The Miami Herald / March 29, 1999
By Larry Luxner
WASHINGTON -- While an increasingly hostile trade war over bananas is grabbing headlines in both the United States and Europe, another, less publicized trade development could have equally far-reaching implications for the Caribbean.
At issue: a decision by the European Union and the United States to abolish all protective duties on imported spirits such as vodka, rum, gin and liqueurs by 2003. Under the so-called "zero-for-zero" agreement reached in 1997, anyone who wishes to export rum to Europe after 2003 will be able to do so without paying duties or tariffs. Currently, stiff tariffs are assessed on all rum producers who are not members of the African, Caribbean and Pacific (ACP) group of ex-European colonies.
Negotiations are in the very preliminary stages, though observers expect the EU and the ACP to hold an initial formal meeting on rum within the next 30 days.
While anti-protectionists at the World Trade Organization might celebrate the tumbling down of yet another trade barrier, opponents warn that this could open the door for big rum distillers like Brazil and Mexico to begin their own shipments to Europe -- squeezing out smaller Caribbean producers from Antigua to Trinidad in the process.
"There is no way we can survive in a totally liberalized market after 2003 in the commodity rum business," says Patrick Mayers, chairman of the West Indies Rum and Spirits Producers Association (WIRSPA) in Barbados. "If this agreement goes through, it will cause extreme damage and hardship for Caribbean rum producers."
WIRSPA represents rum exporters in Antigua, Bahamas, Barbados, Dominican Republic, Guyana, Jamaica, St. Lucia, Suriname and Trinidad & Tobago. According to Mayers, WIRSPA members ship 95% of the ACP rum going into Europe; the overwhelming majority of that is bulk rum, which sells for considerably less than bottled or branded rum.
Together, WIRSPA's members export over 300,000 hectoliters of alcohol a year to the EU, which translates into more than $150 million in annual foreign-exchange earnings for the Caribbean. According to Mayers, the organization's member companies directly employ over 10,000 people throughout the Caribbean while providing their governments with over $107 million a year in tax revenues.
Yet Mayers, an official of Barbados-based Goddard Enterprises Ltd., which produces Cockspur rum, worries that the entire Caribbean rum industry "has been put in peril as a result of the zero-for-zero agreement" mandated by the WTO.
"For 20 years, the quota system that operated under the Lome Convention effectively confined us to the commodity, low-end bulk market in Europe," said Mayers. The quota, he explained, was originally aimed at protecting European rum imports from Guadeloupe and Martinique, which are overseas departments of France.
"We fought for years to have that quota system removed, and that finally happened in 1996. To everybody's utter astonishment, a few months later the EU and the United States unilaterally agreed to liberalize the white spirits market. When it was realized this would have a serious impact on domestic producers, the Rum Exception was written into the zero-for-zero agreement."
But now, he says, the ACP rum industry "has been put in peril" as a result of this latest accord.
"To build brands takes a lot of time and money, and the zero-for-zero agreement liberalizes the rum market in five years. Nobody is going to invest the money to build brands when they don't know if they'll have continuity or not," said the WIRSPA chairman, who estimates exports to Europe account for 90% of his company's $12 million in annual sales. "As a result, ACP rum producers who want to get out of the low-end commodity business will be denied that opportunity. We don't stand a chance in hell of making the transition to branded producers."
Says Tommy Gatcliffe, chairman of Angostura Ltd., Trinidad's largest rum producer: "In the beginning, it was not a quota designed to help us, but to make sure we didn't sell too much. Duty-free entry was only for a very limited amount of rum. For example, the total preference for all 44 countries in Italy was less than the rum that Angostura sold to St. Vincent that year."
Gatcliffe, a former chairman of WIRSPA, adds that "it was only very recently that they lifted that quota, and now we are in a position to try to market our brands in Europe. But overnight everyone and his cousin will come in under the same conditions."
Says Mayers: "The bottom line is that rum producers like Brazil are very heavily subsidized. Brazil has one of the largest subsidy programs for sugar cane and alcohol in the world. So how can we, who are not in any way subsidized, compete with producers who will now have free access to the European market?"
Whether countries like Brazil or Mexico would move into the vacuum created by the disappearance of tariffs on EU rum imports remains to be seen. But Peter Carl Armstrong, export manager at Industrias Muller de Bebidas Ltda. in Sao Paulo, is annoyed by suggestions that the Brazilian liquor industry enjoys unfair trade advantages.
"The Brazilian government used to heavily subsidize the production of alcohol for automotive use. All gasoline in Brazil contains a percentage of alcohol," said Armstrong, whose company distills Cachaca 51, Brazil's leading cane spirit. "But the government has removed quite a few of these subsidies, and there are absolutely no subsidies whatsoever regarding the production of alcoholic beverages."
Armstrong said his company doesn't currently produce rum, and therefore would not be interested in exporting to Europe.
"It's something probably Seagram's, UDV and maybe even Bacardi itself could theoretically take advantage of," he said. "Once those privileges are removed, Brazilian rum would of course be more competitive. I know for a fact that Seagram's already exports some Brazilian rum to Ecuador and Panama."
Mayers says exports to Europe are especially crucial to WIRSPA members because the other leading world market for rum -- the United States -- is dominated by Puerto Rico and the U.S. Virgin Islands.
"We are trying to export more to the U.S. market, but it's very hard to do that in the face of subsidies of one form or another," he said. "If people get assistance in the marketing of their products or reductions in cost of raw materials, then as far as I'm concerned, it's a subsidy."