The Puerto Rican government has enacted a new tax to protect the islands ailing beer industry from U.S. competition.
As part of the United States, Puerto Rico cannot constitutionally erect tariff barriers against U.S. products. Gov. Carlos Romero Barcelo managed to get around this obstacle, however by proposing a tax based on brewery size.
All breweries which produce 31 million or more gallons of beer per year will bay $1.60 in excise tax per gallon. Smaller breweries will continue to pay the old rate of $1.05 per gallon.
The combined yearly production of Puerto Rico's two breweries, Corona and India, is estimated at 13 million gallons. None of the imported beers, U.S. or foreign will qualify for the lower rate, according to a Commonwealth Treasury Department official.
The brewery hardest hit by the new excise tax will be Schaefer which has captured about 70 percent of the island market Puerto Rico reportedly accounts for about one-third of the company's total sales.
Importers of Schaefer and other beers charged that the law is unconstitutional. Furthermore, they argued. Romero faces retaliation because the federal government is now considering lowering the rum tariffs, which protect Puerto Rican distillers from foreign imports.
THe governor's office argued, on the other hand, that the tax is similar to a tax approved by Congress in 1976 to protect small breweries. Under the federal law breweries producing under two million gallons yearly pay $7 per barrel while larger breweries pay $9 per barrel.
Resident Commissioner Baltasar Corrada del Rio claimed that booth Florida and Louisiana have passed similar legislation to protect their brewers.
On June 3, 10 days after Romero proposed the tax. Carrada met with him in San Juan to warn that "substantial opposition" was building against it in Washington.
He had received "numerous telephone calls" from Congressmen, including Rep. John Heinz III (R-Penn.) and Rep. Phillip Burton (D-Calif.), who criticized the tax as "operating in restraint of trade," Corrada told reporters after the meeting. The office of New York Gov. Hugh Carey and a segment of organized labor, especially the Teamsters Union, also came out against it, he said.
Despite this outside opposition, the measure passed through the Commonwealth legislature with relative ease, delayed only by the legislators' own addition. Puerto Rican breweries are now required to maintain payrolls at 90 percent of their May 31 levels to remain eligible for the lower tax rate. Dismissals in the 10 percent margin must be justified case by case.
The bill is now awaiting only Romero's signature to become law. Officials estimate the new tax will yield some $17 million in revenue and protect 2,000 direct and 4,000 indirect jobs.
For more than 20 years, Puerto Rico's beer market has followed the same general trend as in the United States, where a few large breweries have gradually taken over the market and swallowed up smaller competitors. Puerto Rican beerw accounted for 84.4 percent of the local market in 1957 and dropped to 25 percent by 1977.