Thread: Luis Guttierez wishes to end rum tax rebate to terrirories

Congressman Would Rather End Cover-Over Than Allow Diageo Deal

By John Baur — November 28, 2009


An Illinois Congressman supporting a bill that would deprive the Virgin Islands of its share of federal receipts from rum sales has told a Puerto Rican newspaper he would rather see the rum cover-over program eliminated than allow the V.I. to use the funds to help Diageo locate a distillery on St. Croix.

Meanwhile, V.I. Congressional Delegate Donna Christensen said Friday she is willing to consider negotiating the ongoing controversy with Puerto Rico, but only under certain conditions.

"I would be willing to talk but it would have to be based on: Nothing can undermine our agreements and none of our cover over would go to PR," she wrote in an e-mail Friday night.

The dispute between the two U.S. territories has simmered since last year, when the Virgin Islands entered into an agreement with Diageo, a United Kingdom-based company that is the largest distilled spirits maker in the world. Puerto Rico claims the Virgin Islands used its cover-over receipts to unfairly induce the company to leave Puerto Rico for the V.I. According to Puerto Rico and its D.C. allies, the Diageo deal will give Diageo a $2.9 billion windfall of government money over 30 years, which they say is almost 50 percent of the V.I.'s share.

Puerto Rico's Resident Commissioner, Pedro R. Pierluisi, introduced HR 2122, which if passed would limit direct subsidies to spirits companies to 10 percent of the cover over money. If it exceeded that percentage and the Secretary of the Treasury found the money was used to unfairly lure a company from Puerto Rico to the V.I., the Virgin Islands would not get the money, and it would go to Puerto Rico instead.


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Christensen said there is little chance the bill will get a hearing in the House Ways & Means Committee, where it was assigned. Her fear is that the imbroglio will cast doubt on the entire cover-over program.

Under the program, rum produced in the territories and sold in the U.S. is taxed at $13.50 per proof gallon, and $10.50 per proof gallon has been returned to the territories where the rum is produced. In 1986 the amount was extended to $13.25, but that extension must be reauthorized periodically and that reauthorization is due by the end of 2009. Christensen said she has been working on it all year and it was all but accomplished, but the dispute has now thrown the entire program into question.

And as far as Rep. Luis Gutierrez (D-Ill.), is concerned, that's just fine.

Gutierrez, who has Puerto Rican roots and is a co-sponsor of HR 2122, was quoted by the Puerto Rican newspaper El Nuevo Dia Friday as saying he would rather the entire program be scrapped than allow it to be used as the Virgin Islands intends. The comment was carried on the paper's website..

According to El Nueva Dia, Gutierrez said, "Es preferible que se elimine el fondo a que exista como ésta. Si se va a utilizar el fondo para enriquecer a compañÃ*as no debe existir." This very roughly translates as "It is preferable for the whole program to be dismantled than to have it used like this. If one is going to use the program to enrich companies, it doesn't have to exist at all."

Christensen and V.I. Gov. John deJongh Jr. have also pointed out that Puerto Rico's basic statement of the circumstances are also wrong. The Virgin Islands did not entice an established Puerto Rican business to leave that island, they said.

In the first place, Diageo never has produced rum itself in Puerto Rico so it was hardly lured away, they said in a meeting with House Speaker Nancy Pelosi. In 2001, when the company bought the Captain Morgan's label from Seagram's, it inherited an arrangement in which a Puerto Rican distillery Puerto Rican Distillers Inc. owned by Grupo Seralles which also makes Don Q in a different plant produced rum for it to be sold under the Captain Morgan's label. Diageo did not want to continue that arrangement and began looking for a site where it could produce its own rum. It quickly concluded it could not make a satisfactory arrangement with Puerto Rico and had already investigated sites in Jamaica, Guyana and Guatemala before the Virgin Islands entered the picture, Christensen said.

What the Puerto Ricans should have done is allow more cover over money to go to marketing. Don Q is mostly consumed in Puerto Rico some of the product made by PRD and sold under Cpt. Morgan could be sold here under other labels if promoted here well enough.