The West Indies Rum and Spirits Producers Association ("WIRSPA"), representing the major producers of rum and spirits in the Caribbean region, appreciates this opportunity to express its views on both (i) the proposed extension of the Andean Trade Preferences Act ("ATPA") and (ii) the proposed Free Trade Area of the Americas ("FTAA"). In both of these initiatives, special attention must be given to rum in order to avoid causing irreparable damage to the struggling economies of the Caribbean Basin.

Rum is a product of special significance to the Caribbean Basin, where it has been produced for centuries, contributing to local economies and enhancing the culture and folklore of the Caribbean region. U.S. trade policy has long reflected an appreciation for rum's unique role in Caribbean history -- for example, by establishing a tax "cover-over" mechanism to support rum production in the U.S. Caribbean territories (1983), by rejecting petitions for duty-free entry of non-Caribbean rum under the Generalized System of Preferences (1987 and 1990), and by excluding rum from the ATPA (1991).

The ATPA provides special duty-free benefits to Bolivia, Colombia, Ecuador, and Peru. Some have advocated that this expiring program should be not only renewed, but expanded to include formerly excluded products such as rum. Adding rum to the ATPA would trigger sharp dislocations in the Caribbean Basin. Legislative history explains that rum was excluded from the original ATPA "in order to preserve the benefits that the Congress has provided to Puerto Rico, the Virgin Islands, and the Caribbean Basin countries …. Andean rum producers have significant natural resources and cost advantages over their Caribbean and U.S. Territorial counterparts as well as large excess production capacity." H.R. Rep. No. 102-337 at 15 (1991). That description is as accurate as ever.

The only meaningful change in circumstances since those words were written in 1991 occurred as a result of the 1997 U.S.-EU tariff agreement on distilled spirits. As of 2003, most rums (and all branded rums) will be able to enter the United States duty free from anywhere in the world. Thus, much of what the Andean countries would get from bringing rum into the ATPA has already been accomplished by other means. However, the EU and U.S. negotiators in 1997 were careful to preserve their tariffs (and thus the Caribbean suppliers' duty preference) on low valued rums, upon which Caribbean suppliers depend to remain in business. This carefully negotiated solution appropriately balanced the interests of global spirits companies with the unique needs of the fragile Caribbean economies. Expanding the coverage of ATPA duty-free benefits to include rum would threaten that balance.

Exports from the ATPA countries, particularly Colombia, could quickly overwhelm and displace Caribbean suppliers. Approximately 2.3 million cases of rum per year are produced in Colombia, by government entities under a legal monopoly. Colombia also has substantial rum exports, and even with the remaining tariff on low-valued rums, U.S. imports from Colombia doubled in 2000 as Colombia took advantage of duty reductions already implemented since 1997. This increase includes Colombia's emergence, for the first time in 2000, as an exporter to the United States of bulk rum -- an ominous indicator of what Colombia could accomplish if the remaining import duty on low-valued bulk rum were lifted. Colombia's competitive advantages include: (1) substantial surplus sugar production, so that molasses is readily available to rum producers at very low cost; and (2) large petroleum deposits that enable rum producers to secure inexpensive fuel oil, whereas Caribbean producers in the USVI, Puerto Rico, and most CBI countries must depend on more expensive imported fuel oil. Moreover, lower costs of labor and environmental compliance strongly suggest that overhead expenses -- the only other significant cost category -- are also lower in Colombia and the other Andean countries than in the Caribbean Basin countries. Therefore, displacement of Caribbean rum would be substantial, and the consequences, in a region whose fragile economies can ill-afford them, would include lost sales, closed distilleries, and lost jobs.

For the same reasons that duty free access for low-valued rums should not be granted to the four Andean countries under the ATPA, it would be devastating to the Caribbean rum suppliers to grant duty free access to the entire hemisphere under the FTAA. Duty free access for countries like Brazil and Venezuela would quickly wipe out the hard-earned position of Caribbean suppliers of rum in the U.S. market. The resulting damage to Caribbean economies, including those of the U.S. territories, would be unbearable. The tariff on low-valued rums was left in place for a reason, and that reason is every bit as valid today as it was in 1997.

We note that our positions on these issues are precisely aligned with the positions that the U.S. territories in the Caribbean are advocating through their representatives in Washington.

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The Committee on Ways & Means has long been a staunch defender of the Caribbean region. We urge you to maintain that role as you design these upcoming trade initiatives.