SCHERING, SMITHKLINE AND J&J ARE COMMITTING TO MANUFACTURING FACILITIES IN GRENADA ON CONDITION THAT ADMINISTRATION RETAINS SECTION 936 TAX INCENTIVES

Schering-Plough, SmithKline Beckman, and J&J are committed to locating manufacturing facilities in the Caribbean nation of Grenada on the condition that the Reagan Administration leave intact Section 936 Puerto Rico tax incentives. In a May 3 letter to Grenadan Prime Minister Herbert Blaize, Schering Chairman Robert Luciano said that "should the President of the United States propose the retention of Section 936 in its present form in his forthcoming tax message, and should that proposal be accepted by the Congress, we at Schering-Plough have decided to invest in the establishment of a manufacturing facility in Grenada." Luciano added that "it is anticipated that our facility will complement both current and planned operations in Puerto Rico." On May 3, SmithKline Chairman Robert Dee sent similar messages to both Blaize and Puerto Rican Governor Rafael Hernandez Colon stating SmithKline's intent to establish operations in Grenada, on the condition that Section 936 is retained in its present form by the Administration. JPJ had previously made a commitment to locate a facility in Grenada. It has already begun planning the type of operation it will establish in the island, while a fourth firm -- Abbott -- is also apparently considering a commitment to establish a presence in Grenada. Through its Surgikos subsidiary, J&J would establish a pilot facility in Grenada to finish production of surgical caps. The company estimates that approximately 50-60 Grenadan employees would sew the caps from cloth initially cut by workers at an expanded facility in Puerto Rico. The Puerto Rican operation would employ approximately 15 workers. The J&J project would be undertaken as part of a plan proposed to the U.S. Treasury by Puerto Rican Governor Colon which is intended to stimulate investment in "twin plants" in Puerto Rico and other Caribbean island nations. Colon's proposal would link retention of Section 936 Puerto Rican tax incentives to economic development under the Reagan Administration's Caribbean Basin Initiative. According to background material on Section 936 from the Puerto Rican govt., "initially Puerto Rico will provide financing on favorable terms through the Government Development Bank, based on its deposits of 936 earnings, for expansion of job-creating opportunities in Puerto Rico on condition that recipients utilize their own funds to invest in supplementary manufacturing facilities in Caribbean Basin Initiative beneficiary nations." The promise of investment in other Caribbean islands -- specifically Grenada, which is symbolically important to the Reagan Administration as a result of the U.S. military intervention there in 1983 -- gives Hill supporters of the tax break for Puerto Rico an added bargaining chip to use in political debates. Capitol Hill supporters of tax incentives for the drug industry can now argue that Section 936 should be retained for foreign policy reasons. The Puerto Rican govt.'s background paper says that meetings between El Salvador President Duarte and his cabinet and the Secretary of State of Puerto Rico could lead to the establishment of a twin plant relationship between the two countries "based on new investments in Puerto Rico financed with Section 936 earnings. President Monge of Costa Rica has also expressed his strong interest in, and support for, this form of economic cooperation." In the last round of 939 debates, the drug industry argued that Puerto Rico trains executives for expansion of U.S. industry into Latin America. The twin plant proposal takes that argument one step further.