Rum Wars as Captain Morgan Sets Sail to the U.S. Virgin Islands

Puerto Rico and the U.S. Virgin Islands are battling for the rum maker.

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By Paul Bedard, Washington Whispers

Facing punishing legislation that could kill an economic development deal with the maker of Captain Morgan rum, the U.S. Virgin Islands has fired back on a move by Puerto Rico to keep the rum company on its shore.

In a letter to House Ways and Means Committee Rep. Charles Rangel, the U.S. Virgin Islands governor charged that Puerto Rico is trying to hurt its economy with financial restrictions and is also making false claims about why Captain Morgan's maker, Diageo PLC, is leaving after its 10-year contract with Puerto Rico expired. "Those advocating H.R. 2122 should more closely examine how Puerto Rico lost an important multinational company, rather than propagate falsehoods and obstruct the autonomy of a United States territory," wrote Gov. John de Jongh Jr. His letter was provided to Whispers.

The tax provision, H.R. 2122, was proposed by Puerto Rico's representative in Congress, Pedro Pierluisi. It would place a hard cap on the Virgin Islands' ability to use rum excise tax revenue for economic development. That could spoil a plan by the Virgin Islands to use the tax dollars to build a rum-making plant for Diageo.

Diageo officials said they tried to cut a new deal with Puerto Rico but didn't like what was offered so they shopped it around to the Virgin Islands, Guatemala, and Jamaica. The Virgin Islands offered the best deal and kept the rum-making plant within the United States: With the new tax revenue, it would build the rum-making facility for Diageo and then use some of the excise tax to build a waste-water treatment plant needed on the islands. Puerto Rico officials have since claimed that the Virgin Islands lured the company away with a sweet offer, but Diageo has denied that.

In the letter to Rangel, the Virgin Islands urges the federal government to stay out of its economic development deals and ignore Puerto Rico's claims. "The campaign to curtail the U.S. V.I.'s economic development initiatives sets a dangerous precedent for federal involvement in matters between local and state governments and companies. I am not aware of Congress interjecting itself to forbid one state's economic development initiative or to require off-setting subsidies as compensation. These disturbing attacks were launched solely because of displeasure over a company's market-driven decision to not renew a supply relationship with a Puerto Rican company, when continuing a relationship with that company represented an unfavorable business proposition," said de Jongh.

Read the letter here.

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