Do as I say, not as I do?

It’s always fun to find evidence of hypocrisy and realpolitik laid bare in the news… On one front you have the US government pandering to domestic constituencies and trying to eek out advantage for its companies by appealing to the Gods of Free Trade and Fairness, while on the other, you hear examples of its own disregard for Free Trade norms. It essentially always comes down to who has the bigger stick.

In this case, China has a very big stick, and the US has a pretty big one too, so we’ve got quite an evenly matched pairing. Today’s spat sees the US accusing China of plying its car industry with “illegal subsidies” that are accused of making US car producers noncompetitive and forcing the outsourcing of US car manufacturing. President Obama has been bashed recently in the presidential campaign by Republican candidate, Mitt Romney, for being too “soft” on China (whatever that may mean…) and so for him this is clearly a strategic move.

The gem of this piece, however, is the quote from the White House spokesperson who tells us from his extremely high horse that “The key principle at stake is that China must play by the rules of the global trading system“.

Meanwhile, down in the Caribbean, a gathering of micro states with comparatively tiny sticks is calling on the US to do the same thing.

Rum is a historically Caribbean product, linked to the production of sugar cane which began with colonisation. It wouldn’t be an overstatement to say it’s also a way of life in the Caribbean, not to mention a major source of foreign exchange and tax revenue, to the tune of around $750m annually.

But all this is under threat now, because of the very same “illegal subsidies” that the US is handing to its rum producers in Puerto Rico. The US gives back the excise tax raised on sales of Rum from Puerto Rico and the US Virgin Islands to those territories, who then distribute it to producers as a subsidy to their production.

For Diageo PLC, which makes Captain Morgan rum, this will amount to $2.7billion over 30 years in handouts from the Puerto Rican government, and this is but one of the ways in which its production is made cheaper by US government intervention that has increased significantly in recent years.

So far Caribbean community governments are seeking to talk it out with US, going for a “negotiated settlement” over the issue, when they could have threatened the US with a World Trade Organisation (WTO) trade complaint, as the US has done with China over its “illegal subsidies” to its car industry. But of course, their sticks are smaller, and they depend very heavily on the US economy in so many ways, that the Caribbean governments so far have not taken this step.

Exactly where this “negotiated” deal over the US’s massive subsidies to its rum producers stands today, it is not clear, but what is clear is that if it continues for much longer, Caribbean rum producers, the jobs of all of those who they employ, and who work at companies which supply them with their raw materials, will come under increasing strain, and may even be forced out of business after hundreds of years of production. This is the last thing the economically vulnerable Caribbean needs right now. Faced with all sorts of structural challenges, and continuing to battle with the fall out from the US-led global financial and economic crisis, most Caribbean states have seen unemployment rise, government revenue fall, and public debt climb to Greek-style levels in many cases.

This case is also interesting from the point of view of The Bahamas, which was the Caribbean base for much of Bacardi’s production until several years ago. Today The Bahamas remains the only country in the western hemisphere to have not joined the WTO. This means that, if we had interests which were threatened in this case, we would not be able to make a complaint through the WTO on the matter, meaning our producers’ interests would be at a severe disadvantage.

This is why it is important that the Bahamas continues to push ahead with WTO accession, since without it, it will (as Trade minister Ryan Pinder has pointed out) be all the more difficult to sustain those producers who are currently in the Bahamas or to attract new ones, as we hope to do.

Posted on September 17, 2012, in Uncategorized and tagged , , , , , , , , , , , , , , . Bookmark the permalink. Leave a comment.

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