Stopping the Pirate

The nation’s Puerto Rican community sets one day aside each year to celebrate everything Boricua. Held this year on June 5, in the Bronx, the National Puerto Rican Day Parade includes floats, beauty queens, and a sea of red, white, and blue Puerto Rican flags. One thing that will be missing, however, is 30-year parade sponsor, Captain Morgan rum.

It’s producer, Diageo, based in Great Britain, has pulled up stakes in Puerto Rico to move to the island next door, the U.S. Virgin Islands. Leaving Puerto Rico bereft of approximately 400 jobs, Diageo in effect, burned bridges with the Puerto Rican community. It remains to be seen if Latinos nationwide will show their solidarity. One of the first to step up, parade organizers decided to take the higher ground and refuse Diageo’s sponsorship.

“The corporate sponsorships of Captain Morgan and its British parent, Diageo, PLC, are no longer welcome,” says parade chairperson Madelyn Lugo. “This parade is about pride and respect, and Captain Morgan has shown us neither,” she asserted. “They are abandoning us in exchange for taxpayer-funded corporate handouts that would otherwise be used to meet the educational and heath needs of Puerto Rico, where 16 percent are unemployed and one in three live below the poverty line.”

At the heart of the controversy are federal excise tax dollars from rum producing territories, subsequently returned to them as “rum cover over” funds to be used for services and infrastructure. Both territories rely heavily on the rebates, which totaled $470 million for Puerto Rico last year.

In 1956, Puerto Rico adopted guidelines for the use of the cover over funds, designating 90 percent to infrastructure and services to island residents, e.g. education, health. The U.S. Virgin Islands, (USVI), however, does not abide by the same rule. The Orlando Sentinel reports that in order to lure Diageo from Puerto Rico, the USVI will gift 40 percent of its cover-over funds, expected to grow to $100 million once production begins, as well as build a new state-of-the-art, environmentally-sound factory for Diageo, valued at $160 million.

“Long-standing federal law expressly allows the USVI to finance incentives in order to attract rum production,” responds Virginia Sanchez, vice president, Diageo North America. “This 30-year commitment by both Diageo and the USVI government successfully uses the rum cover-over as Congress intended to generate revenue that provides fiscal stability, new economic opportunities, and significant public benefits for Virgin Islanders.”

Stepping up efforts to bring visibility to the issue and garner support for legislation that would restrict the use of cover-over funds for tax incentives, is the National Puerto Rican Coalition (NPRC). According the NPRC, Diageo will receive a package of incentives worth $2.7 billion over 30 years, which the NPRC estimates is twice what it costs Diageo to make Captain Morgan rum.

“The economies of both territories are extremely depressed yet the USVI will gain an estimated 40 jobs from the deal, one-tenth of the jobs that will be lost in Puerto Rico, while losing half of its cover-over funds. Something is seriously wrong with this picture,” says Rafael Fantauzzi, president of the NPRC, which has called for a boycott of Diageo products, which include Baileys, Johnny Walker, Jose Cuervo, and Crown Royal, as well as Captain Morgan.

Sanchez claims Diageo will employ 60 at the plant, 80 percent of whom will be local hires, and generate 180 new jobs from spin-off businesses.

The NPRC also endorses legislation introduced by Senator Robert Melendez (D-NJ) that would set a 10 percent cap on the use of rum-cover over funds for tax incentives to corporations. Efforts to pass similar legislation, H.R. 2.122, introduced by Florida Senator George LeMieux, failed.

Fantauzzi argues that the legislation was ultimately in the best interest of both islands as well as taxpayers, who are subsidizing yet another corporation with the Diageo deal. What would seem like a no-brainer, however, has been diverted by politics. Although the Congressional Hispanic Caucus has not weighed in on the issue, the Congressional Black Caucus sent a letter to then chair of the House Ways and Means Committee, Charles Rangel (D-NY), asking him to oppose the change.

In a letter to Rangel requesting consideration of H.R.2.122, Puerto Rico’s nonvoting Congressional representative, Pedro Pierluisi states: “The purpose of the cover-over program is to provide budgetary support to the territorial governments for economic development and important social needs. What makes the Diageo deal deeply troubling to any objective observer is what Diageo was promised in exchange for moving to the USVI, and how those promises will be paid for.”

For information on the Stop Diageo Now campaign, go to Now.

By Valerie Menard