The Rum War Continues

     Diageo has released a response to the allegations made by Distileria Serralles in the breach of contract lawsuit filed in Federal Court in Puerto Rico and is seeking a jury trial.   

     Diageo has issued a statement to The Associated Press last Thursday saying “the company has honored all agreements with Serralles and that it properly exited from the supply contract in Puerto Rico.”

     "Any assertions to the contrary are baseless," the company said. "Once all relevant facts are disclosed, it will be clear that this case is without merit and Diageo acted appropriately."

Diageo St. Croix Distillery

     The battle over the cover over revenues appears to be infecting much of the Caribbean rum industry in many ways.   There is the " unfair advantage" that the U.S. Virgin Island and Puerto Rico have in the form of lower cost of production of the rums sold to the United States, but there seems to be a bit of greed starting to show it's ugly head as the "civil war"heats up.   The Distileria Serralles employees felt like their jobs were being stolen by the USVI when the senate was considering the deal and appeared in St. Thomas to protest.   The switch from using rum made in Ponce, Puerto Rico to the use of rum made in Diageo's own plant in St. Croix is very much at the center of this lawsuit.  

     This controversy goes all the way back to 2008 when the announcement of the deal with the USVI was first struck.    Diageo has also agreed to sell all rums made in the St. Croix plant to the United States for the next 30 years.  I really don't see any resolution to the problems that have all risen out of the use of the "Cover over tax rebate" money given to both Puerto Rico and the U.S. Virgin Islands for rum produced in their territory and sold to the United States.   The United States Congress enacted legislation in 1999 that said for every "proof gallon" of rum that was produced in the U.S. Virgin Islands or Puerto Rico and sold to the United States mainland, of the $13.50 in excise tax collected, $13.25 will be returned to the territory where the rum is produced.   Known as the "rum coverover", much of this revenue is returned to the producer of the rum as part of an incentive to get the producers to continue producing their rum in the territory.