Observers have said that Puerto Rico and the U. S. Virgin Islands are locked in a political battle over a lucrative Caribbean alcoholic staple, rum, and its production.

The Washington Post reported on Monday that at issue is whether U. S. tax dollars can be used by the Virgin Islands to convince a Captain Morgan rum distillery to move there from its present Puerto Rico location.

The newspaper also said that the Virgin Islands, a relatively poor territory of about 120,000 people, wants to give almost $3 billion in tax subsidies over 30 years to the distillery's owners, London spirits conglomerate Diageo, to move the facility to St. Croix, the largest of the three main Virgin Islands.

Virgin Islands officials say the deal will deliver several hundred jobs and millions of dollars in new rum-tax revenue for roads, schools and other projects.

John P. deJongh Jr., governor of the Virgin Islands, said, "We are keeping companies in America ... and strengthening our economy."

But Puerto Rico, which stands to lose $120 million in annual rum-tax revenue, wants Congress to step in.

Rafael Fantauzzi, president of the National Puerto Rico Coalition, which advocates on behalf of the island territory in Washington, said, "We have never disputed they have the right to leave. The problem is that the U. S. Virgin Islands has created a very bad precedent with federal funds. It's supposed to be going to the territories, not to a large, foreign-owned corporation." (With Inputs from Agencies)