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Puerto Rico needs a repeal of the Jones Act, further incentives

Media Contact

Rebecca Valli

As Puerto Rico deals with the aftermath of the hurricane and struggles to restore its power grid, much of its economy – including the well-developed pharmaceutical industry – faces an uncertain future.

Steven C. Kyle

associate professor, macroeconomics policy expert

Steven C. Kyle, an expert in macroeconomics and government policy in the U.S. and in low-income countries, says that while a new power grid is obviously the short-term solution, in the long term the U.S. federal government will need to offer substantial incentives to support the Puerto Rican economy.

Kyle says: 

“Because of the Jones Act, which dictates that shipping between Puerto Rico and the U.S. mainland be carried on U.S. merchant ships, manufacturing of bulky products in Puerto Rico is limited in spite of an array of tax breaks and other incentives to manufacturers. However, pharmaceuticals and medical devices are not bulky and so shipping costs are not a major component of their cost. For that reason, many drug and device manufacturers have production facilities in Puerto Rico but are looking at a dire situation as most of the island continues to be without power.

“Reliable electricity is a must for drug production and the current infrastructure devastation on the island could cause some manufacturers to relocate to areas less affected by weather events.

“While the short-term solution is obviously a restoration and rebuilding of the power grid as fast as possible, a longer-term solution might include a variety of incentives for businesses to locate in Puerto Rico.

“Top of the list would be a repeal of the Jones Act or at least a permanent waiver for Puerto Rico. Other measures that would help improve the island’s economy and finances would be to follow through on the president’s suggestion to erase Puerto Rico’s unsupportable debt burden and to repeal limits on its residents’access to federal programs such as Medicaid. With a median household income of only around $20,000 (compared to more than $57,000 in the U.S. as a whole) the options for Puerto Ricans to lift themselves up based on their own resources are clearly quite limited.”

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