Lawmakers wade deeper into Caribbean rum war

Sen. Menendez sides with Puerto Rico in its misinformation drive

The U.S. Virgin Islands is implementing two long-term, public-private partnerships that will transform our territory’s economy and help our citizens by creating jobs and generating funds for government services and infrastructure development. The Virgin Islands’ business community is deeply troubled that Sen. Robert Menendez (D-N.J.) may pursue legislation that could retroactively undo these economic development agreements and devastate our economy (article, “Battle over rum tax to continue after break,” April 7).

Moreover, we are concerned that Sen. Menendez  supports federal legislation that interferes in a local business issue and would push companies out of the United States. Sen. Menendez seems to have aligned with a Puerto Rican campaign built on misinformation and non-truths. They hope to severely limit how the Virgin Islands can invest revenue generated under the rum excise tax “cover-over” program. This could force Diageo, the maker of Captain Morgan rum, to halt construction of its new distillery in the Virgin Islands and move to a foreign country.

The dirty secret is that Puerto Rico gains by forcing Diageo to leave the United States. Diageo’s departure from the Virgin Islands would generate hundreds of millions of dollars in rum excise tax revenue for Puerto Rico.

The Hill reported that Puerto Rico provides $40 million in underground subsidies to one of its rum companies. Amounts given to other companies remain a secret. Puerto Rico’s lobbying against the Virgin Islands relies on hiding the truth from members of Congress about these unreported payments while criticizing the Virgin Islands’ investments — which are transparent and open, utilize local revenue and follow Congress’s instructions to generate business activity in the territory.

The Virgin Islands’ agreement with Diageo was developed after Diageo chose not to renew its supply relationship with Destileria Serralles, a Puerto Rican rum company. Diageo prepared to leave the United States before approaching the Virgin Islands government. The resulting collaboration uses the cover-over program as Congress intended, securing good, high-paying union jobs in America for at least 30 years and generating direct and indirect growth in the Virgin Islands.

The Virgin Islands, like any other state or territory, has the right and the obligation to its residents to pursue smart economic opportunities and fiscal stability. We hope Sen. Menendez will focus on the incredible positives of our agreements, rather than give credence to Puerto Rico’s efforts to dictate how the Virgin Islands develops its own economy.

From Paul Arnold, chairman and president, Virgin Islands Economic Leadership Council, Christiansted, St. Croix, USVI

Subsidy undermines competition, threatens congressional program

Plans by the U.S. Virgin Islands to use federal tax revenue to excessively subsidize individual rum companies are jeopardizing a program Congress created nearly a century ago to provide public services in Puerto Rico, and later in the U.S. Virgin Islands. Unfortunately, the April 12 letter to the editor,

“Puerto Rico lacks credibility in battle over rum production,” from Harry C. Alford, president and CEO of the National Black Chamber of Commerce, missed the mark and the facts.

At the heart of the debate are the USVI’s plans to give the world’s largest liquor company an estimated $2.6 billion in U.S. tax dollars over 30 years to locate rum production in those islands — a subsidy estimated at more than 50 percent of the federal tax grants that the territory would receive based on rum the company would produce there. The USVI also plans to give another multi-billion-dollar conglomerate a similar subsidy to expand its rum production in the islands.

In contrast, Puerto Rico uses only 6 percent of the rum tax grants it receives to assist its centuries-old rum industry and related jobs. Allegations that Puerto Rico supports the industry to a greater degree are blatantly false. Data detailing Puerto Rico’s expenditures over the past five years substantiates that assistance to the industry averages only 6.1 percent (ranging from 5.5 percent to 6.6 percent) of the federal rum tax grants.

USVI subsidies of more than the cost of producing the rum would make it virtually impossible for other rum producers to compete, threatening the entire future of the Puerto Rican rum industry. That is why a growing number of members of Congress are considering legislation, like the bipartisan bill introduced by Sen. Robert Menendez (D-N.J.), that would limit government assistance to rum companies to 10 percent of a territory’s federal rum tax grants. A similar bill, H.R. 2122, has been introduced in the House.

Mr. Alford wrongly suggests that Puerto Rico provides assistance to its rum companies in excess of 10 percent. If that were the case, why would Puerto Rico be seeking federal legislation to mirror the 10 percent cap that has been local law since 1969?

In Puerto Rico, the excessive Virgin Islands subsidies would surely lead to demands for comparable assistance or a devastating loss of market share — and viability — of Puerto Rican rum producers. Either way, it would cost Puerto Rico’s budget hundreds of millions of dollars a year in subsidies and/or lost federal rum tax grants.

Congress should act to prevent billions of dollars of federal taxes from being given to private businesses to unfairly compete in the marketplace.

From Javier Vazquez, executive director, Puerto Rico Industrial Development Company, Hato Rey, Puerto Rico