Puerto Rico Urging U.S. Firms to Send Some Jobs to Its Poor Neighbors

SAN JUAN, Puerto Rico —  Worried that its rising wages will frighten key mainland U.S. companies away, Puerto Rico is urging investors to cut costs by moving parts of their operations to neighboring Caribbean nations.

Officials in those countries welcome the prospect of more jobs from so-called “twin plants”--one in Puerto Rico and the other on a sister island--to slash their staggering jobless rates.

But some businessmen criticize Puerto Rico for not wanting to share more of its financial wealth with its poorer cousins. Some also worry that their countries will get stuck with low-technology, labor-intensive operations and miss out on the high-tech revolution.

“This is the hottest idea that’s in the Caribbean today,” said Puerto Rico’s governor, Rafael Hernandez Colon.

‘Word Is Out’

“The word is out. Puerto Rico is again a place to be,” said Francisco de Jesus Schuck, legal adviser for the program in the Puerto Rico Industrial Development Co.

Hernandez Colon acknowledged that there had been complaints in Barbados about the poorer islands providing the low-paying jobs, but he dismissed the grousing as politics.

“With unemployment as it is all over the Caribbean, any type of manufacturing job is a good job wherever you may establish it, and the wage scales are relative to the countries,” he said.

Under the twin-plant program, a U.S. company established in Puerto Rico opens a second operation for labor-intensive work in another Caribbean country.

Tax Breaks

The cost-savings: U.S. companies operating in Puerto Rico are generally exempt from federal taxes and get breaks from local and state taxes.

Moreover, wage rates are substantially lower in other Caribbean countries. Puerto Rico’s minimum wage is tied to the U.S. base, boosting labor costs and knocking it out of competition with the cheaper Far East.

Also, many products made or assembled in the Caribbean qualify for duty-free entry into the United States under the Caribbean Basin Initiative.

“The marriage of the (initiative) and Puerto Rico . . . is the best industrial incentive that exists in the world today,” Robert E. Burns, president of Westinghouse of Puerto Rico, said.

Scramble to Promote

“I think most of the companies present in Puerto Rico will give serious consideration to establishing twin-plants,” Terrence Wadsworth, vice president and general manager of Chase Manhattan Bank in San Juan, said.

Chase has earmarked $25 million for such projects.

The Puerto Rican government scrambled to promote the idea because the U.S. Treasury Department wanted to repeal the tax breaks for U.S. companies operating here and in other U.S. possessions.

The Treasury’s plan, Hernandez Colon said, “would have wiped out a fourth of our jobs in the private sector.”

The tax breaks, in effect since the 1950s, are credited with attracting major U.S. companies to Puerto Rico, a commonwealth of the United States, and helping turn it into the most developed island in the Caribbean.

Law Tightened

After a lobbying blitz by Puerto Rico, Congress retained the tax breaks but tightened the law in a way that will cost corporations operating in U.S. possessions about $322 million over the next five years.

Puerto Rican officials see the twin-plant expansion as a boon to the economy, burdened with an 18% jobless rate.

“This is a tool whereby we’ll be able to stop the erosion of plant closings in Puerto Rico, which have been characteristic for the last 12 years,” De Jesus Schuck said.

But Anthony Stevens-Arroyo, associate professor of Puerto Rican Studies at Brooklyn College in New York, criticized the program in a letter to the New York Times.

‘Stopgap Measure’

“At best, twin-planting is a stopgap measure in Puerto Rico’s swift and inevitable economic decline,” he wrote. “It is based on tax-code provisions that allow corporation profits to escape the federal Treasury and on the continued exportation of jobs. Both trends are unhealthy.”

In the first 10 months of the year, a dozen twin-plant projects were established or about to be set up, with more than $21 million in investment, according to De Jesus Schuck.

The projects will create 1,500 jobs in Puerto Rico and 2,600 in its sister islands.

Some of the companies taking part:

- Westinghouse, with a $5-million investment, is setting up four plants in the Dominican Republic for production of circuit breakers, printed circuit boards and wiring harnesses.

- Baxter Travenol Laboratories will produce medical supplies at two plants in the Dominican Republic.

- Johnson & Johnson, investing $700,000, will send surgical caps already cut in Puerto Rico to Grenada for sewing.