Other nations' attack on V.I. rum cover-over is misguided


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As the elected governor of the United States Virgin Islands, it is incumbent upon me to find ways to grow our economy and thereby increase revenues for our territory's treasury. Unfortunately, recent public statements by some of our Caribbean neighbors' ambassadors have been more focused on disparaging our Territory's economic success rather than concentrating on how to enhance our pan-Caribbean cooperation.

For almost 60 years now, rum produced in the U.S. Virgin Islands and sold into the United States market paid an excise tax that was, in turn, returned (or "covered over") to the American jurisdiction where it was produced. As a territory, we are a considered a United States possession, the U.S. Constitution places the obligation to administer its territories squarely on Congress. This is precisely why Congress enacted the U.S. Rum Cover-Over Program, to establish a consistent and reliable means of funding our local Territory governments. The Cover-Over Program was designed to help the territory stimulate economic growth and investment locally, and that is precisely what we have done.

However, some Caribbean ambassadors and representatives have recently claimed that the U.S. cover-over program is in violation of World Trade Organization (WTO) rules. They maintain that, because the U.S.VI is not a part of the United States, the shipments of our rum to the mainland are prohibited exports. Given the fact that many of their claims and the basis of their positions are flawed, if not completely incorrect, we believed it was important to set the record straight.

First, there is no prohibited export subsidy involved in the U.S. cover-over program and the U.S. Virgin Islands' use of it. When the United States joined the WTO, it did so on behalf of its 50 states and territorial possessions, which included the U.S. Virgin Islands. Therefore, rum shipped from the U.S. Virgin Islands to the U.S. mainland is not an "export." And without an "export," there simply cannot be an export subsidy.

Second, everyone in business knows that in order to make money, you must invest money; capital is essential for economic growth and stimulus. What we have done is to utilize a long-standing congressional economic tool in an innovative way, generating millions of dollars of new revenues during a period of intense economic stress and contraction.

When I first took office, I understood that the key to economic growth in our islands, and indeed the entire Caribbean region, lay in the government coordinating its efforts and aligning its policies with the goals of those in the private sector, businesses that could provide the employment and revenues we desperately need. In our public-private partnership with Diageo, which produces Captain Morgan; and Beam, which produces Cruzan Rum, among others; we teamed up to ensure that these companies could commit to producing their fine products in the U.S. Virgin Islands, both now and for many decades to come.

As a result, their expansion has returned millions of dollars of additional tax revenues to the U.S. Virgin Islands, money that is going directly into our General Fund to help pay for and the essential services of our territory and has allowed us to meet our financial responsibilities. And it is no exaggeration to say that without our partnerships with Diageo and Beam, many Virgin Islanders would have suffered far worse during the years of the Great Recession and the global financial crisis.

Over the past few years, we have floated hundreds of millions of dollars of bonds based on future rum cover-over revenue to make up for the dramatic loss of revenues, a direct result of the global economic collapse felt so acutely here in the Caribbean. These bonds are now keeping our schools and hospitals open, police on the streets, and supporting essential capital projects. And these bonds are being repaid with the cover-over revenue generated by Diageo and Beam rum sales within the U.S. market.

Although the U.S. Virgin Islands has been able to weather the most recent economic storm, we now face an equally dire economic crisis; the closure of the HOVENSA oil refinery on St. Croix, our largest employer, has led to the elimination of more than 2,000 local jobs. The results have been a nearly five percent jump in year-to-year unemployment and a loss of as much as $100 million in government revenue. Because of this economic blow, the rum cover-over program is now playing an even greater and essential role in helping us to invest in key health care and infrastructure initiatives, maintain solvency and pay for urgent social services. Everyone in our territory knows that without the strategic investment we made which has led to the recent growth in our rum cover-over revenues; we would not be able to survive this latest crisis that we are still facing.

While some ambassadors and representatives have eagerly disparaged the United States' cover-over program, they apparently see no contradiction in their accepting money from tax and incentive programs in which the U.S. Virgin Islands, as a U.S. territory, cannot participate. I can only imagine their displeasure if we were to publicly object, let alone mount a legal challenge, to any of the programs of assistance and aid that are now in place between those island nations and their former colonial possessors, including Great Britain and France.

Moreover, I take special regional pride in the fact that Caribbean rum producers are now selling even more of their products in the United States. While CARICOM as a whole saw a 17-percent increase in its rum exports to the U.S. in 2012, Barbados in particular has enjoyed significant growth. In fact, the country is now enjoying a 31 percent leap in the volume of its U.S. rum exports. These numbers alone debunk the assertions our expanding sales of rum to the U.S. mainland markets, promoted by our use of the cover-over program, are detrimental to the Caribbean.

So, to the ambassadors, envoys, and other appointed representatives who have recently been out in the media criticizing our use of a congressionally established program that has been in place since 1917 without objection, I simply say that I am proud of what we have done and grateful that we did it when we did. To Diageo and Beam, I wish ever greater success. And to all private businesses, including those in the rum industry, I would say that we in the U.S. Virgin Islands welcome all who come to our shores seeking to succeed in ways that are consistent with our laws and public policies, and are respectful of our people, our history and our culture.

- John P. de Jongh Jr. is the seventh elected Governor of the United States Virgin Islands. He has also served as Executive Director of the Virgin Islands Public Finance Authority, Commissioner of Finance, and member of the Industrial Development Commission.

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