Caribbean rum battle escalates

The move is the latest in a battle that appears to be escalating between Puerto Rico and the U.S. Virgin Islands over an excise tax paid by rum companies that is eventually refunded to the islands for economic development. Payouts are based on where the rum is produced and often benefit the companies themselves. 

Puerto Rico currently receives the lion's share of the subsidy, but that arrangement could change if rum producer Diageo follows through on its plan to move from the island to the USVI. The deal would force Puerto Rico to lose millions in revenue. 

In his letter to Finance leaders, Vazquez accused the USVI of enticing Diageo to its shores by offering the company more than 50 percent of its rum subsidy. 

"USVI subsidies of more than the cost at which the rum is being sold would make it virtually impossible for Puerto Rican producers or companies in other segments of the industry to compete," he stated. 

Jean Greaux, Director of Communications for USVI Governor John deJongh told The Hill that claims by Vazquez are false. 

"Puerto Rico's anti-U.S. Virgin Islands campaign is built on lies," he told The Hill. 

"These are the facts," he said. "Our investments never reach 50 percent of [subsidy] revenue. Puerto Rico's claims are false. And the U.S. Virgin Islands' investments are not greater than the production or sale price of the rum made on our shores. Again, Puerto Rico is being dishonest."

Vazquez in his letter called on the lawmakers to support legislation that Sen. Robert Menendez (D-N.J.) is expected to introduce that caps subsidy payments to companies on both islands at 10 percent. Menendez is a member on the tax-writing Senate Finance Committee. 

Vazquez said the bill would help Puerto Rico stay competitive if Diageo left the island. 

"Limiting the assistance that can be provided to companies at 10 percent of the grants would enable very generous support," he wrote, adding, "If Congress does not take action, Puerto Rico may be forced to take action and consider all options available to level the playing field to ultimately save its rum industry." 

One option has already been introduced in Puerto Rico's legislature that would allow rum producers to receive 60 percent of the subsidy. 

Puerto Rico currently caps payouts at 10 percent, but Vazquez said companies usually receive only 6 percent.  

Greaux contends the island regularly surpasses both percentages. 

"According to recent reports, Puerto Rico violates its locally imposed 10 percent cap on rum subsidies by providing hidden payments to Puerto Rican rum companies, which according to a leading company executive bring the total corporate subsidy to almost 40 percent," Greaux said, adding, "We hope leaders in Washington do not take Puerto Rico's most recent fabrications seriously." 

Vazquez said that approximately 94 percent of the subsidy goes to government services. The remaining 6 percent goes to rum companies.