Monday, August 10, 2020

Task Force Created to Lobby for Return of Critical U.S. Manufacturing to Puerto Rico

By on March 24, 2020

A Baxter International Inc. manufacturing facility for intravenous bags. (Courtesy)

Puerto Rico Manufacturers Association Heads Effort Amid National Security Concerns Raised by Covid-19 Disruptions

SAN JUAN – Puerto Rico Manufacturers Association (PRMA) President Carlos M. Rodríguez announced Monday the creation of a task force with the aim of including the island in federal initiatives to bring back manufacturing to U.S. soil due to national security considerations amid the Covid-19 pandemic.

Rodríguez said in a press release that he is heading the task force, which includes a team of experts in the areas of manufacturing, taxes and the economy.

Puerto Rico Manufacturers Association President Carlos M. Rodríguez (Screen capture of www.industrialespr.org)

“This opportunity has a very short window of time, so the work [of the task force has] started immediately,” the PRMA head said in the statement. “We will be communicating achievements regularly.”

The task force includes Carlos Serrano, a tax attorney who works for the firm of Reichard Escalera and is currently chairman of the PRMA tax committee; former Treasury Secretary Teresita Fuentes, a former partner at Ernst & Young and currently working for financial consulting firm Birling Capital; Carlos Bonilla, a tax attorney and past chairman of the PRMA tax committee; and entrepreneur Joaquín Viso, founder of MOVA Pharmaceutical and MC-21.

Among the other task force members are William Lockwood, president of Lockwood Financial Advisors; Félix Negrón, vice president of operations at Medtronic Worldwide; Wendy Perry, vice president of Merck Sales & Marketing and president of the Pharmaceutical Industry Association; and Silvia Santiago, vice president of manufacturing at Destilería Serrallés and PRMA vice president of local industry.

Rodríguez said Puerto Rico’s role as a global supplier is critical in addressing emergencies such as the novel coronavirus pandemic.

“Our manufacturing is resilient and able to adjust to change and add production lines in the short and medium term, not only in the health sector, but in other sectors that can be adapted to meet the needs of products as demonstrated by companies such as Serrallés, which is manufacturing ethyl alcohol for hospitals instead of rum,” he said, noting that island manufacturers, exempted from Gov. Wanda Vázquez’s curfew/lockdown order, continue to maintain the availability of products with measures to protect its workforce from contagion. “We are confident that our textile industry can move quickly to meet the need for masks and hospital gowns.”

With stateside calls for critical pharmaceutical production to be shifted to the United States from overseas locations that have seen a slowdown in manufacturing amid the Covid-19 crisis, the government of Puerto Rico and the island’s drug-making industry are mounting a lobbying effort in Washington, D.C., to promote the island as an ideal U.S. jurisdiction to make needed active ingredients for disease treatments and vaccines under a national security requirement.

The local actions were prompted by a New York Post editorial published on March 7 that noted that the novel coronavirus crisis has “already exposed the nation’s serious over-reliance on China for pharmaceutical production.” The editorial says that about 90 percent of the active ingredients used by U.S. drugmakers come from China, noting that “America’s pharmaceutical supplies are at risk” with the shutdown of factories in the Asian nation that was the epicenter of the Covid-19 outbreak.

Stating that the Food and Drug Administration (FDA) “fears a shortage of widely used generic drugs,” the editorial calls for critical drug production to be done domestically and endorses Puerto Rico – “that is “now struggling with a debt crisis plus hurricane and earthquake damage” – as an ideal site for this.

Storied role

In a column published on March 16 in Forbes magazine, “Puerto Rico Can Help the U.S. End its Dependence on Chinese Pharmaceutical Ingredients,” policy editor Avik Roy states that in the wake of the coronavirus outbreak, “public health officials and policy experts have raised concerns that the U.S. is too dependent on China for critical active pharmaceutical ingredients—the compounds essential to manufacturing common medicines like penicillin, Advil, and Tylenol.” 

After giving a brief history of the rise and fall of Section 936 and its role in making the island a global pharmaceutical hub and explaining why drug manufacturers in Puerto Rico moved to China, Roy called on Washington, D.C., to provide incentives so that such manufacturing be moved back to the island, improving its battered economy and finances.

Roy proposes addressing these problems by partially restoring the Section 936 tax break in exchange for other Puerto Rican fiscal reforms. Such policies would include exempting generic drug manufacturers from corporate taxes in Puerto Rico and creating a “most-favored nation” Puerto Rican tax rate for pharmaceutical intellectual property.

In exchange for the partial restoration of these tax breaks, Roy explains, Congress should phase out the exemption from taxation of Puerto Rican debt for newly issued bonds.

“Congress, in its recent deliberations on an economic relief package, has thrown a lot of policy mud on the wall to see what sticks,” he wrote in the column. “Reforming Puerto Rican tax policy may be one of those things that actually works.”

In a March 19 letter addressed to President Trump, Senate Majority Leader Mitch McConnell and House Speaker Nancy Pelosi, Rodríguez cites these articles and states that PRMA “wholeheartedly subscribes to this view and wishes to recommend specific actions that could revert the conditions that made manufacturing in offshore jurisdictions, like China and India, attractive.”

Rodríguez says that the federal Tax Cuts and Jobs Act (TCJA) “adequately targeted one of the factors that forced production offshore, the U.S. corporate tax rate of 35 percent, and drastically reduced it to 21 percent.” He said the law’s implementation of the global intangible low taxed income (GILTI) reduced the tax differential between the U.S. mainland and offshore tax rates.

“This is a major step towards the goal of bringing manufacturing back to the U.S., but more can be done to produce a faster shift,” the letter states. “As we pointed out in the TCJA approval process, Puerto Rico, which is neither a state, nor an offshore jurisdiction, but hosts millions of American citizens and is within the shores of the U.S. territory, was left unattended by the TCJA’s tax provisions. U.S. tax policy could have laid the framework to re-attract biopharmaceutical, pharmaceutical, medical device and other related manufacturing activities to U.S. shores. We now continue advocating for policy focused on materially reducing the impact of GILTI on the profits generated in Puerto Rico by biopharmaceutical, pharmaceutical, medical device and other related manufacturing activities. Further, the policy should clearly validate foreign tax creditability of taxes imposed by Puerto Rico. This policy (i) should revert the 1993 policy that favored jurisdictions like China and India; and (ii) be outside the scope of the ‘corporate welfare’ rhetoric as it does not ‘give’ anything to these businesses that they were unable to obtain on their own.”

Rodríguez says in the letter that the effort to bring back U.S. manufacturing from foreign locations has “unified all political sectors in Puerto Rico,” citing support from former Gov. Aníbal Acevedo Vilá, Resident Commissioner Jenniffer González, and the Financial Oversight & Management Board.

In a letter to Trump and the congressional leadership on March 18, the fiscal board expressed its view on potential policy changes that would require increased production of pharmaceuticals and medical products for national security reasons. Chairman José Carrión said the board believes Puerto Rico can again become a leading manufacturing location. He pointed out that the island’s infrastructure, human capital and regulatory processes are already well-positioned.

“The Covid-19 pandemic is an issue that has united you as representatives of U.S. political sectors,” Rodríguez’s letter states. “The policy determinations we request herein are the missing pieces that can solve this problem.”

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