Mr. ROMERO-BARCELÓ. Puerto Rico gave a consent for the Congress to legislate as it saw fit regarding Puerto Rico?

Mr. ARRARAS. We voted for that in certain areas. There are other areas of self-government which are clearly defined for the benefit of the people of Puerto Rico.

Mr. ROMERO-BARCELÓ. And that is why Congress has the authority, because the people of Puerto Rico gave it to Congress?

Mr. ARRARAS. I think we have a compact.

Mr. ROMERO-BARCELÓ. What kind of a compact? A compact that you can enforce? Are you accepting whatever happens regarding section 936 in Congress? That has the consent of the people of Puerto Rico?

Mr. ARRARAS. The thing is in the case of section 936, we have fiscal autonomy, but as you know, these are benefits which are under the Internal Revenue Code.

Mr. ROMERO-BARCELÓ. What do you understand as fiscal autonomy?

Mr. ARRARAS. I beg your pardon?

Mr. ROMERO-BARCELÓ. What do you understand as fiscal autonomy? Can you explain what you understand by fiscal autonomy?

Mr. ARRARAS. We have the ability to give tax exemption because we have control over our taxes. We are not taxed by the Federal Government.

Mr. ROMERO-BARCELÓ. Then that does not mean that the Federal Government cannot impose taxes in Puerto Rico.

Mr. ARRARAS. I understand the Federal Government cannot impose taxes on Puerto Rico.

Mr. ROMERO-BARCELÓ. No?

Mr. ARRARAS. Except taxes where we have certain benefits, like social security taxes.

Mr. ROMERO-BARCELÓ. What is happening as an amendment to section 936? Is a tax not being imposed on the companies?

Mr. ARRARAS. This is something that we are going to have, Resident Commissioner, we are going to have in our formula. We are going to request a clarification of section 936.

Mr. ROMERO-BARCELÓ. Do they not collect custom duties in Puerto Rico?

Mr. ARRARAS. But they send us back the revenues.

Mr. ROMERO-BARCELÓ. But the taxpayer pays it. Only the government gets it back after collections. The cost of the collection is deducted, but the taxpayer doesn't get it back.

Mr. ARRARAS. It is for the benefit of the people of Puerto Rico. It is important for the government.

Mr. ROMERO-BARCELO. But Congress has a right to impose it and does impose it and gives it back.

Mr. ARRARAS. But that is part of the compact.

Mr. ROMERO-BARCELÓ. The compact says Congress will give it back, or was it there before any such compact, as you say, was signed?

Mr. ARRARAS. That has been the customary use that has been since very many years.

Mr. ROMERO-BARCELÓ. Because Congress wants to do it. Congress couldn't take it away if it wanted to today? What about the excise taxes? Did they limit it?

Mr. ARRARAS. They go back to the

Mr. ROMERO-BARCELÓ. Not all of them. There is a limit to them. Did you know that?

Mr. ARRARAS. There is a limit.

Mr. ROMERO-BARCELÓ. So what happens to the compact? Why have you not filed a lawsuit to enforce the compact?

Mr. ARRARAS. These are taxes that are in the United States. Mr. ROMERO-BARCELÓ. Why have you not filed a lawsuit to enforce the compact and say, Congress, you cannot do that? Why have you not done that? If I believed that, I would do that.

Mr. ARRARAS. Basically, see, that is the reason, Resident Commissioner, that we want clarification; that we welcome the plebiscite. Because the commonwealth status is not perfect, but, fortunately, it is what the people of Puerto Rico have created for its own benefit, and it is a formula that I know you dislike and that you attack as colonial, but certainly, Resident Commissioner, and Mr. Chairman, it is the best of two worlds.

It is something that we have created and that has most of the advantages of statehood and most of the advantages of being an independent country and it does not have the weaknesses and the disadvantage of being a State or being a republic.

Mr. ROMERO-BARCELÓ. Is the right to vote for the President of the Nation that you are a citizen of, is that a weakness?

Mr. ARRARAS. Is that a weakness?

Mr. ROMERO-BARCELÓ. I would like you to explain that because I thought it was a strength.

Mr. ARRARAS. If we wanted to vote for the President of the United States, we would have to join the Union as a State and we don't want to do that because we don't want to lose our tools for economic development; we don't want to lose our sports participation in the Olympics, in the Pan-American games and the

Mr. ROMERO-BARCELÓ. And that is more important than the right to vote in a democracy; to vote for your President?

Mr. ARRARAS. Resident Commissioner, you cannot isolate. You have to look at this in totality, and I specifically stated that there are many advantages and there are some disadvantages, but in totality, our formula is superior to statehood.

Mr. ROMERO-BARCELÓ. Is having representation in Congress an advantage or disadvantage?

Mr. ARRARAS. It is an advantage.

Mr. ROMERO-BARCELÓ. And the more votes you have, the greater the advantage you have.

Mr. ARRARAS. But then you cannot have your tools for economic development. You could not have section 936, for instance. When we have statehood you will lose and we will lose 300,000 jobs, direct and indirect jobs. And we have tools for the development of the economy.

Mr. ROMERO-BARCELÓ. Have you read the new General Accounting Office report? Have you read this?

Mr. ARRARAS. No.

Mr. ROMERO-BARCELÓ. This is dated June 1993. I will read to you a paragraph of that report and see what you think about this: "The faster growth rate of Puerto Rico's gross domestic product compared to the gross national product means that an increasing

portion of total income produced in Puerto Rico went to the United States and foreign investors than to Puerto Rican residents.

The trends in gross domestic product and gross national product are the logical result of Puerto Ricans' development strategy which emphasizes long-term tax reduction to U.S. firms that locate in Puerto Rico and section 936 which allows tax-free repatriation of profits to the mainland. These complimentary tax policies are tied to income earned in Puerto Rico and not to investment in plant and equipment or job creation.

Over time, these policies attracted industries to Puerto Rico that rely more on capital, including intangible assets-tangible assets are the patent rights-than labor for manufacturing goods, because relatively little of the cost of manufacturing is paid in the form of wages and the capital is owned by non-Puerto Ricans.

Relatively little income from this industry is retained in Puerto Rico. A substantial portion of the income generated by these industries is transferred off the island, principally to mainland parents."

Isn't this an indictment of that policy? Isn't this showing you that we have been exploited; that these companies are making money but they are not really investing in Puerto Rico? Isn't that

Mr. ARRARAS. Any corporation that establishes itself in Puerto Rico goes there for the profit motive. They don't go there for idealism, they go there to make money. What we look for is the creation of jobs, and you have to recognize that 300,000 jobs, direct and indirect, created by 936 are essential to the well-being of the Puerto Rican economy and particularly if you don't have, as your government doesn't have, Resident Commissioner, a viable alternative for economic development.

How are you going to substitute manufacturing in Puerto Rico, with what?

Mr. ROMERO-BARCELÓ. By promoting Puerto Rico, by having confidence in what we have, by saying, first of all, that the Puerto Rican worker is more productive than the mainland worker. That is not something that we have said. It is something that has been said by the U.S. Manufacturers Association.

Their average salary, average wage in manufacturing, is less than half of the average wage in manufacturing in the mainland. We have instant or durable communication with the mainland, we have viable and very good transportation facilities, and ocean transportation is cheaper than land transportation. We have the Federal courts in Puerto Rico which guarantee the stability of Puerto Rico and give confidence to the companies that establish in Puerto Rico, and we have, beyond that, the workers in Puerto Rico staying longer at their jobs and they have also less absenteeism. Those are substantial attractions. And we have, when the special taxes are eliminated, Puerto Rico will cease being a foreign investment area, which we are now, and when they are applying their investments domestically, we would become a domestic area and we would be on the table whenever the companies here are figuring out the domestic investments for the years to come, and there will be much more investment in Puerto Rico.

We have a strategy. We have not used it. What we are doing is stimulating people to come and make more money, and the incen

tive is geared to having them make more money not to provide jobs and invest in Puerto Rico, and that is what the General Accounting Office reports here. This is a body here in Congress, which the Congress relies on because they are technicians. They are people who are not involved in politics. They are people who go out and study the facts and come out with their results and their recommendations, and this has been, it has been distributed now to the members of the Finance Committee.

The report came out about a month ago, but it had a blackout because the Chairman of the committee decided not to distribute it until after the 30 days, but now it is made public. But it is an indictment of this strategy for development in Puerto Rico.

Let us have more faith in ourselves. Let us believe that we are competitive and not say that we are not. Let us not belittle ourselves and say we have to give everything away so that anybody can come and invest in Puerto Rico. That is demeaning and that sells us short in the Nation and everywhere. I think it is about time we stopped trying to sell ourselves short worldwide and in the Nation.

There are a lot of things going for us in Puerto Rico. There are a lot of things that attract investors in Puerto Rico and we should go out and mention those and not just merely tax exemption. That is our investment strategy.

Mr. ARRARAS. If anything has been done in Puerto Rico, I believe that the Popular Democratic Party, insofar as economic development is concerned with the Operation Bootstrap and all the efforts started by Governor Luis Munoz Marin to date, have been evidence of the confidence of our party and the people of Puerto Rico and all the advantages that we have to sell to other countries.

But what I maintain is that 936 is a very important weapon for economic development for Puerto Rico. The problem is that you see it as an obstacle to statehood, and I can understand that.

Mr. ROMERO-BARCELÓ. Did you hear Senator Moynihan say the other day that 936 is on the way out? He is not talking about statehood. They are on their way out.

Mr. ARRARAS. In that regard, I know, Governor Rossello is doing his best, although belatedly, to maintain 936 and has a very strong effort and he has to work against the people, very powerful, like you, who are enemies of 936.

Mr. ROMERO-BARCELÓ. I appreciate your saying I am very powerful. I didn't know that because I don't even have a vote here. But I work hard. That, I do.

Mr. ARRARAS. You are the official representative, the Resident Commissioner, of the people of Puerto Rico, as you know, in Washington.

Mr. ROMERO-BARCELÓ. And I work hard.

Mr. ARRARAS. I know that.

Mr. ROMERO-BARCELÓ. And I explain that because we are not dealing with fools or with people who are ignorant, we are dealing with knowledgeable people. If I convince somebody it is because I bring the facts and the arguments, otherwise I wouldn't convince them here in Congress or the Senate.

The reason I have been able to convince many people is because I bring them the facts. There is not a single case, not a single case,

in Puerto Rico, that shows that any one given company, any one company, would leave Puerto Rico with the changes that are being submitted to 936. All the companies would receive benefits.

The vast majority of the companies are going to get more tax credits on wages than they would have to pay taxes. The majority of them. And the ones that will have to pay the most will still get about a 20 or 25 percent tax exemption. Quite a bit of an exemption. To say they are leaving, they said the same to me when I was Governor and I imposed a tax on them for the first time. They said, Governor, with these taxes we have to leave; we did not calculate this. And they didn't leave. They stayed.

As a matter of fact, the growth of the electronics industry in Puerto Rico was greatest when I was Governor and after the tax was imposed on them. And the pharmaceuticals grew quite a bit too after a tax was imposed on them.

Mr. ARRARAS. I think you are mistaken, but I understand your position.

Mr. ROMERO-BARCELÓ. You think it is better to give grants and benefits to wealthy corporations than give benefits to people, poor people that need it?

Mr. ARRARAS. That is not the

Mr. ROMERO-BARCELÓ. That is a question. What do you think about that? You think it is better to give benefits to people that need it or give grants to

Mr. ARRARAS. I don't think that question is a question that I can answer, because it doesn't make, it doesn't have any logical consequence.

Mr. ROMERO-BARCELÓ. Well, I do. I think it is much better and it is fairer, more just, more social justice involved when you give grants to people that need it, to make a life at least acceptable

Mr. ARRARAS. Do I understand that you are proposing that the jobs created by 936 be exchanged for Federal benefits?

Mr. ROMERO-BARCELÓ. Not the jobs, the benefits given to the companies directly; the grants be exchanged for benefits to the people that need it.

We are U.S. citizens and the poor in Puerto Rico do not get the same benefits as they do in the Ñation, and the cost of living is the same. Now, in the Medicaid, you know that very well. We get $79 million and the poor people that cannot afford health insurance who do not have a job, whose employer provide for health insurance, they have to go, they can only go to the public hospital facilities. And with the $590 million that we invest, because the $79 million the U.S. Government gives Puerto Rico is not enough

Mr. ARRARAS. And you are fighting for that within the commonwealth status because under the commonwealth you can get that through.

Mr. ROMERO-BARCELÓ. But they have never gotten it. For the first time they are paying taxes from Puerto Rico, the companies, and that is giving me something to stand on. That has given me the dignity to argue.

Because how can I come here and argue and ask for more benefits, for more money, give me more money, we need more money, and then they turn around and say, well, what about those companies in Puerto Rico that are getting these exemptions, billions of