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SEC. 936 TWIN-PLANT PROJECTS HAVE CREATED NEARLY 5,500 JOBS

Executive Summary

SEC. 936 TWIN-PLANT PROJECTS HAVE CREATED NEARLY 5,500 JOBS: approximately 3,600 jobs in Caribbean Basin Initiative countries and 1,835 jobs in Puerto Rico, according to a recent report by Robert R. Nathan Associates. "Since January 1986, 27 twin-plant projects have been established, representing more than $29 mil. in investment," the report notes. Entitled "Section 936 and Economic Development in Puerto Rico," the report was sponsored by the Puerto Rico, U.S.A. Foundation. The idea of twin plants -- separate but integrated manufacturing facilities in Puerto Rico and another Caribbean island -- was first proposed by Puerto Rico Governor Hernandez Colon in 1985 to head off proposed changes to the possessions tax shelter. J&J, Schering-Plough and SmithKline were among the first Sec. 936 companies to support Governor Colon's "twin-plant" initiative by committing to open plants in Grenada in 1985. Of the 21 Sec. 936 companies to commit to twin plants in 1985, 16 were members of the Pharmaceutical Manufacturers Association. The report estimates that in 1984, Sec. 936 corporations announted for approximately 30% of all Puerto Rican jobs and 61% of all Puerto Rico manufacturing employment. According to the report, Sec. 936 companies directly employed 94,433 and were responsible for 268,703 jobs in 1984. Companies in the pharmaceutical and chemical industries were directly responsible for 13,169 jobs in 1984 -- or about 15% of total Sec. 936 employment -- but generated nearly 62,000 jobs -- or nearly one-quarter of all Sec. 936 employment. Employment in Sec. 936 corporations in the chemical and allied products industries, which includes pharmaceuticals, rose 4.1% annually in the 10-year period from 1975 to 1985, the Nathan report says. As of 1984, Sec. 936 corporations accounted for 82% of all employment in the relatively high-paying chemical and allied products industries. The report underscores the negative impact that uncertainties over changes in the tax law have had on Puerto Rico's economy during the 1980s. It estimates that 11,600 jobs were delayed as a short term response to TEFRA in 1982 and the Tax Reform Act in 1986. Based on a recent survey of 41 Sec. 936 corporations with 62 plants in Puerto Rico, the consulting firm found that "at least $60 mil. of investment and 1,000 direct manufacturing jobs were permanently lost due to a perception by businesses of long-term instability in Sec. 936." In addition, the report estimates that 1,900 indirect jobs were permanently lost.
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