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EDITORIAL: Rum and smoke

Distillery war heats up in the Caribbean

- The Washington Times - Thursday, January 20, 2011

Another freezing winter has many Washingtonians daydreaming about heading south to put their toes in the sand and a drink in their hand. All is not paradise in paradise these days, however, and even a refreshing Bahama Breeze cannot be had without a hurricane of controversy. That's because one of that cocktail's main ingredients is rum, and there is an ongoing rum war being fought between Puerto Rico and the U.S. Virgin Islands.

Captain Morgan, the spirit's second-bestselling brand, is now produced at a distillery recently opened on the island of St. Croix. The upstart facility has upset Puerto Rico's lock on the rum market, and a problem is brewing. A friendly rivalry between these Caribbean neighbors could be expected to result in better quality products and lower prices as each tropical locale one-upped the other in creating a more business-friendly climate. Yet that's not what's happening.

To gain an advantage, a lobbying effort is underway to convince Congress to intervene and declare Puerto Rico the victor by rewriting a trade provision to redirect revenue from the excise tax on rum produced in St. Croix to San Juan. That would be a raw deal for mainland consumers, and an even worse deal for residents of the Virgin Islands.

Despite the white-sand beaches and year-round blue skies, life in that U.S. territory is far from perfect - at least in economic terms. Per-capita income on the Virgin Islands lags behind that of the 50 states. The islands' governor, John P. de Jongh Jr., wants that to change. That's why he jumped when adult beverage giants Diageo and Fortune, the forces behind the Captain Morgan and Cruzan brands, expressed interest in constructing new facilities there. "When I left working in finance on the mainland and became governor, I knew we would need to find smart, creative economic solutions," Mr. de Jongh wrote in an e-mail to The Washington Times. "We formed true public-private partnerships that are stabilizing the U.S. Virgin Islands' fiscal health, growing our economy and expanding our rum production."

The companies inked a 30-year agreement with the islands ensuring that a portion of rum excise-tax revenue would be used to improve the public infrastructure and would also be reinvested in further developing the rum industry on the islands. Adding the brand-new $150 million Captain Morgan distillery has been good for residents, and with this elixir marketed as "Virgin Islands Rum," the tourism industry even gets a bit of a boost. It's a good financial deal for both sides, which has made others green with envy.

Mr. de Jongh simply wants Capitol Hill to stay out of the dispute, and this does appear to be a clear case where local control works best. There's no harm in allowing a private company to strike a favorable tax deal with a state or territory, especially when it brings jobs where they are needed. Such arrangements create competitive pressure on other jurisdictions to make their own tax regimes less onerous. For that reason alone, Congress should sit back on this one, relax and enjoy a nice daiquiri.

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