Section 936 Archives

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.

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As we sit today in the middle of a world pandemic, a few things seem certain. The Corona Virus health crisis has forever changed our relationship with globalism and our new understanding 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?

The answer seems to be a resounding, “how fast.” But how do we do this, now that most of our manufacturing has been shipped to foreign locations? The answer might be right here at home.

Puerto Rico has played a historic role in America’s manufacturing since the 1940’s. In this conversation with Luis Fortuño, partner at Steptoe and Johnson (Governor of Puerto Rico 2009-2013), it is clear that since Operation Bootstrap, Puerto Rico has been a major contributor to The United State’s pharmaceutical manufacturing.

The island has three key elements that make it very attractive for manufacturing.

Puerto Rico has a vast network of exsisting mission ready manufacturing plants.
The manufacturing work force on island has decades of proven track record.
The universities (RUM in particular) develops top recruits for international firms in engineering, life science and technology

So what happened?

“Well, it was really a confluence of many events, some global and others local”, according to Mr. Fortuño. The North American Free Trade Agreement (NAFTA) created incentives for companies to move to Mexico and Canada. Countries like Ireland and China created elaborate tax and other incentives to attract business. Section 936 of the Tax code expired – which was a critical component of incentivizing manufacturing on the island. To learn more, read Why Puerto Rico Now.

Notwithstanding, Puerto Rico’s economic crisis, the island’s antiquated energy grid, and a wasteland of destruction caused by hurricanes in 2017, Puerto Rico is still in an ideal position to help USA quickly ramp up critical manufacturing production. In fact, the island today currently out preforms States like California, Indiana, North Carolina, and Pennsylvania.

Are there any Potential Roadblocks?

As part of the 2017 Tax Act, the new tax on Global Intangible Low-Taxed Income (GILTI) was proposed as a way to target profitable firms that are based abroad – known as controlled foreign corporations. For tax purposes, Puerto Rico is treated as a foreign jurisdiction and the 2017 Tax Act is bad news for companies doing business on the island. Patent-dependent sectors like pharmaceuticals and medical equipment and supplies account for nearly 35 percent of the total employment in manufacturing. Pharmaceutical companies alone employ approximately 90,000 Puerto Rico residents.

Where do we go from here?

Today there are several initiatives to help bring manufacturing back to the United States, Puerto Rico and other economically depressed areas. One such initiative is HR 6443, authored by Puerto Rico’s Resident Commissioner, Jenniffer González-Colón and sponsored by Donna Shalala (D-FL), Representatives Rob Bishop (R-UT), Darren Soto (D-FL), Ruben Gallego (D-AZ), and Peter King (R-NY).

See article below.

Puerto Rico’s Resident Commissioner leads bipartisan legislation that would secure the National Supply Chain

Together we will get through these very challenging times. This too shall pass.

Interested in telling your story about Puerto Rico or the Caribbean? Join us at AG&T Network.