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Cantero Frau Wants Puerto Rico’s Economy Protected

Testifies before committee of U.S. Trade Representative on potential impact of proposed Free Trade Area of the Americas


September 19, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

The Office of the U.S. Trade Representative (USTR) has been requested by Secretary of Commerce & Economic Development Ramon Cantero-Frau to insure that the interests of Puerto Rico are safeguarded in the negotiations being conducted for the proposed Free Trade Area of the Americas (FTAA).

The development of U.S. policy on the FTAA, scheduled to commence in 2005, is the responsibility of the USTR, headed by Robert B. Zoellick, who is a member of President George W. Bush’s cabinet. The FTAA has a Trade Policy Staff Committee (TPSC) which is charged with collecting input from state and local governments as well as the private sector.

CARIBBEAN BUSINESS learned that Cantero-Frau went to Washington to testify.

"Puerto Rico is an island economy dependent on trade for our continued prosperity," he said. "The island has exports and imports of more than $75 billion including $54 billion in trade with the U.S. mainland."

We see great opportunities for companies operating in Puerto Rico, if we are able to expand our trade with other countries in the Americas," Cantero-Frau said. "We applaud the President’s efforts to make this agreement a reality."

While pointing out that Puerto Rico thus believes in the principle of free trade, he cautioned that "we also believe in the requirements of fair trade. While we recognize that different products will be treated differently in any trade agreement, we ask that Puerto Rico’s interests be fully considered by the TPSC in negotiating the FTAA, particularly with respect to the import-sensitive sectors of rum and canned tuna."

In making the request, Cantero-Frau said "it is often easy to overlook the fact that policies intended to benefit the mainland economy may sometimes have unintended and disparate consequences for an island economy for four million people 1,100 miles away from the U.S. mainland."

Cantero-Frau asked the committee to remember that Puerto Rico "is part of the U.S. and, through our factories, as well as our four million consumers, the Puerto Rican economy supports thousands of U.S. jobs on the mainland."

If it were a separate country?

Describing Puerto Rico as the 8th largest trading partner of the U.S. and the 13th largest market of U.S. products, Cantero-Frau said that Puerto Rico is subject to U.S. minimum wage, environmental and regulatory laws, as well as high shipping costs and must compete with low-wage and low-cost countries in Central and South America that have superior advantages in natural resources.

Cantero-Frau asked the committee "to take into consideration the decisions of the U.S. Congress in reauthorizing the Andean Trade Preferences Act this past summer with respect to the tariff treatment of rum and canned tuna."

He referred to a study by the U.S. International Trade Commission based on which, according to Cantero-Frau, "tariff liberalization in the canned tuna sector would quickly lead to the demise of the U.S. canned tuna industry in Puerto Rico, California, and American Samoa."

Also testifying were Peter N. Hiebert of the Washington law firm of Winston & Strawn, which represents the Commonwealth on trade matters, and Andrew R. Wechsler and Andrew Z. Szamosszegi of LECG, LLC, a Washington firm which advises on rum and tuna specifically. Winston & Strawn also represents the Government of the U.S. Virgin Islands (USVI) on rum as does LECG, which also is retained by the Virgin Islands Rum Industry Ltd.

"Any trade decision that might impair the revenues of Puerto Rico (exceeding one-third of a billion dollars a year) and the USVI ($75 million a year or approximately 15% of the government’s budget) could have disastrous consequences for both island jurisdictions," said Hiebert.

"Canned tuna produced in American Samoa and Puerto Rico is competitive in the U.S. market owing to the current tariff regime," said Szamosszegi. "The current tariff structure has also enabled the Ecuadorian industry to prosper. Eliminating the duty for the third largest source of imports would likely be the end of the line for the canned tuna industry in the U.S. but would provide minimal employment gains in Ecuador."

Pointing out that rum production is part of the heritage of both the USVI and Puerto Rico, Szamosszegi, speaking on behalf of Wechsler as well, told the committee insular rum is competitive in the U.S. market. But he cautioned that its current status is due largely to the current tariff regime. "Eliminating low-value rum duties for low-cost producers would put the USVI and Puerto Rico at a clear disadvantage to rum producers in FTAA countries," he warned.

The testimony of Cantero-Frau in Washington Sept. 9 was released by the committee in Washington, later in San Juan, after a CARIBBEAN BUSINESS request, he supplied the testimony of the lawyer and experts who accompanied him to the hearing. While his unannounced appearance was welcomed by some business people in Puerto Rico, others expressed concern over why only rum and tuna were discussed and not other sectors of manufacturing on the island, like apparel and footwear, among others.

Is the situation being sufficiently monitored?

Some also are skeptical about whether Puerto Rico is sufficiently monitoring the potential adverse impact that the FTAA, as well as other international agreements, could have on the island. Several cite the active roles of both the public and private sectors in Florida in attentively tracking the impact of the North American Free Trade Agreement (Nafta) on that state.

"Puerto Rico can not be competitive in either apparel or footwear any longer," said Cantero-Frau frankly. "With minimum wages and environmental regulations it’s difficult for Puerto Rico to compete." While acknowledging the active role of Florida, he said he obtains input from "many in the manufacturing community—I sometimes speak to 50 people a day." But a number of sources contacted in manufacturing, except in the rum and tuna industries, were not even aware of the secretary’s appearance in Washington.

An area in which he was outspoken in his criticism was the bilateral trade between Puerto Rico and the Dominican Republic (D.R.). "Trade between Puerto Rico and the D.R. is very unfair because their producers ship into Puerto Rico under the duty-free provisions of the Caribbean Basin Initiative," he said. "Our exporters shipping to that country are placed at a disadvantage because they do not enjoy the same benefit in the other direction."

It was the first recorded presentation by an official of the Calderon administration before the TPSC. The FTAA evolved out of the Summit of the Americas in 1994 where then President Bill Clinton hosted the historic summit in Miami that brought together the leaders of all of the hemisphere’s countries excluding Cuba.

Only two governors attended the event—then Governors Lawton Chiles of Florida and Pedro Rossello of Puerto Rico. Implicit in the declaration adopted was an acknowledgement by the U.S. that Florida and Puerto Rico could be involved in any negotiations affecting them.

Regional observers indicate that, while Rossello administration officials at times participated in the FTAA negotiating meetings, at other times they were absent, such as Clinton’s 1997 Barbados summit with Caribbean leaders. While both governors Rossello and then Roy Schneider of the U.S. Virgin Islands were invited, Schneider attended while Rossello was absent.

Participation by Puerto Rico in FTAA events under the Bush and Calderon administrations has been virtually nonexistent, according to some Washington observers. They attribute it to the changes in government both Washington and San Juan and the disruptions in communication that often result.

Where do we go next?

"It would certainly behoove the Calderon administration to consult much more diligently on the potentials for negative impact of the FTAA and other multilateral agreements, like the World Trade Organization in particular, on Puerto Rico," said one manufacturer. "I’m glad Cantero-Frau went to Washington. To me it indicates that this administration is getting serious about protecting the advances Puerto Rico has achieved in manufacturing from exactly the kinds of increased competition that have gutted our apparel and footwear industries."

How is Puerto Rico going to maintain the level of development it has achieved as it watches more and more factories pack up and go the way of those before them?," the executive asked, referring to the phase-out of the benefits of U.S. Internal Revenue Code Section 936, which is nearing completion.


1. "We see great opportunities for companies operating in Puerto Rico, if we are able to expand our trade with other countries in the Americas."

--Ramon Cantero-Frau, Secretary of Commerce & Economic Development

2. "Puerto Rico can not be competitive in either apparel or footwear any longer."

-- Ramon Cantero-Frau, Secretary of Commerce & Economic Development

This Caribbean Business article appears courtesy of Casiano Communications.
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