Lifting the lid on Bacardi

Campaign News | Monday, 1 July 2002

Rum giant pays bars not to sell Cuban rival

Lifting the lid on Bacardí

Rum giant pays bars not to sell Cuban rival

Over the past few issues we have been following closely the Bacardí campaign

against the Cuban rum Havana Club.

Now for the first time we can reveal the truth behind this commercial

vendetta and make some startling revelations.

In this article, investigative reporter Laura Milne reveals how Bacardí is

now under the gaze of the Office of Fair Trading for offering "exclusivity

deals" to various rum outlets up and down the country.

These include Cuban theme bars and restaurants but the latest and biggest of

these is a £625,000 sweetener for the National Union of Students purchasing

company NUSSL, paid out in return for them not buying Havana Club.

It means that Student Unions will in future effectively be obliged to sell

Bacardí and not Havana Club, a move which could be illegal under new

anti-competition legislation.

This article also contains background information about how Bacardí was

linked to the formulation of the Helms Burton Law. It proves that CSC has

been correct in its leaflet 'Think before You Drink Bacardí' which says that

by its actions Bacardí is helping to keep alive a policy that the UN has

condemned as illegal and the US Association of World Health has said causes

deaths among children.

STUDENTS are not normally shy when it comes to defending their political

beliefs and British students are no exception. Whether they are boycotting

Barclays Bank over its links to apartheid South Africa or demonstrating

against "Margaret Thatcher, the milk snatcher' British students have never

been afraid to voice an opinion - until now.

Last month the commercial arm of the National Union of Students voted to

accept a three-year sole supply deal with Bacardí, the world's largest rum

company. The deal, worth around £625,000, means that student bars will in

future only stock Bacardí white rum and not Havana Club, its emerging Cuban


Unless individual Student Unions vote to ban Bacardí, they will be only be

supplied with it and be effectively denied Havana Club, which is produced by

the Cuban government in partnership with French drinks giant Pernod Ricard.

Lawyers for Pernod-Ricard are now examining whether Bacardí's "exclusivity

deal" with the NUS contravenes new competition legislation. Bacardí already

has 95 per cent of the student white rum market and could be guilty of

abusing its dominant market position.

The decision to accept the deal has sparked a row in the NUS. Last year,

student unions from Oxford, Sheffield, London and Middlesex universities

asked the NUS to stop buying Bacardí in line with its ethical mandate. Their

concerns centred on Bacardí's links to the extreme right wing Cuban American

National Foundation (CANF) who have been associated with terrorist activities

aimed at destabilising Cuba and its tourist trade.

The universities who have opposed the deal have called the NUS 'morally

bankrupt'. They claim it has allowed its commercial arm to commit students

to a deal, which contravenes the ethical mandate. Annaliese Dodds, president

of the Oxford student union says, "how can they speak out against other

companies like Nestle when they have accepted this deal."

Their concerns prompted the NUS ethics committee to ask Bacardí a series of

probing questions last year. Interestingly the questions were submitted

before Bacardí's approach to the NUS with its three-year sole supply deal.

As part of the ethical study Bacardí was asked about its involvement in the

formulation of anti Cuban legislation in the US and its funding of the Cuban

American National Foundation (CANF) based in Miami. In a carefully worded

reply, the drinks giant makes some revealing admissions.

n Bacardí admitted that it has 'historically supported' the 38 year old US

blockade of Cuba as a method of establishing democracy and human rights in

Cuba. The blockade has been condemned for eight consecutive years by the

United Nations for violating principles of international law and the UN

charter. The British government supports this ruling.

n Bacardí also admitted donating money to CANF, a US government funded body

with extreme right wing views. It boasts high profile supporters, like the

singer Gloria Estefan and it was at the centre of the political tug-of-war

over the Cuban boy, Elián González. CANF is also accused by the Cuban

government of sponsoring terrorist attacks in Havana, including the bombing

of hotels in 1997 which killed an Italian businessman. Bacardí told the NUS

none of its officers or directors have any position with CANF but employees

and shareholders act in a "personal capacity."

n Bacardí's outside lawyers helped draft the controversial 1996 Helms-Burton

Act, which tightened the US blockade and was designed, say critics, to

protect Bacardí's commercial interests and undermine the Cuban government.

Ignacio Sanchez was one of those lawyers. Based in the Miami office of the

New York law firm Kelley Drye and Warren, he worked on the Helms team

drafting the most controversial sections of the Act. Sanchez is also a

trustee of the Cuban American National Foundation. His law firm is a charter

member of the US-Cuba Business Council. Bacardí have denied that Sanchez was

acting for them when he worked in the Helms-Burton law but the company has

admitted that it released its own lawyers to advise on drafting the bill.

Bacardí anticipates a large commercial and political role for itself in a

Cuba without Castro or socialism. The company claims it was "driven out at

gunpoint" in October 1960, after 98 years, while the distillery was still in

full production. No compensation was made or offered, it told the NUS. The

Cuban government maintain that Bacardí's owners and managers fled Cuba for

the US soon after the revolution leaving the rum plants abandoned. It claims

Bacardí is unwilling to take up its offer to resolve the issue at an

international tribunal.

Annaliese Dodds says, "Money shouldn't be blinding people in the NUS to the

ethical implications. They haven't looked at it properly." Ms Dodds believes

the NUS should not leave decisions which affect its ethical mandate to its

commercial arm.

The NUS is only the latest battleground in a long-running dispute between the

drinks giant and the Cuban government, which has so far involved the US

government, the European Union and the World Trade Organisation. Since 1997

the Castro government has been locked in a multi-million dollar battle with

Bacardí over the rights to market 'Havana Club' rum.

The Arechabala family first registered the 'Havana Club' trademark in 1935.

Originally from the Basque region in Spain, they began making rum in Cuba as

an offshoot of their sugar and molasses business. By the 1950's the company

was running into difficulties and the family began to allow the trademark to

lapse. After the revolution in 1959 the Cuban government took over the

distillery, nationalised it and claimed the trademark. They went on to

register it in over 80 countries including the US in 1976. Since 1993, it

has marketed Havana Club in partnership with Pernod-Ricard. Since then

Havana Club rum sales have increased tenfold selling around a million cases a

year world-wide.

Bacardí has closely monitored the growing success of the venture. In 1997 the

company responded by 'buying' the trademark from the Arechabalas but not

before they had launched their own version of "Havana Club" which went on

sale in the US in 1996. They also lobbied for and invoked a series of

controversial laws in the US, which penalise foreign companies like

Pernod-Ricard for investing in its former properties in Cuba.

In July 1999, on behalf of Pernod-Ricard, the European Union filed a

trademark infringement complaint against the United States at the World Trade

Organisation. The focus of its complaint was the violation of an

international trademark pact under which the US and other WTO members pledge

to treat all countries, including Cuba equally.

Now the dispute has reached Britain where the white rum market is worth

850,000 cases a year. Bacardí enjoys the dominant market position while the

Havana Club brand was still virtually unknown until last year, with sales

barely reaching 5,000 cases a year.

As the rum wars heat up, lawyers for Pernod-Ricard are now examining whether

Bacardí has been abusing its dominant market position by offering

'exclusivity deals' to bars across the UK.

The new Competition Act, which came into force in March, gives the Office of

Fair Trading powers to clamp down on secret price fixing, cartels and

bullying tactics by large companies aimed at driving smaller competitors out

of business. Competition lawyers believe that the biggest impact of the Act

will come from the OFT's new powers to stamp out the abuse of a dominant

market as opposed to blatant price fixing.

An OFT spokeswoman said that up until now, they had been forced to play by

gentleman's rules. "First we had to find the anti-trust abuses, then we had

to take the companies to court to ask them to stop doing it. Only if a

company then broke a court order could we fine it. All that has radically


According to Doug Nave, a partner specialising in EU competition law, with

law firm Weil, Gotshal & Manges, "companies in a dominant market position

have special responsibilities not to restrict or attempt to exclude the

activities of smaller competitors."

He also explains that while 'exclusivity deals' are common, in certain

circumstances they can be illegal, "It depends on two things. Firstly if the

company holds the dominant market position, it may well be illegal. It also

depends on the length of time the agreement is for. For example, an

agreement to deal exclusively for one week is not the same as one that lasts

for five years."

Derrick Sutherland, owner of Cuba Norte bar in Edinburgh says he was offered

cash by a sales representative from Bacardí in return for taking Havana Club

off the shelves of his Edinburgh bar, "The sales rep said they could make it

financially worth my while. I said I wasn't interested. After he left, I

had a think about it and decided to make Havana Club my pouring rum. I don't

stock Bacardí in Cuba Norte, but I do have it in my other bars."

Jonathan Downey, owner of Match bar in central London says he turned down a

"substantial amount" of cash offered by Bacardí in return for listing the

brand. "Bacardí would love to get their brand into key West End bars like

Match, but we prefer Havana Club."

One bar which has accepted a one year sole supply deal with Bacardí, is

Cubana, a Cuban theme bar and restaurant in London. Cubana is owned by the

former Conservative MP Phillip Oppenheim. After losing his Amber Valley seat

in 1997, the former treasury minister set up the Cuban style restaurant. He

says: "Bacardí give us quite substantial support in return for only listing

their brand." On the subject of the new competition legislation he says,

"when we did the deal it was perfectly legal, but if it emerges they aren't

we will unravel."

Ian Tottman, general manager at Pernod-Ricard in the UK, says: "We are of

course disappointed that such a strong and rich competitor feels it needs to

go to almost paranoiac lengths. Such actions are against consumer choice."

A spokeswoman for the OFT confirmed recently that they have received a

complaint against Bacardí and are looking into the issue.

Both companies are keen to capitalise on the vogue for all things Cuban. The

island's status as one of this years most popular holiday destinations has

created a whole host of fashionable market trends including music, food,

cigars and of course rum. Bacardí has taken advantage of the Latino craze by

trading heavily on its Cuban roots and origins, including high profile

publicity campaigns in Britain portraying its rum as a Cuban product. The

famous bat logo carries the legend, 'established Cuba 1862' although the

small print at the bottom reveals that it is manufactured in the Bahamas.

Bacardí denies deceiving British television viewers with its ubiquitous

advertising campaign aimed at the young adult market. Student leaders claim

that Bacardí is falsely portraying itself as a product of that country, when

it is an enemy. Bacardí told the NUS it is "proud of its Cuban roots" and

regards itself as an "exiled Cuban company, driven out at gunpoint."

Bacardí have also been involved in a recent spat with film director Tony

Kaye. In line with its new image, the DJ Ray character was pensioned off and

the company commissioned Kaye to shoot a commercial in the Dominican

Republic, which features a boxing match set in 1950's Cuba. Bacardí's agency

McCann Erickson decided to reshoot the ending without consulting Kaye.

Known for being protective about his work Kaye 'declared war' on Bacardí and

McCann Erickson, "I'm going to sabotage its products" he said. He also

claims to have sided with Havana Club. "I'm now representing Havana Club

which by all accounts is a much preferred drink."

Cuban company officials say they just want their rum to compete head to head

on the world markets against Bacardí's rum. They claim that Bacardí is going

after Havana Club rum because they are afraid of the competition, a charge

that a Bacardí spokesman says they find ridiculous. "When you see Bacardí

selling 20 million cases around the world and someone is going to complain

that the reason we're doing all this is because we're scared of someone that

claims to be selling one million cases. It just doesn't add up."

It might not add up now but given that President Clinton has been hinting at

changes in US policy towards Cuba, in five years time it might be a different


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