Tuesday, November 22, 2005
The Secret History of Rum
Rum has always tended to favor and flavor rebellion, from the pirates and buccaneers of the seventeenth century to the American Revolution onward. In addition, sugar and rum pretty much introduced globalization to a waiting world, tying together Europe, the Americas, Africa and the Caribbean in a complex alcoholic web of trade and credit. Not until oil was any single commodity so important for world trade. So it is not surprising that the Bacardi Corporation has become one of the world's first transnationals.
Even before Fidel Castro took power, the Bacardi family moved its headquarters from its Cuban home to the Bahamas, allowing it to get British imperial trade preferences, while opening a large distillery in Puerto Rico to allow penetration of the American market. Now its management is mostly living in exile in Florida, monopolizing the local markets across the Caribbean and the world with its bland, branded spirit. Fifty years of marketing have made Bacardi almost synonymous with rum in much of North America, and as Thierry Gardère, maker of the acclaimed Haitian rum Barbancourt, pointed out with a pained expression to me once, "They always advertise it as mixed with something else."
In Prohibition-era America, lots of thirsty Americans went to Cuba, and what they drank there, in keeping with the ambience, was rum, usually in cocktails and often in bars favored by Fidel's onetime fishing partner, Ernest Hemingway. He made a clear distinction: "My mojito in La Bodeguita, my daiquiri in El Floridita."
Cuba made great rums and had some of the world's most renowned bars. Bacardi had really risen to prominence after the American occupation, or "liberation" (sounds familiar?), of Cuba, at the turn of the twentieth century, when the island became the playground for its northern neighbor. Barcardi built its market position during Prohibition, edging out the old New England rum. When the Eighteenth Amendment took force, Bacardi USA sold 60,000 shares, closed down the company and distributed its assets, coincidentally 60,000 cases of Bacardi rum, to the stockholders.
During the dry years the company's order books would suggest that there were unquenchable thirsts in Shanghai, Bahamas and tiny islands like the French enclave of St. Pierre and Miquelon, off Newfoundland. But of course, shiploads of Bacardi went to rendezvous with the rum-runners just outside American territorial waters. As soon as repeal was in sight, Bacardi litigated all the way up to the Supreme Court to open its business in Puerto Rico, where it was eager to get Caribbean costs combined with American nationality. Its rivals in Puerto Rico used the same style of targeted retrospective legislation that Bacardi later did against Castro's Cuba in an attempt to keep Bacardi out. In the first year after Prohibition, Bacardi sold almost a million bottles to the United States. But soon it was not selling it from Cuba. Despite the family's overt and noisy Cuban patriotism, the company pioneered outsourcing and supplied the United States from Puerto Rico. Cuba's share of American rum imports dropped from 52 percent in 1935 to 7.3 percent in 1940.
In 1955 Bacardi moved its trademark to the Bahamas, perhaps in gratitude for the islands' help in keeping the product moving during Prohibition, and also because that made it eligible for British Commonwealth preferences. Its offshoring from Cuba proved very prescient when Castro nationalized the Cuban operations in 1960, which was as much a shock to Bacardi. The Bacardi building had greeted the arrival of Fidel, Che and the compañeros with a banner saying simply "Gracias, Fidel!" In common with some other rum producers, they had supported the rebels financially. In 1959, Castro's trade delegation to the United States had included Juan Pépin Bosch and Daniel Bacardi, two of the family's heads. Neither side dwells on these happy days any more. The company is still held by 600 descendants of the founder, so it does not have to file financial statements or submit to valuations as if it were listed on stock exchanges, and in any case, with sales in 200 countries adding up to 200 million bottles, no one could be sure which stock exchange it would list on.
As its record shows, Bacardi is the original multinational. Its trademark is now held in Liechtenstein, one of the most secret and secure banking centers in the world, which contrives to be "offshore" in the middle of the Alps. However, while attending to business, the Bacardi family has never missed a chance to get its own back on Castro. Bacardi clan chief Juan Pépin Bosch brought a touch of the old connection between buccaneering and rum back to life in 1961 by buying a surplus US Air Force B-26 Marauder medium bomber in order to bomb a Cuban oil refinery. Later he was the money behind a plot to assassinate Castro. For many years Bosch was a major financier for the Cuban American Lobby and a major litigator who brought the United States to the verge of trade wars with the rest of the world. The technique has been to lobby legislators to exercise their anti-Cuban prejudices, regardless of general principles of international or indeed domestic law, and then to pay lawyers to implement the resulting legislation.
Bacardi was spurred into action when Castro's government went into partnership with the French liquor giant, Pernod Ricard, to market the renowned Havana Club internationally. Even though excluded from the US market by the embargo, Pernod was able to sell 38 million bottles of Havana Club in the first few years. In anticipation of an end to the Cuban embargo, it was gearing up for big sales in the United States. This was a challenge both political and commercial to Bacardi, which set to firing retaliatory legal broadsides and to the rediscovery of its Cuban roots.
Bacardi, wherever it is made, had for some decades tried to bury its Cuban origins, but in the 1990s it went into reverse. Its labels began to mention prominently that the company was founded in Santiago de Cuba in 1862 while eliding mention of where the rum was actually made currently. In 1998, "rum and Coke" or "Bacardi and Coke" suddenly became known as a Cuba Libre again. To match the myths, various stories were circulated to celebrate Cuba Libre, claiming that it had been invented by an American in 1898 to celebrate the American victory over the Spanish in Cuba.
The original makers of Havana Club, the Arechabala family, had fled the country after the Revolution, leaving the distillery and the brand behind. The family did not renew its trademark, which lapsed in 1973, and in 1976, the Cuban state export company registered the century-old brand with the US Patent and Trademark Office. Twenty years later, Bacardi sought out the Arechabala family members and bought out whatever suing rights they may have had. Reportedly, Bacardi paid them $1.25 million after the family had spurned offers from Pernod Ricard, which was attempting to cover its back. Bacardi, happy to tweak Fidel's beard, began selling a rum with the Havana Club label (made in the Bahamas) in the United States in 1995, and Pernod sued. The case was going in Pernod's favor, as the Manhattan judge initially made her rulings based on existing law. Then the Bacardi family cut the Gordian knot. Using political clout in Florida, it got the law changed by persuading lawmakers to smuggle a clause into a large spending bill specifically to exempt trademarks nationalized by the Cubans from the usual international protections unless the original owner had agreed to hand them over. And of course, the Arechabalas had not.
In the end, the judge broke new legal ground by accepting this retrospective and clearly privileged legislation as binding, since Pernod wanted an injunction against future use of its trademark. Judge Shira Scheindlin decided: "At this point, because plaintiffs can sell no product in this country and may not be so able for a significant length of time, they suffer no impairment of their ability to compete as a result of defendants' actions. Any competitive injury plaintiffs will suffer based upon their intent to enter the U.S. market once the embargo is lifted is simply too remote and uncertain to provide them with standing."
It was yet another case of the United States flouting treaties and international law, and the judgment is not recognized anywhere else in the world--a point emphasized by the World Trade Organization shortly afterward.
Even so, the US patent office threw out Bacardi's attempt to register other names containing Havana, because the company was claiming a spurious connection to Havana, which could have confused drinkers who thought they were buying rum from Cuba.
When Pernod pushed the European Union into filing a dispute with the WTO, Bacardi complained, in a manner that almost defines the term "disingenuous" from a family that had just secured private legislation: "Pernod Ricard has pressured the EU into filing a claim with the WTO in an attempt to politicize a purely civil dispute. Bacardi views this as a private civil matter and one that is not connected in any way to world trade laws or the WTO." Others begged to differ, not least when Castro announced that Cuba could abrogate US trademarks, such as Coca-Cola, in retaliation. The WTO itself found in 2001 that the American law violated free-trade agreements, and the US trademark office has refused to revoke Pernod's registration despite even more litigation and lobbying by Bacardi, helped by alleged illegal campaign contributions to Congressman Tom DeLay, yet another politician who might be laid low by the demon rum.
Perhaps the ultimate weapon was used when Castro threatened in 2001 to start producing a rum in Cuba called Bacardi. The US State Department, not good at seeing itself as others see it, promptly declared this to be a provocation. In the meantime, the European Union has effectively been bullied into taking no action to enforce the case it has won at the WTO. Castro himself has an occasional talent for expediency. One of the first winds of change that he got from the Soviet Union was when Mikhail Gorbachev cut back imports of Cuban rum as part of his anti-booze campaign. In 1999 the Cuban leader, who had already given up the trademark cigars that regularly put him on the cover of Cigar Aficionado magazine, went one step further; he urged Cubans to give up rum as well and warned that anyone who wanted rum over the New Year "will pay dearly for it." He asked an assembly of medical students, "How much damage has rum caused in any society?" He even lamented that there were "supporters of the revolution who like to toss down a few once in a while." Cynics assumed that the supplies for the growing export market for Cuban rum were threatened by domestic demand.
While Fidelistas may berate Bacardi for its feud with Havana Club, rum aficionados almost universally deplore the company for the effect it has had on rum. Gresham's law observes that bad money drives out good; Bacardi has achieved this with rum. Its bland ubiquity has been driving the distinctive rums of the world from the mass consumer market. It is the equivalent of American cheddar driving out the 300 cheeses of France. Its monopoly power has been used to keep much better, genuinely local Caribbean brands from reaching takeoff. The islands cannot compete with subsidized and tariff protected high fructose corn syrup and Floridian sugar grown by former Cuban barons, so their one chance to market a value-added branded commodity is frustrated by the transglobal black bat.
Republicans used to inveigh against the Democrats as the party of "Rum, Romanism and Rebellion," but now Bacardi has the GOP in its pocket, it symbolizes the complete turnaround of political positions.