In ‘Rum War,’ deJongh Heads to Hill

Posted March 19, 2010 at 5:34pm

Virgin Islands Gov. John deJongh (D) made a house call to Washington, D.C., last week, appearing before a Congressional panel to testify on a proposed constitution for his tiny island territory. But these days, it’s the Virgin Islands’ ongoing Bacardi-Captain Morgan “rum war” with neighboring Puerto Rico that is keeping tensions high on Capitol Hill.

In an interview Thursday, deJongh said he continues to enlist the support of the Congressional Black Caucus to thwart attempts by Congressional Hispanic Caucus-backed Puerto Rico to disrupt a deal between deJongh’s territory and Captain Morgan’s distributor, Diageo.

On Thursday, deJongh criticized the Congressional Hispanic Caucus for taking sides in his government’s $2.7 billion subsidy to the United Kingdom-based Diageo, which is opening a manufacturing plant in the Virgin Islands and ending a long-standing relationship with rum-makers in Puerto Rico, home to Bacardi. He said he did not discuss the dispute with Members during his four-day trip, but he added that “it’s a discussion that we’ll continue to have.”

“I didn’t have an opportunity on this particular trip, primarily because the dominant issue is the constitution,” deJongh said. “But that’s a discussion that we’ll have to continue to have — why these rum agreements are in the best interests of the Virgin Islands.”

A CBC spokesman did not respond to a request for comment on the Bacardi-Diageo dispute. A spokesman for CHC Chairwoman Nydia Velázquez (D-N.Y.) said deJongh “is allowed his opinion on this.”

“We will just have to agree to disagree,” the spokesman said in an e-mail.

DeJongh also is blaming Puerto Rican officials for exerting excessive pressure on Members in Washington and proposing legislation that would effectively scuttle the Virgin Islands’ deal with Captain Morgan. Since 1917, territorial governments have been eligible to collect taxes on rum exports that are then used to subsidized domestic rum production.

According to estimates used by the Congressional Research Service, Puerto Rico kicks back roughly 6 percent of its rum proceeds to producers, while Diageo’s deal would amount to 45 percent. Those proceeds are part of a rum cover-over program.

“What’s difficult is dealing with the scorched-earth strategy of Puerto Rico. They’re willing to kill the [subsidy] program if they’re not successful with the deal,” deJongh said. “They seem to have taken the posture that they don’t care, they just want to make sure that the companies don’t come to the Virgin Islands.”

“At the end of the day, they’ve developed a strategy to let the program go, and in addition to that, they’ve decided to coalesce all of the Hispanic legislators to back their cause,” he added. “That’s what we’re fighting.”

A spokeswoman for the Puerto Rico Federal Affairs Administration defended legislation that would cap the cover-over money.

“The Virgin Islands’ proposed, excessive deals are what’s threatening the program. Our purpose is to shine more light on these agreements, which are undoubtedly a good deal for the two rum companies, but a bad deal for U.S. taxpayers and government services for citizens in both territories,” PRFAA spokeswoman Sarah Echols wrote in an e-mail.

The legislation, which is sponsored by Puerto Rico Resident Commissioner Pedro Pierluisi (D), has attracted non-CHC Members, including Reps. Aaron Schock (R-Ill.), Darrell Issa (R-Calif.) and Don Young (R-Alaska).

DeJongh is warning lawmakers that if a proposal is enacted to cap cover-over rum subsidies at 10 percent — and Diageo moves its rum-making facilities out of the country to, say, Guatemala — he will soon be knocking on their doors in search of a financial bailout for the Virgin Islands’ 100,000 residents.

“The CBC has been willing to help us,” he said. “They see the value of the deal. They see that without this deal we’ll just come back to Washington and not lobby for programs, but lobby for financial solvency.”