U.S. Territories Battle Over Rum Subsidies

Last Updated Jan 14, 2010 10:53 AM EST

A business deal between British rum-maker Diageo and the United States Virgin Islands is so controversial it's inspired two federal bills and a website called "Stop the Rum Bailout."

Both Puerto Rico and the USVI are U.S. territories, and they receive rebates from the federal government from excise taxes on rum. The U.S. Virgin Islands government has agreed to give a significant chunk of that rebate money back to Diageo when the company moves its production facilities to the islands from Puerto Rico.

Puerto Rico says this an inappropriate use of the excise tax rebates, which are supposed to go towards territories' general welfare, while USVI Governor John deJongh says the territory is legally and legitimately using the money for economic development purposes by securing the Diageo contract.

Diageo was planning to leave Puerto Rico regardless of the USVI's offer, but Puerto Rico Representative Pedro Pierluisi (a non-voting member of Congress) says that's beside the point. The move is not only unfair, Pierluisi says, but it jeopardizes the entire excise tax cover-over program. Congress has to renew the program every two years -- and "extraordinary, unreasonable subsidies" like this one are the kind of thing that might make Congress think twice.

To thwart the deal, Pierluisi has introduced a bill limiting to 10 percent the amount territories can give directly to the rum companies from from the excise-tax cover-overs (not coincidentally, about the amount Puerto Rico currently gives). Meanwhile, USVI Rep. Donna Christensen has written her own bill protecting the cover-over program by making it permanent.

The whole controversy has seemingly pit Latinos against blacks -- several Hispanic politicians are objecting to the Diageo deal, while the Congressional Black Caucus is defending the right of the USVI to pursue economic development without interference from the federal government.

The vice president of Puerto Rican-based Destilería Serrallés, Inc. has also chimed in, saying the subsidy is greater than the cost of production and thus completely unfair.

  • Katherine Glover