COMMISSION STAFF WORKING DOCUMENT Accompanying the document Proposal for a Council Decision authorising France to apply a reduced rate of certain indirect taxes on 'traditional' rum produced in Guadeloupe, French Guiana, Martinique and Réunion
Date: 2020-07-24
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: France, French Guiana, Guadeloupe, Martinique, Réunion, derogation from EU law, excise duty, originating product, spirits, tax relief

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 24.7.2020  SWD(2020) 141 final  COMMISSION STAFF WORKING DOCUMENT Accompanying the document Proposal for a Council Decision authorising France to apply a reduced rate of certain indirect taxes on 'traditional' rum produced in Guadeloupe, French Guiana, Martinique and Réunion {COM(2020) 332 final}  
 
 
Table of contents 

1. 

INTRODUCTION: POLITICAL AND LEGAL CONTEXT ................................................. 5 

Introduction: Outermost Regions .................................................................................. 5 
1.1. 
1.2.  Specific measure for certain French outermost regions ................................................ 5 

2. 

PROBLEM DEFINITION ....................................................................................................... 6 

2.1.  Problem 1: Fragile economic growth ............................................................................ 6 
2.2.  Problem 2: Additional costs for rum producers .......................................................... 10 
2.3.  Problem 3: Access to markets – dependence on the French mainland market ........... 16 
2.4.  Problem 4: Retrospective quota adjustments .............................................................. 17 
2.5.  How will the problems evolve? .................................................................................. 19 
2.6.  Why should the EU act? ............................................................................................. 20 

3.  OBJECTIVES: WHAT IS TO BE ACHIEVED? ................................................................. 21 

3.1.  General objectives ...................................................................................................... 21 
3.2.  Specific objectives ...................................................................................................... 21 

4.  WHAT ARE THE AVAILABLE POLICY OPTIONS? ....................................................... 21 

4.1.  What is the baseline from which options are assessed? .............................................. 21 
4.2.  Description of the policy options ................................................................................ 22 
4.3.  Options discarded at an early stage ............................................................................. 23 

5.  WHAT ARE THE IMPACTS OF THE POLICY OPTIONS? ............................................. 24 

5.1. Methodology ................................................................................................................... 24 
5.2. Baseline .......................................................................................................................... 25 
5.3. Option 1 – Termination of OR-specific support ............................................................. 26 
5.4. Option 2 – Lower the reduced rates of 50% to 40% ....................................................... 29 
5.5. Option 3 – Introduction of a subsidy ceiling .................................................................. 30 
6.6  Option 4 – Annual quota adjustment .............................................................................. 32 

6.  HOW DO THE OPTIONS COMPARE? .............................................................................. 33 

6.1. Effectiveness ................................................................................................................... 33 
6.2. Efficiency ....................................................................................................................... 36 
6.3. Coherence ....................................................................................................................... 38 
6.5. Summary of preferred options ........................................................................................ 41 

7. HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED? ........................ 42 

ANNEX 1: PROCEDURAL INFORMATION ............................................................................. 44 

ANNEX 2: STAKEHOLDER CONSULTATION ........................................................................ 45 

ANNEX 3: ANALYTICAL METHODS ....................................................................................... 54 

ANNEX 4: FISCAL AND ADMINISTRATIVE COSTS ............................................................. 57 

ANNEX 5: ADDITIONAL COSTS ............................................................................................... 61 

ANNEX 6: EVALUATION ........................................................................................................... 66 

1 

 
 
Glossary 

Term or acronym 

Meaning or definition 

ABV 

CAGR 

DG 

DGDDI 

EU 

GDP 

hlpa 

IEDOM 

INSEE 

ISSG 

NGO 

OPC 

OR 

PPS 

SMEs 

TFEU 

VAT 

VSS 

Alcohol by volume 

Compound Annual Growth Rate 

Directorate General of the Commission 

Direction Générale des douanes et droits indirects 

European Union 

Gross domestic product 

Hectolitres of pure alcohol 

Institut d’émission des départements d’outre-mer 

Institut national de la statistique et des études économiques 

InterService Steering Group 

Non Governmental organisation 

Open public consultation 

Outermost Regions 

Purchasing power standard 

Small and medium enterprises 

Treaty on the Functioning of the European Union 

Value Added Tax 

Vignette sécurité sociale 

2 

 
 
 
 
 
1.  INTRODUCTION: POLITICAL AND LEGAL CONTEXT 

1.1. Introduction: Outermost Regions 

Several regions of the European Union (EU), known as the outermost regions (OR), are 
located  in  areas  that  are  remote  from  Europe.  These  are  the  French  regions  of 
Guadeloupe,  French  Guiana,  Réunion,  Martinique,  Mayotte  and  Saint-Martin;  the 
Portuguese Madeira and the Azores; and the Spanish Canary Islands. These regions are 
an integral part of the EU and therefore need to comply with EU legislation. At the same 
time  and  unlike  the  rest  of  the  EU  territory,  they  face  permanent  constraints  related  to 
their  characteristics,  in  particular  to  remoteness,  insularity,  small  size,  difficult 
topography and climate, and economic dependence on a limited number of products.  

Figure 1. Geographical distribution of EU outermost regions 

The special situation of these regions is recognised under Article 349 of the Treaty on the 
Functioning  of  the  EU  (TFEU).  This  article  allows  for  specific  measures  for  these 
regions  to  be  taken  as  it  acknowledges  that  the  permanent  and  combined  constraints 
affect  their  economic  and  social  situation  and  severely  restrain  their  development.  It 
permits  such  measures  provided  that  they  do  not  undermine  the  integrity  and  the 
coherence of the Union legal order, including the internal market and common policies. 
Such  measures  concern  various  policies,  including  taxation,  support  to  create  jobs, 
boosting competitiveness, and preserving the environment. 

Despite the progress in the OR, these areas continue to face serious constraints, which are 
magnified  by  globalisation.  The  constraints  continue  to  affect  the  typically  small 
economic  operators  in  the  OR,  in  the  form  of  additional  costs  and  access  to  markets. 
Climate  change  is  also  becoming  a  major  concern  with  the  increased  frequency  of 
extreme weather conditions, which affects these regions.1  

1 SWD(2017) 349 final 

3 

 
 
                                                           
1.2. Specific measure for certain French Outermost Regions  

This report concerns the existing measure for traditional rum produced in the French OR 
and  transported  to  mainland  France.  Since  1923,  traditional  rum  produced  in 
Guadeloupe,  French  Guiana,  Martinique  and  Réunion  benefits  from  aid  in  the  form  of 
reduced  indirect  taxes.  The  measure  does  not  apply  to  Saint  Martin  or  Mayotte  as  no 
sugarcane,  which  is  the  main  ingredient  for  traditional  rum  production,  is  produced  in 
these regions. 

These  indirect  taxes  are  excise  duties  and  ‘vignette  sécurité  sociale’  (VSS).2  Excise 
duties  are  indirect  taxes  on  the  sale  or  use  of  specific  products,  such  as  alcohol  and 
tobacco, and are usually applied as an amount per quantity of the product. All revenues 
from excise duties go entirely to the Member States. VSS is a social security contribution 
levied  on  alcoholic  beverages  sold  in  France  to  counter  the  health  risks  of  excessive 
consumption of ethyl alcohol. VSS is levied in addition to the national excise duty. 

Union legislation3  on the classification and taxation of alcohol and alcoholic beverages 
allows  for  duty  rate  reductions  under  certain  circumstances  and  for  certain  regions.  In 
addition, Council Decision 189/2014/EU4 authorises France to apply, until 31 December 
2020, a reduced rate of excise duties and VSS, not exceeding 50% of the standard rate, 
on traditional rum produced in these specific ORs when transported to mainland France 
and consumed there. The reduced rate is limited to an annual quota of 144,000 hectolitres 
of pure alcohol (hlpa). This is equivalent to approximately 55% of the 2018 production of 
traditional rum in the French ORs. In 2018, France applied the maximum relief of 50%, 
so  that  the  final  excise  duty  of  €871.01  per  hlpa  applied  to  128,000  hlpa  of  traditional 
rum.  

The aim of this regime is to compensate for the higher production cost of traditional rum 
in  these  OR  and  guarantee  market  access  to  the  French  mainland,  which  is  their  main 
market  outlet.  This  regime has been a vital  element  of France’s strategy  for the French 
OR  for  almost  100  years,  which  identified  sugarcane  and  rum  production  as  viable 
products  to  develop  these  regional  economies.  As  the  regime  is  due  to  expire  on  31 
December 2020, a decision regarding its prolongation is necessary.  

2.  PROBLEM DEFINITION 

The constraints noted in Article 349 TFEU result in several problems for traditional rum 
producers in the French OR. The problems differ between the various OR and averaging 
the impact often masks the significant differences between them. The following problem 
tree outlines the problems, the drivers and their consequences.  

2 ‘Vignette sécurité sociale’ (VSS) is also known as ‘Cotisation sur les boissons alcooliques’ 
3 Council Directive 92/83/EEC of 19 October 1992 on the harmonization of the structures of excise duties 
on alcohol and alcoholic beverages  
4 Council Decision No 189/2014/EU of 20 February 2014 authorising France to apply a reduced rate of 
certain indirect taxes on ‘traditional’ rum produced in Guadeloupe, French Guiana, Martinique and 
Réunion and repealing Decision 2007/659/EC, OJ L 59, 28.2.2014 

4 

 
 
                                                           
Figure 2 – Problem tree 

2.1. Problem 1: Fragile economic growth 

The economies of the ORs are significantly below the level of gross domestic product per 
capita of mainland France. Across the OR, gross domestic product (GDP) per capita in 
terms  of purchasing power standard (PPS) is  below the GDP per capita PPS in  France. 
Unemployment, including youth unemployment, in all the OR is worryingly higher than 
mainland  France  and  the  EU  average.  Moreover,  long-term  exclusion  from  the  labour 
market is also a characteristic of these regions. 

According  to  the  Institut  national  de  la  statistique  et  des  études  économiques  (INSEE), 
approximately 30% and 39% of the population of Martinique and Réunion respectively 
lived  below  the  poverty  line  in  2016.5  INSEE  estimated  that  20%  and  30%  of  the 
population  of  Guadeloupe  and  French  Guiana,  in  2011  lived  below  the  poverty  line 
respectively.6  Table  1  below  provides  a  summary  of  the  key  indicators  for  each  region 
and France.  

Table 1: Key socio-economic data (2018)7and unemployment data (2017)8 

Guadeloupe9  Martinique  Réunion 

French 
Guiana 

France 

Total GDP (million €) 

10,250  

9,508 

 20,331  

4,499 

2,353,090  

GDP per capita (€) PPS 

21,900 

23,300 

21,200 

14,400 

31,500 

GDP per capita PPS compared 
to all France average 

69.5% 

74.0% 

67.3% 

45.7% 

100% 

Current  growth  trend  (change 
in real GDP, 2017-2018)10 

3.4% 

0.2% 

3.2% 

-1.9% 

2.2% 

5 INSEE, Fichier localisé social et fiscal (Filosofi) – 2016. There has been some controversy about the use 
of  a  regional  rather  than  national  income  benchmark,  potentially  reducing  the  poverty  measure.  See 
https://www.senat.fr/questions/base/2019/qSEQ190209202.html. 
6 INSEE Dossier Guyane n° 9 - mars 2018 
7 Eurostat 2018 
8 IEDOM: Annual Report 2018 
9 2017 data. 
10 Compound Annual Growth Rate (CAGR), based on IEDOM: Annual Reports 2017 and 2018.  

5 

 
 
 
 
 
                                                           
Average  annual  GDP  growth 
rate [2014-18]11 

3.0% 

Unemployment rate12 

23.1% 

Youth unemployment rate  

55.2% 

Young  people  neither 
in 
employment  nor  in  education 
and training (NEET rate)13 

20.7% 

0.3% 

3.3%  

1.9% 

2.0% 

17.7% 

49.4% 

19.9% 

24.0% 

19.1% 

8.8% 

50.3% 

39.2% 

20.9% 

27.8% 

33.1% 

11.1% 

Human  Development  Index 
201014 

0.822 

0.813 

0.775 

0.739 

0.883 

Source: IEDOM, Eurostat, INSEE 

2.1.1.  What are the drivers of the fragile economic growth? 

Dependence on a few products – interdependence on sugar cane rum value chain 

The  French  OR  share  most  of  the  features  of  small  economies.  In  particular,  like  most 
small economies, the range of production is concentrated on a relatively narrow range of 
products  with  little  diversification,  meaning  that  the  economy  is  highly  exposed  to 
sectoral  or  asymmetric  shocks.  While  commercial  and  non-commercial  services 
dominate the economies of the French OR, agriculture and fisheries contribute more than 
double  to  the  outermost  regions'  economy  compared  to  the  EU  average:  3.8%  of  these 
regions'  added  growth  against  1.6%  at  EU  level.15  In  French  Guiana  and  Martinique, 
agriculture  accounts  for  respectively  4.2%  and  3.5%  of  their  economies  and  for  a 
significant  proportion  of  exports.  Agriculture  accounts  for  3%  and  1.4%  of  the 
economies of Guadeloupe and Réunion,  respectively.16 Even with  gross value added of 
agriculture  and  fisheries  being  relatively  small,  they  are  important  for  the  regional 
cultural  identity,  for  the  preservation  of  the  landscape  and  tourism  as  well  as  their 
employment intensity. In Réunion, sugarcane has been the island’s primary crop for more 
than  a  century.  This  sector  is  also  considered  a  wealth  and  employment  maker  for  the 
ORs,  which  further  underlines  its  importance.  The  agricultural  model  in  the  ORs  are 
essentially of family nature and on reduced areas. This type of farming is important for 
employment and is also environmentally friendly17, limiting soil erosion and water run-
off, utilising by-products such as bagasse used as a biofuel or filtercake used as fertiliser, 
or harvesting green sugarcane, which stops the pollution problems caused by burning.  

Sugarcane  cultivation  –  the  primary  ingredient  in  rum  production  -  takes  places  on 
approximately 40,000 hectares of land (25% of the available agricultural land) across the 
French  OR.  In  2017,  Réunion  produced  65%  of  the  total  sugarcane  in  the  ORs  on 

11 CAGR, based on IEDOM: Annual Reports 2018. This covers the period of the Decision up to the most 
recent data available. 
12 IEDOM: Annual Reports 2018. INSEE Employment Surveys 2014-18. 
13 Eurostat 2018 
14 Agence Française de développement, document de travail n° 129, Quel niveau de développement des 
départements et collectivités d’outre-mer ? Une approche par l’indice de développement humain. 
15 SWD(2017) 349 final 
16 INSEE, https://statistiques-locales.insee.fr/#c=indicator&i=tcr063.val_ajout_agri&s=2015&view=map3  
17 http://www.egmontinstitute.be/content/uploads/2018/04/Outermost-Regions-PLS-v2.pdf 

6 

 
                                                           
approximately 54% of its total available agricultural land.18 Guadeloupe, an archipelago 
of  six  inhabited  islands,  uses  26%  of  its  total  agricultural  land  to  cultivate  27%  of  the 
total sugarcane in the French ORs. Martinique and French Guiana used 13% and 0.5% of 
their available agricultural lands to cultivate 7% and 0.3% of the total sugarcane during 
this period.  

The cane-sugar-rum value chain involves farms, sugar producers and distilleries, who are 
highly interdependent on each other. In Martinique and French Guiana, 81% and 100% 
of  the  sugarcane  produced  goes  directly  into  the  production  of  agricole  rum.19  In 
Guadeloupe, 12% of the sugarcane produced is  delivered directly to the  distilleries. As 
Réunion produces mainly sucrerie rum from molasses, the sugarcane is sent to the sugar 
to  employ 
producers  first.  Overall, 
approximately  40,000  people  across  the  ORs20.  Worldwide  sugar  prices  have  fallen 
significantly in recent years due to the deregulation of the sugar market in 201721 and the 
decline in the production of sugarcane on Martinique could negatively impact the single 
sugar factory left, which requires a minimum amount of sugarcane to remain viable.22 If 
this  factory  closes,  this  would  negatively  affect  the  production  of  sucrerie  rum  on 
Martinique, as no molasses would be produced on the island to continue this type of rum 
production.  

the  cane-sugar-rum 

is  estimated 

industry 

Persistent economic constraints  

Significant  public  support  from  France  as  well  as  the  EU  has  developed  infrastructure, 
provided  services  for  the  population,  created  jobs,  invested  in  education  and  skills  and 
increased  businesses'  competitiveness.  This  support  has  also  helped  enhance  and 
diversify agricultural activities, preserve the environment and addresses climate change. 
Nevertheless,  economic  constraints  remain.  The  evolution  of  the  economic  and  social 
situation in the OR over the past  years  - rising unemployment rate, especially alarming 
among the youth, and, for some of them, growing irregular migration and social crises – 
is a cause for concern.23  

Given  that  it  is  virtually  impossible  to  create  import-substituting  production  for  most 
goods  but  even  more  so  for  exports,  the  OR  have  a  small  export  base  and  high  import 
ratio  to  GDP.  An  inability  to  influence  international  prices  is  another  factor  in  the 
persistent  economic  constraints  facing  the  French  OR.24  Brazil  produced  41%  (758 
million  tonnes)  of  the  world  total  sugarcane  in  2017.  In  comparison,  just  under  2.9 
million tonnes of sugarcane were grown in the EU’s OR.  

The demographic situation is highly variable and diverse for each OR and is a factor in 
the persistent economic constraints facing the ORs as a whole. Guadeloupe’s population 

18 IEDOM: Annual Report on Reunion, 2018 
19 PwC et al, 2020 
20 ODEADOM 2018 activity report http://www.odeadom.fr/wp-content/uploads/2019/08/Rapport-2019-
BAT-02-07.pdf  
21 https://www.iedom.fr/IMG/pdf/ne421_eclairage_la_filiere_canne-sucre_en_2017_la_reunion-.pdf  
22 IEDOM: Annual Report on Martinique, 2018 
23 https://ec.europa.eu/regional_policy/sources/policy/themes/outermost-
regions/pdf/rup_2017/com_rup_partner_en.pdf  
24 http://www.et2050.eu/TechNotes/ET2050_DiscNote16_OutermostRegions_v(27_02_12).pdf 

7 

 
                                                           
growth  is  low  at  0.2%  and  the  region  is  getting  older.  Martinique’s  population  has, 
despite  immigration,  declined  with  large  numbers  migrating  to  mainland  France.25 
French  Guiana’s  population  has  grown  significantly,  with  approximately  40%  of  the 
population  aged  20  years  or  less.  While  this  is  mainly  due  to  positive  demographic 
growth,  French  Guiana  is  also  subject  to  significant  irregular  immigration.  The 
population of Réunion is also growing due to natural increases, 34% of its population is 
younger than 20 years, however its population over 60 years is also increasing.  

the  state  of  French  Guiana’s 

infrastructure  significantly  hampers 

Education is another significant factor affecting the economic development of the ORs. 
Guadeloupe,  Réunion  and  Martinique  all  have  a  high  rate  of  early  school  dropout, 
whereas 
the 
establishment  of  an  effective  educational  system.26  Illiteracy  is  a  significant  problem 
contributing  to  the  economic  constraints.  In  2018,  7%  of  the  population  on  mainland 
France  between  the  age  of  16  and  65  years  were  illiterate.  In  comparison,  14%  of  the 
same age profile were illiterate in Martinique and this rises to 22.6% in Réunion.27 This 
creates a mismatch between the skills and competencies sought by employers and those 
offered  by  job  seekers.  The  distance  between  where  the  jobs  are  located  and  where 
people live creates a further mismatch as transport difficulties are particularly prevalent 
in  the  ORs,  which  limits  the  possibility  for  job  seekers  to  commute  to  possible  job 
locations.28 Some producers noted this issue and that this results in an additional cost, if 
they import skilled labour. 

The persistent  constraints facing these ORs also  stem from  external factors. Due to the 
fact  that,  they  are  located  in  areas  where  the  neighbouring  countries  have  significant 
differences in their level of development, the ORs are also directly exposed to the social 
and economic conditions that are present there.29  

rum 

traditional  OR 

faces  substantial 

Furthermore, 
international  competition. 
Amendments  to  EU  import  regimes  can  have  significant  impacts.  The  Cotonou 
agreement30  with  the  African,  Caribbean  and  Pacific  Group  of  States  (ACP)  countries 
allows  these  countries  to  export  rum  to  the  EU  duty  free.  Since  the  late  1990s,  rum 
producers  in  the  Caribbean  community  and  Dominican  Republic  (CARIFORUM)  have 
exported rum into Europe under duty free and quota free conditions.31 Such agreements 
can have  a negative impact  on traditional OR  rum.  The market  share of  traditional OR 
rum  in  mainland  France  is  estimated  to  have  declined  by  6%  between  2013  and  2018 
compared  to  imports  of  rum  and  rum-based  spirits  from  other  countries,  which  have 
grown by 11.5% a year on average.32 

25 http://www.euroconsulting.be/wp-content/uploads/2017/01/fullrep_en1.pdf 
26 http://www.egmontinstitute.be/content/uploads/2018/04/Outermost-Regions-PLS-v2.pdf 
27 INSEE, 2011 
28 La lettre du Centre d’Economie et de Management de l’Océan Indien n°20, La vie chère en Outre-Mer, 
un phénomène structurel ? - 2019 
29 http://www.euroconsulting.be/wp-content/uploads/2017/01/fullrep_en1.pdf 
30 https://eur-lex.europa.eu/legal-content/en/TXT/?uri=LEGISSUM:r12101 
31 https://trade.ec.europa.eu/doclib/docs/2016/february/tradoc_154237.pdf  
32 PwC et al, 2020 

8 

 
                                                           
2.2. Problem 2: Additional costs for rum producers  

The majority of rum production in the French OR is of two main types of traditional rum: 
rhum  agricole  produced  from  sugarcane  juice,  and  rhum  de  sucrerie  produced  from 
molasses. Due to several interrelated factors, it is more costly to produce traditional rum 
in the French OR than elsewhere. These factors include the cost of primary ingredients, 
which must be sugarcane cultivated in the French ORs, workforce, geographical location 
and  topography,  volatile  climate,  compliance  costs  (with  EU  environmental  and  safety 
standards) and traditional marketing practices. The way in which all these factors drive 
the cost of production up is described in the section on drivers below. 

Table  2  details  these  costs  to  demonstrate  the  total  additional  costs  experienced  by 
producers of traditional rum in the French ORs. Given that these costs are aggregated at 
the  producer  level,  they  do  not  take  account  of  the  fact  that  more  than  50%  of  the 
producers are SMEs, which typically face even higher costs. Additionally, not all aspects 
of  the  factors  affecting  production  costs,  mentioned  above,  could  be  quantified  or 
confirmed  and  are  thus  not  reflected  in  the  estimates.33  This  includes,  for  example, 
herbicide  costs  of  €16  per  hlpa.  There  is  a  possible  risk  that  these  costs  are  over-  or 
underestimated based on the available data, despite extensive efforts to collect them from 
all relevant sources34. Detailed analysis of the additional costs is provided in Annex 4. 

Table 2 Additional cost per hlpa of traditional OR rum  

Component 

Additional cost per hlpa (€) 

Primary ingredients 
Workforce 
Remoteness 
Tropical climate 
EU regulations 
Transformation aid 
Market practices  
Total 

Source: PwC et al, 2020 

Mainland rum 
75 
9 
16 
43 
0 
-19 
697 
821 

World rum  Mainland vodka 

75 
50 
16 
22 
10 
-19 
638 
792 

46 
32 
16 
43 
10 
-19 
835 
963 

In  practical  terms,  the  average  additional  cost  involved  in  producing  both  types  of 
traditional rum in the French OR are estimated to be between €792 and €963 per hlpa (or 
€2.85 and €3.46 per bottle), depending on the comparators.35 

These  estimations  do  not  take  into  account  factors  influencing  prices  in  other  rum-
producing  regions,  such  as  production  support.  For  example,  the  US  Virgin  Islands 

33 Transports costs are not included in these estimates as these are covered by freight aid.  
34  Including  six  targeted  questionnaires  to  various  stakeholders  in  the  cane-sugar-rum  value  chain, 
interviews and public consultation as well as any official statistics available;  
35  The  comparators  used  were  world  rum,  a  hypothetical  mainland  (French)  rum  and  mainland  vodka. 
World  rum  is  the  closest  actual  competitor  in  the  French  market.  Mainland  vodka  was  also  used  for 
comparisons, as rum is not generally produced in mainland France and this allows for comparisons against 
actual mainland spirit production costs.   

9 

 
 
  
                                                           
provide  certain  molasses  supports  to  spirits  producers  on  the  islands.  In  addition,  rum 
producers  based  in  Puerto  Rico  and  the  Virgin  Islands  benefit  from  significant 
government support financed through transfers of excise collected on sales of rum in the 
US mainland.36 

2.2.1.  What are the drivers of additional costs for rum producers?  

Remoteness, insularity, size, difficult topography and volatility of climate 

The  French  OR  are  spread  across  different  regions  and  all  are  located  over  7,500  km 
from  Paris,  with  Réunion  the  furthest  at  almost  10,000  km  away.  Remoteness  has  a 
negative impact on most sectors because of the transport costs, which affect the mobility 
of  factors  (labour,  capital  and  raw  materials),  trade,  and,  in  general,  all  forms  of 
integration with the mainland EU.37 Producers note additional costs include purchase of 
excess  materials  and  distillery  equipment  due  to  the  delays  in  transportation  to  their 
remote  locations  and  delays  in  specialised  labour  arriving  in  the  ORs  to  repair  the 
equipment. Their remoteness also affects transport costs towards mainland Europe, with 
air and sea connections limited by the lack of critical mass on the one hand, and exposed 
to fluctuations in oil prices on the other hand.  

The ORs  are isolated also due to  their island nature or due to  the characteristics of the 
territory.  Apart  from  French  Guiana,  96%  of  which  is  covered  by  dense  rainforest,  the 
OR are small  oceanic islands. Accessibility issues affect  these regions  not  only in  their 
trade  and  exchanges  with  the  EU  but  also  within  their  geographic  areas  and  within the 
same archipelago.38  

Figure 3 – location of the French outermost regions subject to the regime 

36 PwC et al, 2020 
37 http://www.et2050.eu/TechNotes/ET2050_DiscNote16_OutermostRegions_v(27_02_12).pdf   
38 Guadeloupe is an archipelago with 6 of its islands inhabited. 

10 

 
 
                                                           
Guadeloupe,  Martinique  and  Réunion  have  a  small  surface  area,  are  of  volcanic  origin 
and  affected  by  seismic  activity.39  This  results  in  very  diverse  relief  from  steep  to  flat, 
sometimes within the same region. 75% of sugarcane is grown on the slopes in Réunion. 
In many cases,  the soil is unconducive to  high agricultural  yields due to  environmental 
and water availability problems.  

The  climate  of  these  regions  varies  from  tropical  (e.g.  Guadeloupe,  Martinique  and 
Réunion), to equatorial (French Guiana). The tropical climate results in high number of 
pests, which may affect crop yield.40  

Environmental  risks  are  high  and  the  consequences  of  natural  events  such  as  floods, 
droughts, cyclones and tsunamis can be dramatic as due to topography most of the social 
and economic life is concentrated in the coastal areas41, which are particularly exposed to 
extreme  weather  conditions.42  Producers  note  that  storm  damage  to  infrastructure  is  a 
driver of additional costs for them, which also impacts on their insurance costs. Cyclones 
Beijisa  and  Beguitta  hit  Réunion  in  2013  and  2018  respectively  and  hurricane  Maria 
impacted  Guadeloupe  and  Martinique  in  2017  and  is  estimated  to  have  costed  €100 
million  in  Guadeloupe43  due  to  the  structural  damages  caused  by  the  strong  wind  and 
excessive rainfall.  

Consequently,  sugarcane  grown  in  the  French  OR  is  systematically  and  substantially 
more expensive than the world price, while at the same time has a lower sugar content. 
The  cost  per  hlpa  of  traditional  French  OR  rum  is  on  average  €75  higher  than 
comparators (see table 2 above), who can source sugarcane cheaper from the large-scale 
producers  located  in  countries  such  as  Brazil  (60%  of  the  farms  are  more  than  1,000 
hectares)44, India and China. In comparisons, many of the OR sugarcane farms are less 
than 7 hectares.45 This, combined with the soil characteristics and availability of water, 
leads  to  lower  crop  yields  on  a  per  hectare  basis  and  economies  of  scale  are  hard  to 
realise.  Yields  per  hectare  in  Guadeloupe,  Martinique  and  French  Guiana  remain  low 
(between 40 and 50 tonnes per hectares depending on the years)46 in comparison with the 
average  worldwide  yield  (70.6  tonnes  per  hectare).47  Moreover,  the  above-mentioned 
volatility of climate results in unforeseeable fluctuations in sugarcane production.  

Compliance with EU legislation  

39 Réunion is home to one of the world’s most active volcanoes 
40 http://www.euroconsulting.be/wp-content/uploads/2017/01/fullrep_en1.pdf  
41 The population density is very high in all ORs except Guiana. It ranges from 260 inhabitants per square 
km in Guadeloupe to 350 in Martinique, while the EU27 average is approximately 114.   
42 https://ec.europa.eu/regional_policy/sources/docgener/studies/pdf/rup_growth/rup_growth_sum_en.pdf  
43 https://la1ere.francetvinfo.fr/ouragan-maria-moins-100-millions-euros-degats-guadeloupe-bruno-maire-
514807.html 
44https://www.researchgate.net/publication/311159054_The_evolving_role_of_large_and_medium_farms_
on_Brazilian_agriculture 
45  The  average  farm  is  6  hectares  but  size  ranges  from  4  hectares  in  Guadeloupe  to  19  hectares  in 
Martinique. IEDOM report (2018) on Martinique, Guadeloupe and Reunion 
46 IEDOM: Annual Report, 2018 
47 The Food and Agriculture Organization 

11 

 
                                                           
Point 1 of Annex II of Regulation 110/200848 on the definition, description, labelling and 
the protection of geographical indications of spirit drinks sets out the definition for rum. 
In general, rum is an unflavoured spirit drink produced exclusively by fermentation and 
distillation  of  molasses  or  syrup  produced  in  the  manufacture  of  cane  sugar  or  from 
sugarcane juice itself.  

For the OR of France, rum is defined as: 

‘a spirit drink produced exclusively by alcoholic fermentation and distillation of 
sugar-cane  juice  which  has  the  aromatic  characteristics  specific  to  rum  and  a 
volatile substances content equal to or exceeding 225 grams per hectolitre of 100 
%  vol.  alcohol.  This  spirit  may  be  placed  on  the  market  with  the  word 
‘agricultural’ qualifying the sales denomination ‘rum’ accompanied by any of the 
geographical 
the 
Autonomous Region of Madeira as registered in Annex III’. 

the  French  Overseas  Departments  and 

indications  of 

Regulation 110/200849 also provides for the use of the word ‘traditionnel’ as follows: 

‘The  word  ‘traditionnel’  may  supplement  any  of  the  geographical  indications 
mentioned in category 1 of Annex III where the rum is produced by distillation at 
less than 90 % vol., after alcoholic fermentation of alcohol-producing materials 
originating  exclusively  in  the  place  of  production  considered.  This  rum  must 
have a volatile substances content equal to or exceeding 225 grams per hectolitre 
of 100 % vol. alcohol and must not be sweetened…’. 

In accordance with Regulation 110/2008, the minimum alcohol content of rum must be 
37.5%.  However,  Council  Decision  189/2014/EU50  requires  an  alcoholic  strength  by 
volume of 40% or more.  

In order to avail of the current relief, producers must use sugarcane grown in the OR and 
must  produce  higher  strength  alcohol.  This  restriction  means  that  cheaper  ingredients 
cannot be sourced elsewhere and that the end product is subject to higher excise duty due 
to the higher alcoholic content of traditional rum.51  

Environmental  regulations52  are  another  driver  of  additional  costs  for  rum producers  in 
the ORs. Commission Implementing Regulation (EU) No 1045/2011 of 19 October 2011 
banned asulox in the EU, a herbicide used to control weeds in sugarcane plantations. A 
derogation was allowed  until  2018 as no alternative in  the sugarcane industry had been 
found.53 Producers estimate that the banning of asulox results in additional labour costs 

48 Regulation (EC) No 110/2008 of the European Parliament and of the Council of 15 January 2008 on the 
definition, description, presentation, labelling and the protection of geographical indications of spirit drinks 
and repealing Council Regulation (EEC) No 1576/89 
49 Point 1(f) of Annex II 
50 Article 2 
51  Excise  duties  on  ethyl  alcohol  is  calculated  per  hectolitre  of  pure  alcohol.  Higher  strength  alcohol  is 
therefore subject to higher excise duties than lower strength ethyl alcohol 
52  See  also  Directive  2014/52/EU  of  the  European  Parliament  and  of  the  Council  of  16  April  2014 
amending Directive 2011/92/EU on the assessment of the effects of certain public and private projects on 
the environment 
53 Article 53 of Regulation (EC) 1107/2009 

12 

 
                                                           
of €16 per hlpa54 to control the weeds in the sugarcane plantations. Distilleries are subject 
to an authorisation procedure for environmental protection reasons55, which reviews the 
environmental  dangers  of  the  installation  prior  to  authorisation.  Producers  must  ensure 
their distillery equipment is compliant with EU environmental regulations and producers 
note the significant environmental compliance costs for the waste treatment56 of turning 
the ‘vinasse’, a by-product of rum production, into biogas and other nutrients.57 

EU and French labour regulations also affect the ORs. Workers in the ORs enjoy a higher 
–  and  costlier  –  level  of  social  protection.  These  regulations  result  in  increased  labour 
costs  for  small  producers  in  particular.  The  cost  of  employing  managers  in  the  OR  is 
typically  higher  than  for  the  equivalent  jobs  in  mainland  France.58  Furthermore,  when 
comparing the labour costs in Brazil to those in the OR, the latter are substantially higher. 
Overall, labour contributed to  an estimated €9 to €50 per hlpa in  additional costs. This 
difference is driven mostly by the additional costs of labour required in the production of 
agricole rum, demanding more staff per hectolitre of pure alcohol compared to sucrerie 
rum.  French  Guiana  produces  only  agricole  rum,  whereas  production  in  Guadeloupe  is 
split  almost  50/50  between  the  two  types.  Sucrerie  rum  is  produced  predominantly  in 
Réunion, whereas Martinique producers distil agricole rum for the main part. This means 
that producers in French Guiana and Martinique face higher labour costs than producers 
in  Réunion.59  Health  and  safety  legislation60  regarding  air  polluting  substances  also 
impacts  the  OR  industry  in  comparison  to  competing  industries  in  neighbouring 
countries.  

Traditional production methods and small-scale production 

There  are  25  rum  producers  in  the  French  OR  with  Guadeloupe  having  12  producers, 
Martinique  9,  Réunion  3  and  French  Guiana  only  1.  Their  production  of  rum  varies 
substantially  from  low  thousands  of  hectolitres  of  pure  alcohol  to  over  50,000  hlpa, 
which is still relatively small.  

Thirteen  of  the  producers  are  SMEs61,  which  is  a  significant  obstacle  in  terms  of 
development: 

• 

• 

the  small  size  of  SMEs,  with  a  consequent  lack  of  financial  and  human 
resources, is a strong barrier to entering new markets. 
limited innovation in many enterprises, especially in more traditional sectors 
such  as  manufacturing,  makes  SME  products  less  competitive  in  external 
markets. 

54 CIRT-DOM 
55 Article L 511-1 et seq. of the French Environmental code : https://www.georisques.gouv.fr/node/7605 
56 Regional atmosphere protection plan and waste prevention and management plan 
57 https://www.economiecirculaire.org/data/sources/users/3136/20180401presentation-drm-et-projets.pdf 
58 Les Études de l’emploi cadre titled ‘Les salaires dans les fonctions cadres: Exécutives salaries. Seet: 
https://corporate.apec.fr/files/live/sites/corporate/files/Espace%20M%C3%A9dias/pdf/les-salaires-dans-
les-fonctions  
59 PwC et al, 2020 
60 Directive (EU) 2015/2193 of the European Parliament and of the Council of 25 November 2015 on the 
limitation of emissions of certain pollutants into the air from medium combustion plants 
61 French Senate Report No 574  (2012-2013) of MM. Georges PATIENT and Éric DOLIGÉ on behalf of 
the Committee on financial affairs. A new SME rum producer started in 2016.  

13 

 
                                                           
• 

in comparison to large enterprises, SMEs perform worse in terms of turnover 
and value added.62 

Increasing production and therefore achieving economies of scale are difficult to realise 
due to the small scale of the regional markets and sugarcane production for many of the 
producers.  The  production  of  traditional  rum  is  aligned  to  the  short  sugar  cane  harvest 
period of 4 months in Guadeloupe and Martinique and 6 months in Réunion. The harvest 
period  is  9  months  in  French  Guiana.  The  smaller  scale  production,  together  with 
difficult terrain, result in the underutilisation of machinery designed for higher volumes 
of production, which has a significant impact on the competitiveness of rum producers in 
the  OR.  Moreover,  the  tropical  climate  and  roughness  of  the  terrain  causes  machinery 
used  to  depreciate  quicker.  Rum  producers  in  the  OR  suggested  that  depreciation  and 
repair costs were 60% higher in tropical climates.63 Waste management is a further factor 
affecting  producers  in  the  ORs.  There  is  limited  landfill  capacity  and  the  lack  of 
economies  of  scale  for  waste  collection,  treatment  and  /  or  recycling  processes,  in 
particular at the specific waste stream level (e.g. for organic waste). This can result in the 
need to export unusable waste at additional cost to be treated on the mainland.64  

Marketing practices 

Traditional OR rum sold in the French mainland is typically marketed in larger bottles of 
one litre and at higher strengths than other competing rum. Traditional rum must have an 
alcoholic  strength  by  volume  of  40%  or  more  in  order  to  qualify  for  reduced  rates  of 
excise duty on the French mainland. In comparison, the alcohol content of all other rum 
must exceed an alcoholic strength by volume of 37.5%. However, the average bottle of 
OR rum is estimated to have an alcohol content of 0.359 litres of pure alcohol which is 
equivalent to 70 cl bottle with 51% ABV65. Moreover, certain spirit drinks, which do not 
meet  the  definition  of  rum  due  to  their  lower  alcoholic  content  and  presence  of 
flavourings/sweeteners,  are  in  direct  competition  with  traditional  rum  because  of  their 
use of the term rum in their branding and their marketing strategy of product placement 
beside rum in retail outlets66.  

As excise duties and VSS are based on volume and alcohol content, this results in higher 
taxes on traditional rum. Producers noted in the consultation that the marketing practice 
for  traditional  rum,  of  higher  volumes  and  alcohol  content,  is  critical  to  maintaining 
market  access  in  the  face  of  larger  alcohol  brands’  marketing  budgets  and  that  the 
practice generates brand recognition with customers.67 By selling in higher volumes and 
strengths,  OR  rum  has  been  able  to  successfully  compete  and  differentiate  itself, 
particularly in the lower cost ends of the market, and overcome difficulties caused by the 

62 EU policy framework on SMEs: state of play and challenges, European Commission, 2019 
https://cor.europa.eu/en/engage/studies/Documents/EU-SMEs/EU-policy-SMEs.pdf  
63 PwC et al, 2020 
64 https://ec.europa.eu/regional_policy/sources/policy/themes/outermost-
regions/pdf/green_circ_econ_report_en.pdf 
65 PwC et al, 2020,  confirmed by CIRT-DOM, based on 2018 IRI panel  
66 CIRT-DOM, 2020 
67 PwC et al, 2020 

14 

 
                                                           
economic and social  situation of the ORs.  The current  Council Decision  acknowledged 
this practice, describing it as a ‘decade-long marketing practice.’68 

2.3. Problem  3:  Access  to  markets  –  dependence  on  the  French  mainland 

market 

Three  of  the  French  OR  have  smaller  based  domestic  markets  than  Malta,  the  least 
populated  Member  State.  Guadeloupe  and  Martinique  have  a  total  population  of 
approximately 390,000 and 376,000 respectively69 – the size of a mid-size European city. 
French Guiana is located on the South American continent and has a total population of 
296,700.70  These  OR  are  located  in  or  close  to  the  Caribbean,  the  centre  of  world  rum 
production71,  which  limits  the  scope  for  trade  opportunities  in  their  immediate 
geographic areas.  

Réunion’s  population  is  larger  than  the  other  OR  and  also  three  of  the  EU  Member 
States72,  with  approximately  865,800  people  living  on  the  island.73  Réunion’s  closest 
neighbours  are  Mauritius  and  Madagascar,  both  active  in  rum  production.  India  to  the 
north  also  produces  rum.  As  a  result,  these  regions  face  intense  competition  from  their 
rum-producing neighbours and access to the EU single market is vital for development, 
as  it  was  already  recognised  in  the  2017  Commission  Communication  “A  stronger  and 
renewed  strategic  partnership  with  the  EU's  outermost  region.”74  That  situation  is  also 
recognised in recital 6 of the current Decision stating that: “Given the small scale of the 
local market,  the distilleries in  the four  outermost  regions concerned can develop  their 
activities only if they have sufficient access to the market in the French mainland, which 
is the main outlet for their rum.” 

Producers located in  the outermost region,  an integral  part of the EU, have the right  to 
full participation in the single market with more than 500 million consumers. However, 
in  practice,  many  small  companies  on  the  EU  mainland  struggle  to  access  the  single 
market  even  with  the  EU’s  SME  support75  in  place.  A  2010  study  by  the  Commission 
found that only 25% of EU-based SMEs sell outside their home Member State, of which 
only 13% go beyond the single market.76  

The French authorities have supported rum producers since 1923 in the form of reduced 
excise  rates  on  sales  in  the  French  mainland.  This  has  supported  the  industry  by 
guaranteeing access to the French mainland market for traditional rum. In 2018, 65% of 
the total traditional rum production in the ORs was sold on the French mainland, 15% of 
this  outside  of  the  derogation.  Despite  a  growth  of  14%  in  the  volume  of  traditional 
French OR rum sold on the French mainland market, the estimated share of the OR rum 

68 Recital 10  
69 INSEE, Guadeloupe (2017), Martinique (2016) 
70 INSEE, French Guiana (2018) 
71https://www.statista.com/statistics/259739/leading-rum-brands-worldwide-based-on-sales-volume/   
72 Malta, Luxembourg, Cyprus 
73 IEDOM: Annual Report on Reunion, 2018 
74 COM(2017) 623 final 
75 COM/2008/0394 final 
76 European Commission, 2010, Internationalisation of European SMEs 
https://ec.europa.eu/docsroom/documents/10008/attachments/1/translations 

15 

 
                                                           
in  the  total  rum  market  declined  by  6%  between  2013  and  2018.  This  is  due  to  the 
success of other global rum brands.77  

Table 3: Traditional OR rum production and dispatches to French mainland (hlpa) 

traditional 

Traditional  rum  production  (hlpa, 
thousands) 
French  OR 
rum 
dispatched  to  mainland  France 
(hlpa, thousands) 
Total quota (hlpa, thousands) 
French  OR 
rum 
released  for  consumption  under 
the derogation (hlpa, thousands) 
French  OR 
rum 
released  for  consumption  under 
the  derogation  as  a  percentage 
of OR traditional rum production 
Source: PwC et al, 2020 

traditional 

traditional 

2014 

2015 

2016 

2017 

2018 

226 

234 

244 

279 

259 

147 

149 

160 

185 

169 

120 

120 

144 

144 

144 

119 

120 

124 

127 

128 

53% 

51% 

51% 

46% 

50% 

2.4. Problem 4: Retrospective quota adjustments 

The  regime  for  traditional  OR  rum  only  applies  to  certain  quantities  of  pure  alcohol 
transported and consumed in mainland France each year. This amount or quota is fixed 
for a seven year period, as set out in the Decision. Changes to the quota is possible with 
an amendment of the Decision. However, the most recent amendments to the quota were 
retrospective,  which  creates  uncertainty  for  the  producers.  This  impacts  their  ability  to 
plan their production and in some cases may negatively impact on long term investments.  

For  France  and  the  European  Commission,  any  amendments  to  the  Decisions  entail 
administrative burdens and costs. Revisions of Decisions are estimated to incur costs of 
about €77,000 per Decision for both stakeholders, on top of the ongoing oversight costs 
amounting to some €47,000.78  

As demonstrated in  Table 4, the Decisions were  generally  adjusted before their expiry. 
That is not conducive to economic certainty in the sector and creates burdens and costs 
(detailed  in  Annex  4).  Although  relatively  modest,  these  costs  are  avoidable  and  the 
permanent  need  for  further  increases  keeping  up  with  the  growth  rates,  potentially 
unnecessary. 

Table 4: Council Decisions and their amendments 

Council 
Decision 

Date 
Decision 
Quota 
(hlpa) 

2002/166/EC  2007/659/EC  896/2011/EU  189/2014/EU 

2017/2152 

30/10/1995 

18/02/2002 

09/10/2007 

19/12/2011 

20/02/2014 

15/11/2017 

90,000 

90,000 

108,000 

120 000 

120 000 

144 000 

Start date 

01/01/1996 

01/01/2003 

01/01/2007 

01/01/2011 

01/01/2011 

01/01/2016 

77 PwC et al, 2020 
78 PwC et al, 2020 

16 

 
 
 
 
                                                           
End date 

31/12/2002 

31/12/2009 

31/12/2012 

31/12/2013 

32/12/2020 

31/12/2020 

retrospective 

retrospective 

retrospective 

retrospective 

2.4.1.  What are the drivers of retrospective quota adjustments? 

The Decision notes that the fiscal advantage needs to remain proportionate so as not to 
undermine  the  integrity  and  the  coherence  of  the  Union  legal  order,  including 
safeguarding  undistorted  competition  in  the  internal  market  and  State  aid  policies.  The 
quota is set at the adoption of the Decision, on the basis of market information available 
at the time. The fixing of the quota allows producers to plan their long-term production 
and investments.  

The markets however evolve and the production of rum worldwide has been increasing 
steadily  overtime.  This  results  in  the  quota  levels  running  quickly  out  of  sync  with  the 
market, restraining production growth in the OR as the producers are limited to remain 
within  the  quota.  To  remedy  the  situation,  French  authorities  have  systematically 
requested  the  Commission  to  update  and  increase  the  quota,  in  line  with  market 
developments.  The  progressive  historical  increases  in  the  quota  in  line  with  the  overall 
growth  rate  of  3.1%  have  created  an  expectation  at  the  producers’  level  that  this  will 
continue, which has influenced long-term business strategies. 

Council Decision 2002/166/EC set this quota at 90,000 hectolitres of pure alcohol (hlpa) 
for  the  period  1  January  2003  to  31  December  2009.  In  the  mid-term  report  of  2005, 
France  requested  an  increase  in  this  quota  for  various  reasons  including  increase  in 
production  costs  and  the  developments  on  the  Community  market  for  rum,  which 
benefitted  rum  from  third  countries  and  resulted  in  the  decline  in  market  share  for 
traditional OR rum. 

Council  Decision  2007/659/EC  increased  the  quota  to  108,000  hlpa  for  the  period  1 
January  2007  to  31  December  2012.  The  French  mid-term  report  of  2010  requested 
another increase of the quota, to reflect trends on the market for rum in the EU. Council 
Decision  of  896/2011/EU  adopted  on  19  December  2011  retrospectively  increased  the 
quota to 120,000 hlpa from the 1 January 2011 to 31 December 2013.  

Council  Decision  189/2014/EU  retained  the  amount  at  120,000  hectolitres  of  pure 
alcohol  (hlpa)  per  annum  for  the  duration  of  the  Decision,  seven  years.  In  2016,  the 
French authorities requested an increase in the quota as the OR producers were unable to 
benefit from  sufficient  access  to  the French mainland market.  This  was justified on the 
basis  of  significant  and  likely  irreparable  harm  to  these  producers.79  This  amount  was 
increased  in  Council  Decision  (EU)  2017/2152  to  144,000  hlpa  per  annum  and  was 
applied retrospectively from 1 January 2016. 

The frequent revisions creates costs for all stakeholders as noted above and uncertainty 
for producers in terms of forecasting future production of traditional OR rums.  

79 Council Decision (EU) 2017/2152 

17 

 
 
   
                                                           
2.5. How will the problems evolve? 

In the 2017 Communication “A stronger and renewed strategic partnership with the EU's 
outermost regions,”80  the Commission  noted that despite progress  made over the  years, 
the ORs  continue to  face serious  and permanent constraints. Furthermore,  globalisation 
and  climate  change  are  amplifying  these  constraints.  Diversification  opportunities  are 
limited  due  to  the  few  resources  at  their  disposal  and  the  geographical  and  natural 
characteristics specific to  their remoteness.  Consequently, the economies of the OR are 
fragile and sustainable economic growth uncertain. Economic crises are bound to affect 
the  economies  of  the  OR  to  a  greater  extent  than  mainland  Europe,  and  recovery  is 
slower.  

The Communication stresses the need to build on the assets of the ORs, identifying new 
sectors to enable growth and job creation. While this approach is important to address the 
numerous threats and constraints of the ORs, the traditional activities are also vital to the 
development of the regions, as any sustainable structural changes to the economies of the 
ORs will take time to materialise.  

The blow to the fragile economic growth of the ORs would be significant, if the special 
regime for traditional rum was to be discontinued, as removal of the relief would severely 
impact  the  cane-sugar-rum  industry,  which  is  estimated  to  generate  employment  for 
approximately  40,000  people  across  the  ORs.  Furthermore,  this  industry  supports 
tourism, a major contributor to the economies of the ORs. 

With no change in the derogation, the fiscal costs of the regime are estimated to increase 
by  approximately  €20  million  in  line  with  inflation.81  The  administrative  costs  of  the 
regime  will  remain  relatively  low,  (approximately  €77,000)  increasing  only  with 
inflation.  

As  many  of  the  underlying  drivers,  such  as  remoteness,  insularity  or  climate,  are  of  a 
permanent nature, they will always act to the ORs’ disadvantage. They also underpin the 
other  problems,  such  as  the  additional  costs  for  rum  producers  before  the  bottle  of 
traditional rum can reach the French market or the dependence on the French market for 
exports.  As  for  the  additional  costs,  there  are  no  grounds  to  consider  that  they  would 
diminish significantly in the near future, as they are inherent to small insular economies 
in  general,  as  well  as  the  traditional  methods  of  rum  production  and  marketing  in  the 
ORs. Unfortunately, there are no coherent data series assessing all the components of the 
cost  of  a  traditional  rum  bottle  in  a  consistent  way,  making  it  difficult  to  predict  how 
these can evolve.  

Wages  and  social  protection  costs,  which  need  to  respect  the  EU  legislation,  will  also 
remain  higher  in  the  OR  than  in  their  neighbouring  countries.  The  overall  cost  of 
employment, characterised by mismatches between skills supplied and demanded as well 
as place of residence and place of employment, is also likely to remain substantive. Same 

80 COM(2017) 623 final 
81 Article 403 of the French General Tax Code: the tariff shall be increased on 1st January of each year by 
the growth rate of the Consumer Price Index (excluding tobacco) during the penultimate year 

18 

 
                                                           
for the additional costs related to respecting EU’s environmental laws where the ORs are 
bound to abide irrespective of their remoteness to the mainland.  

Transport  infrastructures  have  been  steadily  built  and  a  mildly  positive  trend  in  the 
maritime  and  air  transport  of  freight  was  observed  in  the  last  decades  in  the  ORs  but 
accessibility issues will always affect the trade and exchanges of the ORs with the EU as 
and within their geographic areas alike. 

What  we can carefully conclude from  the nature  of the costs is  that they  may fluctuate 
but will never disappear altogether.  

2.6.Why should the EU act? 

On the basis of Article 349 TFEU, the Council can adopt specific measures in favour of 
the  EU  outermost  regions  to  adjust  the  application  of  the  Treaties  to  those  regions, 
including  the  common  policies,  because  of  the  permanent  constraints  which  affect  the 
economic  and  social  conditions  of  the  outermost  regions.  In  its  judgement  of  15 
December 201582, the European Court of Justice clarifies the scope of the application of 
Article  349  TFEU  on  the  basis  of  which  the  Council  is  entitled  to  adopt  specific 
measures for the EU outermost regions. 

The EU has been building a strong partnership with its outermost regions over the years. 
In 2004, the Commission presented its first strategy for the regions83, which was renewed 
in  200884,  in  201285,  when  the  strategy  was  aligned  with  the  Europe  2020  goals  of 
sustainable  growth,  social  development  and  creation  of  jobs;  and  in  2017,  when  the 
Commission  strengthened  and  renewed  its  strategic  partnership  with  these  regions. 
Access  to  the  EU  single  market  is  vital  for  the  continued  development  of  the  ORs  as 
underlined in  the 2017 Commission Communication “A stronger and renewed strategic 
partnership with the EU's outermost region.” 86 

Maximising the potential of each outermost region can only benefit both the OR and the 
EU as a whole.  

3.  OBJECTIVES: WHAT IS TO BE ACHIEVED? 

3.1. General objectives 

The  situation  of  the  ORs  is  recognised  in  Article  349  TFEU,  which  envisages  specific 
measures  for  those  regions  to  take  account  of  the  structural,  social  and  economic 
situation  of  these  regions.  Measures  adopted  must  mitigate  the  constraints  of  the  ORs 
without undermining the integrity and the coherence of the Union legal order, including 
the internal market and common policies.  

82 Joined Cases C-132/14 to C-136/14 
83 COM(2004) 543 final, 6.8.2004. 
84 COM(2008) 642 final, 17.10.2008. 
85 COM(2012) 287 final, 20.6. 2012. 
86 COM(2017) 623 final 

19 

 
                                                           
3.2. Specific objectives 

The specific objectives of Council Decision 189/2014/EU are: 

 

 

 

to offset the competitive disadvantage of traditional rum producers in the French 
ORs, which are linked to the permanent constraints of the ORs; 
to  support  the  broader  cane-sugar-rum  sector  in  the  French  ORs,  which  is 
important to the socio-economic situation of these ORs in terms of employment, 
land use, and the wider OR economy; and 
to  maintain  access  to  the  mainland  French  market  for  the  traditional  rum 
producers in the French ORs; 

All  objectives  need  to  ensure  that  the  principles  of  the  single  market  are  respected  and 
any  assistance to  the French OR preserves the smooth  functioning of the single market 
for alcoholic beverages. 

4.  WHAT ARE THE AVAILABLE POLICY OPTIONS? 

4.1. What is the baseline from which options are assessed? 

For the purposes of this staff working document, there is a difference between ‘no action’ 
and  the  ‘status  quo’.  Given  that  the  Council  Decision  authorising  the  reduced  excise 
duties  expires  in  2020,  a  ‘no  action’  scenario  would  imply  that  the  current  system  of 
reduced rates expires in 2020 with no other regime put in place. This is not considered a 
realistic baseline scenario, due to the structural and permanent nature of the constraints 
faced by the ORs and the long-term existence and recent extensions of the regime. 

As such, we assess the non-renewal of the regime as a ‘new policy option’, whereas the 
baseline option for this regime is defined as a ‘business as usual’ scenario, in which the 
derogation  is  renewed  for  a  further  seven  years.  The  baseline  assumes  that  the  50% 
reduced  rate  for  traditional  OR  rum  continues  after  2020  with  the  quota  increased  to 
153,000  hlpa.  This  increase  reflects  the  annual  growth  of  production  of  2%during  the 
period  2014  -  2019  applied  to  the  current  used  quota  of  128,288  hlpa.  This  will 
accommodate  future  production  growth  and  is  sufficient  to  reduce  the  need  for  further 
amendments prior to the expiry of the seven years of the new Decision. The hypothetical 
changes it brings to the modelled impacts of a situation where the Decision is renewed 
as-is  would  be  too  small  to  be  distinguished  and  analysed  independently,  particularly 
given that all other elements of the regime remain unchanged.  

The excise rate is  adjusted for inflation in  France. We therefore assume  a constant  real 
taxation  level,  particularly  given  that  no  tightening  of  France’s  policy  on  alcohol  has 
been announced or is  currently expected. The tax rebate is  therefore  forecast  to  remain 
constant on a per unit basis, growing purely as a function of growing production.  

4.2. Description of the policy options 

Option 1 – Termination of OR-specific support  

Under  this  policy  option,  the  special  taxation  regime  for  the  French  ORs  would  not  be 
renewed and would therefore expire on 31 December 2020.  If the regime is  allowed to 

20 

 
expire, the preferential tax treatment of traditional rum produced in the French ORs and 
sold in mainland France would disappear.  

The  impact  of  such  decision  would  depend  substantially  on  the  reaction  of  the  French 
authorities. Given current EU regulations on the taxation of spirits, the French authorities 
have two policy responses available to them: 

●  Option  1.1  (full  abolition):  French  authorities  take  no  further  action  once 
Council Decision 189/2014/EU expires and tax OR traditional rum at the standard 
excise rate. As there would be no derogation and thus no quota, there would be no 
incentive to limit production of traditional rum to stay within the quota levels; or, 

● Option 1.2 (extension to third-country products): France applies Article 23 
of Directive 92/83/EEC which allows a 50% reduced rate to all rums made from 
locally harvested sugarcane and with a strength by volume equal to or exceeding 
40%, to all producers, including third-country ones (described further in Box 1), 
without a quota. 

Box 1: Application of Article 23 of Directive 92/83/EEC 

If  the  derogation  were  not  renewed,  the  French  authorities  could  use  Article  23  of  Directive 
92/83/EEC  to  apply  a  reduced  excise  rate  of  up  to  50%  of  the  standard  rate  to  all  ‘traditional’ 
rum, not just to traditional rum from the French ORs. The Article states: 

The following Member States may apply a reduced rate, which may fall below the minimum rate 
but not be set more than 50% below the standard national rate of duty on ethyl alcohol, to the 
following products:  

1.  The French Republic, in respect of rum as defined in Article 1 (4) (a) of Regulation (EEC) 
No 1576/89 and produced from sugarcane harvested in the place of manufacture as set 
out at Article 1 (3) (1) of that Regulation, having a content of volatile substances other 
than  ethyl  and  methyl  alcohol  equal  to  or  exceeding  225  grams  per  hectolitre  of  pure 
alcohol, and an actual alcoholic strength by volume equal to or exceeding 40% vol87 

The  excise  rate  reductions  possible  under  Council  Decision  189/2014/EU  only  apply  to  rum 
produced in the French ORs using  sugarcane harvested in the French OR and with a minimum 
alcohol content of 40% ABV. There is no such restriction in Article 23 of Directive 92/83/EEC. 

Option 2 - Lower the reduced rates of 50% to 40% 

The extent to which compensation is granted for all additional costs is considered under 
this option. The current Decision applies a reduced rate of excise duty up to a maximum 
of 50% on rum transported to  the French mainland and consumed there.  In  accordance 
with  this  mutually  exclusive  policy  option,  the  regime  would  be  renewed  with  the 
maximum reduction in excise duty lowered to 40% of the normal excise duty. Based on 

87

 Council Directive 92/83/EEC of 19 October 1992 on the harmonization of the structures of excise duties 
on alcohol and alcoholic beverages 

21 

 
 
 
 
 
 
                                                           
the 2018 standard excise duty rate in France, this would equate to a rebate of €696.42 per 
hectolitre of pure alcohol.  

Option 3 - Introduce a subsidy ceiling 

This  option  involves  renewing  the  regime,  but  would  cap  the  nominal  cash  value  per 
hectolitre of pure alcohol of the excise rate reduction at 2020 levels (approximately €128 
million annually) and remove the quota based on the amount of hectolitre of pure alcohol 
for the period of the decision, 7 years. This mutually exclusive option would address the 
problem related to the quota and allow France to determine the operation of the measure 
in line with the principal of subsidiarity, while controlling the cost of the measure. 

Option 4 - Increase the quota at a fixed annual rate  

The  current  regime  sets  a  fixed  quota  for  the  period  of  the  Decision.  Any  subsequent 
amendments to the quota must be introduced by means of new legislation, usually with a 
retrospective  effect,  which  is  costly  and  creates  uncertainty  for  the  producers  as 
explained  in  section  2.4.  This  option,  which  is  also  mutual  exclusive  from  the  other 
options, addresses these problems by including in the legislation an annual increase in the 
quota.  The  annual  increase  would  be  aligned  to  the  historic  growth  rate  of  the  quota 
during  the  period  2008  and  2017  of  3.1%.  Applying  this  rate  to  the  current  quota  of 
144,000 hlpa means  that mean that the quota in  2021 would be approximately 148,500 
hlpa and would ultimately increase to approximately 178,000 hlpa by 2027. 

The  French  authorities  requested  this  option,  whereby  the  quota  would  be  increased  to 
mitigate future mid term amendments of any future Decision.  

4.3.Options discarded at an early stage 

 Direct support to production and market access 

The existing regime would be replaced by a direct payment of a subsidy to the traditional 
rum producers of the ORs, to compensate them for the higher production costs they face 
as a result of their location in the ORs. As subsidies alone would not address the issue of 
market  access,  this  option  could  include  promotional  subsidies  /  supports  such  as  the 
existing EU funded promotional export programmes88. The interaction between the two 
subsidies would need to be defined with new procedures, which would be more complex 
than the existing regime.  

While the option could potentially target support better to the producers, it would result 
in  increased  burdens  and  costs  for  all  stakeholders.  The  current  regime  is  administered 
through  excise  duty  returns,  with  low  costs  for  both  producers  and  authorities. 
Additionally  producers  note  potential  cash  flow  issues  due  to  delays  in  processing 
subsidies.  

The added benefits of this option are limited, as the efficiency and effectiveness of new 
subsidies  appears  to  be  significantly  less  than  the  existing  regime.  Any  benefit  of 

88 https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/key_policies/documents/annex-
commission-decision-c2019-8095_en.pdf 

22 

 
                                                           
implementing  this  new  option  would  be  greatly  outweighed  by  the  costs.  For  these 
reasons, this option would not be a viable option and will be discarded.  

5.  WHAT ARE THE IMPACTS OF THE POLICY OPTIONS? 

5.1. Methodology 

The impacts of the policy options have been assessed mainly on the basis of the study by 
an external contractor89. Appropriate – but limited - adjustments were made on specific 
points  where  this  was  warranted  by  newer  information  becoming  available  or  by  fine-
tuning of the policy options. For the quantitative estimates, the impacts are measured as 
the  deviation  of  the  variable  to  be  assessed  from  baseline,  at  the  conventional  date  of 
2027.  This  date  has  been  chosen  as  representative  of  the  long-term  equilibrium.  It  is 
sufficiently  distant  to  allow  short-term  effects  to  play  out  with  the  exception  of  the 
emerging effects  of COVID-19,  as detailed below. Full details  on the methodology  are 
provided in Annex 4.  

The  sections  below  covers  the  main  economic  effects,  i.e.  those  on  production  and 
sectoral employment, as well as the budgetary implications. In addition, for each option a 
qualitative assessment of its impact on businesses’ compliance costs has been included. 
A  number  of  macro  impacts,  e.g.  on  OR  exports,  have  been  analysed,  but  will  not  be 
reported upon because they are not material.  

Effects of the COVID-19 pandemic on the projections underlying the assessment 

It  should  be  noted  that  the  baseline  scenario  as  well  as  the  impacts  from  the  various 
options have been assessed on the basis of the study carried out in late 2019-early 2020. 
As such, the effects of the COVID-19 pandemic are not taken into account. At the time 
of writing, it is too early to assess whether the impact on rum demand will be limited to 
2020 or will stretch into the future. While in the first case the projected baseline may not 
be  affected  to  a  large  extent,  in  the  second  case,  the  baseline  scenario  may  overstate 
growth.  The  impacts  of  the  options,  however,  are  calculated  on  the  basis  of  long-term 
elasticities and should, as a result, be less affected than the baseline. 

5.2. Baseline 

In  the  medium  term,  production  is  forecast  to  continue  growing  at  a  rate  similar  to  the 
rate  witnessed  in  recent  years.  The  long-term  growth  rate  may  decelerate  somewhat  in 
comparison with the past because of the gradual reduction in the availability of new land, 
which is suited to the cultivation of sugarcane. Hence, extrapolating the growth assumed 
in  the  baseline  for  longer  periods  of  time  than  the  2027  projection  horizon  would  be 
methodologically incorrect. 

Under the baseline scenario, total  dispatches of  OR  traditional rum to  mainland  France 
are expected to increase over the period by around 28%. Producers continue to dispatch a 
quantity  of  traditional  rum  to  the  French  mainland  outside  the  quota  (similar  to  the 
current position).  

89 PwC et al, 2020 

23 

 
                                                           
Table 5: Key assumptions for the baseline scenario (2018 and 2027) 

Year 

2018 

2027 

Tax relief (€ per hlpa) 

1,044 

1,212 

Total dispatches of French OR traditional rum to mainland 
France (hlpa, thousands) 

169 

217 

Market share of French OR traditional rum sold in France 
(percentage of all rum, by volume of final product) 

87% 

76% 

Total OR rum production (hlpa, thousands) 

Jobs in the direct OR sugar-cane-rum value chain 

Budgetary cost of reduced rate scheme (€ million) 

328 

1,900 

118.9 

406 

2,400 

138.1 

Jobs  in  the  cane-sugar-rum  value  chain  would  increase  under  the  baseline,  driven  by 
additional production levels.90  In the baseline scenario, the majority of the created jobs 
would  be  in  cane  cultivation.  The  employment  projection  of  the  baseline  scenario 
assumes  no  change  in  current  demand  trends  and  the  ongoing  growth  in  demand  for 
traditional OR rum remains at approximately the same rates for the period until 2027. 

Nevertheless, the market share of French OR traditional rum sold in France is projected 
to  decline  in  the  baseline  scenario  based  on  the  assumed  continuation  of  recent  strong 
growth trends of non-French OR rum. By 2027, it is estimated that the market share of 
French OR traditional rum, by volume of all rum sold in France, will decline by nearly 
11 percentage points to 76%.  

The estimated moderate increase in fiscal costs over the time period is driven principally 
by the small increase in quota and the assumption that excise duty rates increase in line 
with  inflation  although  50%  rebate  is  kept  unchanged.  The  amount  of  the  rebate 
measured per hlpa would therefore evolve only in function of inflation.   

No noteworthy changes are assumed in the (overall modest) compliance costs entailed by 
the regime, currently oscillating around €77,000 per Decision when revised and €47,000 
of oversight costs, for all stakeholders. To prevent the need to amend the Decision before 
its  expiry,  and  thus  to  eliminate  the  administrative  costs  of  its  revision,  the  quota  is 
increased from the outset by 9,000 hlpa. The adjustment is line with the historical trend 
of quota adjustments accommodating natural growth of the sector. That adjustment will 
have a negligible impact on parameters of the impact analysis compared to the situation 

90 This does not take into account any scope for improving efficiency in the sector; it should be considered 
that  the  limited  utilisable  surface  area  of  the  ORs  means  that  additional  production  of  cane  sugar  would 
have to be based on land that is less well suited, or possibly on land that has already been over-utilised in 
the past, leading to a lower yield and/or a greater need for labour per unit of production; crop protection 
from pests may also become more labour-intensive as a result of the EU legislation on certain pesticides. 

24 

 
 
                                                           
where  nothing  at  all  changed.  At  the  same  time,  it  is  considered  sufficient  to  ensure 
economic certainty for the next programming period for the rum producers, eliminating 
at least some of the investment risks.  

With  no  change  in  the  application  of  the  regime,  France  will  continue  to  allocate  the 
quota among the stakeholders.  

5.3. Option 1 – Termination of OR-specific support  

Impact on production and employment 

Option 1.1 would imply an increase in costs of accessing the French market, estimated to 
be between €792  -  €963 per hlpa in  2018, rising  to  between €926  - €1,126 in  2027.  In 
response  to  the  removal  of  the  excise  duty  relief,  production  relative  to  the  baseline  in 
2027 is  estimated to  fall approximately by 68,000 hlpa (-20.1%), with  a  drop of 8% in 
the  OR  traditional  rum  producers’  share  of  the  French  rum  market.  The  drop  in 
production  would  directly  affect  employment,  with  an  estimated  loss  of  400  jobs.  This 
drop  in  employment  would  affect  the  global  sugar-cane-rum  value  chain  and  therefore 
would  not  be  limited  to  employment  in  the  rum  sector;  indeed,  the  bulk  of  the 
employment  losses  would  be  felt  in  the  agricultural  sector,  given  that  the  sugarcane 
grown in the ORs is not competitive, in price terms, on the world market.91  

While  the  agricultural  sector  employs  only  a  fraction  of  the  workforce92,  the 
repercussions of a cut in subsidies would likely be quite acute for sugarcane farmers. In 
the  case  of  Martinique,  in  particular,  distillers  absorb  over  80%  of  production.93  Given 
the lower sugar content of Martinique sugarcane, there might be limited opportunities to 
market  the  produce  and  this  would  at  any  rate  likely  take  place  at  lower  prices,  thus 
affecting  incomes  even  when  employment  can  be  maintained.  The  impact  could  be 
compounded if, as happened e.g. in 2018, bad weather reduced the sugar content of the 
harvest;  demand  of  cane  for  traditional  rum  provides,  in  this  case,  a  useful  demand 
stabilisation function.94 In addition, the practical feasibility of turning to other crops may 
be  limited.  Agricultural  production  e.g.  in  the  Martinique  is  concentrated  in  only  two 
crops, bananas and sugarcane, with the remaining crops accounting for less than 2% by 
weight.95 Overall, about one job in six in the directly affected sectors would go lost (not 
counting possible knock-on effects).  

The impact of this option would likely be felt for several years and producers would take 
different  actions  to  adapt.  It  is  likely  that  some  consolidation  would  take  place  in  the 

91  The  difficulties  in  facing  competition  from  mass  producers  of  sugarcane,  mainly  in  Brazil,  India  and 
Thailand  is  not  limited  to  the  ORs  but  even  affect  historical  Caribbean  rum  producers.  See  Hamrick, 
Fernandez-Stark,  Barbados  in  the  Rum  Global  Value  Chain,  Duke  Global  Value  Chain  Center,  Duke 
University, https://www.researchgate.net/publication/322404370, August 2017 
92 3.5% in Martinique (as of Q3 2018). In Guadeloupe, in the same period, agricultural employment was 
lower, at 1.3% of the workforce.  
93 84.6% in 2018. See https://www.insee.fr/fr/statistiques/4140220?sommaire=4160760  
94 Insee 2018 (cit) shows that the sugarcane used for sugar production (as opposed to that which is used by 
distilleries) fell by almost two-thirds from 2009 to 2018, alongside a decline in sugar content    
95 See Insee (2018), cit. fig.2.  

25 

 
                                                           
industry. This  could  be in the form  of mergers or more efficient rum producers buying 
out les competitive ones.  

Rum  producers  would  likely  seek  to  cut  staff  costs  by,  for  example,  reducing 
employment  levels.  Other  possible  reactions  by  producers  could  be  to  adapt  their 
product(s) to contain lower amounts of alcohol per bottle, although these actions would 
need  to  be  weighed  against  potential  impacts  on  their  brand.  Probably,  there  would  be 
pressure on local farmers’ incomes as producers would seek to shift the reduction in their 
margins upstream. In practice, producers would likely implement a combination of these 
cost  reducing  options  to  offset  the  impact  of  the  derogation  expiring.  The  other  option 
rum producers have  would  be to  pass on the increase in excise duties to  consumers by 
raising prices. However, this would have an impact on demand for their product relative 
to third country rum producers. 

The impact of Option 1.2 would be the opposite. If France chose to apply Article 23 of 
Directive  92/83/EEC  and  thus  extend  the  subsidy  to  imports  of  all  traditional  rum, 
including  from  third  countries,  two  contrary  effects  would  enter  into  play:  first,  the 
current quota on subsidised production would be lifted, allowing production to grow, and 
second,  the  OR  producers  of  traditional  rum  would  face  stronger  competition  in  the 
French market due to uncompensated higher costs.  

It is assumed that the first effect would dominate because in past  years, production has 
often exceeded the quota. Furthermore, producers from third countries may need time to 
adapt  their  products  to  the  definition  required  for  the  ‘traditional  rum’  denomination 
under Article 23 of Directive 92/83/EEC. Overall,  under this option, it is expected that 
production  would  grow  modestly  faster  than  under  the  baseline,  cumulating  to  an 
additional 19 million hlpa (4.7%) by 2027. Employment would correspondingly grow by 
about  100  units  and  the  market  share  of  French  OR  traditional  rum  would  increase  by 
2%.  

Fiscal impact  

Option 1.1 The elimination of the subsidy would mechanically lead to budgetary savings 
of a little over €138 million annually by 2027. The analysis assumes an initial shock in 
2021, which leads to a fall in dispatches to the French mainland and a corresponding fall 
in the production of rum in the ORs.  

In assessing this projection, however, it is worth pointing out that the study stresses that 
it  might  have  underestimated  the  intensity  and  duration  of  the  shock,  given  that  the 
analysis did not include dynamic modelling of firm closures over time.  

Option 1.2 would result in an increase in budgetary costs mainly owing to extension of 
the tax rebate to all OR and non-OR traditional rum.  

As much as 52% of the current non-OR rum market currently comprises products with an 
ABV  of  40%  or  above.  In  the  extreme  case,  assuming  this  52%  is  made  from  locally 
harvested  sugarcane,  then  even  without  any  adjustments  in  the  market  (to  the  ABV  of 

26 

 
other products  and/or market  shares), the annual fiscal  cost  of non-OR rum eligible for 
the reduced rate would be approximately €34 million by 2027.  

Table 6 Key impacts of options 1.1, 1.2  

Factor 

Year 

Baseline 

  Option 1.1 

Option 1.2 

2027 

Impact relative to baseline: 

Tax relief to producers (€ per hlpa) 

1,212 

-1,212 

Total dispatches of French OR traditional rum to 
mainland France (hlpa, thousands) 

217 

-68 

0 

+19 

Market share of French OR traditional rum sold in 
France (percentage of all rum, by volume of final 
product) 

Total OR rum production (hlpa, thousands) 

76% 

406 

Jobs in the direct OR sugar-cane-rum value chain 

2,400 

-8p.p. 

+2p.p. 

-68 

-400 

+19 

+100 

Revenue from dispatches of traditional rum to the 
mainland (€ million) 

111.0 

-36.2 

+9.5 

Contribution of traditional rum (dispatched to 
mainland France) to the value of extra-OR exports (%) 

9.5% 

-2.5% 

+0.7% 

Fiscal cost of reduced rate for OR producers (€ 
millions) 

138.1 

+138.1 

-87.8 

Impact on planning, administrative and compliance costs 

Option 1.1 would entail reversal to the ordinary taxation regime and therefore would not 
introduce  additional  compliance  costs;  on  the  contrary,  the  administrative  requirements 
needed to qualify for the excise duty cut would fall away for producers and for the public 
administrations.  These  administrative  costs  however  are  very  limited  and  their 
disappearance would not represent a real relief for producers.  

The  abolition  of  the  excise  duty  relief  would  however,  apart  from  its  direct  impact  on 
production costs,  entails considerable management  effort in  order to  adapt  the business 
strategy to the changed landscape. The sizeable extent of the cost impact would require a 
comprehensive  rethink  of  the  business  strategy,  most  likely  involving  not  only  the 
marketing  of  the  product  but  the  production  side  as  well.  A  period  of  heightened 
uncertainty on business prospects would be unavoidable.  

Option 1.2 would entail a negligible impact on administrative and compliance costs for 
businesses. The extension of the reduction to third-country producers would not involve 
an  immediate  impact  on  administrative  and  compliance  costs  because  the  procedures 
would remain very similar to the status quo. In the longer term, there may be a need to 
develop  a  strategy  to  address  potential  competition  by  third-country  producers  of 

27 

 
 
 
 
 
 
 
 
 
 
 
traditional rum, but this is likely to be a gradual process. The impact would be greater for 
the public administration, as new procedures would  have to  be developed to  assess the 
applications  for  duty  reduction  stemming  from  producers  of  traditional  rum  situated 
outside of France.  

5.4. Option 2 – Lower the reduced rates of 50% to 40% 

Impact on production and employment 

This option would reduce the excise duty relief granted to producers by €242 per hlpa in 
2027. Under this option, total OR traditional rum production would be expected to fall by 
14,000  hlpa  per  year  by  2027,  relative  to  the  baseline.  This  would  be  likely  to  cause  a 
further modest decline of 1% in the market share of OR rum on the French market. There 
would also  be moderate  negative impacts  relative to  the baseline in  terms of jobs  (-80) 
and land use (-200 ha), obviously less significant than under option 1.1 in line with the 
more modest reduction in subsidisation. As in the case of option 1.1 before, the impact 
on  employment  and  income  will  be  likely  to  be  felt  not  only  by  industrial  workers  but 
also, and in particular, by sugarcane growers. 

Fiscal impact  

The cut  in  the  reduction granted to  traditional rum  producers is  projected to  generate a 
fiscal saving of €29.5 million per annum, by 2027, relative to the baseline.  

Impact on planning, administrative, and compliance costs.   

Given that this option relies on a rate reduction rather than a significant adjustment to the 
current situation, it is estimated that this option would have no meaningful impact on the 
administrative burden. 

Baseline 

  Option 2 

Table 7 Key impacts of option 2 

Factor 

Year 

Tax relief (€ per hlpa) 

Market share of French OR traditional rum sold in 
France (percentage of all rum, by volume of final 
product) 

Total OR rum production (hlpa, thousands) 

2027 

1,212 

76% 

406 

Jobs in the direct OR sugar-cane-rum value chain 

2,400 

Fiscal cost of reduced rate for OR producers (€ 
millions) 

138.1 

28 

Impact relative to 
baseline 

-242 

-1p.p 

-14 

-80 

+9,5 

 
 
 
 
 
 
 
 
5.5. Option 3 – Introduction of a subsidy ceiling 

Impact on production and employment 

The freezing of the subsidisation level at current levels would imply that no immediate 
impact on production costs would be felt by producers; the effect of the measure would 
by nature develop over time.  

This  option  would  also  allow  the  French  authorities  a  greater  degree  of  flexibility 
compared to the current system. The removal of the quota would allow them to increase 
the volume of subsidisable production (while correspondingly curtailing the unit subsidy) 
or to maintain existing support levels, but capping the volume of subsidised production. 
This flexibility would be useful in the event of a favourable market situation which – as 
was  the  case  in  recent  years  –  allowed  producers  to  expand  production  in  the  face  of 
growing demand. 

The  real  value  of  the  subsidies  will  eventually  be  eroded  by  inflation,  but  at  current 
inflation  rates  of  well  below  2%  per  annum  this  process  will  be  very  slow,  allowing 
producers sufficient time to undertake corrective measures such as cost reductions. Under 
this option, at the 2027 horizon production of  OR traditional rum is estimated to decline 
by  8,000  hlpa  (3.7%),  while  the  projected  employment  decline  in  the  cane-sugar-rum 
value chain should amount to around 40 jobs.  It is however possible that over the time 
horizon under consideration, given the modest annual pace of erosion in the real level of 
subsidies,  the  impact  is  effectively  compensated  by  efficiency  measures  taken  by 
producers. 

The  revision  clause  allowing  an  increase  in  the  tax  relief  in  case  of  an  adverse 
development  of  competitiveness  due  to  factors  linked  with  the  OR’s  structural 
disadvantages  would  provide  additional  flexibility  and  would  allow  for  compensating 
unforeseen developments within the 7-year decision period. In addition, the lifting of the 
quota allows producers to better take advantage of any growth in demand.  

Finally,  granting  the  French  authorities  flexibility  to  increase  the  per-unit  tax  relief,  so 
long as the overall volume of subsidies currently paid out is not exceeded, would be very 
beneficial  if  the  Coronavirus  epidemic  results  in  a  slump  in  sales  and  production.  It 
would  allow  increasing  the  support  level  until  normal  production  levels  are  achieved 
again. In this regards, this option would put in place a more flexible regime, that would 
support producers more in times of difficulty but would make tax rates gradually move 
up when sales go well.  

Fiscal impact  

Under  this  option,  the  cost  of  the  regime  remains  constant  and  neither  increases  in 
production nor adjustments in the tax rate will have any fiscal impact. Looking at the past 
development of the tax relief, by 2027 this option should lead to savings of €16.3 million 
relative to the baseline.  

Impact on planning, administrative and compliance costs 

This  option  would  reduce  administration  administrative  and  compliance  costs  as  its 
functioning  would  be  similar  to  the  current  system,  but  with  a  considerable 
simplification:  the  abolition  of  the  quota  would  relieve  stakeholders  of  the  need  to 
constantly monitor quota utilisation when taking production decisions. As this is the most 

29 

 
burdensome element of the current regime, the reduction in compliance costs would be 
substantial.  There  might  be,  however,  moderate  upward  changes  in  the  administrative 
burden if the French authorities  would request  a change in  support levels  for increased 
production costs.  

Table 8 Key impacts of Option 3 

Year 

2027 

Impact relative 
to baseline 
(2027): 

Tax relief (€ per hlpa) 

1,212 

-139 

Total dispatches of French OR traditional rum to 
mainland France (hlpa, thousands) 

217 

-8 

Market share of French OR traditional rum sold in 
France (percentage of all rum, by volume of final 
product) 

76% 

-1p.p 

Total OR rum production (hlpa, thousands) 

406 

Jobs in the direct OR sugar-cane-rum value chain 

2,400 

Total land used for sugarcane (ha, thousands) 

38.0 

Revenue from dispatches of traditional rum to the 
mainland (€ million) 

111.0 

-8 

-40 

-0.1 

-4.0 

Contribution of traditional rum (dispatched to 
mainland France) to the value of extra-OR exports (%) 

9.5% 

-0.3% 

Fiscal cost of reduced rate for OR producers (€ million) 

138.1 

+16.3 

6.6  Option 4 – Annual quota adjustment 

The  current  regime  sets  a  fixed  quota  for  the  period  of  the  Decision.  Any  subsequent 
amendments  to  the  quota  involves  a  new  legislation.  Under  this  option,  rather  than 
having to revise the quota on a regular basis, the quota would be adjusted each year by 
applying  a  fixed  growth  rate.  For  the  upcoming  seven-year  period  covered  by  the 
decision,  the  annual  increase  would  be  aligned  to  the  historic  growth  rate  of  the  quota 
during the period 2008 and 2017 of 3.1%.  

Impact on production and employment 

A  gradual  increase  of  the  quota  implies  that  the  volume  of  subsidised  production  will 
grow, leading to  a slight increase in  the market  share of OR rum in  France. Under this 
option,  production  is  projected  to  increase  by  14  thousand  hlpa  (3.5  %)  over  baseline. 
The  increased  production  should  lead  to  the  creation  of  about  80  additional  jobs  in  the 
sector.  

30 

 
 
 
 
 
 
 
 
 
 
 
 
Fiscal impact 

An  annual  increase  in  the  quota  increases  the  volume  of  rum  subject  to  reduced  rates. 
This is estimated to increase the fiscal cost by €32.9 million for the French authorities.  

Impact on planning, administrative and compliance costs 

Under  this  option,  the  main  administrative  requirements  for  beneficiaries  and  for  the 
public  administration  would  remain  unchanged,  but  there  would  be  an  advantage  for 
planning purposes because of the predictable nature of the quota adjustment. This would 
eliminate  the  uncertainty  around  quota  increase  decisions  that  was  mentioned  by 
producers in the stakeholder consultation.  

Table 9 Key impacts of Option 4 - annual quota adjustment 

Year 

Tax relief (€ per hlpa) 

Market share of OR traditional 
rum in France (percentage of all 
rum, by volume) 

2027 

1,212 

76% 

Rum production (hlpa, thousands) 

406 

Employment in the rum value 
chain 

2,400 

Impact relative to 
baseline: 

0 

+1p.p 

+14 

+80 

Fiscal cost (€ million) 

138.1 

-32.9 

The following table provides a comparison of all options with the baseline.  

Table 10 – Summary of key impacts of each option compared to the baseline 

Factor 

Year 

Baseline 

Option 1.1 

Option 1.2 

Option 2 

Option 3 

Option 4 

2027 

Impact relative to baseline: 

Market share of French OR 
traditional rum sold in France 
(percentage of all rum, by volume of 
final product) 

Total OR rum production (hlpa, 
thousands) 

Jobs in the direct OR sugar-cane-rum 
value chain 

Fiscal cost of reduced rate for OR 
producers (€ millions) 

76% 

-8p.p. 

+2p.p. 

-1p.p 

-1p.p 

+1p.p 

406 

-68 

+19 

-14 

-8 

+14 

2,400 

-400 

+100 

-80 

-40 

+80 

138.1 

+138.1 

-87.8 

+9,5 

+16,3 

-32.9 

31 

 
 
 
 
 
 
 
 
6.  HOW DO THE OPTIONS COMPARE? 

6.1. Effectiveness 

The specific objectives of the measure are as follows:  

1.  Offset  the  competitive  disadvantage  of  traditional  rum  producers  in  the  French 

ORs, which are linked to the permanent constraints of the ORs; 

2.  Support the broader cane-sugar-rum sector in the French ORs; 

3.  Maintain access to the mainland French market for the traditional rum producers 

in the French ORs; 

Effectiveness in achieving objective 1 

Option  1.1  –  termination  of  the  regime  without  any  replacement  –  would  inevitably 
achieve precisely the opposite effect to the one desired under objective 1 and not solve 
any of the underlying problems. Termination of the support with no other relief offered 
would  mean  an  increase  in  market  access  costs,  as  described  in  detail  in  section  5.3 
(€792-  €963  per  hlpa  in  2018,  rising  to  €926  -  €1,126  in  2027). Whereas  some  market 
adjustments  are  expected  to  happen  over  a  medium-to-long  period  of  time,  the  factors 
defining the  competitive disadvantage of the  OR will largely  remain and the producers 
will always continue to bear additional costs while seeking to sell their products to their 
traditional outlet market  of mainland France. The economic situation of the French OR 
would  become  even  more  fragile.  Moreover,  the  negative  impacts  will  be  felt  instantly 
once the derogation expires on the 31st of December 2020, particularly given the raising 
uncertainties linked to expected economic downturn caused by COVID-19 outbreak.  

Option 1.2 – extension to third-country products – would allow the producers to continue 
enjoying the tax rebate when accessing the French market so in that respect it would be 
comparable to the baseline scenario. However, since the same rebate would apply to all 
traditional  rum  imported  into  France,  the  increased  competition  with  third-country 
traditional rum may lead producers of traditional rum in the French ORs to absorb more 
of the costs in order to offer more competitive price. Overall, in a medium-to-long term 
this  option  would  leave  the  French  OR  producers  of  traditional  rum  slightly  worse  off 
than in the baseline. 

Option  2  –  tax  relief  capped  at  40%  –  means  a  tax  rebate  reduced  to  40%  and  thus  a 
naturally  lower  level  of  compensation  for  the  producers.  Based  on  the  costs  that  were 
quantifiable,  the  40%  tax  rebate  seems,  on  face  value,  more  in  line  with  the  additional 
costs borne by the producers. That said, as explained in detail in Annex 5, the minimum 
identified cost levels used in the analysis are quite likely, underestimated. Consequently, 
reducing the tax rebate bears a higher risk of not compensating adequately for the overall 
competitive disadvantage of the traditional rum producers.  

Option 3 – subsidy ceiling – would cap the tax rebate in monetary terms at current levels. 
In  the  short  term,  the  traditional  rum  producers  would  feel  no  difference.  However, 

32 

 
 
freezing the rebate at 2020 levels for the 7 years period would mean that the rebate’s real 
value  would  erode  overtime  as  inflation  progresses.  With  no  other  adjustment,  the 
producers would overtime receive smaller compensation to offset their additional costs. 

Option 4 – annual quota adjustment – would see the quota level adjusted annually by the 
fixed growth rate, equivalent to the historic growth rate in the period 2008-2017 (3.1%). 
In  terms  of  its  capacity  to  compensate  for  the  competitive  disadvantage,  this  option 
would not change anything substantially for the producers as the conditions and level of 
subsidy per hlpa would remain the same although a greater proportion of the production 
would benefit from the rebate.  

Table 11 : Objective 1 (offset competitive disadvantages) – summary  

Policy option 

Option 1.1: Abolish 
the scheme 

Option 1.2 Extend 
subsidy to all 
producers 

Option 2: Tax relief 
capped at 40% 

Option 3: Subsidy 
ceiling 
Option 4: annual 
quota adjustment 

Degree of 
effectiveness 

Notes 

--- 

- 

- 

- 

0 

Fails to compensate for competitive disadvantages 
altogether without any form of other relief  
Compensates  for  competitive  disadvantage  but 
extends  the  relief  to  all  producers  of  traditional 
rum,  increasing  competition  and  possibly  forcing 
OR producers to absorb some costs 
Compensates for competitive disadvantage but to 
a 
risk  of  not 
compensating for all additional costs  
Compensates  for  competitive  disadvantage  but 
the real value of the relief erodes with inflation 
Compensates for competitive disadvantage on the 
same conditions as the baseline 

smaller  extent, 

increasing 

Effectiveness in achieving objective 2 

Option  1.1  –  termination  of  the  regime  without  any  replacement  -  would  have  the 
consequence  of  shocking  the  entire  cane-sugar-rum  sector,  with  sizeable  negative 
impacts  on  pretty  much  all  parameters  used  to  measure  the  sector’s  well-being.  The 
production drop would trigger substantial reductions in employment and/or wages in the 
broader value chain, worsen trade deficit of the ORs and put in doubt the stability of the 
regulatory  environment,  thus  potentially  undermining  business  confidence  in  the  OR 
beyond the confines of the spirits industry. The impact would likely lead to restructuring 
of the sector over several years as producers take mitigating actions. The impact analysis 
hinted to some possible adjustments and knock-on effects, and assessed them as globally 
negative  to  the  ORs  traditional  industry  and  beyond.  Evidently,  option  1.1  would 
provoke  effects  quite  opposite  to  the  ones  desired  under  objective,  which  would 
materialise instantly and continue for several years.  

In  terms  of  support  to  the  cane-sugar-rum  sector,  the  key  feature  of  Option  1.2  is 
removing the quota. With the removal of the quota, the production of traditional rum in 
the French ORs could potentially grow, triggering a positive impact on the employment 
as well. In the short-to-medium term, the sector should feel no difference to the previous 
regime.  With  time,  however,  increased  competition  from  third-country  producers  could 
put  additional  pressure  on  the  OR  producers  as  sugarcane  grown  in  the  ORs  is  not 

33 

 
 
competitive, in terms of price, and the regions’ price-setting capacity in the global market 
limited.  

Options 2, 3 and 4 all provide for some support to the cane-sugar-rum sector albeit to a 
different extent and with varying impacts. The major difference is the timing of impacts 
on the sector. Option 2, reducing immediately support to the producers, would instantly 
worsen  the  economic  standing  of  the  sector,  albeit  to  a  moderate  extent.  The  negative 
impact could, in the long run, be neutralised by the sector adapting to the new conditions 
but that impact remains uncertain.  

Option 3 and 4 would have quite the opposite timeline in terms of impacts on the sector. 
Option 3 would mean no effective change on the sector in the short time as the ceiling 
would  reflect  the  current  level  of  support.  That  support  would  diminish  in  real  terms, 
falling  gradually  behind  the  inflation  and  leading  to  both  production  and  employment 
drop  by  2027.  Again,  it  is  possible  that  over  time,  the  sector  would  adapt  and  the 
moderate negative impact would level out. As for Option 4, the annual quota adjustment 
would allow the sector to grow at close to its natural historic pace. The sector would be 
spared  the  initial  shock  of  Option  2  and  the  long-term  negative  impacts  of  Option  3, 
while removing the growth constraints of fixed quotas of the baseline.  

Table 12: Objective 2 (support broader industry) - summary 

Policy option 

Degree of 
effectiveness 

Notes 

Option 1.1: Abolish 
the scheme 

Option 1.2 Extend 
subsidy to all 
producers 

Option 2: Tax relief 
capped at 40% 
Option 3: Subsidy 
ceiling 
Option 4: annual 
quota adjustment 

--- 

- 

- 

- 

+ 

Substantial negative impact on all economic 
parameters of the sector, worsening of the trade 
deficit of the OR and undermining business 
confidence in the OR in general  
Ensures continued high support; liberation of quota 
would lead to increase in production but no specific 
relief for the OR would increase competition from 
third countries and put the sector under pressure 
Reduces the relief and slightly worsens the sector’s 
situation  
The gradual erosion of the real value of the relief 
would slightly worsen the sector’s situation  
Ensures continued support to the entire sector 
through continued grow of production 

Effectiveness in achieving objective 3 

Objective  3  is  linked  to  the  traditional  historic  links  of  the  French  OR  with  France, 
recognised also in the legal base. The French OR are on a crossroad of their geographical 
region  and  the  European  Union.  Their  small  economies  are  too  weak  to  successfully 
compete  on  the  global  –  or  even  regional  –  market,  particularly  while  complying  with 
stringent  EU  regulations.  Access  to  the  French  mainland  as  the  main  outlet  market  for 
their produce, is vital for their economic performance.  

With the exception of Option 1.1 discontinuing the regime altogether,  all other options 
maintain the overall conditions allowing the French OR to rely on the French market for 

34 

 
 
their traditional rum. From that point of view, the most effective – leading to an increase 
of 2% of market share of rum sold in France – is Option 1.2. However, this initial growth 
may  decline  as  competition  from  third  countries  increases.  Options  2  and  4  are  both 
estimated to lead to a 1% increase in market share while Option 3 would decrease it by 
1%. By far the worst of all would be the discontinuation of the regime under Option 1.1, 
with a devastating 8% loss in the market share, compared to the baseline. 

Table 13: Objective 3 (access to French mainland) - summary 

Policy option 

Option 1.1: Abolish the scheme 
Option 1.2: Extend subsidy to all producers 
Option 2: Tax relief capped at 40% 
Option 3: Subsidy ceiling 
Option 4: Annual quota adjustment 

Degree of 
effectiveness 
--- 
+/++ 
+ 
- 
+ 

Market 
share 
-8% 
+2% 
+1% 
-1% 
+1% 

The following table summarises the effectiveness of all options with regard to the three 
specific objectives. 

Table 14: Effectiveness profile of the options - summary 

Policy option 
Option 1.1: Abolish the 
scheme 
Option 1.2: Extend subsidy to 
all producers 
Option 2: Tax relief capped at 
40% 
Option 3: Subsidy ceiling 
Option 4: Annual quota 
adjustment 

6.2. Efficiency 

Objective 1 

Objective 2 

Objective 3 

Overall 

--- 

- 

- 

- 

0 

--- 

- 

- 

- 

+ 

--- 

+/++ 

+ 

- 

+ 

--- 

+/0 

0 

- 

+ 

Efficiency assesses the inputs vis-à-vis outputs, or results. Option 1.1 – termination of the 
regime without any replacement - generates no positive outputs to measure costs against. 
The  administrative  costs  would  cease  and  the  French  authorities  would  recuperate  the 
fiscal costs of the reduced rate, although the overall excise revenues would decline in line 
with the fall in rum sales. The savings are therefore illusionary and do not reflect the cost 
of the cane-sugar-rum sector’s decline and/or restructuring. Decreased production would 
mean  increased  unemployment  and  welfare  payments  while  any  restructuring  of  the 
sector would imply some investment cost (e.g. to increase efficiency of the machinery or 
change the production process). These costs are presently speculative but should not be 
forgotten against the immediate fiscal savings to the French budget. The true efficiency 
of that option is difficult to gauge properly and is therefore estimated to be neutral vis-à-
vis the baseline scenario.    

Under option 1.2, the beneficial outputs of the  reduced rate are  extended to  all eligible 
rum  from  the  French  ORs  released  for  consumption  in  mainland  France.  There  is  no 

35 

 
  
 
quota  to  administer  and  monitoring  is  no  longer  necessary.  However,  the  reduced  rate 
would be extended to non-OR producers, meaning a larger portion of traditional rum will 
be sold with a lower excise duty on the French market, generating instant lost revenue to 
the  French  budget,  which  is  likely  to  be  significant.  Moreover,  it  will  extend  to  any 
company producing traditional rum to be sold in France, generating an undue subsidy to 
companies  who  may  not  need  support.  As  the  scheme  loses  its  specific  character  of 
targeting  the  producers  of  traditional  rum  in  the  French  OR,  it  is  likely  to  result  in 
increased  competition  from  now  cheaper  non-OR  rum,  which  will  deteriorate  the 
economic  standing  of  the  French  OR  producers,  with  a  risk  of  increased  welfare 
transfers. This  option is, therefore, very  costly in  the short and long-term  run alike and 
the benefit slips away from the concerned regions.  

Options 2 and 3 are both assessed as being neutral in terms of efficiency relative to the 
baseline. The fiscal costs decrease slightly in proportion with the reduction of the rebate 
and the administrative costs continue to be in roughly the same proportion to the benefits. 
The  options  generate  respectively  a  fiscal  saving  of  approximately  €29.5  million  and 
€16.3  million  but  risk  a  longer-term  cost  of  decreasing  activity  or  restructuring  in  the 
sector. 

Option 4 addresses the risk that a further increase in the quota is requested during the 7 
years.  Therefore,  in  terms  of  efficiency,  it  reduces  the  administrative  costs  associated 
with a legislative revision linked to further quota increase. Other administrative burdens 
will remain broadly the same while more eligible rum sold at a lower excise rate thanks 
to  increased  –  and  growing  quota,  will  constitute  a  higher  foregone  revenue  for  the 
French budget, estimated to total by 2027 some €32.9 million.  

Table 15: Efficiency profile of the policy options - summary 

Policy option 

Degree of 
efficiency 

Option 1.1: Abolish 
the scheme 

Option 1.2: Extend 
subsidy to all 
producers 

Option 2: Tax relief 
capped at 40% 

Option 3: Subsidy 
ceiling 

Option 4: Annual 
quota adjustment 

0 

--- 

+ 

+ 

- 

Fiscal impact and administrative burden 

The lost revenue of €138.1 million is recuperated and 
administrative  burdens  not  applicable; 
increased 
welfare transfers due to decreased sector activity and 
less excise revenue 
More rum will be sold in France at a lower excise rate 
deepening  the  cost  by  some  €87.8  million;  possible 
increased  welfare  transfers  due  to  competitive 
pressure  on  the  sector 
in  the  French  OR;  no 
administrative burdens 
Saving of some €29.5 million with unchanged 
administrative burdens; possible longer-term cost 
linked to decreasing support 
Saving of some €16.3 million with unchanged 
administrative burdens; possible longer-term cost 
linked to decreasing support 
Foregone revenue increased by some €32.9 million; 
no administrative cost linked to renewal of Decision 

36 

 
 
6.3. Coherence 

Coherence of the options should be considered against the EU regional policy, jobs and 
growth,  public  health,  trade,  State  aid,  environment  and  agriculture  policies.  By 
providing support to the French OR, all options are a priori coherent with the EU legal 
framework.  Some,  however,  could  lead  to  consequences  that  may  be  undesirable  from 
the point of view of specific EU policies.  

The  2017  Communication  on  the  stronger  and  renewed  strategic  partnership  with  the 
EU’s OR96 as well as preceding Communications setting out the EU’s policy towards the 
outermost  regions  aim  to  enshrine  OR  concerns  in  all  relevant  policies  including 
supporting  job  creation,  business  competitiveness,  economic  growth,  sustainable 
development,  and  improving  citizens’  quality  of  life.  With  regard  to  the  OR,  these 
considerations  are  supplemented  by  the  need  to  compensate  for  their  permanent 
constraints  and  providing  tailor-made  support  to  ensure  that  these  regions  benefit  from 
being part of the EU. The 2017 Communication, reiterates the fragile economic growth, 
vulnerability, disadvantageous social and political situation with rising unemployment – 
in  particular  amongst  the  youth  –  resulting  in  limited  opportunities  for  the  local 
population  and  social  unrest.  The  Commission  engaged  itself  in  crafting  measures  that 
best  suit  the  specific  situation  of  the  OR  and  adapt  EU  policies  to  their  circumstances, 
without undermining the coherence of the Union’s legal order. The same objectives could 
be  quoted  here  with  regard  to  promoting  jobs  and  sustainable  growth  and  are  thus 
assessed jointly.  

Against this background, all options except Option 1.1 strive to find a balance between 
treating the French OR as European Union regions with all the rights and obligations and 
acknowledging 
their  specific  geopolitical  and  economic  context  and  needs  as 
acknowledged  by  Article  349  TFEU.  Option  1.2,  whereas  still  allowing  the  French 
traditional  rum  to  access  the  French  market  with  an  equivalent  excise  duty  rebate  and 
freeing up the production, fails to acknowledge the specific context of the OR by placing 
them on an equal footing with other traditional rum producers worldwide. If all producers 
of traditional rum enjoy the same treatment when brought into France, the effective value 
of  the  rebate  for  the  French  tradition  OR  rum  is  neutralised  by  the  fiercer  competition 
with the now cheaper rum from non-OR producers. As for options 2, 3 and 4, they are all 
targeted and specific. However, options 2 and 3, both reducing the extent of the support 
be it immediately or in  a long-run, are somewhat  less in  line with  the EU’s strategy of 
supporting  the  OR,  especially  given  that  no  substantial  changes  to  their  economic 
standing  is  expected  in  the  short  term.  Just  the  contrary,  accentuated  also  by  the  yet 
unknown impacts of the COVID-19 outbreak. Option 4 in turn, is providing conditions 
for a steady support and growth but may have an impact on other EU policies, notably 
the public health one. 

The  problem  with  the  specific  regime  in  question  here  is  that  it  concerns  alcoholic 
beverages. From that point of view, any measure that sanctions lower prices for alcohol, 
is not welcome in principle. The World Health Organization lists increasing excise duties 

96 COM(2017)0623 

37 

 
                                                           
as one of the most cost-effective ways of reducing alcohol consumption, by influencing 
its  economic  availability.  Put  in  the  context,  the  derogation  as-is  today  is  estimated  to 
support  around  16,500  hlpa  of  spirits  consumption  per  year  in  mainland  France  -  an 
equivalent of a modest amount of 0.15% of 2016 spirits consumption per capita (aged 15 
and  over).  On  top  of  it,  the  excise  rates  on  spirits  in  France  (including  VSS)  is  70% 
higher that the median rate in the European Union (for 2018). As a result, even with the 
reduced  rate,  taxation  on  French  OR  rum  remains  above  the  minimum  EU  level  of 
€1,000 per hlpa.  

in  absolute 

terms  any  option 

Nevertheless,  irrespective  of  the  magnitude  of  the  potential  impact  on  alcohol 
consumption, 
increasing  alcohol  production  and 
consumption  beyond  the  baseline,  goes  against  the  public  health  considerations. 
Moreover,  it  is  not  only  the  alcohol  shipped  to  and  consumed  in  France  mainland  that 
should be considered. If the producers are unable to sell their bottles in France because of 
the  prohibitive  prices,  it  increases  the  risk  of  flooding  the  local  markets  with  rum  and 
encouraging  overconsumption  of  rum  by  the  local  population.  It  is  estimated  that  just 
under 30% of OR traditional rum does not leave the ORs territories and there is limited 
scope to absorb any more of production without negative health impacts.  

Option 1.1 – removing the regime – bears significant risk that at least in the short-term 
the local market for traditional rum will oversaturate although overall consumption – as a 
function of price – should theoretically drop. Option 1.2 bears a double risk on increasing 
overall  alcohol  consumption  in  mainland  France.  Firstly,  through  freeing  production  of 
traditional rum in the French ORs, which is estimated to increase, and secondly, through 
influx of cheaper rum from  other parts of the world.  Option  2,  reducing  the tax rebate, 
and  under  assumption  that  the  extra  non-compensated  costs  are  not  absorbed  by  the 
producers  but  passed  onto  the  consumers,  would  lead  to  higher  price  per  bottle  and 
(slightly) decreased consumption, unless compensated by a cheaper substitute. Option 3, 
a monetary ceiling with no quotas could lead to similar effects to Option 1.2 in the short-
term  (increased  production  and  thus  consumption)  but  would  erode  with  time  with  no 
indexation of the fixed ceiling. Finally, Option 4, allowing the production to grow in line 
with  the  hitherto  historic  rate  of  3.1%,  could  potentially  be  most  harmful  from  the 
perspective  of  public  health,  providing  a  steady  shipment  of  increased  volumes  of 
cheaper alcohol onto the mainland France.  

The derogation is a form of regional State aid with its basis in Article 349 of the TFEU, 
under  the  conditions  of  Article  107(3)(a)  of  the  TFEU.  The  Commission  considers  the 
reduced  excise  rate  to  be  regional  operating  aid  as  it  compensates  businesses  for  costs 
that  they  would  otherwise  incur.  The  most  recent  State  aid  decision  authorising  the 
reduced rate is SA.38641 of 16 September 2014.97 Member States are obliged to identify 
and  report  those  costs,  determined  by  reference  to  similar  undertakings  established  in 
other regions of the Member State concerned. Estimates of additional costs (see Annex 5) 
indicate that the value of the derogation is broadly comparable with the additional costs 

97 European Commission: Aide d’État SA.38641 (2014/N) – France. Available at:  
https://ec.europa.eu/competition/state_aid/cases/253225/253225_1591133_86_2.pdf 

38 

 
                                                           
experienced, indicating proportionality in terms of State aid. In that respect, none of the 
proposed  options  would  violate  State  aid  rules,  provided  any  future  derogation  is 
notified.  

From the point of view of the EU trade policy and the smooth functioning of the internal 
market,  it  is  first  of  all  important  to  acknowledge  that  all  options  are  compliant  with 
Article 349 of the TFEU, which is the case. Traditional rum from the French ORs is not a 
big player on the global market as most of the rum is destined for the French mainland. 
French OR rum is not competitive in the respective regions due to small scale production, 
higher  costs  of  primary  ingredients  (especially  the  sugarcane),  higher  labour  costs  in 
comparison  to  third  country  rum  producers  and  the  obligation  to  comply  fully  with  all 
EU  environmental  regulations.  Additionally,  the  traditional  rum  is  not  a  substitute  for 
other  spirits  in  the  French  market  and  is  not  deemed  to  distort  any  competition,  be  it 
international or domestic. The French traditional OR rum accounts for around 10% of the 
spirits market in France by volume and has historically accounted for less than 1% of the 
European spirits market. Import and market share of non-OR rum in France has also been 
steadily increasing, suggesting that the tax rebate has no harmful effects on non-OR rum 
producers nor on trade.  

Finally, it is  important  to  consider at  least  briefly  the coherence of the regime with  the 
EU’s environmental policy. Although remote, the OR are an integral part of the EU and 
thus bound to comply with its regulations. Sugarcane cultivation is not extensive in the 
French  OR.  The  agricultural  model  in  the  ORs  are  essentially  of  family  nature  and 
environmentally friendly. The derogation does not do any harm to the local environment 
and none of the options would imply noteworthy impacts on the land-use or production 
methods.  All  options  would  equally  demand  of  the  traditional  rum  producers  to  use 
locally  grown  products,  supporting  local  farming  (particularly  after  the  lifting  of  the 
long-standing  sugar  quotas)  and  biodiversity.  Finally,  no  option  would  change 
whatsoever  to  the  requirement  to  comply  with  stricter  (than  in  other  neighbouring 
regions) environmental norms imposed by the EU regulations.  

Taking  into  account  all  aspects  analysed  under  coherence  without  weighing  them,  no 
option  presents  itself  better  than  the  baseline.  Options  2  and  3  –  both  reducing  the 
effective level of rebate – have the same overall level of coherence as the baseline, while 
options  1.1,  1.2  and  4  –  for  various  aspects  –  would  leave  the  situation  less  aligned  to 
other EU policies 

Table 16 : Coherence profile of the policy options - summary 

Regional 
policy, 
jobs & 
growth 

Public 
health 

--- 

-- 

+ 

-- 

Policy option 

Option 1.1: 
Abolish the 
scheme 
Option 1.2: 
Extend subsidy 
to all producers 

State aid 

EU trade 

Environment  Overall 

+ 

+ 

0 

0 

-- 

-- 

0 

0/+ 

39 

 
Option 2: Tax 
relief capped at 
40% 
Option 3: 
Subsidy ceiling 
Option 4: 
Annual quota 
adjustment 

- 

- 

+ 

0 

0 

--- 

0 

0 

0/- 

0 

0 

- 

0 

0 

0 

0 

0 

-- 

6.5. Summary of preferred options 

From the point of view of the overall effectiveness, Option 4 could be expected to yield 
better  results  than  the  baseline.  Option  4  would  keep  the  specificity  of  the  scheme  of 
continued  support  to  the  sector  and  therefore  its  stability.  However,  this  option  would 
allow  more  rum  at  a  reduced  rate  increasing  the  overall  cost  of  the  regime  and  with  a 
greater  negative  impact  on  public  health,  compared  to  the  baseline.  Option  1.2  – 
extending the rebate to all producers of traditional rum worldwide, would be most costly 
to  the  French  budget  while  removing  the  targeted  nature  of  the  scheme  supporting  the 
specific  sector  in  the  French  OR,  decreasing  the  overall  cost-effectiveness  of  the 
measure. As any measure that supports alcohol production, this option does not support 
the overall objectives of public health policy. 

The most efficient from the pure fiscal point of view would be options 2 and 3 generating 
direct  savings  to  the  French  budget.  However,  they  both  bear  some  risk  that  decreased 
support to the cane-sugar-rum industry would trigger a drop in production, with possible 
lay-offs,  or  restructuring,  with  possible  need  of  additional  posterior  support  from  the 
French  budget.  None  of  the  options  are  expected  to  generate  better  results  than  the 
baseline.  As  above,  the  overall  cost-effectiveness  is  therefore  smaller  than  for  the 
baseline. These options  are also  equally  coherent  as the baseline, with  the exception of 
regional policy, growth and jobs as the reduced support would lead to lower production 
and/or restructuring of the sector.  

Option 1.1 is not a realistic option. While France would indeed recuperate the foregone 
revenue  of  the  rebate,  abolishing  the  scheme  would  fail  on  all  the  objectives,  lead  to 
economic,  and  possibly  socio-political  instability  in  the  region,  with  potentially 
significant consequences. Most stakeholders were also opposed to the termination of the 
regime.  

Overall, the French authorities and producers noted the importance of the regime. Both 
stakeholders  called  for  an  increase  in  the  quota  in  order  to  ensure  the  future  growth  of 
traditional  rum  in  the  OR.  The  majority  of  stakeholders  also  highlighted  the  need  for 
flexibility to increase the quota. The French authorities also noted that this would avoid 
retroactive amendments to the Decision and reduce the legal uncertainty for producers.  

The preferred option is therefore the baseline - which continues the regime as is - with an 
increased  quota  of  153,000  hlpa,  in  line  with  the  annual  growth  rate  of  2%  during  the 
period 2014-2019 applied to the used quota of 128,288 hlpa in 2018. This continues to 
support  the  cane-sugar-rum  industry  effectively  and  coherently  with  EU  policy.  The 

40 

 
 
small increase in the quota addresses the issue of retrospective amendments of the quota, 
and ensures coherence with public health and competition policy.  

7. HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED? 

The monitoring of the implementation and functioning of the derogation will be the role 
of the French authorities and the Commission, as it has been to date.  

The  current  monitoring  and  oversight  of  the  use  of  quota  is  managed  by  various 
departments  of  the  French  government.  The  Direction  Générale  des  douanes  et  droits 
indirects (DGDDI) manages software, which encodes the traditional OR rum imports on 
a monthly basis. This monthly data is used by the French authorities to monitor the quota 
use on the one hand  and allows for the alignment  of the production on the other hand. 
This  monitoring  system  is  expected  to  continue.  Any  changes  or  adjustments  to  this 
system can only be done by the French authorities. 

To date, in accordance with Article 4 of the Decision France was requested to submit a 
report to  the Commission, halfway through the  application of the Decision. This  report 
was  to  enable  the  Commission  to  assess  whether  the  reasons  justifying  the  derogation 
still existed and whether the fiscal  advantage  granted by  France had remained and was 
expected to remain proportionate and sufficient to support a competitive cane-sugar-rum 
value chain in the OR in question.  

It is important that the French authorities continue preparing a monitoring report as they 
are best placed to gather the precise information from the impacted stakeholders. France 
will be asked to  submit a monitoring report by 30 September 2025 for the period from 
2019 to 202498. This monitoring report will include any relevant information as regards 
the  additional  costs  involved  in  the  production  of  traditional  rum  in  the  French  OR, 
economic  distortions  and  market  impacts.  This  monitoring  report  will  contain  the 
necessary information for the evaluation of the effectiveness, efficiency, coherence with 
other EU policies, continued relevance and EU added value of the new legislation. The 
monitoring  report  should  also  seek  to  collect  input  from  all  relevant  stakeholders  as 
regards the level and evolution of their additional production costs, compliance costs and 
any instances of market distortions.  

To make sure that the information collected by the French authorities and analysed in the 
monitoring report contains the necessary data that the Commission must know to take an 
informed  decision  on  the  validity  and  viability  of  the  scheme  in  the  future,  the 
Commission  will  draw  up  specific  guidelines  on  the  required  information.  Such 
guidelines will be, to the extent possible, common to other similar schemes to the EU’s 
OR, governed by similar legislation. 

This will enable the Commission to assess whether the reasons justifying the derogation 
still  exist,  whether  the  fiscal  advantage  granted  by  France  is  still  proportionate  and 
whether  alternative  measures  to  a  tax  derogation  system  which  are  also  sufficient  to 

98 The monitoring report should include 2019 data so that a baseline is established and that the Commission 
is able to review the impact of the derogation covering the period post 2020. The report should contain the 
most up to date data up to and including 2024, where possible.  

41 

 
                                                           
support a competitive cane-sugar-rum value chain can be envisaged, taking into account 
their international dimension as well as the special status granted to the OR under Article 
349 TFEU..  

42 

 
 
 
ANNEX 1: PROCEDURAL INFORMATION 

1.  Lead DG, Decide Planning/CWP references 

The lead Directorate General (DG) is DG TAXUD. 

This initiative got the following political agreements: 

-  Agenda  Planning:  Proposal  for  a  Council  Decision  replacing  Council  Decision 
189/2014/EC authorising France to apply a reduced rate of certain indirect taxes 
on  ‘traditional’  rum  produced  in  Guadeloupe,  French  Guiana,  Martinique  and 
Réunion. (PLAN/2018/3201) 
Inception Impact Assessment: Proposal for a Council Decision replacing Council 
Decision  189/2014/EC  authorising  France  to  apply  a  reduced  rate  of  certain 
indirect  taxes  on  ‘traditional’  rum  produced  in  Guadeloupe,  French  Guiana, 
Martinique and Réunion. (Ares(2019)4347262) 

- 

2.  Organisation and timing 

The  following  DG  were  invited  to  the  Inter-Service  Steering  Group  (ISSG):  AGRI, 
BUDG,  CLIMA,  COMP,  DEVCO,  EMPL,  ENV,  GROW,  HOME,  JRC,  MOVE, 
REGIO, SANTE, SG, SJ, TRADE.  

A  consortium  led  by  Institut  für  Höhere  Studien  (IHS)  and  including  as  project  leader 
PricewaterhouseCoopers  LLP  –  PwC  and  CASE  -  Center  for  Social  and  Economic 
Research,  (hereinafter  collectively  referred  to  as  “the  Consultant”)  undertook  the 
assignment  titled  “Study  contributing  to  an  impact  assessment  concerning  a  possible 
legislative proposal authorising France to apply a reduced excise duty rate on traditional 
rum produced in specific French Outermost Regions” (“the Study”). 

This study has established the basis for a so-called back-to-back exercise with evaluation 
and  forward  looking  assessment  carried  out  simultaneously  in  accordance  with  Better 
Regulation Guidelines. 

The objectives of this Study were to analyse whether the reduced excise duty rate applied 
on traditional rum produced in French OR is fit for purpose and the scale of the issues or 
weaknesses encountered in its application. 

The  Study  also  assessed  the  evolution  of  the  problems  if  the  current  regime  (based  on 
reduction  of  50%  excise  rates,  for  a  quota  up  to  144,000  hlpa  per  year)  is  extended 
without  any  amendment  (dynamic  baseline  scenario)  and  the  economic,  social  and 
environmental impacts of the possible options to address the problems identified. 

Additionally,  the  Consultant  assisted  the  Commission  in  conducting  an  Open  Public 
Consultation  (OPC)  to  collect  stakeholders’  comments  and  feedback  on  the  issues 
identified and the possible revision or replacement of Council Decision 189/2014/EU. 

43 

 
 
 
 
 
 
ANNEX 2: STAKEHOLDER CONSULTATION  

1. Outline of the consultation strategy 

The  stakeholder  consultation  strategy  reflects  the  back-to-back  nature  of  the  overall 
study.  The  consultation  was  undertaken  in  relation  to  the  current  system  as  well  as 
potential options for the period after 2020. The main objectives of the consultation are set 
out below:  

●  Collect  data  from  stakeholders  involved  in  the  current  derogation  in  order  to 

undertake the evaluation;  

●  Collect opinions from stakeholders affected by the derogation (both directly and 
indirectly)  on  the  current  derogation  and  on  options  for  the  derogation  after 
2020; and 

●  Identify areas where the current derogation is achieving its objectives and areas 

where it could be improved or changed. 

In  order  to  collect  the  information  set  out  above,  several  groups  of  stakeholders  were 
identified  for  consultation.  The  table  below  sets  out  stakeholders  consulted,  and  tools 
used.  Across  the  different  stakeholder  groups,  questionnaires  were  the  primary  tool  for 
consultation.  

Table 17: Stakeholders consulted and tools used  

Stakeholder type 

Method of consultation 

Consultation 
period 

Content 

Language 
regime 

EU Commission and 
French Public 
Authority officials 

Scoping discussions, 
targeted questionnaires 
followed up by ad-hoc 
interviews if required  

Q1 to Q3 2019 

The functioning of 
the current system 

EN/FR 

Coherence with 
wider EU/French 
policies 

Possible future 
policy options 

The impacts of 
policy options 

Collection of data 
to understand 
additional costs 
experienced by 
OR rum producers 

The functioning of 
the current system 

Coherence with 
wider EU/French 
policies 

EN/FR 

Economic operators 
and related 
organisations / 
associations 

Q1 to Q3 2019 

For economic operators 
directly involved in the 
derogation currently*: 
Initial discussions to 
understand the derogation; 
targeted questionnaires 
followed up by ad-hoc 
interviews / emails if 
required  

For other operators: public 
consultation to collect the 
wider range of commentary 

44 

 
 
 
 
 
 
 
 
Stakeholder type 

Method of consultation 

Consultation 
period 

Content 

Language 
regime 

Nongovernmental 
organisations 
(NGOs) active in 
related areas 

of a full range of economic 
operators 

Possible future 
policy options 

The impacts of 
policy options 

Public consultation 

Q1 to Q3 2019 

The functioning of 
the current system 

Official EU 
languages 

Coherence with 
wider EU policies 

Possible future 
policy options 

The impacts of 
policy options 

EU citizens / general 
public 

Public consultation 

Q1 to Q3 2019 

The functioning of 
the current system 

Official EU 
languages 

Coherence with 
wider EU policies 

Possible future 
policy options 

The impacts of 
policy options 

* Relates to producers of traditional rum in the French ORs as well as distributors of traditional French OR rum in 
mainland France.  

1.  Consultation activities undertaken 

In  order  to  implement  the  strategy  outlined  above,  six  questionnaires  were  developed, 
including  five  targeted  questionnaires  and  one  public  consultation  document.  Table  18 
sets out the activities undertaken and responses received for different recipient groups. 

Table 18: Stakeholders consultation activities 

Type of 
consultation 

Targeted 
questionnaire  
Targeted 
questionnaire  
Targeted 
questionnaire  

Target group 

Recipients 

Total responses 
received 

Response Rate 

European Commission 

French authorities  

French OR rum producers 

8 

4 

2999 

7 

4 

21 

87.5% 

100% 

72.4% 

99 This reflects all 25 producers listed under the derogation in the French legislation, with separate questionnaires being 
sent where producers operated distinct products 

45 

 
 
 
 
 
 
 
 
                                                           
Targeted 
questionnaire  
Targeted 
questionnaire  
Public 
Consultation 

French OR rum distributors 

French OR rum distributors 

NGOs, EU citizens, general 
public, other economic operators 

17 

8 

N/A 

11 

2 

10 

58.8% 

25% 

N/A 

These  activities  align  to  the  initial  stakeholder  consultation  strategy  set  out  at  project 
inception.  

Across  the  different  consultation  activities  undertaken,  all  stakeholder  groups  targeted 
were  reached.  The  public  consultation  allowed  for  responses  from  wider  stakeholders, 
although participation was limited (ten in total) to five responses from EU citizens, two 
from  economic  operators,  one  NGO,  one  trade  union  organisation  and  one  business 
association.  

Figure 1: Public consultation respondents by type  

Overall, the responses received represented the interests of stakeholders directly involved 
in the derogation (distributors, the Commission and French authorities, French OR rum 
producers) as well as wider interests (through the public consultation).  

2.  Approach used to process the data 

Questionnaire  responses  were  processed  based  on  the  structure  and  content  of  the 
questions asked. Table 19 outlines the key approaches used.  

Table 19: Main approaches used to process data collected 

Types of data 
collected  
Qualitative and 
quantitative 
information collected 
on current processes 
surrounding the 
derogation  

Approach 

Data was collected for each of the stakeholders in terms of 
the steps and costs of (a) overseeing the derogation and 
(b) in relation to the Council Decisions required for the 
derogation. These data were combined across 
questionnaires (each questionnaire related to the costs of a 
specific department or Directorate General) in order to 

Questionnaires 

European 
Commission; 
French authorities;  

46 

 
 
 
Questionnaires 

All targeted 
questionnaires  

French OR 
producer 
questionnaires 

French OR 
producer 
questionnaires and 
distributor 
questionnaires 

Types of data 
collected  

Approach 

Opinions on the current 
derogation and future 
of the derogation  

Qualitative data 
collected on additional 
costs  

Quantitative data on 
operations, additional 
costs  

describe the steps and costs required across the 
Commission and French government. Clarification was 
sought via email/phone to clarify responses that were 
unclear 
Thematic analysis of responses was undertaken to identify 
the main opinions for each stakeholder group. It was 
observed that the responses for questions on the future of 
the derogation exhibited a degree of uniformity (in 
particular for distributors and producers).  

New ideas put forward by stakeholders (outside of the 
options put forward) were also collected 
Thematic analysis of responses was undertaken to identify 
the additional costs cited by producers and to group these 
against the main cost drivers relating to Article 349 of the 
TFEU factors. Frequency analysis was undertaken to 
gauge the importance of these types of drivers by category 
Quantitative data was collected from French OR 
producers and distributors on the current scale of their 
production, operations, revenues, and costs.  

This data was first analysed for comparability. This was 
undertaken by analysing the descriptions of the data 
provided in different categories.  

Data that was comparable was used as the basis of 
analysis. Differences by OR, by production type (agricole 
v sucrerie) and by size of producer were considered in the 
analysis, and analysis undertaken at this granular level 
where data were sufficient to support analysis100. In 
particular, where differences were found by production 
type, analysis was conducted accounting for these 
differences. The data was also examined to test for 
outliers, and outliers were removed from the analysis 
where they skewed results. 

In certain cases, information provided was unusual or 
required further clarification; this information was 
collected via follow-up emails.  
Responses to public stakeholder questions were tabulated 
and analysed at an aggregate level although hardly any 
conclusions were possible due to the very small sample.  

Public 
consultation 

Public consultation 
responses to multiple 
choice and close ended 
questions  

100 Given the limited number of producers, data was not always sufficient to distinguish clear differences 
that  were due to OR specific  factors, due to the  type  of production (agricole v  sucrerie) and due to size. 
This  is  particularly  the  case  because  of  the  limited  numbers  of  producers  in  certain  ORs  and  the 
specialisation of some ORs in certain production methods.  

47 

 
  
 
 
 
 
 
 
 
 
 
                                                           
3.  Description of results 

Summarised  below  are  the  main  results  of  the  consultation  activities  undertaken,  by 
broad stakeholder group. Results are also included in the main body of the report where 
they answer the evaluation questions and contribute to the assessment of impacts.  

French authorities  

Responses were received from the following French Government authorities:  

●  Direction Générale des douanes et droits indirects (DGDDI); 
●  Direction  générale  de  la  performance  économique  et  environnementale  des 

entreprises (DGPE) au Ministère de l’Agriculture; 

●  Ministère des outre-mer (MOM); and, 
●  Représentation permanente de la France auprès de l’Union européenne 

One of the main outputs of consultation with the French authorities was a description of 
the current system used to oversee the quota. Other main results of the consultation were 
the following:  

●  Various  departments  of  the  French  government  are  involved  in  the  ongoing 
oversight  of  the  derogation  and  its  periodic  extension.  While  DGDDI  is  closely 
involved  in  ongoing  monitoring  of  the  quota,  other  departments  incur  costs  in 
relation  to  the  preparation  of  reports  to  the  European  Union  (mid-term  report, 
memo to request a new Council Decision) and the application Council Decisions 
in French law.  
In  the  absence  of  the  derogation,  the  authorities  noted  that  there  could  be  a 
negative impact for the viability of the French OR rum sector and more widely in 
the ORs. In addition to potential job losses, the absence of derogation could limit 
the financial capacity dedicated to crop diversification given the pivotal nature of 
the cane-sugar-rum sector in the French overseas departments.  

● 

●  The French authorities noted that the current system should be more flexible. In 
particular,  they  suggested  that  a  growth  rate  be  applied  to  the  quota  within  a 
flexible  corridor.  The  administrative  cost  of  retro-active  decisions  could 
potentially be avoided by this system. 

European Commission 

In  relation  to  the  questionnaire  issued  to  the  DG  of  the  Commission  seven  DGs 
responded and the following DGs provided completed questionnaires: 

●  DG TAXUD 
●  DG AGRI 
●  DG TRADE 
●  DG COMP 
●  DG REGIO 

Two DGs declined to complete the questionnaire as it was not relevant to them or there 
because they had no additional information to report. 

48 

 
 
 
 
The main results of the consultation were the following:  

●  Each of the DGs above was involved in the derogation. Apart from DG TAXUD, 
involvement  was  concentrated  around  Council  Decisions  to  renew  (extend)  the 
derogation,  with  around  150  person  days  involved  in  each  decision.  Oversight 
between  decisions  (relating  to  the  review  of  reports)  was  limited  to  around  10 
person days.  

●  Overall,  stakeholders  affirmed  that  the  derogation  was  broadly  coherent  with 
other  existing  policies.  While  the  derogation  applies  only  to  French  OR 
traditional  rums  (and  may 
impact  on  competition), 
proportionality  was  established  in  the  2014  State  aid  decision.  The  current 
derogation is  coherent  with aims around development and supporting the socio-
economic situation in the ORs.  

therefore  have  an 

●  Regarding the future options, it was noted that, if the derogation did not exist, a 
similar measure could be implemented under Article 349 TFEU. While subsidies 
could present an alternative to the current system, they would potentially require 
the need for additional European resources to be allocated and would not enable 
‘well  identified’  French  OR  traditional  rums  to  be  sold  in  France  (which  is  a 
feature of the current system). 

Producers of traditional rum in the French ORs  

Consultation responses where obtained from producers of traditional rum across each of 
the four ORs under the derogation as set out in Table 20: 

Table 20: Rum producers consultation results 

OR 

Responses received  Quota amount covered by 

responses (hlpa) 

Percentage of quota 
covered by responses 

Martinique 

Réunion 

Guadeloupe 

French Guiana 

10 

3 

7 

1 

43,600 

27,353 

44,058 

1,000 

68% 

100% 

85% 

100% 

Two  recipients  could  not  respond  due  to  time  restraints  or  lack  of  data,  and  data  in 
respect of one producer was received without reference to the questionnaire.  

Respondents to the questionnaire provided a range of different types of responses. Not all 
respondents  provided  comprehensive  information.  Table  21  below  sets  out  the  type  of 
information provided in the questionnaire responses.  

Table 21: Type of information received in completed questionnaire responses 

49 

 
 
Category 

Approximate % of completed 
questionnaires containing 
information 

Notes 

Quantitative 
Responses 

Qualitative 
Responses 

80% 

100% 

The extent of data received ranged across responses, 
with some more detailed than others 

A majority of questionnaires received contained detailed 
responses on the qualitative questions. 

Cost Data 

80% 

This data varied in detail, with some responses only 
contain a few data points, while other extensive 
information 

Staffing 

75% 

Some responses provided a breakdown by staff type, 
others an overall total. 

Respondents  provided  quantitative  and  qualitative  data  describing  their  direct  and 
indirect costs of production, and how these costs are influenced by operating in the OR. 
These  costs  were  grouped  thematically  as  shown  in  Figure  2.  Overall,  producers 
indicated that remoteness, scale, regulations, and climate affected producers in all of the 
ORs for which a response was given to this question.  

Figure 2: Factors of additional costs emphasised by producer (count of specific 
factors mentioned by type) 101 

Note  that  each  unit  represents  a  ‘factor’  flagged  by  a  producer.  Multiple  factors  are 
grouped  in  the  same  category  (for  instance,  environmental  regulations  and  labour 
regulation are captured as separate factors under regulation) 

101

 French Guiana did not respond to this question.  

50 

 
 
 
                                                           
Examples  of  specific  factors  falling  into  the  categories  below  are  set  out  in  the  main 
report  in  the  analysis  of  additional  costs.  Of  the  factors  noted,  the  following  were 
included within quantification of additional costs (please see the main report for further 
details): 

●  cost of primary ingredients (influenced by climate, remoteness and regulation);  
●  cost of labour (influenced by regulations, remoteness);  
●  other production costs (influenced by all factors set out above); and 
●  marketing practices (noted by producers in relation to small scale). 

In  addition  to  the above results, the consultation  indicated the following  with  regard to 
the current derogation and options for its future:  

●  Impact of the quota and derogation on producer businesses. Producers noted 
that  the  quota  enabled  them  to  access  markets  outside  the  ORs,  as  it  was  more 
economically challenging to access these markets. The derogation played a role in 
producers’ decisions to invest, and (to some extent) to employ staff on permanent 
contracts.  

●  Costs  of  the  derogation  system.  The  primary  costs  associated  with  the  current 
system  were  identified  as  the  cost  of  policy  uncertainty  (as  the  existence  of  the 
derogation influences business investment decisions) and the additional costs that 
must be paid by producers, if production is in excess of the quota.  

●  Continuation of the derogation. Producers in general noted a preference for the 
derogation to continue but citing a need for additional flexibility in terms of the 
amount of the quota. 

Distributors 

Targeted  questionnaires  were  sent  to  distributors  of  French  OR  traditional  rum.  In  the 
first instance, a questionnaire was distributed to 17 recipients that interacted directly with 
producers. In September 2019, an abbreviated questionnaire was distributed to a selection 
of eight large retailers in France to supplement the initial consultation.  

The  format  and  level  of  information  supplied  in  response  to  the  questionnaires  varied 
across  respondents,  and  respondents  engaged  in  different  types  of  activity  in  the  value 
chain  (retail  sales,  bottling,  marketing,  import-export  other  logistics).  Overall,  the 
respondents  noted  that  the  derogation  was  an  appropriate  form  of  aid  for  the  OR  rum 
producers. Depending on their role in the value chain, some distributors noted their role 
in administering the derogation (in terms of accounting separately for rum eligible for the 
reduced  rate),  although  this  did  not  add  to  costs  specifically.  While  data  quality  varied 
across  responses,  the  information  provided  did  not  indicate  that  the  benefits  of  the 
derogation were falling to intermediaries. 

Public consultation  

Ten respondents participated in the public consultation. The affiliation of respondents is 
set  out  in  Figure  1  above,  and  respondents  were  from  France,  Spain,  Romania,  United 

51 

 
 
 
Kingdom and Belgium. A majority of the respondents were from France (60%), and most 
of those were from mainland France (50% of total respondents). 

Most  of  the  respondents  (80%)  knew  about  the  derogation.  Given  the  specialist  and 
specific nature of the derogation, this result suggests that public consultation  responses 
represented an ‘expert’ set of respondents rather than the average citizen.  

The majority of respondents tended to support the derogation and emphasised its positive 
effects  (in  particular,  in  terms  of  maintaining  rum  production,  sugarcane  cultivation  in 
the ORs, and facilitating cultural links and variety of choice in France). However, some 
stakeholders also highlighted negative potential impacts on health and other spirits sold 
in the European market.  

4.  Other information regarding the consultation 

In addition to the results described above the following should be noted:  

●  Only  ten  responses  were  received  to  the  public  consultation.  No  membership 

campaign was present in these responses.  

●  A limited number of contributions were received from French OR rum producers 
outside of the formal questionnaire after the consultation period had ended. The 
contributions  (received  over  email)  related  to  the  questions  set  out  in  the  initial 
questionnaire  but  were  received  several  months  later.  These  responses  were 
considered to be addendums to the initial consultation. 

5.  Feedback and next steps  

In the context of the questionnaire distributed to French OR rum producers, it was noted 
that  this  group  of  stakeholders  received  several  similar  (but  not  identical)  requests  for 
information  in  the  span  of  eighteen  months.  It  was  noted  that  this  increased  the 
administrative  burden  for  what  are  sometimes  small  organisations,  and  that  this  could 
affect the quality of responses.  

In  recognition  of  this  feedback,  the  data  collection  undertaken  for  this  evaluation  was 
adapted to build on the format of previous consultations (where possible). In addition, the 
monitoring framework set out the main report puts forward a standardised format for data 
collection and the removal of the mid-term report. These actions are designed to limit the 
administrative cost for producers. 

52 

 
 
 
 
 
ANNEX 3: ANALYTICAL METHODS 

This analytical document was supported by substantial research, based on a combination 
of  primary  research,  a  review  of  existing  literature  and  data  as  well  as  economic  and 
policy  analysis.  Economic  analysis  included  also  calculations  of  the  additional  costs 
encountered by the traditional rum producers, which are presented in Annex 6. 

Primary research 

The  primary  research  consisted  from  in-depth  consultation  of  the  rum  producers  in  the 
French  OR  affected  by  this  regime  -  e.g.  distilleries  -  as  well  as  economic  operators 
involved  in  the  French  alcohol  market,  and  French  and  EU  institutions.  The  groups  of 
stakeholders  consulted,  the  tools  and  methods  used  as  well  as  the  results  of  the 
consultations are presented in detail in Annex 2 on stakeholder consultation.  

Literature review 

Literature review was applied predominantly at the onset of the research to determine the 
economic context of the derogation and set correctly the assumptions of the subsequent 
econometric analysis. This analysis focused on researching the pass through effects in the 
market for alcoholic beverages, price elasticity, and demand and tax elasticity.  

The pass through effect is a measure of the extent to which taxes are reflected in retail 
prices  and  it  follows  the  basic  definition  of  the  percent  of  one  unit  of  indirect  tax  that 
increases the final price of the product. The tax can be fully passed onto the consumers, 
fully  absorbed by the producers, partially passed onto  the consumers (undershifting) or 
even passed on excessively (overshifting).  

Of relevance to this initiative, the supporting study collected a body of empirical research 
investigating  the  degree  of  pass-through  of  indirect  taxation  to  prices  of  alcoholic 
beverages.  Overall,  it  demonstrated  very  diverse  estimates,  with  studies  estimating  a 
pass-through with a minimum of 0.72102, a maximum equal to 1.64103 and a median equal 
to 1.04 (suggesting slight overshifting, typical for perfectly competitive markets). Pass-
through estimates are affected by many factors, such as the type of alcoholic beverages, 
price, channel of distribution and cross-border trade.  

Price elasticity of demand expresses the percentage change in the quantity of a product 
demanded in the market resulting from a 1% increase in its price. An absolute value of 
price elasticity of demand above one indicates that the demand is elastic (reacts relatively 
strongly to changes in price) while price elasticity of demand below one shows that it is 
inelastic (reaction to changes in price is relatively weak). There is a wealth of research on 
the price elasticity of demand for alcoholic beverages, showing a large dispersion of the 

102 See: Chua, J. D. (2000). Essays in Public Economics. Ph.D. dissertation. Harvard University, Cambridge, MA; and 
Bergman, U. Michael and Niels L. Hansen (2017). Are Excise Taxes on Beverages Fully Passed Through to Prices? 
The Danish Experience. Discussion Paper. University of Copenhagen. 
103 See: Young, D. J., Bielinska-Kwapisz, A. (2002). Alcohol Taxes and Beverage Prices. National Tax Journal 55 (1), 
pp. 57-73. 

53 

 
                                                           
estimates with respect to the type of alcoholic beverages, with wine and spirits having a 
price elasticity typically higher than beer. In one recent study104, the mean price elasticity 
for  alcohol  was  estimated  to  be  -0.51,  with  beer  being  slightly  less  elastic  (-0.46),  and 
wine (-0.69) and spirits (-0.80) being more elastic. The price elasticity for spirits of -0.80 
was therefore assumed for the econometric analysis of the rum market. 

As  for  the  tax  elasticity  of  demand,  it  could  be  regarded  as  an  aggregate  of  the  pass-
through and price elasticity of demand. Tax elasticities show the impact of a 1% increase 
in indirect taxation on demand for a taxed product. In the context of international trade, 
researchers often investigate the tax elasticity of demand with respect to tariffs imposed 
on  imported  products.  There  are  several  studies  related  to  alcoholic  beverages  that  use 
trade  gravity  modelling  similar  to  the  analysis  constructed  for  the  purpose  of  this 
analysis,  and  so  were  used  to  test  the  robustness  of  estimates  from  the  econometric 
analysis.  Coefficients  of  elasticity  of  trade  to  tariffs  are  within  a  range  of  -1.0  to  -2.1 
across methodologies concerning spirits, within a range of  -1.4 to -8.4 concerning wine 
and within a range of -3.0 to -5.1 concerning soft drinks. 

Econometric analysis 

Economic  analysis  was  conducted  to  provide  the  basis  to  understand  the  impact  of 
Council Decision 189/2014/EU on the French ORs over the period 2014-18. The analysis 
was  broken  down  into  three  main  steps:  (1)  economic  analysis  to  understand  the 
relationship between tax and price changes and the demand for rum; (2) analysis to place 
the  tax  elasticity  within  the  context  of  the  derogation,  and;  (3)  value  chain  analysis  to 
understand  the  extent  to  which  the  derogation  supports  aspects  of  the  cane-sugar-rum 
value chain in the ORs. 

The  primary  tool  for  evaluating  the  past  effects  of  the  fiscal  advantage  and  estimate 
possible  impacts  of  the  alternative  scenarios  on  the  volume  of  trade  in  traditional  rum 
between French ORs and mainland France was a gravity model of trade. Such model is a 
conceptual framework that is widely used by economists in international trade analysis. 
These models are often used to estimate the impact of changes in trade policies. 

More  specifically,  the  analysis  aimed  to  examine  measurable  determinants  of  trade  in 
rum  and  to  simulate  how  trade  volume  changes  in  counterfactual  past  scenarios  and 
potential scenarios for the future. The econometric analysis derived the estimates of the 
relationship between trade volumes and indirect consumption tax (VAT and excise) rates, 
which  implicitly  incorporates  two  effects  described  above,  the  pass-through  and 
elasticities.  The  results  of  the  modelling  substantiated  the  answers  to  the  following 
evaluation questions: 

Effectiveness  (1):  To  what  extent  have  the  measures  in  question  contributed  to 
supporting  and  maintaining  a  competitive  cane-sugar-rum  value  chain  in  the 
French OR and maintaining employment levels? 

104 See: Wagenaar, A.C., Matthew, J.S., Komro, K.A. (2009). Effects of Beverage Alcohol Price and Tax Levels on 
Drinking: A Meta‐ analysis of 1003 Estimates from 112 Studies. Addiction. 104, pp. 179– 190. 

54 

 
                                                           
Effectiveness (2): To what extent has the fiscal advantage influenced the size of 
the agricultural surfaces used for the cultivation of sugarcane? 

Effectiveness  (3):  To  what  extent  has  the  dependency  of  rum  producers  in  the 
French OR from the reduced tax rates increased since 2014? 

Coherence (2): Does the reduced indirect taxes regime in combination with other 
systems and/or aid affect competition and world trade, and if so, to what extent? 

The model allowed to get some estimates of the possible scenarios on the levels of rum 
production, on producers’ revenues, impacts on the value of extra-OR exports, change in 
demand for primary ingredients and land use as well as jobs across the value chain.  

The  counterfactual  analysis  for  the  ORs  and  cane-sugar-rum  value  chain  was  based  on 
the  above  described  tax  elasticities,  combined  with  data  collected  from  the  ORs  to 
estimate  the  impact  of  the  derogation  on  the  ORs  and  the  OR  cane-sugar-rum  value 
chain, and the fiscal cost to the French government. The value chain analysis of the no-
derogation  situation  aimed  to  show  impacts  on  rum  production,  revenue  for  producers, 
value of exports, demand for primary ingredients and land use as well as jobs. The key 
assumptions  behind  the  analysis  included  (1)  linearity  and  proportionality  of  impacts 
(producers impacted in  proportion to  the quota they  use), (2) changes to  the traditional 
rum  dispatches  to  France  modelled  as  a  function  of  changing  production,  (3)  estimates 
relating to direct impacts in the sector only, and (4) short-term estimates where factor of 
production would not be used in other capacities in the economy.  

To  estimate  the  impacts  of  no-derogation  situation  on  the  production  levels,  42%  of 
reduction  in  demand  for  the  traditional  OR  rum  under  the  quota  applied.  Overall,  the 
impacts of no-derogation were estimated to apply equally to traditional agricole rum and 
sucrerie  rum  and  across  the  ORs  in  proportion  to  their  annual  quota  limits.  No 
assumptions were made regarding distillery closures that could have been expected had 
there been no derogation. However, economies  of scale did  appear to  be  present  in  the 
data provided by the distillers, and so some level of consolidation could be expected.  

Estimation  of  the  additional  costs  for  French  OR  rum  was  based  on  the  bottom-up 
approach.  New  bottom-up  estimates  of  the  cost  per  hlpa  of  French  OR  rum  and  three 
comparators (‘mainland rum’, ‘world  rum’, and ‘mainland vodka’ as detailed in  Annex 
5)  were  constructed  to  assess  the  extent  of  additional  costs  experienced  by  French  OR 
rum  producers  in  producing  and  marketing  traditional  rum  for  the  French  mainland 
market.  

55 

 
 
 
 
ANNEX 4: FISCAL AND ADMINISTRATIVE COSTS 

Fiscal cost  

The fiscal cost is borne by France and estimates presented here account for behavioural 
responses. This approach assumed that dispatches to mainland France of traditional rum 
from the ORs would be lower in the absence of the derogation. The analysis considered 
the effect of the derogation on government revenue through two channels: 

  Excise duty: the derogation reduces excise duty collected on sales of OR traditional 
rum. Simultaneously, it also reduces excise duty collected on the sale of non-OR rum 
by  stimulating  demand  for  OR  traditional  rum.  The  stimulus  to  demand  of  OR 
traditional rum more than offsets the contraction in demand for non-OR rum, driving 
up overall demand in the market; 

  VAT: due to the application of VAT to the excise duty-inclusive price, the derogation 
will  also  drive  lower  VAT  revenues  by  reducing  the  VAT  base.  Only  the  VAT 
revenue  attributable  to  the  excise  duty  component  of  retail  prices  has  been 
considered. 

The estimates are based on the full quota in order to present the cost of the measure itself. 
The  analysis  does  not  include  VSS  because  VSS  rates  are  currently  the  same  for 
traditional  OR  rum  and  other  spirits.  While  the  behavioural  approach  suggests  that 
consumers  would  substitute  traditional  OR  rum  for  rum  with  lower  alcohol  content  by 
volume (and therefore have an impact on the amount of VSS collected), this has not been 
included as it is incidental to the reduced rate.  

Table  1  below  presents  the  net  fiscal  cost  of  the  reduced  excise  rate,  adjusted  for 
behavioural  responses.  The  counterfactual  analysis  indicated  that  the  absence  of  the 
derogation would have reduced dispatches of French OR traditional rum to the mainland 
by around 60,000 hlpa (reduction of around 42%), and so no tax would be collected on 
this  amount,  which  is  included  in  the  analysis  (the  maximum  fiscal  cost  is  reduced  by 
42%).  Furthermore,  if  the  tax  on  the  French  OR  traditional  rum  was  higher,  economic 
theory suggests that consumers would likely have increased their consumption of similar 
products to substitute for the more expensive rum. To account for this, it is assumed that 
the fall in sales under the derogation is offset by a corresponding increase in other spirit 
drinks based on an elasticity of 0.75. 

After  accounting  for  both  the  lower  sales  of  French  OR  traditional  rum  and  the  higher 
sales of other non-OR rum, the fiscal cost of the reduced excise rate is estimated at €119 
million in 2018.  

Table 1: Estimates of net fiscal cost 

  Notes 

2014* 

2015 

2016 

2017 

2018 

56 

 
 
A  Quota levels 

120,000 

120,000 

144,000 

144,000 

144,000 

Excise duty and VAT at 
reduced rate (€ per hlpa) 

Excise 
tables 

1,031.75 

1,038.97  1,043.12  1,043.12  1,045.21 

B 

Revenue collected on the 
quota at reduced rate (€ 
millions) 

C 

Final revenue that would 
have been collected** (€ 
millions) 

A x B 

124 

125 

150 

150 

151 

222 

223 

269 

269 

269 

Net fiscal costs of the 
measure (€ millions) 

C - B 

D 

Excise duty loss (€ millions) 

VAT loss (€ millions) 

98 

82 

16 

99 

82 

16 

119 

119 

119 

99 

20 

99 

20 

99 

20 

* excludes reduced VSS reduction; ** based on estimates of tax revenue from substitution to other products 

Analysis of administrative costs 

The administrative burdens generated by the excise rate reduction permitted by Council 
Decision 189/2014/EU have been quantified using the Standard Cost Model. This model 
took  into  account  the  ongoing  costs  (administrative  burden  arising  from  the  day-to-day 
operation and renewal costs associated with changing the derogation when it is renewed 
or when there is a change in the quota, both of which require a Council Decision). 

The data to support the estimation was drawn from data collected via the questionnaires 
to pertinent stakeholders (including the Commission, French authorities, producers of the 
traditional rum in the OR and distributors) as well as through the desk research.  

Responses from the producers and distributors were limited compared to responses from 
the  Commission  and  the  French  authorities  on  the  issue  of  administrative  burdens  and 
costs.  Further  research  suggested  that  much  of  the  administrative  burden  faced  by  OR 
producers and distributors would face no cost due to the use of automated processes to 
administer  the  quota  and  reduced  rate  of  excise.  Commission  wages  were  estimated  at 
€50/hour105 and the French authorities wages were estimated at €26,81/hour.106  

Tables 2 and 3 present the estimated costs broken down by the stakeholders, type of cost 
and administrative activities. 

105 Based on average annual salary for EC between Grade 6 and Grade 12 of staff; European Voice, The 
Companion to the Commission, 2015 
106 Based on average annual salary for a manager, adjusted to an hourly basis; Emolument, Average salary 
of French Government employees, 2019 

57 

 
 
 
 
 
 
 
                                                           
Table 2: Estimates of ongoing administrative costs 

Stakeholder  Description of costs  

Frequency 

Estimated total 
cost (€) 

European 
Commission 

French 
authorities 

Assessment of reports and possible amendments 

Yearly 

3,500 

Setting up the monitoring software  

One-off 

1,200 

Writing inter-ministerial orders  

Yearly 

13,500 

Following the monthly statistical updates 

Participation in pilot mission and coordination/follow 
up of derogation 

Producers 

The cost of modifications of adaptation to customs 
computer programs 

Unknown 

Unknown 

Distributors/ 
Industry 
association* 

Specific account for rum in the quota  

Yearly 

30,000** 

Billing clients at reduced rates, subscription to 
Organisme de Défense et de gestion, participating in 
CIRT-DOM work 

Providing documentation and updating accounts 

* this amount is primarily borne by one distributor who is involved with the administration of the quota; ** based on a 
limited sample of 3 employees required to participate in CIRT-DOM work, on a part-time basis;  

Table 3: Estimates of administrative costs of renewing and extending the derogation 

Stakeholder  Description of costs  

European 
Commission 

Comment on Council decision, liaison with Council presidency, 
participation in evaluations 

Drafting terms of reference, and staff working documents, revision of 
reports, proposal 

Assessment of proposal and evidence 

Consultation on the Decision 

Estimated total 
cost (€) 

55,000 

French 
authorities  

Preparatory meetings with other ministries and industry association 

22,000 

Participation in discussion with the Commission ), participation in reports 

Modifying/drafting of regulations, consultation with professionals, 
signature and publication of texts, follow up 

Modifying the Code general des impôts 

Producers 

Costs of discussions surrounding changes to the quota 

Not quantified 

Distributors 

No cost cited - process is automatic 

Total 

N/A 

77,000 

58 

 
 
 
 
ANNEX 5: ADDITIONAL COSTS 

Due  to  several  interrelated  factors,  it  is  more  costly  to  produce  traditional  rum  in  the 
French OR than elsewhere. Thanks to broad consultations with stakeholders involved in 
the  sugar-cane-rum  value  chain  as  well  as  the  French  authorities  holding  most  of  the 
relevant  indicators,  many  of  the  cost  elements  were  identified,  while  some  were 
quantified.  This  allowed  breaking  down  the  general  cost  factors  recognised  in  the 
Council  Decision  189/2014/EU,  such  as  remoteness,  insularity,  tropical  climate,  small 
scale of the local market or broadly understood compliance with the EU legislation.  

The  following  approach  was  undertaken  in  order  to  estimate  the  additional  costs  for 
producers operating in the ORs:  

- 

-  producer  and  market  data:  producer  data  was  collected  through  questionnaires 
sent  to  French  OR  traditional  rum  producers.  They  were  asked  for  production 
costs. Market data was also collected; 
categorisation of costs to be quantified: analysis was categorised on the basis of 
the  broad  categories  of  ‘ingredients’,  ‘workforce’,  ‘other  production  costs’ 
(including  depreciation,  repairs,  bottling,  and  other  costs)  and  ‘marketing 
practices’. The impact of other aids which affect the costs of production was also 
assessed to ensure that net additional costs were captured through the analysis; 
-  data on prices for comparator products: for the above cost categories, data was 
collected  from  independent  sources  on  the  costs  incurred  by  producers  of  other 
comparator  products  for  each  cost  category.  Estimates  are  based  primarily  on 
bottom-up  analysis  using  primary  data,  rather  than  using  proprietary  data  of 
actual comparator products in the market; 

-  assessments  of  the  additional  costs  for  producers  of  French  OR  traditional 
rum:  these  were  derived  by  comparing  the  producer  estimates  of  costs  for 
traditional rum with the independent data on costs for comparator products. The 
impacts of other factors were also considered.  

Not all of the costs were quantifiable. The costs that were quantifiable are not always a 
completely accurate representation of the reality as they were aggregated at the producer 
level,  meaning  that  they  did  not  take  account  of  the  fact  that  more  than  50%  of  the 
producers  were  SMEs,  which  typically  face  even  higher  costs.  Consequently,  the 
additional  costs  used  in  the  present  analysis  should  be  understood  as  the  minimum 
additional costs borne by the traditional rum producers, while the real costs are likely to 
be higher. Table 1 below provides a thorough compilation  of the various cost  elements 
reported  by  the  stakeholders  and  collected  through  desk  research,  accompanied  by 
information  to  what  extent  they  have  been  reflected  in  the  additional  cost  values  per 
hectolitre of pure alcohol used in this analysis. 

59 

 
 
 
 
Table 1: Additional cost factors 

Factor 

Description 

Reflected in additional costs 

Remoteness 

Transport of 
inputs 

Time lag for 
transport of inputs 

Cost of transport 
of final goods 

Higher storage 
costs 

Price of land 

Cost of capital 

The ORs remoteness, insularity and 
topography results in higher costs of 
transport for input materials 

There was some evidence of this cost but 
was not quantifiable on a hlpa basis. For 
instance, one producer mentioned the need 
to stock extra spare parts, at additional 
capital cost 

Producers benefit from a ‘freight aid’ 
already107. While there was a delay in 
payments of this aid, the around 50% 
support cited triangulated with public data 
on additional costs of shipping to the 
French OR as opposed to within France.  

Yes; quantified at a high-level using 
proxy of a 10% mark-up was 
applied to ‘other costs’ for OR 
producers compared to a producer 
in mainland France 

No; not quantifiable on an hlpa 
basis 

No; lack of evidence that this cost 
was additional to the freight aid 
received 

This is related to a shorter production 
season, as rum is mainly produced during a 
particular period of the year but sold 
throughout the year thus requiring storage 

Not individually; included as a 
factor in short production season 
(below) 

No; there was not sufficient data to 
quantify within a producer cost base 

No; not sufficient evidence that this 
cost is borne in the OR 

Research was conducted to determine 
whether the price of land in the ORs was 
higher than in mainland France. Some 
evidence supported the existence of higher 
cost of land, but it was not possible to 
assess materiality within the producer cost 
base 

Financing base rates are up to 2x higher 
than in the French mainland, based on 
business survey data from Banque de 
France108. However, questionnaires did not 
demonstrate financing charges or noted 
that finance was obtained in mainland 
France  

107  Les-Aides France. Aide à la réduction du coût du fret dans les entreprises des DOM Saint-Saint-Pierre-

et-Miquelon, Saint-Barthélemy, Saint-Martin et Wallis-et-Futuna; available at: https://les-
aides.fr/fiche/bZdgAH1GzfreCntQ/  

108 For example, taux des crédits aux entreprises à La Réunion. Available at: 

https://www.iedom.fr/IMG/pdf/infos_financieres_taux_des_credits_entreprises_la_reunion_octobre_20
18.pdf  

60 

 
                                                           
Factor 

Description 

Reflected in additional costs 

Costs related to tropical climate 

Climatic factors 
(general) 

Storms 

Climatic factors 
(evaporation) 

Short production 
season 

Small Scale 

Small regional 
market 

Yes; quantified at a high level   

No; not quantifiable on an hlpa 
basis 

No; not quantifiable on an hlpa 
basis  

Yes; quantified at a high level  

There was some evidence the useful 
economic life of machinery in tropical 
climates may be shorter than in non-
tropical climates, with one article 
suggesting depreciation and repairs 60% 
higher in tropical climates109 

These costs could not be identified, 
however there appeared to be a small 
increase in potential insurance costs 

This was noted as a factor in aged rum in 
particular production which has to remain 
in storage longer, but aged rum only makes 
up a 2.5% of exports110 

Potential additional costs originating from 
a production season aligning to the cane 
harvest period, with distillation only 
occurring over a relatively short period (4 
months in the Antilles, around 6 months in 
Réunion, and almost 9 in French 
Guiana)111, were analysed 

A narrow regional market was analysed as 
a limitation on growth for OR rum 
producers 

No; not quantifiable on an hlpa 
basis 

Marketing capacity  The limited ability of OR producers to 

market their rums, particularly compared 
to larger alcoholic drinks brands, were 
noted by producers 

No; insufficient data to quantify and 
was not clear this cost was born in 
the OR however this parameter is 
considered in analysis of marketing 
practices 

EU Regulations 

109 Brenner, 1971. This is within the range of higher observed depreciation in tropical/cyclone exposed 
states as compared to less vulnerable areas in the same country, which can have rates up to twice as 
high. Data on depreciation was triangulated on more recent sources to support these rates. Higher rates 
of depreciation were noted in 2017 in warmer climates due to harsher environmental factors which 
consumed assets at a faster rate than more moderate climates. Available at: 
https://assets.kpmg/content/dam/kpmg/au/pdf/2017/public-infrastructure-spending-show-me-the-
money.pdf  

110 CIRT-DOM. Some evaporation also occurs for non-aged rum, however public data was not found to 

confirm that this rate would be higher in the ORs.  

111 Office de dévelopement de l’économie agricole d’outre-mer, ‘Filiėre Canne Sucre Rhum’. 

61 

 
                                                           
Factor 

Description 

Reflected in additional costs 

Compliance cost  

Ban on specific 
herbicide 

Ongoing environmental costs, which 
include environmental compliance costs in 
relation to taxation of ‘vinasse’ (a by-
product of rum production).  Several other 
costs relating to the ORs’ environment 
were identified and addressed at a high 
level 

A recent ban on the herbicide Asulox 
without a clear replacement, was described 
as a factor leading to increased labour 
intensity needed to harvest sugarcane. This 
contributed to a reduced yield and higher 
prices for sugarcane112 

Source: PwC et al, 2020 

Yes; quantified at a high level and 
estimated to be €10 per hlpa 
compared to world rum 

No; Costs already factored into 
price of sugarcane 

The above systemisation of the costs borne by producers of traditional rum in the French 
OR allowed estimating the approximate level of additional costs for the agricole rum and 
sucrerie rum.  

Table 2: Additional cost per hlpa of traditional OR rum compared to world rum 

Cost component 

Sugarcane 
Workforce 
Remoteness 
Tropical climate 
EU regulations 
Transformation aid 
ABV difference (2.5%)# 
Herbicide costs** 
Market practices (excluding ABV difference) 
Total 
Source: PwC et al, 2020 

Additional cost per hlpa (€) 

Agricole 

Sucrerie 

150 
73 
16 
22 
10 
-38 
58 
16 
672 
979 

-1 
28 
16 
22 
10 
0 
58 
16 
606 
755 

To compare these costs to costs borne by producers of similar alcoholic beverages, three 
comparators were used: the mainland rum, world rum and mainland vodka.  

112  Asulox, 

un 

herbicide 

retiré  mais 

toujours 

utilisé 

en  Martinique.  Available 

at: 

https://www.rci.fm/martinique/infos/Sante/Asulox-un-herbicide-retire-mais-toujours-utilise-en-
Martinique  

62 

 
 
 
 
                                                           
Table 3: Comparators used for the additional costs analysis 

Product 

Reason for inclusion 

‘Mainland rum’ 

‘World rum’ 

‘Mainland vodka’ 

Source: PwC et al, 2020 

In this case, a notional producer of rum operating on the French 
mainland, but with access to global markets in sugarcane and molasses 
is considered. While rum is not produced in quantity in mainland 
France this allows the costs associated with producing traditional rum 
in the ORs rather than the mainland to be investigated. 

This category covers the closest actual competitors in the French 
market, consistent with the reports from producers, and illustrates how 
the cost of traditional rum production in the ORs compares with other 
rum producing areas. 

As rum is not produced on mainland France, the 2014 State aid decision 
on the derogation was based on the use of vodka as a comparator 
product to test for additional costs. This allows the costs as compared to 
actual mainland spirit production to be estimated. 

In  practical  terms,  the  average  additional  cost  involved  in  producing  both  types  of 
traditional rum in the French OR are estimated to be between €792 and €963 per hlpa (or 
€2.85 and €3.46 per bottle), depending on the comparators.    

Table 4: Additional costs estimates (€ per bottle) 

Total cost per bottle (€, based on the benchmark bottle by type) 

Mainland Rum 

World rum  Mainland Vodka 

Total additional cost per OR rum 
bottle (2018 prices) 

Source: PwC et al, 2020 

2.95 

2.85 

3.46 

63 

 
 
 
ANNEX 6: EVALUATION 

The  scope  of  the  evaluation  is  a  retrospective  assessment  of  the  derogation  during  the 
period  2014  to  2018.  In  particular,  the  evaluation  assesses  the  extent  Council  Decision 
189/2014/EU contributed to: 

  Reducing the competitive disadvantage of traditional rum  producers in the ORs, 

linked to their permanent constraints; 

  Supporting the broader cane-sugar-rum sector in the ORs, which is important to 
the socio-economic situation of the  ORs  in  terms of  employment, land use, and 
the wider OR economy; 

  Maintaining  access  to  the  mainland  French  market  for  the  traditional  rum 

producers in the ORs; 

  Ensuring the smooth functioning of the single market for alcoholic beverages. 

The  evaluation  assesses  the  performance  of  the  Directive  against  the  basic  evaluation 
criteria  of  relevance,  effectiveness,  efficiency,  coherence  and  EU  added  value,  in  line 
with the Better Regulation Guidelines113.  

The  evaluation  is  based  on  the  external  ‘back  to  back’  study  with  an  evaluation  and 
impact assessment of the Decision carried out simultaneously in accordance with Better 
Regulation Guidelines. 

Relevance 

This section analyses the current needs of the stakeholders compared to the objectives the 
Decision was designed to address. The functioning of the Decision was assessed on the 
basis of the following evaluation questions: 

  Do the reasons justifying the derogation still exist?  
  To what extent does the scope of Council Decision 189/2014/EU still match the 
needs  and  interests  of  the  French  ORs,  the  French  authorities  and  of  the 
economic  operators  concerned?  Is  there  a  need  to  add  to  or  remove  from  its 
scope specific elements? 

The factors identified in Article 349 TFEU have persisted over the period of the current 
Decision.  These  factors  have  resulted  in  additional  production  costs  for  traditional  rum 
producers in the French ORs and in the absence of the derogation, producers noted that 
their  ability  to  compete  in  the  French  mainland  market  would  have  been  seriously 
impeded.  

Access  to  the  French  mainland  market  is  vital,  not  only  for  the  producers,  but  also  the 
broader  cane-sugar-rum  sector  in  the  French  ORs.  Rum  creates  demand  for  local 
sugarcane cultivation and sugarcane remains one of the main agricultural products of the 
French  ORs.  In  terms  of  employment,  the  wider  cane-sugar-rum  value  chain  generates 

113 Better Regulation Guidelines 

64 

 
                                                           
approximately  22,000  jobs  across  the  French  ORs.  This  equates  to  3.8%  of  total 
employment in  regions  whose unemployment  rates (20%) are more than double that of 
mainland France (9%). Traditional rum is an important contributor to the GDP of the OR, 
accounting for 9% of the value of extra-OR exports. 

As the constraints of the ORs outlined in Article 349 TFEU are permanent, the needs and 
interests of the stakeholders have not changed fundamentally. The smooth functioning of 
the single market also remains an important element for stakeholders.  

However, two areas of the regime could be improved to align the regime better with the 
needs  of  the  stakeholders.  The  fixing  of  the  quota  for  the  duration  of  the  Decision  is 
somewhat  problematic.  While the retroactive increase of the quota in  2017 ensured the 
needs  of  the  stakeholders  were  addressed,  the  French  authorities  supported  increased 
flexibility. 

Secondly, the extent to which compensation is  granted for all additional costs faced by 
traditional  rum  producers  in  the  French  ORs  could  be  considered  to  ensure  that  the 
derogation remains proportionate in the future. 

Effectiveness 

The  effectiveness  of  the  Decision  was  ascertained  by  assessing  the  extent  to  which  the 
the  regime  supported  the  broader  cane-sugar-rum  sector  in  the  French  ORs  and  the 
competitiveness  of  the  traditional  rum  producers  in  the  ORs  was  maintained  to  ensure 
access to the French mainlaind market. The evaluation questions were: 

  To  what  extent  have  the  measures  in  question  contributed  to  supporting  and 
maintaining  a  competitive  cane-sugar-rum  value  chain  in  the  French  ORs  and 
maintaining employment levels? 

  To  what  extent  has  the  fiscal  advantage  influenced  the  size  of  the  agricultural 

surfaces used for the cultivation of quality sugarcane? 

  To what extent has the dependency of rum producers on the derogation decreased 

 

or increased over recent years?  
Is  the  effectiveness  of  the  system  of  reduced  excise  duty  rates  affected  by  other 
EU/French public policies and/or aids applicable to French OR? 

The study found that traditional OR rum is priced at a similar price to other rum, which 
suggests  that  the  cane-sugar-rum  value  chain  in  the  French  ORs  remains  competitive. 
The volume of French  OR rum dispatched to mainland France increased between 2013 
and 2018 by 14%. This market continues to be the main market for OR traditional rum 
with  dispatches  to  the  mainland  accounting  for  65%  of  the  total  movements,  up  from 
54% in 2014. Reliance on the French mainland market has not changed over time.  

Despite  this  increase  in  volume,  the  market  share  of  traditional  French  OR  rum  has 
declined by 6% compared to third country imports. This suggests that the measure was 
generally effective in maintaining access in absolute terms and also highlights the strong 
competition facing traditional French OR rum.  

65 

 
According  to  some  stakeholders,  the  quota  mechanism  of  the  regime  was  noted  as 
reducing  the  effectiveness  of  the  regime.  The  producers  noted  that  this  limited  their 
ability to  make long term  investments  as the quota was fixed in  the Decision but  often 
was  amended  retrospectively.  Furthermore,  the  reliance  on  this  quota  could  also 
discourage  OR  producers  from  developing  markets  elsewhere  or  innovating  their 
products.  

In  terms  of  employment,  the  study  estimates  that  400  jobs  in  the  value  chain  were 
supported  by  this  regime.  Additionally  the  regime  increased  the  demand  for  sugarcane 
and molasses. The study found that without the regime, 3% less land  would  have been 
used  for  sugarcane  cultivation.  The  decreasing  trend  of  using  agricultural  land  for 
sugarcane  would  have  been  greater  in  the  absence  of  the  regime.  Overall,  the  study 
shows that the regime increased the contribution of rum to the value of extra-OR exports 
by 30%. Martinique was particularly influenced by the regime with the study estimating 
that the value of extra-OR exports by €15 million in 2018 and over 81% of its sugarcane 
demand.  

The  French  ORs  receive  various  forms  of  aid  from  both  the  EU  and  the  French 
government. The EU agricultural support scheme for the EU outermost regions (POSEI) 
contains  several  programmes  that  aid  the  cane-sugar-rum  value  chain.  These  are 
assistance in maintaining sugar production and transformation of cane. Transformation of 
cane supports producers of agricole rum and improves the effectiveness of the regime by 
decreasing  the  costs  for  these  producers.  French  government  supports  include  transport 
aid,  research  tax  credit,  which  help  reduce  the  costs  for  producers  in  the  ORs  and 
increase their competitiveness.  

These aids help mitigate the additional costs of production in the early stages of the value 
chain but do not fully mitigate the additional costs faced by rum producers accessing the 
French mainland markets. Therefore the study found that the effectiveness of the regime 
is positively affected by other EU/French policies and aid for the French ORs. 

Efficiency 

The  efficiency  of  the  Decision  was  assessed  on  the  relationship  between  the  resources 
required by the regime and the results of the intervention. 

  To what extent is the derogation system applied efficiently?  
  How  are  the  costs  and  benefits  of  the  derogation  distributed  among  different 

stakeholders?  

  Which  other  factors  influence  the  efficiency  of  the  current  system  and  which 

effects do they generate?  

  To what extent are the benefits of the fiscal measures compensating for the loss of 

fiscal revenue in France? 

Stakeholders  reported  only  limited  administrative  costs  associated  with  this  regime. 
Producers  and  distributors  estimated  their  associated  staff  costs  to  be  approximately 

66 

 
€30,000 per annum. The French authorities estimated ongoing costs to be in the region of 
€13,500 annually and the Commission estimated the costs of the regime is approximately 
€3,500 per year.  

In terms of oversight, the Commission estimated that each Decision cost approximately 
€55,000, while the French authorities estimated the costs to be in the region of €22,000. 

The study noted two areas of the regime which could be amended to improve efficiency. 
Increases  in  the  quota  post  adoption  of  the  Decision  creates  costs  for  all  stakeholders. 
Efficiency  of  the  regime  could  be  improved  where  any  future  Decisions  include  a 
mechanism  to  anticipate  possible  changes  to  the  quota  without  the  need  for  a  new 
Decision. 

Secondly, the study notes that the monitoring framework could be improved to increase 
efficiency and reduce the costs associated with the periodic review of the regime.  

The study found that the main benefits of the regime accrue to the French OR producers, 
the  OR  cane-sugar-sugar-rum  value  chain  and  the  ORs  in  general.  These  beneficiaries 
receive  these  benefits  at  a  relatively  low  cost.  The  following  table  summarises  the 
benefits and costs. 

Table 5: Distribution of main costs/burdens and benefits in the cane-sugar-
rum value chain 

Stakeholder 

Benefits 

Costs  

French OR rum 
producers 

On average €28 million of added revenue per year 
driven by 68,000 hlpa increase in annual production 

Minor administrative burden 
(approximately €47,000 per year) 

Cane-sugar- 

rum value chain 

Supports an estimated 53,000 tonnes demanded for 
sugarcane for agricole rum and 4,000 tonnes of 
molasses for sucrerie rum over 2014-17 

No direct costs 

Supports around 400 jobs in the cane-sugar-rum value 
chain 

Greater job security driven by the volume of sales 

Broader OR 

Supports around 29% of rum’s contribution to the 
value of extra-OR exports 

Minor administrative burden 
(relating to French authorities of 
the ORs, see below) 

3% agricultural use of land for cane 

Intermediaries in 
mainland France 

No evidence of material benefit 

Administrative costs of €30,000 
(CIRT-DOM staff costs) 

67 

 
Stakeholder 

Benefits 

Costs  

French government 

Stronger links of the ORs with mainland France114 

Strong rum industry and increased employment in the 
ORs 

French mainland 
consumers 

Lower price of French OR rum  

Connection with the French ORs 

Source: PwC et al, 2020 

Fiscal costs of €98 million in 2014 
increasing to €119 million in 2018. 
Administrative costs of €13,500 per 
year and €22,000 for renewal. 

Public health costs  

Minor health impacts due to 
increased spirits consumption  

The  overall  fiscal  cost  of  the  regime  is  estimated  at  approximately  €119  million  per 
annum. The report notes that in financial terms, the costs exceed the benefit, however this 
should  be  taken  in  the  wider  context  of  the  French  ORs.  The  French  ORs  have  a 
significantly lower economic output per capita and higher unemployment than the French 
mainland.  

The study also found that the efficiency of the regime is impacted by certain regulations 
at  EU  and  national  level.  This  includes  for  example  the  banning  of  certain  herbicides, 
which stakeholders note has increased their production costs. Environmental legislation 
also impacts the efficiency of the regime, for example stakeholders note the high costs of 
treating byproducts of rum. 

Coherence 

This  section  analyses  how  well  the  Decision  is  integrated  and  compatible  with  other 
related EU policies. The evaluation questions on coherence are:  

  Are  the  rules  on  reduced  indirect  taxes  rates  complementing,  contradicting  or 

overlapping with other EU policy objectives and instruments? 

  Does the reduced indirect taxes regime in combination with other systems and/or 

aids affect competition and world trade and to what extent? 

The derogation is a form of regional State aid, authorised under State aid Decision SA. 
38641. The evaluation found that the derogation is coherent with State aid rules.  

The  results  of  the  study  indicate  that  the  Decision  is  broadly  coherent  with  the  overall 
principles and policies governing the single market. In 2018, the market share of French 
OR rum was approximately 10% of the total French spirits market and less than 1% of 
the  European  market.  Access  to  the  French  mainland  market  is  vital  for  the  traditional 

114

 Based on public consultation responses. 

68 

 
 
                                                           
rum  producers  in  the  French  ORs.  Market  data  shows  that  the  derogation  has  not 
negatively impacted other rum producers, whose market share has increased since 2014.  

The  EU  strategy  for  the  ORs  is  based  on  four  pillars,  which  includes  building  on  their 
unique assets and enabling growth and job creation. The study indicates that the Decision 
is  coherent  with  this  strategy.  The  derogation  has  developed  rum  production  in  the 
French  ORs  by  approximately  20%  during  the  period  2014  and  2018.  The  study 
estimates that 400 jobs are as a direct result of derogation.  

The demand for locally grown sugarcane is coherent with both EU agricultural policy115 
and  environmental  policy.  Sugarcane  limits  soil  erosion  and  water  run-off  and  the  by 
products such as bagasse are used as a biofuel. 

The  derogation  mitigates  the  additional  costs  faced  by  traditional  rum  producers  in  the 
French ORs by reducing the excise duty on this rum on the French mainland. The World 
Health  Organization  recommends  high  excise  duties  as  one  of  the  most  cost  effective 
way of reducing harmful alcohol consumption116. The study estimates that 16,500 hlpa of 
rum  is  as  a  result  of  the  derogation.  This  is  equivalent  to  0.15%  of  2016  spirits 
consumption per capita (aged 15 and over). The study notes that the reduced rate remains 
above the EU minimum set out in Directive 92/82/EEC and therefore the negative health 
impacts are mitigated to an extent. 

EU-value added 

This evaluation criteria examines the benefits as a result of the EU policy, compared to 
what could have been delivered by national measures of France or no action. As set out 
in Article 349 TFEU, only the Council is authorised to adopt specific measures in favour 
of the ORs, because of the permanent constraints affecting the ORs. Therefore, the costs 
and  benefits  of  the  derogation  measure  its  EU  added  value.  The  functioning  of  the 
derogation was assessed on the following question: 

  To what extent did the derogation provide benefits to the French OR? 

The study found that the derogation is estimated to have increased rum production levels 
by  0.25  million  hlpa  during  the  period  2014  and  2018  and  on  average  €28  million  of 
added revenue per year, which benefitted the traditional OR rum producers.  

This increase in rum production, increased the demand for sugarcane and molasses and 
the  study  estimated  that  53,000  tonnes  of  sugarcane  was  as  a  result  of  the  derogation, 
which  resulted  in  400  jobs  in  the  cane-sugar-rum  value  chain.  Rum  plays  a  significant 
role  in  the  economies  of  the  ORs.  The  study  estimated  that  the  derogation  supported 
approximately  29%  of  rum’s  contribution  to  the  value  of  extra  OR  exports,  which 
benefitted the OR economies as a whole.  

115 EU Agricultural policy: https://eur-lex.europa.eu/legal-
content/EN/TXT/?qid=1425466952920&uri=CELEX:52012DC0287  
116 WHO, 2017, Global action plan for the prevention and control of NCDs 2013–2020. 

69