11:58 AM Mar 5, 1997
FREE TRADE IN WHITE SPIRITS, OR ROBBING PETER TO PAY PAUL?
Geneva 5 Mar (Chakravarthi Raghavan) -- Caribbean nations at the World Trade Organization, already restive and worried about the erosion of their preferential access to the EC market for bananas, are now concerned over their preferential access to the rum markets of the EC and the United States. The future of their rum market in Europe and the US, an annual $50 million export business for the members of the Caribbean Community, is threatened by the US-EC proposed deal on 'white spirits' which may leave them out in the cold. The 'white spirits' accord, struck at Singapore between the US and EC, is to provide for elimination of all tariffs on white spirits -- covering a range of products like gin, vodka etc which are distilled from potatoes and grains. But according to reports in the French press at that time, it is also to cover distilled liqueurs like cognac, brandy and whisky, though whether there will be zero tariff on these or low tariffs is not clear. As the US Deputy Trade Representative, Jeff Lang, disclosed last week to the US House of Representatives Ways and Means subcommittee, the US threw in a deal for 'zero tariff' on white spirits as a "sweetener" to the EC to persuade it to agree to the zero-tariff liberalisation on information technology products. Japan which was invited at Singapore to join the deal did not agree. Rum (which is a spirit distilled from sugar cane or molasses) was also included - but only 'white' rum -- so as to benefit the US Commonwealth of Puerto Rico which produces and exports the white 'Bacardi Rum' and wants a bite of the EC market. The actual owners of the Puerto Rican rum industry are the US spirit industry. The difference between 'white' and 'non-white' rum, isn't all that different, and depends on the time during the 'distilled spirit' is kept in storage in barrels, and the further process to make it 'white'. It could arguably be claimed as 'like products' - an issue on which Japan has been forced to give equal treatment to its sochu and Scotch whisky and other imported liquors. But the inclusion of 'white rum' into the spirits accord, to satisfy the US spirits industry, located in Puerto Rico, meant hitting the rum industry of the US Virgin Islands, which benefits when the US government refunds to the territory the excise it collects from sale in the US of the Virgin Isles rum shipped to it. But when other rum also will come into the US at 'zero tariff', but only the Virgin Isles producers get the excise rebated, it may conflict with the WTO rules for equal treatment for domestic and imported like products. The other casualty of this "sweetener" would be the Caribbean producer/exporters (who export, both white and brown rum) to the EC market under the Lome preferences (duty-free access, but with quota limitations) and the similar benefits they enjoy on the US market under the US Caribbean Basin initiative. The Information Technology accord was basically negotiated among the Quad members, with a few interested Asians joining the final stages, on the basis that all the principal players accounting for an overwhelming share of the trade were involved in this sectoral negotiations, whose outcome would be notified to the WTO and with benefits extended to all WTO members on an MFN basis. But as Caribbean diplomats here complain, they were not involved in information technology talks, since they were neither big or even minor players. But in the case of white spirits, the Caribbean nations have an export interest, and their current preferential access to the EC market and the United States (under the Caribbean basin initiative) would have been lost, but they were not consulted. The deal struck at Singapore, and the changes in it being mooted, to win support of key domestic lobbies, is being negotiated bilaterally, and others who may have an interest don't know. Until the two sides notify the GATT/WTO and file their amended tariff schedules, the details won't be clear. The entire white spirits accord (but including some non-white spirits), they stress, is being negotiated bilaterally between the US and the EC, and the negotiations are even less transparent than the IT accord. There are also other nations who produce sugar, and thus as a bye-product produce and export rum - among them Brazil, Mexico, India, and the Philippines -- all of whom would benefit from a zero tariff on rum, as a part of 'white spirits', on the US and EC markets. India and the Philippines have joined the IT accord, though it is not clear whether they were involved in the "white spirits sweetener" from which they may benefit in terms of white rum. Excepting for Costa Rica, none of the Latin American and Caribbean nations have shown any interest in the IT accord and have not joined. Protests of the US Virgin Islands over likely loss of its benefits on rum to the mainland appears to have persuaded the US administration to propose modification of the 'white spirits' accord proposal to the EC. In his testimony, Lang has merely said that the US and the EC are "within reach" of a compromise to lower tariffs on rum, without impairing the benefits of the Caribbean producers. No details were provided. Caribbean countries, in representations to the EC and the US, have said that any deal must protect their current preferential access The US "sweetener" on the IT accord it was chasing would have been at the expense of the US Virgin Islands, its overseas "territory", which exports rum to the US, and gets a rebate on the excise tax levied in the US. Protests of the US Virgin Islands over likely loss of its benefits on rum to the mainland appears to have persuaded the US administration to propose modification of the 'white spirits' accord proposal to the EC. The original US proposal was to protect the Virgin Islands, and its exports of rum to continental US from the tariff elimination. But the Caribbeans made representations both at Brussels and Washington to ensure that any deal covers their Lome preferential markets in Europe and the Caribbean Basin benefits in the US. In the proposal mooted by the Caribbean nations at Brussels, it would appear they have suggested that the EC expand its list of countries and territories benefiting from the Lome preferential accord to include the US Virgin Islands and Puerto Rico. The US would similarly have to extend its own list to include the French Overseas territories. However, this may run into WTO problems, though it is being suggested that a WTO waiver may be sought. The US Virgin Islands and Puerto Rico, whatever their status within the US, are not separate customs territories with separate WTO membership, but are part of the US. The preferential treatment to their rum would thus involve in effect the US, the most advanced country, getting preferential treatment on the EC markets! Even the waiver granted to the EC over the Lome accord (due to run till 2000) was not easy. But most of the developing countries agreed since it was a case of benefits to the least developed countries of Africa, who were not really competitors. Even then individual rights of contracting parties were reserved, and when it comes to their competitive mercantile interests, it is not going to proceed without challenge - as the challenge to the EC banana regime shows, where the US is challenging on the basis of its investors (chiquita and dole enterprises) rights in the banana trade. And it will be a strange turn that the US and EC which have successfully mounted a case against Japan for discrimination between imported and domestic spirits (sochu etc), on the argument that all are 'like products', will now turn around and make a distinction between 'white' and 'non-white' rum as spirits or provide preferential treatment to US spirits industry, for its products from Puerto Rico or Virgin Islands. At the UNCTAD-organized workshop of trade policy experts, the UNCTAD Secretary-General Rubens Ricupero posed the question which, he said, he used to pose to US officials during his tenure in Washington as the Brazilian Ambassador, about the high specific duties on imports of frozen orange juice into the US. Ricupero noted that under the information technology deal, there will be zero tariffs and free trade, and asked under why Ricardian or Adam Smith theories of free trade was good for information technology products, but not for frozen orange juice? Mr. Jeffrey Schott of the Institute of International Economics -- the Washington-based mainstream, orthodox economics 'think-tank', close to the administration and the Bretton Woods Institutions that are pushing neo-liberal policies on the developing countries -- explained the "political economy" of US trade liberalization and thanked Brazil for having saved the WTO accord by accepting the protective tariff on orange juice. He explained that Sam Gibbons, the chairman of the House Ways and Means trade sub-committee, was a 'free trader' and was pushing the Uruguay Round accords through Congress, but that his own constituency in Florida was affected by the orange juice imports and had to do something to save his constituency problems. So Brazil had to pay the prize to save the free trade accord, and Schott thanked Ricupero for Brazil's contribution to the Uruguay Round accords. A similar explanation might have been coming if any of the Caribbean nations, or for that matter the developing country rum producer/exporters (like Brazil, India or the Philippines) had been present and raised this issue 'of a sweetener price paid by others for the IT product agreement that benefits the US and EC'. The loss of banana market access rights or rum market access rights, is a small price for free trade in the $500 billion information technology market which was hailed by the WTO head in a special press release, and a lesson in the political economy of free trade across the Atlantic.