CASE NUMBER: 384

CASE MNEMONIC: RUM

CASE NAME: Rum Trade, Rights, and Environment

A. Identification 1. Description “Sugar was the foundation of the Golden Age of West Indian Prosperity during the eighteenth century” (Tomich 14). It was the most sought after commodity of the period and the largest single English import and the most valuable item in the French overseas trade. It came to be a necessity in Europe and dominate the economies in New World colonies of England, France and Spain. Sugar was the link in the infamous “Triangle Trade” between Europe, the Americas and Africa. The triangular trade consisted of “rum from New England to West Africa, slaves to the Sugar Islands, molasses home to the New England distilleries”(Alderman 21). “They nourished the trade in slaves from Africa and gave impetus to European manufactures and commerce. Accordingly, Caribbean colonies were of central importance for economic development during the eighteenth century and became a focal point of international political conflict as the colonizing powers vied with one another for domination over the region and control of its sugar industry” (Tomich 14). 2. Description One of the most important by products of sugar was rum and another variant called tafia. Most of the French colonial manufactures concentrated on the production of cheap, low quality tafia rather than rum. Tafia is a cheaper version of rum. Whether or not it was produced depended on the state of the syrup and the conditions of fermentation and distilling. Tafia was produced for the domestic market where most of it was consumed. In Martinique, for example, annual production was estimated to be one million liters, which added 1 to 1.5 million francs to sugar plantation profits. In fact, it was cheaper to produce tafia than rum because “the distilling apparatus was compensated for by the sale price of tafia, which was 60 to 80 percent higher per gallon than of raw molasses”(Tomich 184). On the other hand, “while molasses and tafia offered renumeration to the planter and allowed the development of an important supplemental trade that was the exclusive source of essential wood products, they represented waste, extra effort, and a loss of potential revenue for the colonial sugar industry”(Tomich 185).There was a large internal market for it and slaves especially enjoyed it. It was an excellent source of revenue for the planter. It was cheaper to distill although both rum and tafia required between five and nine slaves to produce. While sugar production in the French Caribbean was inefficient, rum production in New England was very efficient as well as profitable. During the 1700s and 1800s, New England rum was considered to be the best rum. In 1761, Rhode Island, had 22 distilleries and three sugar refineries. In 1763, Massachusetts had 63 distilleries, with most of them based in and around the Boston and Salem. Rhode Island and Massachusetts used the profits from rum to industrialize New England with ventures into textile manufacturing. Without slave labor, the industrialization of New England and the enriching of Europe would not have been possible. Rum is made from molasses, a by-product of sugar production. Rum, however, has since surpassed tafia in consumption and profitability. Similar to its root, sugar, the demand for rum has increased over the last twenty years. Rum did not become very profitable until the mid 1960s. In the early 1960s, rum production moved from a period of stability to one of appreciable growth. Competition among the distilleries was strong and the more efficient ones increased their production markedly. By the end of the 1960s, the industry had become dominated by a small number of comparatively large distilleries. The demand for rum continued to grow in the 1970s, along with a steady increase in rum’s share in the US liquor market. In 1979, the EPA did a study on distillery wastes and their effect on the environment in Puerto Rico and the Virgin Islands, two of the leading suppliers of rum to the US market. Furthermore, former European colonies in the Caribbean have benefitted from special privileges (duty free imports), quotas in the EU market due to the Lome Convention and more recently the EC that imposed rum quotas from ACP (Africa, Caribbean and Pacific) countries. Currently, Puerto Rico and the US Virgin Islands are battling the US congress to keep their preferential status guaranteed to them in the Caribbean Basin Initiative on rum imports and preventing other countries such as Mexico(through NAFTA) and Colombia (via crackdowns on drug smuggling) access to the US market. While on the other side of the Atlantic, former French and British colonies are protesting against import quotas in the EU. In the EPA case study on rum distillery wastes, entitled, “The Rum industry and rum distillery wastes in Puerto Rico and the Virgin Islands: effects on the marine environment and treatment options,” investigated the five major companies at the time at the time, Bacardi Corporation, Puerto Rico Distilleries, Inc., Distilleria Serralles, Ltd and Brugal and Company. They reported on the nature of rum waste waters, effects of the waste waters on the marine environment and treatment, reuse and disposal alternatives. The case study outlined general rum industry. Rum manufacture is a process of fermentation and several distillation steps, in which wastes are generated from a number of sources. The mosto stream (rum slops in Spanish) from the main still, also known as the alcohol stripping column, contains over 95% of the pollution. A wastewater analysis done by the EPA found toxic pollutants present in the effluent as well as high levels of organic compounds(lead,iron, copper, zinc, etc.) high biochemical oxygen demand and chemical oxygen demand. As stated earlier, “the slops” or mosto has the majority of the waste. Mosto is made up of sugar, organic acids, amino acids, proteins, polysacharrides, and inorganic salt complexes. One of the ways in which mosto toxicity can be reduced, the study found is through plant efficiency, improved water and energy conservation, recycled waste products, and process modification. The study suggests: (1) pretreatment of molasses prior to fermentation; (2) removal and recovery of yeast from fermenter beer; (3) removal of fermenter bottoms; (4) recovery of fusel oil and “heads” as fuel supplements or other useful by-products; (5) indirect heating of alcohol stripping column”(EPA 22). Pretreatment requires the dilution of the molasses and acidifying it with sulfuric acid. Pretreatment is beneficial in that it reduces the build up of sludges, hence, toxic waste. Pretreatment is, however, more expensive and requires more energy. Too, some fermentable sugars are lost in the process. Yeast recovery is another option. It involves the recycling of yeast in molasses after it has been pasteurized and pretreated to remove components which inhibit the yeast. Another process is the removal of fermenter bottoms or sludge. Sludge could be removed by using a sludge pump to a holding tank and then land disposal instead of discharging the sludge into the local sewer drain. This lowers capital and operating costs. Finally, the recovery of fusel oils and heads and indirect heating of alcohol stripping columns are already in use because they are cheap. Unfortunately, rum effluent discharge is harmful to the marine environment. Fish kill, reductions in marine microorganisms, planktonic organisms and heterotrophic organisms were found at all five plants. Rum distillery/industry supporters contend that, “since untreated rum effluents have been discharged at these discharges may already constitute an important food source in the ecology of Caribbean waters which cannot be removed without significant damage. A further assertion is that the waters are “nutrient deficient”(EPA 56). Rum effluent discharge to seawater contains high levels of organic carbon compounds, which lower the dissolved oxygen level in the receiving waters and result in anoxic conditions. Table 1 Toxic (priority) pollutants in mosto and combined effluent ug/1=part/billion

**The analysis showed large amounts of methylene chloride in many
of the samples. The readings, however are thought to reflect
laboratory use of methlyene chloride in performing the analysis rather than a feature of the rum effluent and thus are omitted from
the table.
***Not confirmed by GC/MS.
****By the 4 AAP Procedure(Standard Methods.

The study also investigated the technologies available for effluent treatment and utilization. They included: discharge to public treatment works, ocean discharge, land application, evaporation and biological treatment works was not feasible because of the mosto’s high strength. Aquaculture, on the other hand, requires little or no effluent pretreatment and considerable potential exists for recycling nutrients from the waste into a harvestable crop. However, it too was not a feasible option because, again of mosto’s high BOD.

Ocean disposal was not feasible either for the same reason. Also the Clean Water Act of 1975 does not permit ocean discharge of untreated industrial wastes. Land application seemed to be a viable option for some of the distilleries not located in urban areas. Land application requires that wastes are applied to the soil surface and incorporated into the top 15 to 30 cm of soil.

It can be done in three different ways — agricultural utilization — as a soil amendment, utilizing the available organic and inorganic nutrients to enhance the growth of certain crops. Secondly, in land reclamation, as a soil amendment to add organic and inorganic nutrients to distressed or submarginal lands. Finally in land farming, as a means to dispose wastes on a plot of land, set aside for the purpose of disposal, whereby the organic constituents are degraded by natural processes(oxidation and reduction via sunlight) and the inorganics are trapped within the surface soil matrix”(EPA 65).

Evaporation with condensed molasses solubles(CMS) as a product is another option. The evaporation of mosto to CMS is viable option. The utilization and disposal of CMS are not economically practical because domestic consumption is very low in Puerto Rico. Only about 18% of CMS would be used in animal feed. Also ashes from CMS incineration, which contain potassium could be used in nitrogen-phosphorus-potassium fertilizer.

Finally, biological treatment is not viable because rum processing waste waters can be biologically treated and the excess sludge can be disposed of adequately. The most economical treatment is anaerobic digestion followed by an aerobic system found during the sludge process. However, the dark color of the effluent would continue to be of concern in any biological treatment system.

The economic impact of the rum industry on Puerto Rico and the US Virgin Islands is very important. It is an important and growing source of government revenues. In 198, it contributed 12.7% of general fund receipts in Puerto Rico and 16.4 in the US Virgin Islands. The US treasury returns $10.50 excise tax to the Puerto Rico Department of the Treasury for every proof gallon of rum produced there and shipped to the mainland. The US Virgin Islands have the same agreement with the US. The rum industry employs at least 400 to 600 people. The chief secondary contribution to the industry is its support of Puerto Rico sugarcane and molasses production and bottle and carton manufacturing. Interestingly enough, during the 1970s, Puerto Rico and the Virgin Islands became a molasses importers, when historically they had both been net exporters of molasses. In sum, the study found through chemical analysis of rum distillery effluents confirmed the presence of high concentrations of organic materials and the presence of heavy metals and some toxic (priority) pollutants. Furthermore, direct discharge of rum distillery effluents as presently practiced is harmful to the marine environment. Also, mosto does not improve water quality and technically feasible alternatives for distillery wastewater. In addition, they are technically feasible effluent treatment or disposal alternatives that are economically affordable.

Recently, there has not been anything done on rum distillery effects on the environment. The issue now seems to be the quotas being imposed on rum importation in the US and Europe. Former European colonies in the Caribbean are demanding a greater share, while Puerto Rico and the Virgin Islands are fighting to keep their monopoly on the US market.

Currently, Puerto Rico and the Virgin Islands enjoy special privileges as well as a virtual monopoly on the US rum market. Based on tax provisions in Senate Bill 544, that was passed as the Caribbean Basin Economic Recovery Act in 1984, it “transferred to Puerto Rico and the Virgin Islands the excise tax revenues from all rum imported into the US. A $10.50 excise tax per proof gallon is imposed on distilled spirits and is payable at the time the spirits are removed for consumption or sale from the distillery, or from customs custody in the case of imported spirits”(SB 544 1).

Puerto Rico, the Virgin Islands government may spend the money received from this provision during a fiscal year only for emergency relief and essential public projects and can carry no more than $5 million of such receipts from one year to the next. Too, all distilled spirits, excise taxes collected on rum imported into the US from outside the country, would be paid over to the treasures of Puerto Rico and the Virgin Islands. All excise tax revenue collected on all rum imports collected on or after January 1, 1983 will be transferred to Puerto Rico and the Virgin Islands. This reduced fiscal year revenue receipts by $2 million in 1983. To further protect their market as well as expand it, in section 213(a) of the Caribbean Economic Recovery Act, duty free treatment was extended to ” liqueurs and spirituous beverages produced in the territory of Canada from rum if: (A) such rum is the growth product or manufacturing of a beneficiary country of the Virgin Islands or the US.

(B)Such rum is imported directly from a beneficiary country or the Virgin Islands of the US into the territory of Canada, and such liqueurs and spirituous beverages are imported directly from the territory of Canada into the customs territory of the US.

(C)When imported into the customs territory of the United States, such liqueurs and spirituous beverages are classified in subheading 2208.90 or 2208.40 of the HTS; and 

(D)such rum accounts for at least 90 percent by volume of the alcoholic content of such liqueurs and spirituous beverages. (Buchanan 3) 3. Related Cases:

Key Words:

(1) Trade Product: RUM

(2) Biogeography: TROPICAL

(3) Geography: CARIBBEAN

4. Draft Author Anissa Turner, November 26, 1996 B. LEGAL cluster 5. Discourse and Status: DISagreement and COMPlete However, as recently as 1990, Puerto Rico and the Virgin Islands’ monopoly on the US market was threatened by Mexican rum as a result of the implementation of NAFTA. In 1990, Puerto Rico and the Virgin Islands successfully blocked a petition by Colombia to include rum in its list of products granted privileged entry into the US under the Generalized System of Preferences. If then- President Bush had approved the Colombian petition, Columbia could have shipped millions of dollars’ worth of liquor products to US customers without paying duties as a reward for cracking down on drug smugglers.

In 1990, the Virgin Islands shipped 3.1 million proof gallons of bulk rum. Also they received $33 million from rum excise tax rebates–10% of the Virgin Islands budget. Puerto Rico shipped 22 million proof gallons in 1990 and received more than $200 million in rum rebates. Mexico’s rum production, on the other hand, is between 10 million and 13 million proof gallons a year. Steven Naclerio, Senior Vice President and General Counsel for Bacardi Imports urged the International Trade Commission to “either exclude rum from the category of covered goods under the free trade agreement, or ensure that constitutional requirements and provisions safeguarding the rights for the sale of their products in designated territories are protected in any trade agreement with Mexico”(Luxner 5A). In other parts of the Caribbean, particularly, former British and French colonies, rum producers are being constrained by quotas. In European Council Regulation Number 2599/95, the EC decided to “discontinue from 1 January 1996 the quota for “light” ACP(Africa, Caribbean and Pacific states) and to return a tariff quota for traditional ACP rum until full liberalization for traditional ACP rum until full liberalization on 1 January 2000″(Journal of the European Community 1). The volume of the tariff quota decided on by the Council was set at 58,000 hectoliters for 1997, 64,000 hectoliters for 1998 and 67,000 hectoliters for 1999…”(Journal of the European Community 1). Maintaining the traditional (dark) rum quota was requested by the French government which has consistently objected to any increase in its overseas territories — specifically, Martinique, Guadeloupe and Reunion. Other Caribbean producers see this as a setback to their efforts to increase sales in Europe beyond their current annual quota of 240,000 hectoliters. The EC had earlier proposed a quota of 30,000 hectoliters per year on rhum agricole which is made from sugar cane juice and produced mainly in the French colonies in the Caribbean.

The rum quota is opposed by all other rum producers, especially the West Indies Rum and Spirits Producers Association have no objection to quotas on rhum agricole if it benefits French colonies, but they want the quota on other types of rum raised. “To suggest that a quota should be maintained on this type of rum is entirely contrary to the spirit of the overall abolition of the quota system and would seriously damaging existing markets for traditional rum in Europe…”(Canute 4). The West Indian Rum and Spirits Producers claim that for the past two years that the EU has not done enough to prevent a shortage of the spirit in Europe by increasing the rum import quota and then abolishing it.

The EU is failing to honor its obligation under the Lome Convention the trade and aid treaty between the EU and the African, Caribbean and Pacific countries– to increase the quota in line with rising consumption. Before the Lome Convention, there were no quotas, but rum was subject to duty. With the first Lome Agreement, France insisted on a quota for duty free imports. As demand rose, rum producers twice requested an increase in the quota. Neither was granted, however, because of French pressure. Currently, there has been no change in the current quota requirement for ACP rum. For the last two years, the quota has remained 240,000 hectoliters.

6. Forum and Scope: Multilateral Scope 7. Decision Breadth: 50 (African, Caribbean, Pacific countries that produce rum, US, EU) 8. Legal Standing: Laws

C. GEOGRAPHIC CLUSTER

9. Geographic Locations

a. Domain: Europe, North America and the Caribbean

b. Site: The Caribbean, Mexico, US, Canada and Europe

c. Impact: Many 10. Subnational Factors: No

11. Type of Habitat: Tropical

D. TRADE Cluster

12. Type of Measure: Quotas [QUOTA] and Tariffs and taxes [IMTAX] 13. Direct vs. Indirect Impacts: DIRect 14. Relation of Measure to Environmental Impact a. Directly Related: NO

b. Indirectly Related: YES SUGAR

c. Not Related: NO

d. Process Related: YES HABITAT 15. Trade Product Identification: RUM

16. Economic Data

17. Impact of Measure on Trade Competitiveness: Quotas 18. Industry Sector: FOOD

19. Exporter and Importer: Many and Many E. ENVIRONMENT Cluster 20. Environmental Problem Type: Habitat

21. Species Information:

22. Impact and Effect: High and prominent

23. Urgency and Lifetime: N/A 24. Substitutes: N/A F. OTHER Factors

25. Culture:

I don’t believe this is a cultural issue. Americans and Europeans like to drink. However, Bacardi did benefit from the US attitude change of drinking “light colored” alcohol versus darker alcohol versus darker alcohol such as Bourbon. In Europe, there seems to be a demand for light colored rum because the dark rum produced by the French colonies is not quite as popular. So, it’s basically a matter of preferences.

26. Trans-Border: No

27. Rights: Yes I think current rum production is not abusing human rights. However, original rum production from the 1700s did abuse because it used slaves. 28. Relevant Literature:

Alderman, Richard. Rum Slaves and Molasses: The Story of New England’s Triangular Trade. New York: Crowell-Collier Press, 1972.

Buchanan, Patrick. “NAFTA II– Caribbean Basin Trade Security Act.” http://www.buchanan.org//cbi.html. pgs. 1-6.

Canute, James. “EU urged to end rum quotas.” The Financial Times. Nov 9 1994: 4.

“Chapter 14 Caribbean Basin Initiative (CBI).” http://sys1.tpusa.com/dir01/imprtgui.ch14.html. pgs. 1-3.

“Description of tax provisions of S. 544 (the Caribbean Basin Economic Recovery Act): scheduled for a hearing before the Committee on Finance, United States Senate, on April 13, 1983.” (Washington, D.C.: Government Printing Office, 1983). Environmental Protection Agency. The rum industry and rum distillery wastes in Puerto Rico and the Virgin Islands: effects on the marine environment and treatment options. (Washington, D.C.: United States Environmental Protection Agency, 1979). International Trade Commission. Rum: Annual Report (Covering 1992 and 1993) on Selected Economic Indicators. (Washington, D.C.: United States International Trade Commission, June 1994).

Luxner, Larry. “Puerto Rico, Virgin Islands Oppose Mexican Duty- Free Rum Petition.” Journal of Commerce and Commercial. April 30 1991: 5A.

Solana, J. “Council Regulation (EC) No 2599/95 of 30 October 1995 opening and providing for the administration of a Community tariff quota for rum originating in the African, Caribbean and Pacific (ACP) States (1996 to 1999).” In Official Journal of the European Communities, in Luxembourg on October 30, 1995, by the European Union. Luxembourg: the European Union, 1995.

Tomich, Dale W. Slavery in the circuit of sugar: Martinique and the world economy 1830-1848. Baltimore: Johns Hopkins University Press, 1990.

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