Rep. Nicole Malliotakis has introduced a new bill, the Supply Chain Security and Growth Act, which could have significant effects for Puerto Rico’s economy.  The bill provides a 40% tax credit for taxpayers who build or buy a manufacturing facility in Puerto Rico that will make pharmaceuticals, medical devices, aerospace equipment, or nano materials. This type of tax credit will be called a “critical supply chains reshoring investment credit.”

Restoring and nearshoring

When U.S. companies moved manufacturing to China, India, and Bangladesh, the process was called “offshoring.” Labor was much cheaper in those countries than in the United States, so offshore manufacturing was more profitable than making goods in America. Manufacturing jobs were lost across the nation, and terms like “the Rust Belt” were used to describe formerly thriving manufacturing centers.

However, the charm of offshoring waned. Wages increased in countries that had provided cheap labor. Shipping costs swelled. Human rights and safety issues came to the attention of U.S. consumers and led to protests and boycotts.

Then came the COVID-19 pandemic, and supply chain disruptions became serious problems. U.S. consumers faced shortages of products, including essential medications and healthcare supplies. Lack of personal protective gear like face masks threatened the safety of healthcare workers, and the inability to get adequate supplies of medications and equipment led to price hikes and shortages of essentials which endangered the lives of patients.

For medical devices and medications, reliance on China and India created serious unforeseen problems.

As the pandemic ended, manufacturers worked to shorten their supply chains, bringing manufacturing back to the United States in a process called “reshoring.” The term was followed by “near shoring,” which covers manufacturing in countries close to the United States, such as Mexico. Nearshoring can be less expensive than restoring and still reduce the length of a supply chain.

Puerto Rico can be considered a venue for both reshoring and nearshoring.

While there have been efforts to improve the position of healthcare supply chains since the pandemic, some 80 percent of active pharmaceutical ingredients are still not produced in the United States. China continues to be the primary source of these ingredients and of basic generic drugs such as ibuprofen.

The bill

The Supply Chain Security and Growth Act covers any tangible property which is “integral to” the production of the specified goods.

“Right now, the lion share of our active pharmaceutical ingredients are being manufactured in Asia, predominately China, posing a severe threat to our medical supply chains and national security,” Congresswoman Malliotakis said in a statement.”Our legislation seeks to incentivize manufacturers to ‘near shore’ their facilities to friendlier locations, such as Puerto Rico, to not only reduce our reliance on foreign nations and protect Americans from life-threatening drug shortages, but promote American jobs and economic development in our U.S. territories. Moving our critical supply chains will allow us more control over production processes and quality standards, and more opportunities to invest in and manufacture materials for the pharmaceutical, semiconductor and aerospace sectors.”

Rep. Nydia Velazquez, a cosponsor of the legislation, added, “Resilient supply chains are imperative to protecting consumers and national security, and we must work to move key production facilities back to the United States. Moving critical supply chains to Puerto Rico will strengthen supply chains and prevent future disruptions while creating jobs for U.S. citizens and stimulating the island’s struggling economy.”

Shades of Section 936?

On the surface, this bill may be reminiscent of Section 936, which allowed pharmaceutical companies to cloak their profits with transfer payments, enriching multinational corporations without benefitting the people of Puerto Rico, or Act 60, which encourages businesspeople to avoid taxes with limited investment in Puerto Rico. These controversial tax loopholes, according to experts, cost the territory and the federal government billions of dollars without creating jobs for residents of the Island.

However, this tax credit is different. It doesn’t allow ongoing sheltering of profits. It offers a credit for capital investments in the production of badly-needed goods. It doesn’t lend itself to washing profits through the Island with transfer payments.

As a state, Puerto Rico will have a level playing field with the existing states, and will — like all the other territories which have become states — be able to develop its economy and find prosperity. Until the Island achieves statehood, the new bill can help to bring new manufacturing concerns to the Island.



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