Empowering Puerto Rico to bring back manufacturing jobs

Early this year, President Joe Biden, invoked the Defense Production Act of 1950, a Cold War-era statute that empowers the presidency to direct the private sector in producing essential goods for emergencies and national defense. The ‘Act’ can be used to provide Puerto Rico with a catalyst to bring back major manufacturing companies. 

With the Russian Federation’s unprovoked invasion of Ukraine and Israel’s war with Hamas, the United States has once again emerged as the ‘arsenal of democracy’.   This resurgence in defense commitments has revitalized parts of the U.S. military-industrial base, underscoring the necessity to expand manufacturing capabilities, particularly in weapon systems and associated products, including defense-related textiles.  

Here’s where Puerto Rico, a United States territory since 1898, can play a major and historic role.

In the late 1960s and the early 1970s, national and international manufacturing companies began to establish major operations in Puerto Rico. Fueled by our skilled workforce and several federal tax shelters, these companies rapidly expanded their operations, making our Island one of the most sought-after manufacturing hubs. 

Major infrastructure projects, such as energy grids, water purification plants and even new roads and bridges were constructed in the late 20th century to support these operations. Unfortunately, by the turn of the century, corporate downsizing, production plant automatization, and the advent of more beneficial tax programs in other U.S. jurisdictions fueled a massive exodus of these companies. Still, a few companies remain on the island, including the Puerto Rico Industry for the Blind which produces uniforms for U.S. military service personnel.

We still have three critical assets that can assist in jump starting the local textile industry centered in support of our nation’s needs: state of the art production facilities, a highly trained workforce and sufficient support infrastructure. 

Puerto Rico is poised to become a pivotal player in the national defense textile industry, but achieving this requires substantial support from the federal government. This support should manifest in various ways. First, there needs to be a nationwide initiative to showcase Puerto Rico, its skilled workforce, robust infrastructure, and the advantages of manufacturing on the island, to companies across various jurisdictions. Second, legislative action is essential, specifically regarding Puerto Rico’s tax designation. The Tax Cuts and Jobs Act of 2017 categorized Puerto Rico as a foreign jurisdiction for corporate taxes. It’s crucial for Congress to reclassify Puerto Rico as a domestic jurisdiction for tax purposes, a change that would significantly enhance its attractiveness to pharmaceutical and other manufacturing companies.

We are not requesting to become a corporate tax heaven like with Section 936 in the 1970s, a long-gone provision on the US Tax Code that allowed some big companies based in Puerto Rico to purchase supplies and materials from their corporate headquarters at a much lower than usual rate, while selling the finished product back at the highest price, thus inflating profits.

In 1993 a Government Accountability Office report concluded that companies that applied for tax credits under Section 936 were making an average of $69,800 per employee, while worker wages averaged less than $22,800. This constitutes a huge and unacceptable discrepancy. Simply put, Section 936 did not create jobs or improve the quality of wages because it lacked a trigger mechanism aimed at job creation.

We are dedicated to excellence and poised to become a leading supplier in the defense industry. With our skilled workforce and strategic location, we are uniquely equipped to meet complex challenges. Just give us the opportunity, and we will demonstrate our unparalleled potential in the defense sector.

Jose Aponte-Hernandez is former Speaker and current member of the Puerto Rico state House of Representatives