Caribbean rum in grave danger; urgent government action needed

Sir Ronald Sanders

Sunday, March 28, 2010

The European Commission (EC) has once again let down the Caribbean. This time on rum. All rum producers in the Dominican Republic and Caribbean Community (Caricom) countries are facing the grim prospect of losing their markets in Europe.

Having convinced Caribbean negotiators to sign a full Economic Partnership Agreement (EPA) with the 27-nation European Union (EU) on the basis that it was not necessary to include specific language on rum because it was covered in Declaration XXV in the Cotonou Convention, the EC is now reneging on its undertakings and many rum companies face a grave financial crisis.

CARIFORUM countries -- the independent member states of Caricom plus the Dominican Republic -- agreed to a full EPA in December 2007 under considerable pressure from the EC including the threat that if they did not sign, a higher tariff would be applied to their vital exports, such as sugar, rice and bananas, making them uncompetitive with other countries.

The single paragraph on rum in the EPA was not worth the paper it was written on, and a few days ago (March 19) a ministerial meeting of EU and African, Caribbean and Pacific (ACP) countries initialled the text of the second revision of the Cotonou Agreement, which is the legal basis for relations between the EU and the ACP, with no attention paid to the plight of rum producers. The EC objected to specific language on rum in the revised text, overriding ACP protests that it did not provide the substantial guarantees that the original Cotonou Declaration gave to the rum industry.

Why Caribbean country representatives allowed this to happen is a very relevant question, and perhaps an explanation will be given at some point.

There are several important points in this saga.

The West Indies Rum and Spirits Producers Association (WIRSPA) was realistic enough to recognise that the EC would not continue to give them preferential access to the EU market. Therefore, in 2002, they accepted the EC's proposal of "a reasonable period" (up to between 2016 and 2018) to adapt their production facilities and brands so that they could compete equitably with other producers such as the Latin American countries.

The EU agreed to establish a fund of 70 million euros under the 8th European Development Fund (EDF) to facilitate the adaptation of production facilities by Caribbean rum companies. But to access this fund, companies first had to provide at least matching amounts of money, recovering the EDF grant element only when their upgrading or marketing projects are completed.

Many of the companies borrowed money on commercial terms to undertake the projects. They did so expecting the programme to continue until at least June 2010 when the funding window was scheduled to be closed.

However, with about 14 million euros still in the Fund, the EC is closing it this month (March) on the basis that the rules of the 8th EDF demand it. This means that the rum companies cannot get reimbursement for the money they've invested on projects that cannot be completed by the cut-off date on which the EC has insisted.

The original cut-off date of June 2010 was unrealistic, and the new date of March 2010 is even more so. This fact was recognised by the EU's own Programmes Monitors who supported an extension of the Fund for 18 months to December 2011.

In a more sinister development, while the EC has been hiding behind a Council Regulation that prohibits the 18-month extension, it has been busy trading away the small and limited preference that Caribbean rum has in the EU market. Earlier this month (March 8), the EC formally told the Caribbean that they have already settled liberalised tariffs and quotas with Colombia and Peru and are now talking similar terms with Central American and Andean countries.

These deals are accelerating Latin American access to the EU market and seriously undercutting the period that Caribbean rum producers had been led to believe would exist to facilitate the adaptation of their production and their readiness to compete.

Caribbean rum producers have expressed their "anger" at Europe for "reneging on previous agreements that aimed to ensure a smooth transition into a fully competitive European market". And so they should, for they were among the most vocal in supporting the full EPA that CARIFORUM countries signed with the EU. They have a right to feel betrayed.

Many Caribbean commentators at the time spoke out against the EPA, warning that there should be no reciprocal trading arrangement between small Caribbean countries individually and the huge EU collectively. They also argued that Europe had an obligation -- if not rooted in historical exploitation, at least founded in the principles of fairness and equity -- to provide Caribbean countries with the means to become less uncompetitive in an international economic system that favours the large and powerful.

At the very least, they argued, the Caribbean should be given sufficient time and adequate financial and technological resources to cope.

Despite these calls, Caribbean governments signed an imbalanced EPA that went beyond the requirements of the World Trade Organisation (WTO) in giving the EU unprecedented right of access to, and establishment in, CARIFORUM countries.

Now we have the major fallout of Caribbean rum.

The EC will not agree to two reasonable things that rum producers are requesting. The first is an extension of the 8th EDF funding by 18 months to allow them to be reimbursed for the money they spent trying to keep up their end of a bargain with the EU; and the second is an impact study of the effects of early liberalisation on the Caribbean's rum industry.

Letters written on behalf of the region by Belize Prime Minister Dean Barrow, Barbados Foreign Minister Maxine Maclean and Suriname Foreign Minister Lygia Kraag-Keteldjik to the EC have all fallen on deaf ears.

Letter writing is not enough. It's time for Caribbean governments to do more; and to do so more militantly and robustly than in the past.

A high-level team should be despatched to Europe now, not only to talk to governments but to take the case beyond governments to the media, non-governmental organisations and, ultimately, the people of Europe. It would take only a handful of determined EU governments to persuade the EC to find ways around the regulation that prohibits this very necessary extension of the fund for rum, and to conduct the impact study.

There are some EU governments ready to help, and they lament the absence of strong Caribbean government representation.

Informed observers in Europe are convinced that the European Commissioners believe that Caribbean governments are supine and therefore the EU can carry on stitching up deals with Latin America that leave the Caribbean on the sidelines.

Caribbean governments must prove the EC wrong, or they too will be guilty of failing the region's iconic rum industry.

Responses and previous commentaries at: www.sirronaldsanders.com

Sir Ronald Sanders is a consultant and former Caribbean diplomat.

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Caribbean rum in grave danger; urgent government action needed