. Lincoln Diaz-Balart and Mario Diaz-Balart, both Florida Republicans, are equally concerned that the subsidy could be abused if Diageo moves to the U.S. Virgin Islands.

“I know there is a lot of concern that it can be greatly abused,” Mario Diaz-Balart told The Hill. “I think that we should look at it.”