Date: 1983-05-24
Speaker: DE LUGO (democrat)
Chamber: H

Mr. Speaker. today I am introducing the U.S. Caribbean Possessions Act. which in reality is a proposal developed by the U.S. Virgin Islands and Puerto Rico on the rum issue in the Caribbean Basin Initiative. This legislation will strengthen the concept of the CBI and at the same time protect the rum industry of the U.S. Virgin Islands and Puerto Rico. Let me say right up front: This legislation is not supported by the multinationals involved in foreign Caribbean rum production. It is not the easy windfall they wanted. It will not let them just turn up the valves. with no increase in employment. and flood the U.S. market with unbottled bulk rum made so cheaply with the low wages paid in the foreign Caribbean islands that it would knock the U.S. Virgin Islands out of the bulk rum market. They already control the Canadian and European markets. which are effectively denied to Americanmade rum by high tariffs and other restrictions. No. the legislation will not allow them to enter the highly pricesensitive commodity of bulk rum into the United States duty free. But. it will allow them to enter all the bottled rum they want duty free into the United States. This is the laborintensive side of the industry. This is where we want them to channel their energies and capital. They are going to make a profit either way. We want to make sure that when they do profit. the people of the Caribbean do. too. There is a lot more than just a commodity at stake here. and I feel very privileged and proud to introduce this legislation today with the cosponsorship of 116 Members of this House. In just the past 2/ weeks. this many Members have decided to cosponsor the bill. and more are still coming on as cosponsorsMembers of the majority and the minority. chairmen and subcommittee chairmen from every committee in the House. the chairman and the ranking members of both parties on the Interior Committee. which has primary jurisdiction over the territories. members of the Black Caucus. and of the Hispanic Caucus. members in the conservative mold. moderates. and liberals. And they are still coming on board. Mr. Speaker. not because rum is an issue in their districts. American rum is produced only in the U.S. Virgin Islands and Puerto Rico. The issue here goes beyond rum. and I am proud that all these Members. from every section of the United States. representing the entire political spectrum of our Nation. are standing up and insisting that the U.S. possessions in the Caribbean stay economically strong. I thank them for their support and I urge all Members to support this proposal when the Caribbean Basin Initiative comes up. I would now like to explain the proposal in detail. The U.S. Caribbean Possessions Act. which is supported by the Governments of the Virgin Islands and Puerto Rico. would allow full dutyfree treatment of all bottled rums produced in CBI beneficiary countries. but would also recognize the extreme pricesensitive nature of unaged bulk rumwhich constitutes over 90 percent of all Virgin Islands productionby retaining the $1.57 per proof gallon tariff on bulk rum. However. in addition to providing essential protection for that part of the rum industry which. through the return of U.S. excise taxes. supports 15 to 20 percent of the entire Virgin Islands budget. our proposal seeks to strengthen the Caribbean Basin Initiative by providing substance where there is now only symbolismat no additional cost to the U.S. Treasury. Under our alternative proposal. U.S. excise taxes on foreign rums. which would have been returned to the Virgin Islands and Puerto Rico under the administrations CBI. would instead be deposited into a special Caribbean development fund. This fund would be used to finance planned infrastructure development of island beneficiary countries in the Caribbean. Under the original CBI. only $20 million was provided to the small countries in the eastern Caribbean. under our proposal the eastern Caribbean countries would receive about $50 million and the Caribbean islandnations as a whole $165 million over the 12 years of the CBI. These funds are not intended as a substitute for other foreign aid appropriations. and they would be provided at no additional cost to the U.S. Treasury than under the administrations plan. We believe that the Virgin IslandsPuerto Rico rum fund proposal would provide substantially greater benefits to the eastern Caribbean as a whole. as well as to individual rum producing countries. than the administrations proposal. We believe that close analysis will show that the rum fund proposal will. first. create significantly more jobs in the Caribbean run industry by encouraging laborintensive bottling operations in beneficiary countries. second. generate substantially more revenues for fiscally pressed beneficiary governments. including those which may derive some revenues from taxation of local rum industry profits. third. provide direct assistance to the governments and the peoples in the region to finance desperately needed infrastructure. such as schools. roads. transportation and port facilities. and public utilities. fourth. create hundreds of new construction jobs to build infrastructure. which in turn is necessary to enable beneficiary countries to take full advantage of CBIs free trade provisions and to attract new foreign investment. and fifth. provide substantial preferences for access to U.S. rum markets. The most serious concern raised thus far in opposition to the Virgin IslandsPuerto Rico proposal appears to be that those Caribbean countries which currently produce a significant amount of bulk rum may not be able to take advantage of the dutyfree provisions of our proposal because they could not bottle their rums and still remain competitive. We believe strongly that the Virgin IslandsPuerto Rico rum proposal would not result in significantly less access to U.S. markets than the administrations proposal for the vast majority of ruins currently produced in the foreign Caribbean. Indeed. it is our understanding that most of the bulk rum currently shipped to the United States from beneficiary countries is aged bulk rum. which is sold at the upper levels of the rum market. and that the bottling of these rums could be easily and profitably performed in the respective producing countries without competitive disadvantage. The main disincentive to bottling aged rums in the producing countries at the present time is the higher cost of shipping bottled as opposed to bulk products. Our understanding. however. is that the cost of shipping bottled rum from Jamaica to U.S. gulf ports is less than 90 cents per proof gallon. while the comparable figure for bulk rum is more than 40 cents per proof gallon. a differential of less than 50 cents per proof gallon. It is our further understanding that the shipping differential for other Caribbean to United States port routes may be even less. and. in some instances. roughly the same. These differentials are further mitigated by the lower cost of labor in the Caribbean compared to the United States. It should be noted that even with the higher wage rates they must pay. Puerto Rico rum producers ship approximately onethird of their aged rums to the mainland in bottles rather than bulk without loss of competitive advantage in the U.S. market. In short. in no instance is the differential cost of shipping bulk and bottled rum even close to the $1.57 per proof gallon tariff on bottled rum that the fund proposal would eliminate. Thus. it would appear to be a highly unusual logic. to say the least. which suggests that an additional market preference of zero to 50 cents per proof gallon Is worth the cost of indigenous laborintensive bottling jobs. millions of dollars in direct government revenues based on the sharing of the $10.50 per proof gallon rum excise tax. the development of sorely needed infrastructure. and the hundreds of construction jobs and additional investment that would result under the Virgin IslandsPuerto Rico proposal. While granting dutyfree treatment to all imports of bulk rum from CBI beneficiary countries will provide little additional benefit to existing foreign rum producers. the administration proposal would do even less for the governments of the area. With excess distilling capacity and surplus molasses supplies already in place on many Caribbean islands. there would be no incentive for new investment in additional rum production facilities. Instead. existing distilleries would merely operate more days per year. creating no construction jobs and few. if any. new manufacturing jobs. It is unclear whether any increased profits accumulated by distillery owners. many of whom are foreignbased multinational corporations. would be directed back into the local economies. It is less clear whether the governments of beneficiary countries would gain any tax benefits from any increased profitability of their rum industries. While the island governments could tax these extra profits. such taxation would itself discourage foreign investment and. in any event. would provide the Island governments of the eastern Caribbean with significantly less revenues than would be available under the Virgin IslandsPuerto Rico fund proposal. Finally. I appreciate that dutyfree treatment for at least some types of Caribbean rum may have gained symbolic importance in the context of the CBI that exceeds objective economic analysis. I also understand that this symbolism is a political reality which the administration must constructively address. We in the Virgin Islands. however. face another realitythe distinct probability that the 6ustomers in the United States who buy Virgin Islands unaged rum based on price considerations alone will turn to foreign Caribbean rumwhich already receives preferential tariff treatment over Virgin Islands rum in Canada and the EEConce the tariff on bulk rum is removed. Under these conditions. the Virgin Islands bulk rum industry would soon disappear and the excise tax revenues returned to the Virgin Islands. then no longer bearing any relation to rum production in the territory. would be placed in serious jeopardy. We believe the eastern Caribbean regional development fund would avoid this unintended result. At the same time. we strongly believe that the fund proposal would strengthen the administrations proposed Caribbean Basin Initiative by providing greater benefits to the region than under the administration proposal. including both rumproducing and nonrumproducing countries. I am also inserting as a part of this RECORD an editorial which ran in the Caribbean Business newsletter last week. which describes our compromised proposal: (From Caribbean Business. May 11. 19821