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Este informe no está disponible en español. CARIBBEAN BUSINESSEconomic Boom In Public Construction Will Start This SummerHundreds of projects all over the island worth over $1 billion are scheduled right into 2003BY KEN OLIVER-MENDEZMay 30, 2002 Pushing the economy forward: Groundbreaking on 100 new public works projects is the main ingredient in the Calderon Administration’s recipe to revitalize the island economy starting this summer.
Section 936 Phase-Out Encourages CFC Conversion For Tax Benefits BY MARIALBA MARTINEZ In the past 12 months, the number of companies converting all or part of their local operations to controlled foreign corporation (CFC) status under Internal Revenue Code IRC Section 901 totaled 80, a 19% increase from the number registered a yearearlier. "Most every major corporation operating under our [the Puerto Rico Industrial Development Co.’s tax exemption] program has converted at least part of its operation to CFC status," said Department of Economic Development & Commerce (DEDC) Secretary Ramon Cantero Frau. "The ones that are still operational under Sections 936 or 30A are those that have older grants on products that will expire at a later date." During 2001 and 2002, a total of 12 manufacturing companies converted to CFC status in Puerto Rico. Most recently, Villalba’s Medtronic Puerto Rico Inc. and Carolina’s new Eli Lilly biotechnology plant indicated they would operate as CFCs, while the rest of their operations on the island would retain their current status. Other companies, among them Baxter’s operations in Puerto Rico, have not decided to convert to CFC status because their products’ agreements will be in effect until 2006 or 2007. They do, however, retain the option. But what exactly is a CFC, and why should a company consider operating under its laws and regulations? The 10-year phase-out of Section 936 (which will be completed in 2005) leads companies to review their tax incentives and decide whether to apply for IRC Section 901’s foreign tax credits. A CFC that operates outside the U.S. mainland can reduce its federal tax by the amount of taxes it has paid to the foreign country where it operates. If a company decides to repatriate its earnings to the U.S., earnings will be taxed 35%. However, U.S. tax code dispositions allow companies to defer tax payment indefinitely until their earnings are repatriated. Should IRC Section 956 be amended (as the local administration is proposing), 90% of CFCs’ otherwise taxable investments in U.S. property would be excluded from current U.S. income tax. Companies could also select an 85% dividends-received deduction for dividends paid out of CFCs’ income to U.S. shareholders.
Amgen Manufacturing Ltd./Amgen Puerto Rico Inc./Amgen Caribe Corp./ Amgen Inc./Amgen Technology Ltd. Bard Puerto Rico Beckton Dickinson Caribe Ltd. Commonwealth Battery Development Inc. Commonwealth Oil Refining Co. Dean Steel Building P.R. Inc. Dis-Pach Transportation Puerto Rico Inc. EBI Patient Care Inc. Kimberly-Clark Int’l. S.A. Medical & Vaccine Products Inc. MSL de Puerto Rico Inc.
Pharmaceutical-Sector Employment Grew 7.4% Despite Recession Capital investment and local human resources remain two key factors to industry stability BY MARIALBA MARTINEZ Perhaps the most remarkable story behind the economic recession of 2001 is that Puerto Rico’s pharmaceutical and medical devices manufacturing sector remained stable, with an average employment growth of 7.4% between July 2001 and April 2002, compared to 2.1% for that period a year earlier. "There has been a change in terms of the manufacturing sector’s composition," said John Stewart, Puerto Rico Industrial Development Co. (Pridco) executive assistant director for economic analysis and studies. "Pharmaceutical manufacturing employment growth in absolute terms is up 2,355 jobs between January and April 2002 [compared to 600 jobs a year earlier], with a total of approximately 27,450 jobs [versus 24,900 jobs during the same period in 2001]. It remains the biggest sector in manufacturing." The loss of approximately 7,000 manufacturing jobs since January 2001 has been attributed primarily to reductions and company closings in labor-intensive production sectors, such as the apparel, leather, food preparation, and electric/electronic areas. Most corporate entities agree that Puerto Rico will not be able to compete with low-wage foreign countries. According to Puerto Rico Pharmaceutical Industry Association Executive Vice President Agustin Marquez, a group that represents over 24 locally operated multinational and foreign corporations and their 42 manufacturing and 20 commercial operations, six factors have strongly influenced this extraordinary trend: "The fact is that the pharmaceutical industry is more vulnerable to costs than to recessions," said Añasco-based Allergan General Manager Luis Abbott. "Our industry needs a favorable environment in which to develop new products. This is why expansions are easier–there is still less bureaucracy to deal with than if a new company were to try to establish operations in Puerto Rico." One approach the present administration is taking is to attract research & development (R&D) operations to Puerto Rico in the hope that by the time new products are created, their manufacturing will remain on the island. Since January 2001, the Department of Economic Development & Commerce’s R&D Incentives Program has granted approximately $26 million to such companies as Mova’s Alara Pharmaceutical Corp., the University of Puerto Rico’s Mayaguez campus, and the Industry/Research University Consortium (Induniv). Why will pharmaceutical companies retain and probably expand their operations in Puerto Rico? A key reason is the amount of their investment in infrastructure and human resources. "The pharmaceutical industry has invested in high-technology infrastructure–they are specialized plants and already established," said Estudios Tecnicos President Jose J. Villamil. "We have a recognized technical and management work force. The fact that we operate under the American flag simplifies clinical trials and drug approval. And tax incentives such as the local tax exemption program and federal Internal Revenue Code sections 936, 30A, and perhaps 956 are important advantages for Puerto Rico." San German-based Baxter General Manager Luis Alvarado credits the success of Puerto Rico to the talented work force being developed by academic institutions such as Inter American University, UPR-Mayaguez, and the Polytechnic Institute. "These academic centers are developing the human resources that will be needed to establish and provide support to future high-technology operations," said Alvarado. "In addition, our human resources are equally qualified in terms of academics and technology, which other countries cannot compete with."
Government Expects To Sign Condado Trio Agreements This Week Cantero Frau says Trio project to move forward no matter what BY EVELYN GUADALUPE-FAJARDO The Hotel Development Corp., a subsidiary of the Puerto Rico Tourism Co., and International Hospitality Enterprises (IHE) are expected to sign three important documents this week--the development, lease, and surface rights agreements--to begin the redevelopment process of the Condado Vanderbilt and La Concha Hotels. Once the development agreement is signed, it appears that the project will move forward in the first quarter of 2003 regardless of the circumstances, even if IHE can’t find private financing. When the government selected IHE’s $183.3 million proposal in December 2001, one of the main reasons given for choosing the proposal was that it required the government to play a smaller role in financing the project. Of the $183.3 million, $88.8 million will be invested to refurbish the 93-room Condado Vanderbilt as well as construct a 167-room condo-hotel and $94.5 million will be invested to renovate the 226-room La Concha and construct a 200-room condo-hotel. According to the Tourism Co., IHE requires the government to issue $44 million in Afica bonds via the Tourism Development Fund and grant the developer $8.8 million in tax credits. It also requires the government to rent the land to the developer for the next 99 years for an annual fee of $1 million. As of press time Monday, it was not known if IHE, headed by veteran hotelier Hugh Andrews, has yet been able to structure financing from a private banking institution. "The developers of the Condado Trio are in the advanced stage of seeking financing from various banks here and in the States," said Ramon Cantero Frau, secretary of Economic Development and Commerce. "Once the development agreement is signed, this project doesn’t have to go through the normal process of being reviewed by the Board of Directors of the Tourism Development Fund because it is a project of the Calderon administration." When asked if the project would be delayed or halted if by any chance IHE was unable to find private financing, Cantero Frau’s response was immediate. "No way! This project will move one way or another." Cantero Frau reiterated that the government would be willing to put up the full financing of the former Condado Trio project for two reasons: It is a priority project for this administration, and Andrews has a superior track record of successes in Puerto Rico’s tourism industry. On the parking issue, IHE’s proposal entails 686 rooms, 45% more than the original Brian McLaughlin Condado Trio project, but only 947 parking spaces as opposed to the 1,500 proposed by McLaughlin. To alleviate the sector’s parking problem, Cantero Frau said the government will bear the expense of providing a parking facility that would create between 1,200 to 1,300 spaces. The exact location wasn’t unveiled, however, it won’t be situated on the National Parks parcel near the Baldority de Castro Expressway marginal as reported earlier.
Isla Grande Airport Decision Pending BY EVELYN GUADALUPE-FAJARDO The final determination on whether Isla Grande’s Fernando Luis Ribas Dominicci Airport will stay put or be relocated further away from the World Trade Center in San Juan is in the hands of Gov. Sila Maria Calderon. However, Economic Development and Commerce Secretary Ramon Cantero Frau said in his personal opinion, it would make a lot of economic sense to relocate the facility. "I believe the airport plays an important role for San Juan in terms of access. Every city has an airport," Cantero Frau added. "The problem the airport creates is that it forces a height restriction on any building nearby and land in Puerto Rico is already scarce. Under normal circumstances I would be in favor of the airport staying where it is." The former U.S. Navy base in Isla Grande has been entirely allocated to the development of the new Convention Center, the anchor of the Golden Triangle project. "We are going to have a world-class convention center, hotels, and residential area in Isla Grande. Is it the right place for an airport?" Cantero Frau asked. "As a businessman, what I saw in the study for the viability and attraction of this much-needed project makes a lot of compelling sense. What I most liked was the possibility to develop great attractions along both sides of the San Antonio Channel because there wouldn’t be height restrictions if the airport were moved. A mixed-used development like the one in Jacksonville, which includes restaurants, movie theaters, residential buildings, retail shops around the channel, would make this a world-class attractive location. Part of the cargo freight could be moved behind the Convention Center. It’s a long-term development, maybe 20 years, but we can convert San Juan into a world-class city." The governor is soon expected to announce her decision regarding the recommendations submitted by PBS&J consulting firm, which was hired by then Ports Authority Executive Director Miguel Pereira to prepare an economic impact assessment of the airport at Isla Grande.
First Phase Of Convention Center Moves Swiftly Headquarters hotel developer still not determined BY EVELYN GUADALUPE-FAJARDO The first phase of construction for the Puerto Rico Convention Center in Isla Grande entails the sinking of 3,250 steel pilings, of which 75% has been completed. From now until October, the government indicated that concrete work would be visible at the Isla Grande site. Then, structural steel work should begin during November. The Convention Center is the centerpiece of the proposed World Trade District that includes the Super Block–a headquarters hotel, the first of the World Trade Center’s office towers, restaurants, retail & entertainment areas, and a multiplex theater. Milton Segarra, executive director of the Puerto Rico Tourism Co., said that the construction of the headquarters hotel, which originally was suppose to begin construction simultaneously with the Convention Center, would begin immediately after the Convention Center opens. LCOR was the developer chosen by the former Rossello administration to develop the Super Block project and the headquarters hotel was going to be managed by Marriott International. However, negotiations between LCOR and the present administration have stopped. Instead the government is conversing with three new companies to take over the project. "LCOR’s proposal did not make any sense for the government," said Economic Development and Commerce Secretary Ramon Cantero Frau. The names of the companies were not disclosed due to confidentiality agreements with the government. In the meantime, Segarra did say he met with one of those three companies two weeks ago and they were submitting an important set of papers showing their interest in the project. Canter Frau says he expects to announce the headquarters hotel developer within the next six to nine months. CARIBBEAN BUSINESS learned that LCOR’s proposal entailed too much of a stake for the government in the project’s financing. Cantero Frau said one of the reasons LCOR’s proposal was nixed was the high cost per room resulting from the low rise architectural design forced on the project due to its Isla Grande Airport proximity. A high-rise hotel would make more economic sense, but is out of the question so long as the airport remains there. The Convention Center will have over 580,000 square feet of developed space, three times the size of Hato Rey’s Roberto Clemente Coliseum. It will include 159,000 square feet of exhibit or raw meeting space, a 40,000-square-foot ballroom, twice the size of the largest on the island, and 85,000 square feet of prefunction space, and 200 square feet of service space. "It’s been quite frustrating, frankly," says Secretary of Economic Development and Commerce Ramon Cantero Frau of the Calderon Administration’s efforts to overcome bureaucratic and permitting obstacles that have delayed by many months the full implementation of the administration’s plans to get the Puerto Rico economy moving again. The good news, Cantero Frau says, is that the problems in the execution of the administration’s capital improvement program have been corrected, and as a result the construction commencement dates for 100 public works throughout the island will be concentrated during the summer months of June through September, 2002. "We’re expecting everyone to notice–and feel the impact–of the boom in public construction this summer," Cantero Frau said upon releasing the details of the construction schedule to CARIBBEAN BUSINESS. Department of Economic Development and Commerce (DEDC) figures reveal that the combined expenditures for the 100 public works projects starting construction between May and September of this year will exceed $850 million. Despite having had a clear strategy to jump-start the economy ever since the severity of the economic downturn became apparent last September, Cantero Frau admitted to CARIBBEAN BUSINESS in an exclusive interview that the most important part of that strategy–the acceleration of public construction spending–had fallen behind schedule. However, Cantero Frau said that the administration has taken corrective action–including new measures designed to spur agencies that are still lackluster in expediting the permitting process–and that public construction in particular is in for a major boom as the summer gets underway. Incomplete execution "Our strategy is still the same," Cantero Frau said, recalling the formula for economic recovery he first discussed with the editorial staff of CARIBBEAN BUSINESS last September ("When the going gets tough" Sept. 27, 2001). But Cantero Frau admitted that so far, the administration’s strategy had only had an entirely satisfactory outcome in just one aspect; namely, the passage of a series of economic development bills that include new local tax benefits for the manufacturing of pioneer products. The provisions of this bill in particular, Cantero Frau said, helped the Puerto Rico Industrial Development Co. (Pridco) secure an additional $900 million in Puerto Rico plant expansion projects by Amgen and Eli Lilly. The other major aspects of the economic recovery strategy–such as swift acceleration of the permitting process and quickly pumping money into the public construction sector, along with efforts to advance passage of proposed amendments to Section 956 of the U.S. Internal Revenue Code–all met more obstacles than were expected. Public construction boom this summer Cantero Frau said the administration acted expeditiously to raise funds on the municipal bonds markets and restore liquidity to the Government Development Bank (GDB) during the closing months of 2001 and early 2002, in preparation for moving forward with its $5.1 billion capital improvement program. Then what caused the delay in the money hitting the streets? The economic development czar candidly acknowledged that the process stalled at various stages. "A lot of [capital improvement] projects were adjudicated, but the contracts and construction orders weren’t signed with the speed we had expected," Cantero Frau said. But that, he says, is changing. Heavy public construction schedule will continue Cantero Frau was quick to point out that the summer months are only the beginning–not the end–of an intense schedule of public construction that will continue right into 2003. Construction on almost all of the multimillion dollar projects that will start this summer will continue through the latter months of 2002, and some of the biggest projects are scheduled well into 2003. Because the projects have yet to be announced, the details of next year’s schedule cannot yet be made public. But CARIBBEAN BUSINESS was given a sneak preview, which confirms earlier conjectures that–as the election year of 2004 gets closer–the administration’s public infrastructure investments will intensify even more. Heaviest spending Cantero Frau revealed that the bulk of the fresh wave of public works spending this summer will be carried out by four agencies: the Public Buildings Authority ($275 million), the Highway Authority ($198.5 million), Puerto Rico Aqueduct & Sewer Authority (Prasa) ($142 million) and the Housing Department ($89 million). The figures do not include $66 million for the commencement of construction of the Puerto Rico Electric Power Authority’s (Prepa) massive underground electric line cabling project in San Juan. The project is on the DEDC’s radar screen for this summer, but has yet to be assigned a start date. The $56 million contract for interior-exterior construction of the new Convention Center in Isla Grande is also not included, though the DEDC indicates that bidding on the project will begin next month and a contractor is scheduled to be selected sometime during July. The Infrastructure Financing Authority (AFI by its Spanish acronym) will fund an additional $22 million in projects under construction over the next four months, while the Department of Transportation and Public Works (DTOP) has $16 million in summertime projects getting underway, followed by the Ports Authority with $12 million. As the construction schedule indicates (see charts), the Public Buildings Authority (PBA) will lead the way in construction spending during the summer months. Between now and September, more than $230 million in school construction projects alone will get underway throughout the island. The Highway Authority has the biggest number of projects on its plate in the months ahead, and the results of its work should also be highly visible. Just one of the highlights is the commencement of the long-awaited $10.3 million ramps connecting Chardon Ave. in Hato Rey to the PR-18 (Las Americas Expressway) and PR-22 (de Diego Expressway). Prasa will also be a big summertime spender, with major construction projects getting underway concentrated in Naguabo ($42 million), Las Marias ($24.9 million) and the Sergio Cuevas plant in Trujillo Alto ($23.5 million). Meanwhile, the Housing Department will continue pumping major funding into numerous low-and-moderate income housing projects. Speeding up permitting process In addition to getting the ball rolling on public construction this summer, Cantero-Frau says the administration is also taking aggressive new steps to make the government permitting process faster and more responsive to the island’s economic development needs, so that private construction investments can also shift into high gear. "As of June 1, Pridco, the Economic Development Administration, the Tourism Co., the Department of Agriculture and the Housing Department will be administratively empowered to act as both proponents and coordinators in obtaining government agency endorsements for projects that they want to see move forward," Cantero-Frau revealed. Cantero-Frau said the new measure is being combined with additional steps to get the permitting process up to speed, including the hiring of more personnel at the Department of Natural Resources to work on a backlog of projects in line for permits, as well as installation of a new computer program at the Environmental Quality Board (EQB) designed to ensure more efficient operation of its permitting system. Cantero Frau said that frustrations with permitting problems that he’s personally encountered during this first third of the Calderon Administration’s current term has made him realize that shaking up the system is more necessary than ever. "If we don’t solve the permitting issue, the reality is that the Puerto Rico economy will not grow," Cantero Frau stressed. "Right now, we’re also in the final stages of reviewing agency permitting regulations," he indicated. "But the fact is that the problem really isn’t in the regulations, but in the execution and the lack of agility and responsiveness." Construction Industry Association President Joel Katz agrees with Cantero Frau. "We’re not talking here about minimizing any requirements–environmental or otherwise--but about making the process one that is agile, consistent, and predictable." "The changes to the system that will be made this June represent real progress in overcoming bureaucratic bottlenecks and in unifying the processes," Katz said. Manufacturing pipeline of $1.2 billion Cantero Frau said DEDC has about $1.2 billion in its manufacturing projects pipeline for the remainder of 2002, and has approved almost $1.5 billion in expansions in the past 12 months. All of the latter projects are in various stages of executing construction plans--with some in construction already–and all will be in construction in 2003. The economic development secretary was upbeat about the most recent manufacturing trends, which show the island’s pharmaceutical sector gaining over 2,300 jobs in the last 12 months (from just under 25,000 employees in April 2001 to 27,400 in April 2002). "In June 2001, there were $3 billion in projects pending," he said. "Since then, approximately $1.5 billion have become reality, either through expansions begun or projects that have been announced." "Remember, a year ago the economic slowdown was starting to hit us. Some projects have been postponed, but we were fortunate to announce several important expansions for Abbott, Eli Lilly, Baxter, Amgen, Medtronic and Johnson & Johnson’s Cordis, among others. " Cantero-Frau said the $1.2 billion pipeline for manufacturing projects this year is still strong. He indicated that the amount does not include an $800 million biotechnology project which could make the decision to come to Puerto Rico this summer--or more than 40 companies in the U.S. mainland identified as having high probabilities of establishing operations on the island. "If three or four of those companies make commitments this year, it would add an additional $1 billion to our pipeline." Boosting tourism The Puerto Rico Tourism Co. has identified 24 hotel projects (mostly located outside the San Juan metropolitan area) that are expected to begin construction by year’s end and add 3,356 additional rooms and nearly 5,106 new jobs. "Again, I have to admit that the permitting process has also been the cause of delays in some of those projects," Cantero Frau said. "It’s time to begin construction this year because it will also move the economy forward." The largest projects on the hotel construction pipeline include the 189-room Legado Golf Resort in Guayama, the 215-room Ponce Hotel Villas, the 264-room Costa Bonita in Culebra, the 110-room King’s Palace Resort, Spa & Casino in Rio Grande, the 168-room Condado Lagoon Villas, the 255-room former Crowne Plaza, the 330-room Parana Tourist Complex, the 252-room Palmas del Mar development in Humacao, the 450-room J.W. Marriott Dos Mares in Fajardo and the 686-room Condado Beach Resort. Hotel projects that were not on this year’s construction list, but are currently under construction and expected to open this year include: the 125-room Caguas Hampton Inn (scheduled to open in October), the 15-room Casa Careyes in Culebra (scheduled for this summer), the 22 Villas at Horned Dorset Primavera in Rincon (scheduled for completion this summer), the 16-room Hotel Promenada Plaza in San Juan (ready for this summer), and the 21-room Hotel Villas Piedras Blancas in San Sebastian (ready for this summer). Also under construction are the 102-room Paradise Village Resort in Isabela (ready in December), the 314-room Inter-Continental Cayo Largo Resort in Fajardo (scheduled for opening in October) and the 103-room Rincon del Mar Beach (scheduled to open in September), the 53-room Plaza de Armas in San Juan (ready for August), and the 16-unit expansion of Villa Montaña in Aguadilla. Combined, these projects will also add close to 800 more rooms to the island’s 12,000-plus room inventory. And three major projects not on the list, but in the pipeline are Paradisus Coco Beach Resort & Casino, entailing two 500-room hotels to create 900 direct jobs and some 2,000 indirect jobs, the five-star, 200-room and 50 villa Mandarin Oriental Palmas in Humacao, and the 400-room Fairmont Resort Coco Beach in Rio Grande. The island’s first all-inclusive resort Paradisus Coco Beach Resort & Casino (a.k.a Sol Melia) was originally scheduled to open by year’s end, but the developers pushed back the date to May 2003 because they stopped the project to change the project contractor from locally-based Cobian Associates to a Spain-based company that built several previous Sol Melia project. The Sol Melia brand is Spain’s leading hotel management company and one of the foremost in the world with more than 350 hotels in 30 countries throughout Europe, the Americas, the Mediterranean, the Middle East and Asia-Pacific. It is the No. 3 hotel chain in Europe and No. 10 in the world. Another top of the line hotel brand that will boost Puerto Rico’s position as a world-class tourism destination is Mandarin Oriental, an award-winning owner and operator of some of the world’s most prestigious hotels and resorts. In total, Mandarin operates 18 luxury hotels in key business and leisure destinations. Mandarin Oriental’s hotels include the original flagship properties–the Mandarin Oriental Hong Kong, and the Oriental Bangkok. The other deluxe hotels are located in London, New York, San Francisco and Singapore. Puerto Rico’s overseas efforts Cantero Frau said he’s especially pleased with current promotional efforts being made by his department’s commercial offices in New York and Madrid. "Right now, we have a major European pharmaceutical company in advanced negotiations with us to do business in Puerto Rico," said Cantero Frau. He said Ian Court, former honorary consul for the United Kingdom in Puerto Rico has also been recruited to assist European office director Manuel Reyes with promotional activities in the U.K. and Germany. "I’m also particularly pleased with [New York office director] Neil Watlington. He has refocused our promotional efforts, concentrating on areas such as the emerging biotechnology industry. Right now he has about 45 U.S. mainland companies interested in establishing operations on the island." Due to the region’s economic downturn, Latin America trade and promotional efforts are receiving somewhat less attention, while U.S. mainland and European prospects are the top priority. Promoexport, the Commercial Development Administration external trade division, retains offices in Chile, Panama, and the Dominican Republic that are mostly engaged in promoting the sale of Puerto Rico goods and services. While some trade activity is taking place, Cantero said it wasn’t at the level he expects and their focus may be modified. As part of the U.S. mainland promotional efforts, Cantero revealed that two communications agencies have just been selected to create and implement new public relations and advertising campaigns. One of the firms--London-based Development Counsellors International--specializes exclusively in all phases of economic development and tourism marketing. In the past, the agency has provided services for such clients as Research Triangle Regional Partnership in North Carolina, the Costa Rican Trade and Investment Board, and the State of Maine’s Offices of Tourism and Economic Development. International advertising agency the Attik (also U.K. based) with offices in London, New York, San Francisco and Sydney (Australia) is also on board. The firm has a record of producing state-of-the-art, award-winning campaigns, including television spots, print advertising, product packaging, and Web sites. Clients include HBO, CNN, Newsweek, Nike, Reebok, Adidas, and Macys.com. 956 ‘still alive,’ but not economy’s ‘sole savior’ Another significant component of the administration’s economic development agenda–winning congressional approval of amendments to Section 956 of the U.S. Internal Revenue Code–is still very much alive Cantero-Frau said, but has admittedly moved slower than he had expected. "We’re still waiting for a vehicle," Cantero Frau said, in reference to an opportunity to get the proposed legislation attached to compatible federal tax or economic development legislation. "Our sponsors in the House and Senate are still there, and Senate Majority Leader Tom Daschle has just come on board," he added, holding out hope that the proposed amendments to Section 956 may yet move forward. But the 956 effort has yet to receive the green light of committee chairmen in either the House or Senate with jurisdiction over tax matters, and suffered a major reversal in March when the Joint Committee on Taxation released a study showing its cost to the federal treasury to be more than three times what its proponents had initially argued. In his interview with CARIBBEAN BUSINESS, Cantero Frau seemed to back off from earlier statements as to the important role of the 956 effort in the administration’s economic program. "Somehow we may have communicated that 956 is the salvation of everything," Cantero Frau recognized. "It would help give us a competitive advantage and reverse the overall trend in manufacturing employment, but if we don’t have other things in place, 956 by itself wouldn’t make us competitive." The economic development czar said that with the complete phase-out of Section 30-A and Section 936 benefits now only about three years away, most every major manufacturing corporation in Puerto Rico has converted at least part–if not all–of its operation to controlled foreign corporation (CFC) status. Since June 2001, an additional 13 companies on the island became CFCs, for a total of 80 altogether. (See related story.) As CFCs, companies can defer their Puerto Rico source income. "956 would not be a pass-through at all, but just facilitates taking the Puerto Rico income back to the U.S.," Cantero Frau emphasized. Growing agriculture, cooperative sectors Saying that the potential of the two sectors had been long neglected, Cantero Frau said he takes pride in the administration’s success to date in stimulating agriculture and the establishment of industrial cooperatives. "Fernando Toledo [Secretary of Agriculture] and his team are doing an outstanding job with some of the agro-industry efforts they’re promoting, like the new orange collection center in Lares and the import substitution initiatives," Cantero Frau said. "We’re also seeing a real renaissance in the cooperative movement," he added. "We’ve actively promoted new industrial cooperatives such as New Horizon in Comerio, Orocoveña Biscuit, Ricarmir in Vega Baja, and MarCoop in Fajardo, which has started producing plastic wrapping for pharmaceutical products." Flexitime As to the administration’s commitment to advancing the discussion of the implementation of flexitime work schedule options, Cantero Frau said he has discussed the issue with the Secretary of Labor–as well as some union leaders–and expects that more meetings examining the issue will be held in the near future. "In my view, for manufacturing and tourism, it [flexitime] is a must if we want to stay competitive," Cantero Frau said. "Some of the labor leaders I’ve talked with so far have been receptive, but it still baffles me that others aren’t," he added, noting that flexitime has received wide support from stateside union leaders in recent years. CARIBBEAN BUSINESS Associate Editors Evelyn Guadalupe-Fajardo and Marialba Martinez contributed to this story. This Caribbean Business article appears courtesy of Casiano Communications.
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