Critical Manufacturing and Puerto Rico USA

Luis Fortuno and Congresswoman Jennifer Gonzalez

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The panelists :

 

 

 

The ULI Webinar has an incredible array of information crammed into 90 minutes and it gives a great snapshot for the many initiatives being introduced and planned to help the Puerto Rican economy and create more quality jobs. If I had to some it up in three words, Mo is back. Mo of course being momentum.

 Each of the speakers brought a different perspective. Congresswoman Gonzalez Colon noted her primary mission is the reconstruction of the Island and to shephard the many supporting bills recently introduced in the US Congress. Former Governor Luis Fortuno brought an informed Wash DC think tank perspective, Adam Greenfader is one of Puerto Rico´s most passionate advocates, Andy Carlson of JLL (Jones Lang LaSalle) brings experienced commercial  insights from the world´s second largest public brokerage firm, Dr Deusch stated his case for the reasons he brought his Swiss/German manufacturing business to Puerto Rico because of a need for precision and reliability, while Noel Zamot has a finger on the ethical pulse of developing new business in Puerto Rico.

The conversations were upbeat and positive. For instance, Congresswoman Colon made a presentation on MMEDS which was introduced last month to Congress under the bill H.R. 7527. This bill provides tax incentives and tax credits for companies creating manufacturing plants and jobs in economically distressed areas in the US and its territories. The criteria for distressed is even stricter than the recent Opportunity Zone legislation passed in late 2017. When the Congresswoman showed the MMEDS qualifying maps there were smaller areas in very non desirable locations in the US whereas Puerto Rico literally had a much larger proportional area in some desirable locations. And she stated very clearly that MMEDS is one of the very few legislative items that is drawing bi-partisan support from both sides of the aisle.

The entire panel then weighed in on the competitive advantages that Puerto Rico has when competing with the mainland U.S. including much lower labor costs by as much as 60% lower in some cases, an experienced manufacturing labor force going back 100 years, the University of Puerto Rico at Mayaguez which is a top 10% engineering school for the entire U.S. and which is very much geared to provide the engineering and chemistry talent to support Puerto Rico´s manufacturing base. That even today five of the top ten selling drugs internationally are produced in Puerto Rico and 12 of the top 20 pharmaceutical companies have plants in Puerto Rico. Luis Fortuno noted that Puerto Rico had more than $40 billion USD in pharmaceutical exports in 2019 but has the capacity to increase this substantially. The panel noted that some closed down plants are almost in turnkey conditions should manufacturers wish to return or expand capacity. It would not take much. Maybe a recession of the Jones Act, or at least an exemption for an extended period of time, might be the necessary catalyst. There are some interesting new developments on this front as was evidenced last week by Hawaii noting that 85% of their informed populace is all for rescinding the Jones Act as it costs that Island 1.2 billion USD in additional transportation and cost of goods fees.

Progress is being made on seeking some type of exemption under the taxing provisions of GILTI as it adds a 10%+ tax on profits for CFCs (controlled foreign corporations) which unfortunately applies to the US territories since the do not fall under the IRC (Internal Revenue Code). On May 1, 2020, Congresswoman Stacey E. Plasket, representing the US Virgin Islands, filed Bill HR 6648 – the Territorial Economic Recovery Act, that if becomes law, it will exclude our territories from much or all of the GILTI taxation, under certain provisions.

On April 3, 2020, Congresswoman Jennifer González, resident Commissioner for Puerto Rico, introduced Bill HR 6643, the Securing National Supply Chain Act of 2020, to provide various tax credits to Economically Distressed Zones, including a tax credit on the amount of wages paid by an employer to employees in such a zone. The proposal has some overlap with HR 7527 noted above.

President Trump’s Special Representative for Puerto Rico’s Disaster Recovery,  Rear Admiral Peter Brown, lead two delegations to Puerto Rico in August 2020, the last visit being last week. I am told the trip was very successful as a big priority was to visit and understand the many advantages of pharmaceutical manufacturing in Puerto Rico.  AG&T is committed to bringing our network top information and access to our industry’s leaders. 

 

The Elimination of Section 936

Zaida Feliciano Queens College

The repeal of Section 936 resulted in lost manufacturing jobs for the USA and a 15 year economic crisis for Puerto Rico. 

As we sit today in the middle of a world pandemic, a few things seem certain. COVID 19 is a health crisis that has forever changed our relationship with globalism. It is time for a new understanding of how manufacturing keeps us all safe. This is especially true of the pharmaceutical industry. With shortages of basic supplies, medicines and protective gear, is it time to bring critical manufacturing back to the United States?

In this AG&T Thought Leadership conversation, we speak with economics professor Zadia Feliciano (see bio)of Queens College and explore the consequences for the USA and Puerto Rico of eliminating the manufacturing tax incentives –  Section 936.

In her groundbreaking work on Section 936, entitled, “US Multinationals in Puerto Rico and the Repeal of Section 936 Tax Exemption for U.S. Corporations“, professor Feliciano and Andrew Green, “analyze the effects of the phase out and elimination of Section 936 on the number of establishments, value added, employment, and wages in Puerto Rico’s manufacturing.  

Unfortunately, the elimination of Section 936 helped push critical manufacturing AWAY from the USA. Critical manufacturing left Puerto Rico (USA) and  sought cheaper markets in Mexico, Ireland, Latin America and China.

Moving Forward.

The Food and Drug Administration has for some time been expressing concern that the United States is too dependent on China within the medical supply chain. Puerto Rico has 49 FDA-approved pharmaceutical plants in place, and produces not just one quarter of all U.S. pharmaceutical exports, but also significant amount of medical devices.

Puerto Rico’s manufacturing industry is in need of support, but is also in a position to blossom, similar to other areas of the country that used to have a strong manufacturing base. In the area of pharmaceuticals, Puerto Rico has the advantage of an educated workforce and many people experienced in the industry. Puerto Rico produces 25% of the pharmaceuticals exported by the United States. This is more than any State. The Island has the cold chain logistics for pharmaceuticals in place. The learning curve would be lower for Puerto Rico than for many other U.S. regions. The time to act is now.

To learn more about how Puerto Rico can help USA manufacturing. 

Puerto Rico’s Manufacturing Renaissance: Strengthening America’s Supply Chain

Luis Fortuno

Puerto Rico's Manufacturing Renaissance: Strengthening America's Supply Chain

About Luis Fortuño

Luis G. Fortuño is the former Governor of Puerto Rico (2009–2013) and one of the island’s leading voices on economic development, manufacturing, and public policy. Prior to serving as governor, he was Puerto Rico’s Resident Commissioner in the U.S. Congress, where he advocated for the island’s economic and federal priorities. Today, he is a partner at Steptoe LLP, advising multinational corporations, investors, and governments on public policy, international trade, infrastructure, energy, and economic development.

Throughout his career, Governor Fortuño has been a strong advocate for strengthening Puerto Rico’s role as a strategic manufacturing hub for the United States. His deep understanding of government policy, international business, and economic competitiveness offers valuable insight into how Puerto Rico can leverage its world-class pharmaceutical industry, highly skilled workforce, and U.S. legal framework to support the reshoring of critical manufacturing and build a more resilient American supply chain.

 Luis Fortuño, partner at Steptoe and Johnson (Governor of Puerto Rico 2009-2013), 

 

 

The COVID-19 pandemic fundamentally changed the way governments and businesses think about global supply chains.

For decades, manufacturers optimized production by moving operations to lower-cost jurisdictions around the world. The pandemic exposed the vulnerabilities of that model. Shortages of pharmaceuticals, medical devices, personal protective equipment, semiconductors, and other critical products demonstrated that efficiency alone could no longer be the primary objective. Resilience had become equally important.

Today, reshoring and nearshoring have become central components of U.S. industrial policy.

One question remains especially relevant:

What role can Puerto Rico play in rebuilding America’s manufacturing capacity?

That question was the focus of a conversation between Luis Fortuño, former Governor of Puerto Rico (2009–2013) and Partner at Steptoe LLP, and Adam Greenfader, Chairman of AG&T. Their discussion explored Puerto Rico’s unique position within the United States and why the island remains one of America’s most important strategic manufacturing platforms.

A Manufacturing Legacy

Puerto Rico’s manufacturing story began long before COVID-19.

Beginning with Operation Bootstrap in the late 1940s, Puerto Rico became one of the United States’ premier manufacturing hubs. Over the following decades, the island attracted many of the world’s leading pharmaceutical, biotechnology, medical device, aerospace, and advanced manufacturing companies.

At its peak, Puerto Rico produced a significant share of the pharmaceuticals consumed in the United States and became home to one of the highest concentrations of pharmaceutical manufacturing facilities anywhere in the world.

That industrial base continues to represent one of Puerto Rico’s greatest competitive advantages.

Why Puerto Rico Still Matters

Governor Fortuño emphasized that Puerto Rico possesses several unique characteristics that are difficult to replicate elsewhere.

First, the island already has an extensive network of FDA-approved manufacturing facilities, many of which can be expanded or modernized far more quickly than constructing entirely new plants.

Second, Puerto Rico has a highly skilled workforce with decades of experience in highly regulated industries including pharmaceuticals, biotechnology, life sciences, aerospace, and medical devices.

Third, the island’s universities—particularly the University of Puerto Rico at Mayagüez (RUM)—continue to produce outstanding engineers, scientists, and technology professionals who support many of the world’s leading manufacturers.

Combined with Puerto Rico’s status as a U.S. jurisdiction, these assets create a compelling environment for advanced manufacturing.

Lessons from the Past

The conversation also examined the factors that contributed to Puerto Rico’s manufacturing decline.

The expiration of Section 936, increased global competition, the implementation of NAFTA, and aggressive incentive programs offered by countries such as Ireland, Singapore, and China all encouraged manufacturers to relocate production.

At the same time, Puerto Rico faced economic recession, rising energy costs, fiscal challenges, and the devastating impacts of Hurricanes Irma and Maria.

Despite these setbacks, the island retained one of its greatest strengths—its manufacturing ecosystem.

The Reshoring Opportunity

The pandemic fundamentally altered how companies evaluate supply chains.

Today, resilience, geographic diversification, national security, and supply chain reliability have become strategic priorities.

Puerto Rico is uniquely positioned to benefit from these trends.

As a U.S. territory operating under the American legal, regulatory, and intellectual property framework, Puerto Rico offers manufacturers many of the advantages of domestic production while maintaining strategic proximity to major U.S. markets.

Rather than rebuilding manufacturing capacity from the ground up, many companies have the opportunity to leverage an existing industrial base supported by experienced workers, established infrastructure, and decades of operational expertise.

Policy and Investment

The discussion also addressed the importance of public policy in supporting Puerto Rico’s manufacturing future.

At the time, bipartisan legislation introduced by Resident Commissioner Jenniffer González-Colón, together with members of Congress, sought to strengthen America’s critical supply chains while recognizing Puerto Rico’s strategic role in national manufacturing.

Although specific legislation has evolved over time, the broader objective remains unchanged: strengthening domestic manufacturing capacity while reducing dependence on distant supply chains for essential products.

Looking Back

Viewed today, many of the observations made during this conversation proved remarkably accurate.

Reshoring has become a central objective of U.S. industrial policy.

Supply chain resilience now influences corporate site selection decisions.

Federal investment in advanced manufacturing has accelerated, and Puerto Rico continues to attract new interest from pharmaceutical, life sciences, medical technology, and advanced manufacturing companies seeking to expand production within the United States.

The conversation serves as an important reminder that Puerto Rico’s manufacturing potential did not begin with COVID-19—it simply became impossible to ignore.

AG&T’s Perspective

For more than three decades, AG&T has worked at the intersection of economic development, real estate, infrastructure, hospitality, and industrial investment throughout Puerto Rico and the Caribbean.

Our conversations with policymakers, industry leaders, investors, and manufacturers have consistently reinforced one conclusion: Puerto Rico’s future will be built upon a diversified economy. Puerto Rico is uniquely positioned not only to participate in America’s manufacturing renaissance, but to help lead it.