Bacardi's Battles Being Debated In U.S. Senate, House

Peter Zwiebach
Posted: March 10, 2010

Two key issues involving Bacardi Ltd’s battles against competitors are now being discussed in both houses of the U.S. Congress. Late last week, U.S. Senator George LeMieux (Republican-Florida) introduced an amendment to the jobs bill now before the Senate that would alter the basis for the U.S. government’s distribution of cover-over rum subsidies to its territories.

LeMieux’s amendment proposes that the cover-over program change its current formula—based on respective rum production in the U.S. territories of Puerto Rico and the U.S. Virgin Islands—to one based on their populations. Puerto Rico’s population is around 4 million, while the U.S.V.I. has slightly more than 100,000 residents. If this change were to be adapted, Puerto Rico would retain its enormous advantage—and continue to receive nearly all of the subsidy funds. Of course, that advantage is now threatened by Diageo’s planned shift of Captain Morgan production from Puerto Rico to the U.S. Virgin Islands.

Bacardi—by far Puerto Rico’s biggest rum producer—has been called out by Diageo in recent days, with Diageo NA Vice President Guy Smith claiming that Bacardi is “the leading beneficiary of cover-over subsidies, including tens of millions of dollars a year in marketing assistance from the Puerto Rico government.” In response, Bacardi spokesperson Patricia Neal said Diageo’s U.S.V.I. deal, “isn’t about where Diageo receives a free distillery, but about the proper use of federal tax dollars. Diageo has some explaining to do to the U.S. Congress and American people.”

Meanwhile, also late last week, the U.S. House Judiciary Committee debated whether to repeal a law known as Section 211, which prevents the registration or renewal of trademarks connected with companies nationalized by the Cuban government. The law represented a huge victory for Bacardi when it was passed in 1998, because it essentially enabled the rum giant to claim rights to the Havana Club trademark in the U.S. while preventing the Havana Club rum brand marketed by Pernod Ricard in conjunction with Cubaexport (the country’s state-owned enterprise) from entering the U.S. market even if the embargo against Cuban products were lifted. Now, however, under pressure from the World Trade Organization, the House is looking at ways to alter or abolish the law, because of what some members say are its obvious benefits to a single company—Bacardi. For its part, Bacardi has told the Judiciary Committee that the law is “easily correctible,” and that it’s not the only company protected by the legislation.

Bacardi sells its Puerto Rico-produced Havana Club brand in limited quantities in Florida. Pernod’s Havana Club sells more than 3 million cases worldwide annually, a remarkable achievement for a premium rum brand that’s been widely available for less than 15 years and isn’t sold in the United States, the world’s dominant premium rum market.

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