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Layoffs Hit Island Hard
San Juan Bureau
February 12, 2001
Copyright © 2001 ORLANDO SENTINEL. All Rights Reserved.
SAN JUAN, Puerto Rico -- With more than 140,000 layoffs announced in January alone, the U.S. economy is catching a cold.
And even in these tropical breezes, Puerto Rico is coming down with pneumonia.
Already reeling from weekly reports of more layoffs, the latest blow was the Sara Lee Corp.'s announcement last week that of the 7,000 jobs it planned to cut worldwide this year, almost 2,200 would be at five plants in Puerto Rico. Company officials say slow Christmas sales of Hanes underwear and Playtex lingerie forced them to cut their 50-year-old operation on the island.
"Better trade agreements and good infrastructure made other countries more competitive and cost effective than Puerto Rico," said Paul J. Lustig, Sara Lee's executive vice president and chief executive officer of its global apparel. "The people who buy our products are extremely cost-competitive and cost-conscious."
Manufacturers have announced 5,200 job cuts since the first of the year in everything from shoes to electronics. Along with a slowing economy and new laws offering the rest of the Caribbean the same access Mexico and Canada have to U.S. markets, many economists and politicians blame former pro-statehood Gov. Pedro Rossello for putting politics over paychecks.
Hoping that equal treatment with the states would bring Puerto Rico closer to their ideal, some statehooders backed former President Clinton's push to phase out Section 936 of the Internal Revenue Code. The massive tax break, which critics called "corporate welfare," allowed U.S. companies to bring billions of dollars in profits back to the mainland tax-free, balancing out relatively high labor, energy and transportation costs on the island.
When the debate over the tax break reached its peak in 1993, some 650 companies used the benefit, accounting directly or indirectly for about a third of the island's 1 million-plus jobs. But officials in Washington thought it was costing the United States $3.5 billion a year. So, to help balance the budget, Section 936 was axed in August 1996.
Since then, as Section 936 is phased out, manufacturing, which represents 44 percent of the island's gross national product, has had a net loss of more than 17,000 jobs. Reversing her predecessor's philosophy, Gov. Sila Maria Calderon is making federal tax incentives, not political status, a top priority in her lobbying efforts.
"The employment situation in Puerto Rico requires urgent action," Calderon said at a table surrounded by the island's business, financial, tourism, manufacturing and retail leaders. "We always said eliminating Section 936 was a colossal mistake. We knew we wouldn't see the effects for a few years, and we're seeing it now."
In this meeting, Calderon laid out a plan of action and got everyone on board. Hours later, Economic Development Secretary Ramon Cantero Frau left for Washington to rally corporations that do business in Puerto Rico behind a tax plan Calderon will reveal to Congress next month. That plan proposes, among other things, some permanent tax incentives.
In the meantime, Resident Commissioner Anibal Acevedo Vila and his well-connected Puerto Rican Republican foes last week hit up Congress and President Bush for a federal tax write-off on wages paid to employees as a way to stem the flow of companies moving to Dominican Republic and Malaysia.
Given how big the U.S. surplus is and the muscle of U.S. companies behind this effort, Cantero Frau is optimistic. But tension in Congress over the island government's tough stance against the Navy's use of its target range in Vieques may hurt. Some congressmen have even suggested trading tax breaks for allowing the Navy to use live bombs, which Calderon rejects.
"I think it would be a low blow for the U.S. government to restrict a legitimate effort to restore jobs that Puerto Ricans have a right to fight for," she said. "I don't think that will happen."