Powell, Others Object To Puerto Rico Gov's Foreign Affairs, Statements… Senate Committee Leaders Exclude Governor's Tax Proposal… Resident Commissioner Falls Short In Agreement To Close Navy Base

September 20, 2003
Copyright © 2003 THE PUERTO RICO HERALD. All Rights Reserved.

. .. Powell, Others Object to Puerto Rico Gov's Foreign Affairs, Statements

Pointed statements by Secretary of State Colin Powell and other top foreign policy officials against actions and statements by Puerto Rico Governor Sila Calderon ("commonwealth" party/ no national party) and her Secretary of State were made public this week. The statements concerned Calderon's ventures in foreign countries, which are coordinated by Commonwealth (territorial) Secretary of State Ferdinand Mercado.

The week ended with a senior Bush Administration official saying late Friday that Calderon and Mercado were "blatantly lying" to the people of Puerto Rico about the issue. It began with a leak to newspapers of an interagency memorandum that UPDATE first revealed weeks ago.

The memorandum from Overseas Private Investment Corporation (OPIC) President Peter Watson noted that "the U.S. has had to intervene in attempts" by the Calderon Administration "to join international organizations" comprised of sovereign nations and that the Calderon Administration wanted to negotiate "bilateral trade agreements" with foreign countries.

OPIC is a federal agency that reports to the U.S. Secretary of State. Its mission is to assist U.S. companies in investing in foreign countries. Watson wrote the memo to the heads of other agencies who serve on the OPIC Board, including the Undersecretary of Commerce who heads the International Trade Administration, Grant Aldonas, and the U.S. Trade Representative (trade agreement negotiator,) Robert Zoellick.

The memo was prompted by Watson learning that Calderon had met with Aldonas and Zoellick. He cautioned them on the issue, informing them of "unfortunate experiences" with the territorial government.

Watson wrote that "Typically, the legal and political significance of routine federal-local contacts will be inflated and misrepresented" to suggest that "federal officials endorse the idea that Puerto Rico" has the "sovereignty to conduct international relations in its own name and right."

He went on to say that attempts "to usurp federal foreign relations power in the name of ëautonomy' is a chronic problem resulting from Puerto Rico's unresolved political status." He also advised that Puerto Rico should be treated as other local governments are on federal matters.

Watson, a member of the National Security Council staff during the administration of President Bush's father and Chairman of the U.S. International Trade Commission during the Clinton Administration (due to the intervention of Republicans in the U.S. Senate) speaks with respected authority on U.S. foreign policy matters, especially those involving trade.

When questioned about the document by reporters, a senior foreign policy official said that the Bush Administration was concerned by Calderon Administration "misrepresentations" to foreign countries that suggested the Commonwealth is a sovereign nation. The official said that the actions were undermining the interaction that Puerto Rico could properly have with foreign countries and the Puerto Ricans were being "misled" on the issue by the Commonwealth officials.

The federal statements were dismissed and denied by Calderon, Mercado, and Resident Commissioner Anibal Acevedo Vila -- the "commonwealth" party's candidate to replace Calderon and a principal party advocate of the Commonwealth negotiating trade agreements. This prompted a U.S. State Department official to release several documents that backed up the statements by Watson and the U.S. foreign policy official.

One was the August 6th directive that Powell gave to U.S. ambassadors which UPDATE also reported on weeks ago. It noted that the Calderon Administration had asked the government of Nicaragua and possibly other foreign governments to help it obtain official status at the annual summit of leaders of Spanish and Portuguese-speaking nations but it had not asked its own national government for permission. It also noted that a Puerto Rican requested probably would not be approved.

The cable directed:

* The U.S. ambassador in Nicaragua to inform the country's government that Puerto Rico did not have permission to participate in the summit;

* The U.S. ambassador in Bolivia -- where the summit is to be held -- that any request for Puerto Rico to participate should be sent to the U.S. Department of State; and

* Ambassadors in several nations to report any inquiries on the issue to Washington.

It also stated that a letter that Assistant Secretary of State C. David Welch sent to Calderon June 29, 2001 outlined U.S. policies regarding Puerto Rico's involvement in international organizations. The letter objected to Calderon's application for the Commonwealth to become an associate member of the Association of Caribbean States (ACS), pointed out that the State Department supported Puerto Rico's participation in appropriate international organizations, and invited Calderon or her representatives to meet on the issue.

The letter was sent in response to a letter Calderon sent after she sought ACS membership and the ACS asked her if the U.S. approved. Calderon's letter referred to Puerto Rico as one of the "countries" eligible for membership.

The principal U.S. objection to Puerto Rican associate membership was that the ACS was a "political" organization, meaning that it takes policy positions. In this regard, the ACS has admitted Cuba as a member, meaning that it recognizes the dictatorship that controls the country as a legitimate government -- a position that is unacceptable to the U.S.

In spite of the response, Mercado went to the next ACS meeting, which passed a resolution criticizing the U.S.

The State Department official also released an earlier Powell directive regarding Calderon Administration actions. The May 16th cable to U.S. ambassadors reported that the Calderon Administration had "approached . . . a number of countries . . . seeking treatment normally only accorded to a sovereign state. The two most recent examples were in Nicaragua and Panama where the Puerto Ricans pressed government officials to sign cooperation agreements which contained language normally reserved for pacts with foreign states. In November 2002, Puerto Rico attempted unsuccessfully to elicit recognition as a sovereign state at the Ibero-American Summit."

Powell also noted that a second letter asking the Calderon Administration for a meeting on the issue had been sent on July 10, 2002 and "Puerto Rican officials have yet to respond."

The cable noted that the federal government is responsible for Puerto Rico's foreign affairs. It said that Puerto Rico is a "territory" of the U.S. and that the State Department should review "any proposed participation . . . in international bodies, or signing of documents . . . with other nations." It explained that the reasons are to ensure: consistency with U.S. policy; that undesirable obligations are not being imposed on the U.S.; and that the subject matter is an appropriate one.

In a pointed reference to Calderon and Mercado, the cable stated that "protocol arrangements" for the territorial "Governor and Secretary of State" should not be equivalent to treatment normally accorded visiting heads of state and ministerial rank officials."

The cable directed ambassadors to report on any foreign inquiries about Puerto Rico and to explain Puerto Rico's status and U. S. responsibility to inquiring nations. Suggesting that the Calderon Administration had recently sought "observer" status in an organization of Central American nations, the cable also directed U.S. ambassadors in that region to advise their host governments that it would not be appropriate for Puerto Rico to be an observer in an organization in which observers were sovereign nations. Finally, it directed the U.S. ambassador to Spain to communicate that the U.S. expected Spain to support the U.S. position.

When Calderon and Mercado Friday afternoon disputed Powell's statements and Calderon nominated Mercado to be Chief Justice of the territorial Supreme Court, another senior federal foreign policy official said that the two were "blatantly lying" and said it is for Puerto Ricans to determine whether they wanted an untruthful person to be confirmed as their chief justice.

Calderon had said that all of her administration's foreign activities had been coordinated with and approved by the U.S. State Department and she had never been advised of any U.S. State Department concerns about the activities. Mercado said that the Powell cables do not reflect the position of the U.S. State Department and were made public for "ideological" reasons. He also denied ever seeking sovereign nation treatment.

The senior federal foreign policy official rebutted the claims of Calderon and Mercado with specific examples and demonstrated lack of knowledge of as well as interest in internal Puerto Rican politics. He noted that federal officials have become frustrated by Calderon and Mercado actions and unwillingness to recognize and address national government concerns. He also explained that cables signed by Powell are cleared by a number of officials first and state official U.S. Government policy.

The separate source of the State Department cables Friday said that the documents had been made public because of the denials by Calderon and Mercado, hoping that public opinion would discipline the territorial officials since federal officials had not been able to through direct and diplomatically-expressed communications. Watson also spoke to a reporter Friday, making similar statements.

Senate Committee Leaders Exclude Governor's Tax Proposal

UPDATE has obtained a copy of the draft bill to reform the taxation of income that companies based in the States earn outside the States that U.S. Senate Finance Committee Chairman Chuck Grassley (R-IA) and senior Democrat Max Baucus (D-MT) plan to introduce next week.

The bill is the latest that Governor Calderon hopes will be the ëvehicle' for approving her top federal priority: 85-100% tax exemption for profits that companies based in the States receive from subsidiaries they set up in U.S. territories as "foreign" corporations.

The draft does not include Calderon's proposal. Baucus has publicly opposed it and Grassley has been decidedly cool to it. Because of this, Calderon's Economic Development and Commerce Secretary, Milton Segarra, did not expect the proposal to be included.

Instead, Segarra, who lobbied for the proposal in Washington this week, has been counting on Committee Member John Breaux (D-LA) to get it added through an amendment when the Committee considers the bill in coming weeks.

Breaux raised the proposal during the Committee's consideration of another tax bill in May. At that time, he declined to ask for a vote on the proposal, conceding that the Committee would have rejected it.

Support was also expressed by Senators Orrin Hatch (R-UT), Trent Lott, (R-MS), and Rick Santorum (R-PA). Segarra expects them to again back the proposal when Breaux offers his amendment.

Segarra is to get substantial help in lobbying next week from a host of businesspeople and others from Puerto Rico whom the territorial government has enlisted for the purpose.

The Grassley-Baucus bill does propose a tax incentive for companies based in the States to manufacture in the States, however. It would be a nine percent deduction from the amount of income subject to taxation. The deduction would be phased in beginning next year and become fully effective in 2009.

The incentive is a fraction of the cut Calderon is seeking and it raises another critical question -- there have been many already -- about her proposal: Will the Congress give companies in the States a nine percent tax incentive to manufacture in the States -- fully effective as of 2009 ñ and, at the same time, give an 85-100 percent incentive -- as of 2006 -- to manufacture in Puerto Rico?

The loss of manufacturing jobs in the States -- 2.5 million during the Bush Administration -- has become a significant national issue. The Grassley-Baucus proposal is intended to encourage companies in the States to bring production back to the States that they have moved to foreign countries.

Interestingly, the proposal is based on one sponsored by the number two Republican and the number one Democrat on the House of Representatives Ways and Means Committee, Phillip Crane (R-IN) and Charles Rangel (D-NY). Next to Resident Commissioner Acevedo Vila, the two have been the House's major advocates of Calderon's proposal.

The other major bill on the subject has been introduced by Ways and Means Committee Chairman Bill Thomas (R-CA). It would give companies in the States an 80 percent tax cut on income from subsidiaries outside the States chartered as "foreign" corporations for one year. Its purpose also is to encourage companies in the States to move production back to the States from foreign countries.

The bill would encourage companies to move income back to the States from Puerto Rico and other U.S. territories in addition to from foreign countries.

The Crane-Rangel deduction for manufacturing in U.S. areas -- including U.S. territories -- is considered a rival of Thomas' bill.

A third bill on the subject has been introduced by Hatch. It would give companies a tax cut similar to Thomas' for "foreign" subsidiaries of companies based in the States but do so on a permanent basis. It is similar to the 85 percent tax cut in Calderon's proposal. It would provide no incentive for companies to manufacture in Puerto Rico, however, since the same tax benefits would be available on income from foreign countries, which have lower production costs than Puerto Rico.

Ironically, Hatch also is a supporter of Calderon's proposal.

Acevedo this week expressed a theme of next week's private sector lobbying effort. It is that "Puerto Rico is the seventh-largest trading partner of the U.S. " The lobbying campaign will supports this with charts that indicate the value of Puerto Rican "exports" into each State of the U.S. and "imports" from each State.

The terminology is interesting as Puerto Rico is fully a part of the U.S. market. It particularly is interesting language for a "commonwealther" like Acevedo to use. "Commonwealthers" have long contended that Puerto Rico being in a "common market" with the U.S. is a "pillar" of the Commonwealth. (By "Commonwealth" they mean the federal-territorial relationship rather than the territorial government, which is named "the Commonwealth.")

Resident Commissioner Falls Short in Agreement to Close Navy Base

Leaders of both houses of the Congress on a major bill to provide funding for national defense activities for the fiscal year that begins October 1 agreed Wednesday night to order the closure of Naval Station Roosevelt Roads in Ceiba on the east side of the island of Puerto Rico within six months of the bill's enactment.

Final congressional approval of the agreement is expected to occur as early as next week.

Under the directive, a territorial "redevelopment authority" is to plan the future use of all but 150 acres of the 8,600-acre base, the largest naval base outside the continental U.S. The 150 acres would be transferred to the U.S. Army for use as a training area for reserve units.

The plan would be subject to federal approval. The redevelopment authority is to include representation from Ceiba's local government as well as the territorial government. It would have 180 days to develop the plan and submit it to the Secretary of the Navy for approval or disapproval. Changes being made to the bill's language as UPDATE was being written Friday involved the possibility of congressional review of the plan in the event of a disagreement between the territorial authority and the Navy.

Proceeds from any sales of the property would pay for the costs of the closure and any remainder would be deposited into the general fund of the U.S. treasury.

The bill would authorize the Department of Defense and other federal agencies to provide funding for the planning and for the actual reuse of the land.

A closure provision was included in the House version of the bill at the request of the Navy. It was included by the chairman and the senior Democrat of the Defense Appropriations Subcommittee, Jerry Lewis (R-CA) and John Murtha (D-PA) respectively.

Resident Commissioner Acevedo Vila hoped to get the closure provision deleted from the legislation in the ëconference committee' of House and Senate leaders on the bill but failed.

His fallback position -- language to transfer the property to the territorial government -- also failed in the conference.

His "Plan C" -- language requiring that the land be used for purposes determined by the territorial government and that there be economic assistance for Ceiba and other areas of the island's east coast -- only succeeded to a limited extent and because of lobbying by other Puerto Ricans as well. The ultimate decision on the use of the land will be made by the Secretary of the Navy or another federal authority. There is no specific amount of economic assistance for Puerto Rico's east side . . . or guarantee that there will be any assistance.

Acevedo was also embarrassed by the release of the agreement. It came through Puerto Rico's Republican National Committeeman, Luis Fortuno, who is running to succeed Acevedo, the "commonwealth" party's candidate to replace Governor Calderon.

Fortuno met with Lewis, the primary drafter of the agreement as well as the House bill, last week. Lewis Thursday sent Fortuno the agreement language and gave him credit for helping to improve the language from the Puerto Rico perspective.

By contrast, Lewis merely told Acevedo that agreement had been reached without telling him the substance of the agreement. None of the other leaders involved in the agreement told Acevedo what it was either. Puerto Rico correspondents in Washington obtained copies of the agreement before Acevedo did (presuming he has it now).

The "Washington Update" appears weekly.

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