Puerto Rico's Pharmaceutical Fix

September 25, 2007

Driving west along Highway 2 from San Juan, past the Burger Kings, Dunkin' Donuts and Gulf stations, it is hard to imagine the sugar haciendas which once covered this rich coastal plain. Palm trees and February warmth are all that distinguish the highway from the tacky commercial strips that cover the decaying industrial northeast of the United States. In contrast to the tropical Hispanic images in tourist offices or airline brochures, even the most immediate visual impressions of much of Puerto Rico reveal the extent of North Americanization: a social, political and economic process becomes ap- parent to the naked eye. Already, barely 35 years after free-enter- prise industrialization was proclaimed as the path from poverty, megalopolan sprawl car- Mar/Apr 1981 ries San Juan into Bayamon, Bayamon into Vega Baja. Eventually the stores do thin out and undifferentiated suburbia yields to roll- ing countryside. Then, about 30 miles west of San Juan, the highway again takes on a more commercial character, lined with enormous industrial plants. Schering and Davis & Geck (an American Cyanamid subsidiary), then Abbott Laboratories and Pfizer; from the distance, beyond the roadside, you can see others: Hoffman La Roche, Merck and Upjohn. A short detour will lead to still more, somewhat obscured from the main road: Endo Labs (a DuPont subsidiary), Squibb and A. H. Rob- bins. All over the island one drives past these vast, antiseptic plants; in San Juan itself, in Humacao and Las Piedras, in Juncos, Cidra and Caguas. At Manati and Barceloneta Highway 2 becomes a veritable phar- maceutical avenue: the center of the island's drug manufacturing industry. The growth of the pharmaceutical industry in Puerto Rico in the past decade and a half has been nothing short of phenomenal. Although Sterling Drugs and Baxter Laboratories had begun productive opera- tions on the island in the 1950s, phar- maceutical operations were hardly significant either to Puerto Rico or to the industry as the 1960s began. Even after the entry of Parke Davis (later to become part of Warner Lambert) in 1960 and of Warner Lambert itself a few years later, the industry was still barely noticed by government planners or in- dependent analysts. 1 But by the end of the decade Eli Lilly, Ab- bott and G. D. Searle had moved operations to Puerto Rico. And in the first years of the 1970s every other major U.S. drug company, and some Swiss and West German giants as well, began producing on the island (see Table 2). Between 1967 and 1977 sales of phar- maceutical firms based in Puerto Rico grew at an average rate of about 33% per year. The industry's growing importance to the island's economy stands out in its share of Puerto Rico's total gross domestic product which jumped from 6% to 26.5% in the same ten years.' Furthermore, the "value added"* by the island's pharmaceutical industry jumped from barely 1.5% of that of the industry in the United States to over 10% in the same period.3 This astonishing growth in output has been due almost entirely to newly established Puer- to Rican subsidiaries of primarily U.S.-based transnational corporations. (In 1973 external stockholders equity** was 99.9% of total equity in the pharmaceutical industry.) 4 The movement of pharmaceutical firms to Puerto Rico represents a convergence of the companies' needs with the political, social and economic characteristics of the island. Their growth illustrates the consequences of the development policies pursued by the island's political leadership since World War II, particuarly those of the "second stage" of industrialization (see "Bread [foreign], Land [wasted], Liberty [denied]"). The growth of the pharmaceutical in- dustry, and of its share of the total economy, is only the most dramatic example of a more general shift in the island's economy. In com- parison to the myriad small firms in the earliest industries (clothing, textile, shoe and leather), the newer ones (petroleum refining and petrochemicals, electronics and electrical machinery, scientific instruments as well as pharmaceuticals) are more capital intensive (this means more is spent on plant, equip- ment and the like for each dollar spent on wages) and more dominated by subsidiaries of large transnational corporations. The newer industries have also grown much faster than the economy or the manufacturing sector as a whole (see Figure 1). As this process unfolds, the relationship of each Puerto Rican sub- sidiary to its transnational parent comes to epitomize the island's overall relationship to the United States and the wider world economy. Certainly some causes of the explosion of pharmaceutical production on the island in this period were unique. But only in detail. By examining the roots and consequences of the growth of this industry we can see more general changes in the Puerto Rican * Value added is the difference between the final value of manufactured goods and the cost of materials used to produce them. It is considered the best measure for comparing the importance of different geographic areas to a given industry. ** Equity is the technical term for ownership. 23NACLA Report economy. As the first article made clear, by the early to mid-1960s the island's relationship to the United States and the conscious intervention of the Popular Democratic Party (PPD) had succeeded in inducing rapid industrialization and the accompanying, much-heralded in- creases in gross product and per capita in- come. NEW PROBLEMS But this same process also resulted in new problems. On the most symptomatic level, employment growth in industry and massive out-migration were barely making up for the decline in agriculture, let alone accomodat- ing the employment demands of a growing population. The continued operation of ex- isting firms that were approaching the expira- tion of their original ten-year local tax ex- emption grants was by no means assured. As the grants began to expire, wages were on the rise, not so much relative to the United States, but in comparison to new centers of low-wage production in the third world. Mutual tariff reductions negotiated between the United States and its major trading partners began to dim the appeal of investing within U.S. tariff barriers. All this put into question further employment-generating manufacturing in- vestment by those industries which had fueled the first decade of Operation Bootstrap. Furthermore, the very openness which per- mitted U.S. investors to start up production easily also made it possible for U.S. firms to freely compete for a share of the local market for goods and services. Puerto Rican firms that sought to take advantage of the same openness by producing for export to the United States could not compete with U.S. firms that were better financed and more ex- perienced in the U.S. market. At an earlier phase of the island's industrialization PPD ideology stressed the creation of a "balanced economy" -balanced, that is, between U.S. and Puerto Rican ownership. But as former governor Roberto Sanchez Vilella (1964-68) put it: "It's a David and Goliath situation. How can a Puerto Rican businessman in- terested in pharmaceutical production com- pete with an Abbott? We're competing with giants."s Local enterprises that could not compete either folded or sold out to U.S. corporations. The results were a steady increase in external ownership of manufacturing enterprises, and increasing share of gross output leaving the economy in the form of profit remittances, and a growing dependence on external invest- ment for further economic growth. Confronted with the problem of sustaining economic growth as Bootstrap entered its sec- ond full decade, the policies pursued by the PPD remained within the logic of the com- mon market and integration with the United States. They continued to look to foreign, primarily U.S., investment, albeit of a new type. The government targeted larger U.S. firms in more capital-intensive industries as the basis of a new stage of Bootstrap, arguing that they would be more able both to with- stand the new competitive pressures of the in- ternational economy and to pay higher wages than the industries which arrived earlier. They furthermore would be more "perma- nent" precisely because of the higher capital investment required. 6 At the same time as the PPD searched for new sources of industrial investment to fuel the economy, the leading U.S. corporations were searching for new locations which would boost their profits. MULTINATIONALS MARCH By the time the pharmaceutical firms started manufacturing drugs in Puerto Rico, they were modern, complex organizations, as were their counterparts in other industries. The simple process of a pharmacist mixing raw ingredients in a mortar and pestle had developed into a series of discrete activities, all under centralized corporate management. Production, now only one aspect of the firms' operation, was separated from research; sales and marketing, distribution and accounting and other control functions also evolved into separate but coordinated operations. And production itself had become a much more complex process. A constant effort to lower costs encouraged the development of produc- tion methods that required fewer and fewer skilled workers in the overall process. If cars could be made by unskilled assembly line operators, why not drugs?' By breaking down corporate operations in this manner, the location of each step in the 24MarlApr 1981 25 overall process could be determined separate- ly, based on the cost of factors particular to each step. Sales people could be based closest to the markets; research and development staff might be more easily recruited from university centers or concentrations of technologically trained labor (e.g., the Boston rim, California's silicone valley); while production requiring unskilled labor could be moved to areas where labor costs were minimal. By the dawn of the post-World War II era, corporate America was ready to extend this process to the entire "free world." U.S. political power, the development of interna- tional financial institutions which greased the flow of capital and the creation of new pools of wage seekers in the third world all con- tributed to the "internationalization of pro- duction." As large capitalist firms spread productive facilities, the PPD set out to garner as many as they could to the island. They offered in- vestors Puerto Rico's still relatively low wages, its proximity to and legal incorporation within the U.S. market, its "political stability" and, once again, exemption from federal and local taxes. To attract the new industry and at the same time ensure the continued operation of the still vital industries already there, the PPD legislated a new Industrial Incentives Act in 1963, which made clear that exemp- tion from Puerto Rican taxes for industrial in- vestors would be a permanent feature of the island's development policies (see "Tax Ex- emption," p. 33). In the early 1960s, petroleum refining and petrochemicals comprised the administra- tion's main targets. But efforts to get a share of the import quota, which at that time restricted the import of cheaper foreign oil in- to the U.S. market, precipitously collapsed in 1973 when the emergence of OPEC and the end of the era of cheap oil revolutionized the economics of the petroleum industry. By contrast to the PPD's attempts to pro- mote the island to the petroleum industry, the pharmaceutical industry promoted itself to Puerto Rico. The explosion of pharmaceut- ical production, which today is so significant a part of the island's economy, thus did not result from conscious government planning. Like other U.S. firms, the industry was attracted by Puerto Rico's abundant, cheap, but increasingly educated workforce, its developed infrastructure and the "stability" of its political climate." But by all accounts the 100% exemption from federal and local taxes was the key fac- tor, 9 in part because for a capital-intensive in- dustry the wage differential was not as impor- tant as it was for firms in more labor-intensive industries. Moreover, because capital- intensive industries are generally more prof- itable than labor-intensive industries, exemp- tion from taxation, which is based on profits, assumes a greater importance. Tax exemption benefits assumed particular import for pharmaceutical firms in the face of an industry-wide profit crunch in the late 1960s. Prior to 1967 the industry's steady growth in earnings, and investors' mistrust of insecure tax havens dulled interest in Puerto Rico. Companies reasoned that earnings would decline once the ten-year exemption from Puerto Rican taxation expired (see "Tax Exemption"). But after that year, as Chase Manhattan explains, the industry experi- enced a real slowdown. Companies then began feeling the need to take advantage of tax benefits for continued earn- ings growth. Adding further encouragement ... was the favorable response of the investment communi- ty to the experience of U.S. companies whose tax-exempt period had expired. Several com- panies succeeded in bringing back earnings at the end of tax holidays and in starting up new 931 companies so the tax benefits could be maintained. .... 10 MIRACLE DRUGS, MIRACLE PROFITS Furthermore, the particular nature of pharmaceutical products, and therefore of production and competition, enabled the in- dustry, perhaps more than any other, to enhance their profits by moving certain pro- ductive operations to Puerto Rico. There were several reasons for this. First, pharmaceutical products are high in value relative to shipping weight. Production can be geographically dispersed with minimal additional costs to take advantage of special characteristics; in Puerto Rico's case, of lower wage levels, developed infrastructure, tax ex- emption and so on. MarlApr 1981 25NACLA Report Second, each product, i.e., each drug, is relatively original. Of course, despite what the advertisements tell us, aspirin is aspirin, no matter who manufactures it. The same goes for most over-the-counter products. But prescription drugs can have a unique impact on the body. While cars or televisions may vary in size, price, reliability and even in special features, there is still something fun- damentally common to all cars or all televi- sions. But an antihistamine doesn't compete with a birth control pill. And the character of competition among pharmaceutical firms is consistent with the character of their pro- ducts. Competition involves not only marketing savvy or cost efficient production as in other industries, but research breakthroughs-- to develop products that are authentically different from and superior to drugs already on the market. Such breakthrough products not only are able to achieve high sales rapidly, but with patent protection they can command a premium price and thus premium profits. Even after patent expiration brand-name loyalty developed during the term of the patent may extend profits into the post-patent period. Thus, as Fortune put it: "Few things in American business are more profitable than an important discovery of a new drug well wrapped in patent protection.""' What has all this to do with Puerto Rico? Like other transnationals, pharmaceutical firms have moved only certain intermediate stages of production: in their case the produc- tion of chemical compounds used in the pro- duction of drugs (called "bulk chemical" pro- duction), and in some firms, the preparation of actual dosage-form products from these compounds (called "pharmaceutical" produc- tion proper). But by and large the drug transnationals have confined even these in- termediate stages of production in Puerto Rico to their most profitable products, their corporate "milk cows."' 2 Garamycin, Scher- ing's antibiotic produced in Puerto Rico, for example, has in recent years accounted for 25% of the firm's total sales and 45% of its total profits. Smith Kline moved production of Tagamet, its new anti-ulcer miracle drug, which accounted for nearly half of its total global profits in 1979, to plants in Cidra and Guayama. Upjohn began producing Motrin, a non-steroid, anti-inflammatory drug, in Arecibo; its 1975 sales were the highest first- year sales ever for any drug in the U.S. market. 3 By taking these successful drugs to Puerto Rico for production the companies maximize the profits earned by their subsidiaries in this tax-free environment and thus increase overall after-tax profits. No wonder that as Chase put it: "Failing to maximize growth of stockholders' equity in such a way is now viewed negatively in the investment world."" The Puerto Rican subsidiaries of U.S. and other foreign drug corporations, like the island's newest and fastest growing electronics and electrical machinery, scientific in- struments and other manufacturing sectors, are thus fundamentally production sub- sidiaries. They form one step in a transna- tional process that begins with research in the United States or Europe, and ends with the shipment of virtually the entire production line to overseas distribution centers or to other subsidiaries for another stage of preparation. In 1977 only 1.6% of drug industry output was not exported." A BALANCE SHEET Pharmaceutical profits on Puerto Rican operations have risen dramatically, from ap- proximately $250 million in 1973 to over $1 billion in 1978, a whopping gain of 428%. In the past five years the industry's profits in Puerto Rico have accounted for roughly half of all profits earned by U.S. manufacturing subsidiaries on the island, according to Treasury Department reports. Profits earned by these Puerto Rican sub- sidiaries have increased from about 17% of the industry's total after-tax profits in 1973 to about 49% in 1978, the latest year figures are available from the Treasury and the Federal Trade Commission. These statistics reflect fancy company bookkeeping as well as "real" increases. Paper profits are allocated by transnational parent corporations to their Puerto Rican sub- sidiaries in order to stretch the advantages of the island's tax exemption. In such intracom- pany transactions, called "transfer pricing," corporate parents may, for example, sell their Puerto Rican subsidiaries raw materials cheaply but pay an inflated price for the final 26MarlApr 1981 product, thus boosting tax-free subsidiary earnings while minimizing the profits earned by the parent subject to federal tax.'" NACLA has learned that Upjohn's Arecibo subsidiary, for example, charges Upjohn's headquarters $600,000 for a lot of 81,500 am- pules of cleocin phosphate, which, according to internal accounting sheets obtained by NACLA, costs the subsidiary only $67,793 to produce. The Internal Revenue Service can chal- lenge transfer prices if they vary from what entirely independent entities would have charged for identical or similar products or services. (This is called "arms length" alloca- tion.) But in the case of pharmaceutical pro- ducts "arms length" prices are often difficult to determine because there are no identical or comparable prices to use as a bench mark. (For example, the entire world supply in bulk chemical form, and the entire U.S. supply in final dosage form of Darvon is produced by a Lilly subsidiary in Carolina, Puerto Rico. What would constitute an "arms length" price for the sale by the subsidiary to the parent of this product?) Furthermore, although none of the phar- maceutical firms have set up research and development facilities on the island, they have allocated to their Puerto Rican subsidiaries the portion of final product price accounted for by the research required to develop pro- ducts manufactured there." 7 Following a series of IRS rulings in the 1950s and 1960s, drug companies have attempted to legally justify such allocations by selling to their Puerto Rican subsidiaries the patents for the products the subsidiaries produce. Wall Street analyst John Buttles II explains: Eli Lilly sold all rights in certain undisclosed patents, with about ten years to run, to an island subsidiary for $13 million-no small sum, except that the expected revenues from the patents' remaining life may be many times that figure. ' The remarkable profitability of the in- dustry's Puerto Rican operations has pro- voked criticism and debate, pitting industry groups and the government, who point to new jobs and relatively high wages, against critics who emphasize the small number of total jobs generated and the wage gap relative to the United States (see Figures 1 and 2).19 FIGURE 1 EMPLOYMENT TRENDS SELECTED LABOR INTENSIVE AND CAPITAL INTENSIVE INDUSTRIES No. of Workers 160,000 150,000 All Manufacturing 140,000 130,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 *tobacco, textile, apparel and leather products. "**includes pharmaceuticals, chemicals and allied pro- ducts, professional and scientific instruments & related products, and machinery, except transportation equip- ment. Source: Plotkin, Studies on Impact of Sophisticated Manufacturing Industries on Economic Development of Puerto Rico (Arthur D. Little, 1980). FIGURE 2 AVERAGE HOURLY EARNINGS UNITED STATES AND PUERTO RICO (Octdber 1980) All Manufacturing Pharmaceuticals $8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0 Source: U.S. Dept. of Labor, Employment and Earnings; Puerto Rico Dept. of Labor, Census of Manufactures. While wage levels, even on the island, are significantly higher in pharmaceutical and other capital-intensive industries than in ap- parel, leather, textile and shoe manufactur- Selected labor intensive industry Selected capital intensive industry I I , I I I l I I l 27 27 I l I I I I I t I I28 NACLA Report ing, which dominated the island's initial in- dustrialization, the share of total income which remains on the island is much smaller than in the older industries. 2 0 Puerto Rican ownership of these industries is miniscule and the share of total income going to labor is small. Consequently, as the capital-intensive sec- tors have expanded relative to the rest of the economy, the share of the island's gross prod- uct going to external sources has increased as well. UNION BUSTING The pharmaceuticals have used their posi- tion as a growing industry paying higher than island-average wages to keep their employees in line. 2 " In spite of frequently hazardous working conditions 2 2 and a growing gap be- tween corporate profits and workers' wages, not one of the island's pharmaceutical firms is unionized. As one pharmaceutical executive put it to me: "We fight unions in any way we can. We think we can do a better job for our workers than any 'third party.' We've never had a union and we intend to keep it that way."2 3 The anti-union tactics of the industry range, as they do in the United States, from paternalism to repression. The plants themselves are a far cry from the hot factories of Detroit or Pittsburgh, with pleasant employee cafeterias, ping-pong tables and company-organized softball teams com- municating a "we are family" ideology. But these antiseptic plants, which dominate the spacious "industrial parks" in which they are situated, seem to com- municate another message: of individual powerlessness in the face of corporate strength. Reinforcing this is an industry-wide personnel system which screens known "troublemakers" (i.e. rank-and-file union ac- tivists or independistas, or those suspected of such sympathies) from employment in the in- dustry. Employees' political attitudes and union sympathies are carefully monitored by managers and, as the result of corporate prodding, by other workers. 2 4 DRUG BUSTS? While the debate goes on in Puerto Rico, the ground rules may be changing. The IRS has accused several drug companies of wrongfully allocating income to their Puerto Rican subsidiaries under current law. Some companies have settled while others are still negotiating (see Table 2).But Eli Lilly, which has been assessed an additional $21.8 million in taxes on $50 million in earnings from 1971 to 1973, is fighting its case in the courts. Ironically, the Treasury Department's own report on U.S. subsidiary profits in Puerto Rico casts doubt on the IRS' case against Lil- ly.2p Nevertheless, according to Business Week, Lilly's refusal to settle worries drug ex- ecutives, who fear an IRS victory could set a precedent that would apply to their own Puerto Rican earnings.' 6 Table 1 TRANSFER PRICING CASES Company Settled Years of Additional Reallocation Tax Levied (millions) G.D. Searle Warner Lambert (Parke Davis) Pending in Court Eli Lilly G.D. Searle American Hospital Supply Under Investigation Abbott Laboratories Eli Lilly Schering. Plough SmithKline Pfizer 1970-73 1960-70 $16.0 44.2 1971-73 1974-75 1973-74 21.8 58.0 1970-73 1974-75 1971-73 1973-75 1972-75 Sources: Barron's, Business International, Business Week, Caribbean Business, San Juan Star, Wall Street Journal, and business reports. 28 NACLA ReportMarIAp; 1981 29 Since the 1950s, Puerto Rican governors from Munoz Marin to Romero Barcelo have warned against the adverse impact of IRS in- vestigations into corporate profits on the island's effort to keep attracting U.S. cor- porate investment, and they have lobbied the IRS for interpretations of the tax code most generous to U.S. corporations. 2 7 As a result, they have helped the transna- tional corporations make the island a way sta- tion, an intermediate link in a global process. Command and control functions remain at the home office. Decisions about how and where to reinvest the enormous profits earned (or at least booked) by subsidiaries on the island continue to be made in New York, New Jersey and Illinois boardrooms. Research and development, which draws on and thus fosters scientific and technical knowledge and educa- tion, is performed in the United States or Europe. As Business International explains: The bulk of Puerto Rico's manufactured ex- ports are produced by the local affiliates of off- shore companies, most of them U.S. Thus, all their decisions to export out of Puerto Rico-- what, how much, and to whom - are intrinsical- ly tied to the needs and requirements of parent company headquarters. 2 8 This well illustrates the dilemma of in- dustrialization through foreign investment. Puerto Rico has fostered an economy in which it is the clear loser--its workers underpaid, its share of profits nonexistent, its taxation of those earnings minimal, its role in the iriternational division of labor decided exter- nally- because, at least within the logic of the present system, the withdrawal of foreign in- vestment would be even more disastrous. Bootstrap was proclaimed as planned development, a careful matching of island resources with investor's needs to meet Puerto Rican objectives. By the late 1960s and early 1970s, as a direct consequence of the dependence on foreign investment created by Bootstrap itself, the government was instead scrambling for additional investment from whatever source and opening the island to whatever investment would come. FERMENTING DISASTER One result of such unplanned development has been to seriously jeopardize the island's environment, a field in which again, phar- maceuticals have pioneered new techniques. Pharmaceutical production, like most in- dustrial investment, initially was centered in the San Juan metropolitan area, encouraging uncontrolled sprawl. But the government's "solution" was merely to spread this sprawl to the rest of the island. Unplanned expansion in San Juan was alleviated by unplanned expan- sion all over the country. The pharmaceutical industry found an ideal location along the island's north coast. Not only was unemployment in the Barceloneta-Manati-Arecibo area among the highest as the 1970s began, but the ample supply of high-quality fresh water was a tremendous draw for the drug industry. Huge quantities of pristine water are needed not on- ly to keep plants sterile, but especially to pro- duce those drugs (largely antibiotics) created through fermentation. 2 9 While American Dietaids had begun manufacturing vitamins in Arecibo in 1960, Endo Labs' and Abbott Labs' 1968 openings in Barceloneta and Manati, respectively, real- ly kicked off the expansion of the industry to the north coast. In the next eight years, ten transnational giants opened pharmaceutical plants in the area. The rapid growth of pharmaceutical pro- duction coincided with the growth of federal environmental legislation restricting certain industrial practices. But although as a U.S. possession Puerto Rico is subject to these en- vironmental laws and regulations, the island lost an opportunity for environmentally sound development even with an almost entirely new industry. In its hasty efforts to induce U.S. industrial investment on the island, the Puerto Rican government promised companies entering the Barceloneta-Manati-Arecibo area that they had no need to be concerned with the impact of their activities on the environment: either enforcement would be more lax than on the mainland, or the necessary facilities to deal with the industry's wastes would be provided. 3 0 The industry's high demand for fresh water has been met from a rich natural source: a limestone aquifer, in which layered rocks hold plentiful supplies of fresh water. Although MarlApr 1981 29Table 2 U.S. PHARMACEUTICAL COMPANIES IN PUERTO RICO Year of Entry Company U.S. Rank (by global drug- related sales only, FY 1980) Year of Entry Company U.S. Rank (by global drug- related sales only, FY 1980) 1950 1958 1960 1961 1962 1963 1966 1968 1969 1970 1971 1972 12 1973 1974 Sterling Drug Baxter Laboratories (name changed to Baxter Travenol, 1976) Chase Chemical (Arroyo Pharmaceutical) (acquired by Archon, 1971) (Archon acquired by Irroquois Brands, 1978) Parke Davis (acquired by Warner Lambert, 1970) American Dietaids Barnes Hinds Phar- maceuticals (acquired by Revlon, 1976) Stiefel Laboratories Warner Lambert Eli Lilly Forest Laboratories Abbott Laboratories Endo Laboratories (ac- quired by DuPont, 1969) G.D. Searle Bristol Myers SmithKline Squibb Technicon (acquired by Revlon, 1979) Allergan Pharmaceuticals (acquired by SmithKline, 1980) American Hospital Supply Bio Dynamics (acquired by Boehringer Manheim, a West German company, 1975) Reid Provident Laboratories (operations discontinued, 1975) Carter-Wallace Cooper Laboratories 1975 1976 1977 1981 Merck Schering Plough Adria Laboratories (50% owned by Hercules) American Home Products ICN Pharmaceuticals Johnson and Johnson Pfizer Revlon Upjohn Alcon Laboratories (ac- quired by Nestle, a Swiss company, 1977) American Cyanamid Richardson Merrell (Merrell Pharmaceuticals acquired by Dow Chemical, 1981; Richardson Vicks spun off as separate com- pany. Both have operations in Puerto Rico.) Block Drug Culbro (proprietary medicine division, including Exlax, acquired by Sandoz, a Swiss company, 1981) Syntex Laboratories Morton Norwich SCM Ohio Medical Products Group (scheduled) 1 10 2 13 5 7 16 15 Sources: Fry, "The U.S. Pharmaceutical Industry in Puerto Rico," (Chase Manhattan Bank, 1979 and 1979 update); P.R. Economic Development Ad- ministration, "The Drug and Pharmaceutical In- dustry in Puerto Rico," June 1980, and business reports. 4 6 11 14 3 8 9 30 NACLA ReportMarlApr 1981 31 physically small, perhaps 20 miles wide in- cluding the portion extending under the ad- joining ocean floor, the aquifer is replenished by approximately 80 inches of annual rain- fall. 3 " The industry's water needs have caused several problems, however. Limestone is ex- tremely porous, so if fresh water is withdrawn from the aquifer too rapidly, even the generous rainfall won't be sufficient to pre- vent intrusion of salty ocean water along the coast. The geographic concentration of these water-intensive facilities has already led to observed declines in water pressure in some areas. Furthermore, environmental author- ities have not built the necessary observation wells to monitor the salinity of the water table in the area. 3 2 DUMPING ON PUERTO RICO Liquid wastes from pharmaceutical pro- duction are disposed of in three ways, all damaging to the environment. They are discharged into the Manati River, returned to the aquifer and dumped in the ocean. In 1974, Manati fishermen complained about an "odorous, thick, brown liquid" dumped by a tube from Merck's plant as well as pollution by Bristol Myers. The river, they reported, was becoming thick with vegetation, difficult to navigate and beginning to give off an unpleasant smell. A normal catch of 4,000 pounds in the late 1960s was, by this time, re- duced to 40 pounds. Nets that used to last five years needed to be replaced after only two or three, at a cost of $400 to $500 each. 3 3 The return of industrial liquid waste to the aquifer directly is done by deep-well injec- tion, by spreading over land through sprinklers and by direct application to sinkholes. The injection wells (as at Abbott) are by far the most dangerous, because the li- quid injected isn't even subject to the minimal treatment of the other two methods. 3 4 But these too are risky, because the limestone aquifer is so highly porous that it affords little, if any, treatment to the dis- charged wastes. Furthermore, the location of so many wells for drawing water out of the aquifer, including wells for domestic (i.e., people's) supply, precisely in the same place as the discharge of liquid wastes into the aquifer creates the danger of contamination. As a study for the Environmental Quality Board (EQB) points out, in the Barceloneta industrial area "the pathway from the point of contamination to the population [is] very short." 3 5 In fact, the "Florida Afuera" well for domestic water supply, located less than a kilometer east of the area of major concentra- tion of pharmaceutical plants, was closed at the beginning of 1972 due to such contamina- tion.36 As an "interim solution" to the industry's li- quid waste discharge needs, the environmen- tal authorities sanctioned dumping of the most concentrated and toxic liquid wastes in- to the ocean, causing problems which they have refused to take seriously. First, the storage bins in Arecibo where the wastes are collected prior to being carried out to sea fill the air with nauseating odors. 3 7 Second, there have been frequent allega- tions that the barge dumps the wastes before reaching the designated discharge site, 42 miles north of Arecibo. Nelson Carrasquillo, who works with the fishermen, testified in 1977 that they know when the barge returns within a period of 72 hours that it has dumped waste before the 42 miles. 3 8 Third, preliminary studies in the Puerto Rican dump site have revealed some harmful effects on phytoplankton, right behind the waste-dumping barge.s9 Despite the current and potential hazards of dumping, recognized by the Federal Marine Protection, Research and Sanctuaries Act of 1973, the "interim" has lasted from 1973 to the present. CORPORATE DELAY, GOVERNMENT OBSTRUCTION Fomento promised the pharmaceutical firms that a planned Barceloneta waste treat- ment system would provide an acceptable alternative to these three methods, and the Puerto Rican Aqueduct and Sewer Authority (PRASA) began a design for a primary treat- ment plant. Meanwhile, the EPA authorized temporary ocean dumping, requiring only that companies promise they would par- ticipate in the Barceloneta system once a primary plant was operational. But the EPA's own memos from this period show quite clear- MarlApr 1981 3132 NACLA Report ly that it was aware that the projected primary plant would not adequately treat the wastes from drug firms flocking to the area. 4 0 The planned primary plant basically would remove only solid material and discharge the remaining liquid through a pipeline extend- ing approximately 1000 yards into the ocean. But, as an EPA official stated as early as March 1974: "Because most of the wastes coming into here are in soluble form . . . any primary treatment isn't going to have too much of an impact on these particular wastes." 4 1 As the plant neared completion, battle lines were drawn between government (and EPA) and the industries on one side and area residents and the island's environmental movement on the other. The battle raged from February 1975, when a draft permit for the plant's operation was first circulated, un- til June 1977, when it was finally granted per- mission to begin operations." 4 Responding to industry pressure, the EQB, required to certify that the plant's discharge would not violate local water quality stand- ards, suspended the standards." While EQB did agree to restrict industrial discharges to the plant to five firms, eliminating the phar- maceutical companies (except for Merck), 4 4 it never adequately studied the composition and potential impact of the wastes from the ap- proved users lists, which changed five times from 1966 to 1977. Ironically, the primary plant began operating one month after the July 1, 1977 deadline for secondary treat- ment. Although the EPA complained that the industries "did nothing to move ahead on the design of the regional secondary plant," it tolerated these delays. 4 6 Not until the September 1976 ocean dump- ing permit hearings--four years after their 1972 memo-did the EPA require the com- panies to get their water discharges to a level acceptable enough to be disposed of by a method other than ocean dumping by November 1979.46 Although the EPA seemed to be requiring the companies to move independently of PRASA, their actions indicated otherwise. In- formed by American Cyanamid in a letter of December 12, 1977 that "PRASA's estimated completion date goal cannot be achieved," and by PRASA itself the following February that "unavoidable delays have been incurred in the process of selecting and retaining an architectural-engineering firm," EPA nevertheless renewed ocean dumping permits in March 1978 with the same 1979 completion deadline for the secondary plant. 4 7 At a hearing in November 1977 which led to the March 1978 renewal of the ocean dumping permits, an EPA official threatened huge fines, but area resident Nelson Carras- quillo was not so confident. Noting that the 1979 limit had been heard at countless hear- ings, he asked what guarantee communities had: We question seriously if in fact the phar- maceuticals will comply with the requirement that you have requested by November 1979. We wonder what will be the decision of EPA in case they don't comply by 1979." Finally, the charade was discontinued. PRASA asked for an extension on May 26, 1978, and in August it proposed a new schedule leading to completion of the secon- dary plant by October 1, 1981. The phar- maceuticals asked for a similar modification of their ocean dumping permits at about the same time. Carrasquillo was prescient: the EPA took no enforcement action and agreed to the delay. The reason for the delay was the com- panies' unwillingness to pay for the secondary facility, despite the requirement that they stop ocean dumping. In the end they made a deal. In return for reduced "tollgate" taxes on profits repatriated to the United States, they agreed to invest a portion of their ac- cumulated earnings in bonds of a new agency, AFICA, which financed the Barceloneta secondary facility. Since at the same time they earned tax-free income on the bonds, they not only didn't have to pay for the plant, they even made money on it."9 A NEW VISION? In recent years the Puerto Rican govern- ment has discouraged new industries from entering the Barceloneta area, in effect con- ceding that area residents and environmental- ists have had a clearer vision for the land than economic development and planning agen- cies. But although further industrialization has been limited, the area's problems have not been solved; unemployment and low in- 32 NACLA ReportMarlApr 1981 33 comes remain; fishing has been destroyed, water supplies threatened and air quality damaged. And the island as a whole has been plunged into an economic crisis--official unemployment rising to 17%, government debt reaching 63% of the island's gross na- tional product--which will only be exacer- bated by Reagan's budget cuts. Ironically, this increases Puerto Rico's dependence on the same corporations. And despite government efforts to attract transna- tional investment, the "permanence" of these investments remains an illusion. Phar- maceuticals may find even more favorable locations for drug production, especially if the IRS cracks down on transfer pricing abuses or if Congress repeals the corporate tax exemption for Puerto Rican operations. Can Barceloneta become Puerto Rico's--and the drug industry's -"Youngstown"? But economic development based on foreign investment has proceeded so long in Puerto Rico, is so deeply woven into its present-day reality that it is difficult to even imagine alternatives. A return to the past is impossible. But a change to a different economy--one based on Puerto Rico's inter- nal needs and resources, on a relationship with Puerto Rico's Caribbean neighbors- has only begun to be thought through by critics of the island's incorporation into the transnational corporate system. The impact of Reagan's budget cuts on the island may ac- celerate the questioning of reliance on foreign investment and provide an opening for cor- porate critics in the island's political life. TAX EXEMPTION: BASIC TERMS Corporate income earned by subsidiaries operating in U.S. possessions has been exempt from federal taxes since 1921. The U.S. exemption became Section 931 of the revised internal revenue code of 1954; possession-based subsidiaries of U.S. corporations thus became known as 931 firms or simply 931s. Profits of operating 931s were tax free only so long as they were not returned to the parent cor- porations; but if the 931 firm were liquidated, its accumulated profits could be repatriated free of federal taxes. Puerto Rico, where all but about 20 of hundreds of 931 firms have operated, passed its own series of Industrial Incentive Acts, beginning in 1948, ex- empting income from certain manufacturing oper- ations from Puerto Rican taxes for a limited term. The 1948 act exempted income from the manufac- ture of goods not produced on the island prior to its passage (and a small number of additional pro- ducts) for up to ten years. Subsequent amendments widened the exemption and extended it up to 30 years depending on the location of the operation. The combination of federal and Puerto Rican tax laws had several consequences. First, Puerto Rican-based manufacturing 931s were totally free from taxes for the term of the Puerto Rican exemp- tion. Second, corporations had a powerful incen- tive to liquidate their Puerto Rican operations at the end of their exemption grants in order to avoid paying Puerto Rican taxes and to permit the tax- free repatriation of their profits. Third, in preparation for their eventual liquida- tion, 931s accumulated profits in Puerto Rico. These were either deposited in banks-with Citibank and Chase Manhattan getting the lion's share, especially from the subsidiaries of the larger U.S. firms with which these banks already had es- tablished ties--or invested directly in financial markets. Accumulated profits, amounting to some $3 billion by 1975, could earn tax-free interest if they were invested in municipal bonds or (at even higher rates of return) in the Eurodollar market. As 931 profits accelerated (with the pharmaceutical firms in the forefront) the tax code steered millions out of both Puerto Rico and the United States. Amendments to Puerto Rico's Industrial Incen- tives Act in 1954 and 1963 made it easier for com- panies to continue operating on the island after the expiration of their original grants, through exemp- tion extensions and by permitting them to transfer assets from liquidated subsidiaries (whose ac- cumulated profits could then be repatriated to the U.S. parent tax free) to "new" (on paper) 931 firms. But there was no assurance such a tax-free paper liquidation could be carried out. As part of the Tax Reform Act of 1976, Congress rewrote the rules of federal tax exemption in a new Section 936 of the tax code, with the intention of halting the flow of accumulated 931 profits to MarlApr 1981 33NACLA Report -references BREAD, LAND, LIBERTY 1. A. Rodriguez-Vera, Agrarismo colonialy traba- jo a domicilio (San Juan: Imprenta La Democracia, 1929), p. 10. 2. Esteban A. Bird, Report of the Sugar Industry in Relation to the Social and Economic System of Puerto Rico (Senate of Puerto Rico, January 23, 1937), p. 24. 3. A.D. Gayer, et al., The Sugar Economy ofPuer- to Rico (New York: Columbia University Press, 1938), p. 112. 4. Bailey Diffie and Justine Diffie, 'Porto Rico: A Broken Pledge (New York: Vanguard Press, 1931), p. 88. 5. Ibid., p. 45. 6. Gayer, The Sugar Economy, p. 40. 7. Thomas Mathews, Puerto Rican Politics and the New Deal (Gainesville: University of Florida Press, 1960), p. 155. 8. Gayer, The Sugar Economy, p. 49. Cultura, 1955), p. 40. 9. Enrique Lugo-Silva, The Tugwell Administra- tion in Puerto Rico, 1941-1946 (Mexico: Editorial 10. Miguel Guerra-Mondragon, "The Legal Back- ground of Agrarian Reform in Puerto Rico," in Carib- bean Commission, Caribbean Land Tenure Symposium (Washington, D.C., 1946), p. 178. 11. Enrique Bird-Pinero, "The Politics of Puerto Rican Land Reform: A Study in the Dynamics of Legisla- tion," (Masters essay, University of Chicago, 1950), p. 277. 12. Nathan Koening, A Comprehensive Agricul- tural Program for Puerto Rico (Washington, D.C.: United States Department of Agriculture, Government Printing Office, 1953), p. 252. 13. Ibid., p. 250. 14. U.S. Senate, Committee on Territories andInsu- lar Affairs, Hearings on S.227, 79th Congress, 1st Sess., March-May 1945, p. 386. 15. Mathews, Puerto Rican Politics, p. 163. 16. James O'Connor, The Fiscal Crisis of the State (New York: St. Martin's Press, 1973), p. 6. 17. A.J. Jaffee, People, Jobs and Economic Develop- ment: A Case History of Puerto Rico Supplemented by Recent Mexican Experiences (New York: The Free Press, 1959), p. 18. 18. U.S. Senate, Hearings on S.227, p. 386. 19. Fred Block, The Origins of International overseas financial markets and of ending the incen- tive to subsidiary liquidation built into Section 931. First, it made profits earned by "possession cor- porations" (now called 936 firms) on investments outside the possession in which they were based subject to tax, thus shutting off the Eurodollar outlet and forcing a substantial amount (perhaps $2 billion) of 931 profits to return to the island. Second, it permitted 936 firms to repatriate prof- its to their corporate parents tax free immediately, without having to wait until liquidation. Such prof- its, which amounted to approximately $1 billion a year when the law was changed, now total about $3 billion annually. But as the corporations prepared a mass exodus of accumulated funds from the island, the Puerto Rican government quickly imposed a tollgate tax of 10% on such repatriation. The corporations were furious. They have suc- ceeded in getting the tollgate tax rate reduced if a firm repatriates accumulated funds spaced out over several years and/or if funds remaining on the island are invested in designated areas, mostly bonds of government agencies. The tollgate tax has slowed the repatriation of profits and garnered a boom in deposits and in underwriting activities for the banks. Tax lawyers are also heavily in demand; even government eco- nomists claim that they are the only ones capable of manipulating the law's labyrinthian exemptions, qualifications and deductions. But federal and Commonwealth officials admit that after all the fancy paperwork is done, the net impact on real investment, production and jobs on the island has been minimal. The Puerto Rican financial market is so completely integrated with that of the United States that either funds have managed to leak out despite the tollgate tax, or ex- ternal financing from the mainland capital mar- kets has declined as surplus corporate funds remain "boxed in" on the island. The Industrial Incentives Act was amended in 1978, extending local tax exemptions to 936 firms if they agreed to pay taxes on an increasing portion of their profits and permitting new corporations roughly the same deal: a longer but less than com- plete exemption. The government has proclaimed the measure a success, citing the cooperation of several of the major U.S. firms and the new revenues. But there is a clear limit to how far the government can move in its attempt to get U.S. firms to resume more than'a token share of the island's tax burden without jeopardizing the very basis of the island's industrial economy. The cor- porate addition to tax exemption in Puerto Rico is strong, and is reinforced by competing incentive programs elsewhere in the Caribbean and among U.S. states. 34MarlApi 1981 35 Economic Disorder (Berkeley: University of California Press, 1979), p. 40. 20. Juan A. Silen, Historia de la nacion puertorri- quena (San Juan: Editorial Edil, 1973), p. 271. 21. Ibid., p. 301. 22. Puerto Rico Planning Board, Economic Development of Puerto Rico: 1940-1950, 1951-1960 (February 1951), p. 78. 23. U.S. Department of Commerce, Economic Study of Puerto Rico ("Krepps Report"), Vol. II (Washington, D.C.: Government Printing Office, December 1979), p. 74. 24. Emilio Gonzalez-Diaz, "Ideologia populista y estrategia de desarrollo en Puerto Rico, 1940-50," un- published mss. (Centro de Estudio de la Realidad Puer- torriquena), n.d. 25. Robert Sanchez Vilella, "La transformacion de la orientacion hacia el desarrollo del PPD en la decada del 1940: Sus implicaciones para el presente y futuro de la sociedad puertorriquena," in G. Navas, ed. Cambio y desarrollo en Puerto Rico: La transformacion de la orien- tacion hacia el desarrollo del PPD (Rio Piedras: Editorial Universitaria, 1980), p. 128. 26. Jose Vazquez-Calzada, "La esterilizacion feminina en Puerto Rico," unpublished mss. (San Juan: Escuela de Medicina, Universidad de Puerto Rico, 1973). 27. Awilda Palau-Lopez, "Analisis historico de la figura de Teodoro Moscosco," in Navas, ed., Cambio y desarrollo, p. 155. 28. Harvey Perloff, Puerto Rico's Economic Future: A Study in Planned Development (Chicago: University of Chicago Press, 1950), p. 222. 29. Ibid., p.222. 30. Bolivar Pagan, Historia de los partidos politicos puertorriquenos: 1898-1956, Vol. II (San Juan: Liberria Campos, 1959), p. 255. 31. Puerto Rico Planning Board, Economic Development, p. 61. 32. Ibid., p. 62. 33. Koening, A Comprehensive Agricultural Pro- gram, p. 258. 34. Ibid., p. 189. 35. Robert S. Holbrook, "A Study of the Character- istics, Behavior, and Implications of 'Possessions Cor- porations' in Puerto Rico," Report to the Office of Tax Analysis, U.S. Department of the Treasury, October 1, 1977, p. 6. 36. Eliezer Curet-Cuevas, El desarrollo economico de Puerto Rico: 1940s a 1972 (San Juan: Management Aid Center, 1976), p. 96. 37. Silen, Historia, p. 392. PHARMACEUTICAL FIX 1. See Patti L. Fry, "The U.S. Pharmaceutical In- dustry in Puerto Rico," Chase Manhattan Bank, September 3, 1976. 2. U.S. Department of Commerce, Economic Study of Puerto Rico ("Kreps Report"), Vol. II (December 1979), pp. 141, 28-29. 3. U.S. Bureau of the Census, 1977 Census of Manufacturers, Industry Series and 1972 and 1977 Economic Census of Outlying Areas, Puerto Rico, Manufactures. Figures are for SIC 283. 4. Kreps Report, Vol. II, p. 37. 5. NACLA interview with Roberto Sanchez Vilella (governor of Puerto Rico, 1964-68), San Juan, P.R., November 14, 1980. 6. Ibid., and NACLA interview with Roberto Rex- ach Benitez (former PPD Congressman and columnist for El Nuevo Dia), Arecibo, P.R., November 17, 1980; Rafael Durand (Fomento administrator), San Juan Star, March 1, 1968. 7. See United Nations, Center on Transnational Cor- porations, Transnational Corporations and the Phar- maceutical Industry (ST/CTC/9), 1979, for an excellent, clearly written survey, with a comprehensive bibliography and numerous statistics; and Harry Braverman, Labor and Monopoly Capital (New York: Monthly Review Press, 1974). 8. Interviews with Sanchez Vilella and Rexach Benitez; NACLA interview with high officials of Fomen- to, San Juan, P.R., November 13, 1980. On low wages, see "Drug and Cosmetic Firms Lured to Puerto Rico, Ireland," Drug and Cosmetic Industry, Vol. CXIX (Oc- tober 1976), p. 54. 9. Confirmed in NACLA interviews with two vice presidents and general managers of U.S. pharmaceutical subsidiaries in Puerto Rico, Carolina, P.R., November 11, 1980 and Manati, P.R., November 12, 1980. 10. Fry, "The U.S. Pharmaceutical Industry." For an analysis of the 1967 industry slowdown, see United Na- tions, Transnational Corporations, pp. 6-8. 11. Wyndham Robertson, "Merck Strains to Keep the Pots Aboiling," Fortune, Vol. XCIII (March 1976), p. 139; see also United Nations, Transnational Corpora- tions, pp. 28-65. 12. "Closing in on Puerto Rico's Tax Haven," Business Week (May 22, 1978), pp. 154, 156; and John S. Buttles II, "Trouble in Tax Paradise? The IRS Probes Corporate Operations in Puerto Rico," Barron's, October 9, 1978, pp. 9, 25-27. 13. Schering: "Schering-Plough: What Happens After a Key Patent is Lost," Business Week, August 18, 1980, p. 115; and Puerto Rico Economic Development Ad- ministration (Fomento), "The Drug and Pharmaceutical Industry in Puerto Rico," June 1980, p. 22; SmithKline: Arthur M. Louis, "SmithKline Finds Rich is Better," For- tune, Vol. CII (June 30, 1980), p. 63; and Puerto Rico Industrial Newsletter, Vol. XVIII, no. 2 (1977); Upjohn: Ibid., Vol. XVII, no. 5 (1976). 14. Fry, "The U.S. Pharmaceutical Industry." 15. Figure is for firms with ten or more employees. U.S. Bureau of the Census, 1977 Economic Census of Outlying Areas. 16. For a clear explanation of "transfer pricing," with examples from pharmaceutical firms, see Jonathan Rowe, "Firms Keep Auditors at Arms Length," Multina- tional Monitor, Vol. I, no. 7 (August 1980), pp. 18-20. 17. NACLA interview with Richard Dent (compliance officer, U.S. Food and Drug Administration), San Juan, P.R., November 14, 1980. 18. Buttles, "Trouble," p. 9. See also M. Carr Ferguson, former assistant attorney general, Tax Divi- sion, U.S. Department ofJustice, "Recent Developments Respecting Section 482," paper delivered at Citibank Sec- tion 936 Conference, SanJuan, P.R., February 20, 1981; and Business International Corporation, Puerto Rico; Critical Choices for the 1980s (New York: Business Inter- national Corporation, July 1980), p. 92. MarlApr 1981 3536 NACLA Report 19. For industry views, see Irving H. Plotkin, Studies on the Impact of Sophisticated Manufacturing Industries on the Economic Development of Puerto Rico (Cam- bridge, Mass.: Arthur D. Little, 1980). For the govern- ment's view, see Governor Carlos Romero Barcelo, State of the Commonwealth Report, February 1, 1978, ex- cerpted in Puerto Rico Business Review, Vol. III, no. 2 (February 1978), p. 7. 20. Kreps Report, Vol. II, pp. 33-38. 21. "Minimal unionization . . . has been another key factor in attracting U.S. drug firms to Puerto Rico." See "Drug and cosmetic firms lured," p. 54. 22. Workers at birth control pill plants have ex- perienced the most severe occupational health problems. On Johnson and Johnson, see San Juan Star, April 1, 19 and 27, 1976; March 7 and April 2 and 7, 1977; and September 10 and October 8, 1978. For Warner Lambert, see San Juan Star, September 10, 1978. 23. NACLA interview, November 11, 1980. 24. Kimberly Gerould, "The Impact of the Phar- maceutical Industries in Puerto Rico: A Case Study of the Area of Barceloneta," Philadelphia, American Friends Service Comittee Reciprocal Youth Project, July 1974, p. 26; "Represion en SK & F," Bandera Roja (Movimiento Socialista Popular), (26 de enero al 8 de febrero de 1981), p. 1 and "La represion en la industria farmaceutica," Ira Popular (Partido Socialista Revolucionario), ano XII, no. 66-67 (noviembre-diciembre 1980), pp. 5-6. 25. U.S. Department of the Treasury, "The Operation and Effect of the Possessions Corporation System of Tax- ation, 1st Annual Report." June 1978, p. 22. 26. "Closing In," Business Week, p. 156. 27. Business International Corporation, Puerto Rico, pp. 59 and 92; Treasury, 1st Annual Report, p. 22; San Juan Star, June 14 and 15, 1977. 28. Business International Corporation, Puerto Rico, p. 36. 29. NACLA interview with a chemical engineer with seven years experience in the pharmaceutical industry, San Juan, P.R., November 11, 1980; NACLA interview with Dr. Tomas Morales Cardona (environmentalist and professor of pharmacology, University of Puerto Rico Medical Center), November 6, 1980; San Juan Star, November 30, 1977. 30. Gerould interview with Merck personnel manager, in Gerould, "The Impact," p. 61; NACLA interview with Roberto Rexach Benitez; NACLA interview with John Frisco (U.S. Environmental Protection Administration, Region II), New York, N.Y., January 26, 1981. 31. Dr. Greg Morris to author, February 10, 1981. 32. NACLA interview with Pedro A. Gelabert (EQB chairman), San Juan, P.R., November 10, 1980; Dr. Tomas Morales Cardona, "Point Source Waste Treat- ment For Industrial Needs Study: Groundwater," pre- pared by Mision Industrial de Puerto Rico under contract to the EQB, August 7, 1978, p. 39; and Dr. Greg Morris to author, January 27, 1981. 33. See Gerould, "The Impact," pp. 15, 74-80; David Vidal, "Puerto Rican Fishermen Battle Pollution's Threat," New York Times, April 9, 1976; Carmen Gar- cia, "Fishermen protest pollution devastation," SanJuan Star, July 16, 1977. 34. Ing. Lorenzo R. Iglesias, "Environmental Prob- lems of Pharmaceutical Manufacture in Puerto Rico," Revista Farmaceutica de Puerto Rico, Vol. XL, no. 4 (July-August 1975), p. 23. Only four injection wells con- tinue to operate, under Department of Health permits that pre-date existing environmental legislation. NACLA interview with Pedro Gelabert. 35. Morales Cardona, "Point Source Waste Treat- ment," p. 68 and "Summary" of same, p. 6. See also U.S. Council on Environmental Quality, Environmental Quality, 11th Annual Report, December 1980, p. 85; and report by Bristol Myers to EPA Region II, April, 1976, p. 25: "It is realized that the disposal of this raw waste through the ... limestone formation is not the best one for the protection of the environment." 36. Dr. Tomas Morales Cardona to author, January 16, 1981. The well was reopened in 1976. 37. See ocean dumping permit hearing transcript, Arecibo, P.R., July 22, 1975; and Puerto Rico Legal Ser- vices brief on Pfizer and American Cyanamid ocean dumping permit requests, March 28, 1980. 38. Ocean dumping permit hearing transcript, Arecibo, P.R., November 1, 1977, pp. 16-18. See alsoJu- ly 22, 1975 hearing. 39. NACLA telephone interview with Thomas O'Connor (National Oceanic and Atmospheric Ad- ministration), February 5, 1981; San Juan Star, May 11 and October 22, 1979. 40. Memo by Gerald M. Hansler, EPA Region II Ad- ministrator, October 24, 1972; Hansler to Congressman Robert E. Jones, Chairman, House Committee on Public Works, April 25, 1975. 41. Dick Dewling to industry and Commonwealth representatives, quoted in Kenneth S. Kamlet, Counsel, National Wildlife Federation to Hansler, August 5, 1975. 42. Business International Corporation, Puerto Rico, pp. 111-13; NACLA interview with Dr. Neftali Garcia, New York, N.Y., March 6, 1981. See alsoJohn L. Ashby, Merck vice president, to Teodoro Moscoso, Fomento ad- ministrator, August 18, 1975. 45. EPA Region II public notice, May 6, 1977; Patricio Martinez Lorenzo, Associate Director, Mision Industrial de Puerto Rico, to Meyer Scolnick, Director, Enforcement Division, EPA Region 1I, November 8, 1976. The EQB overrode its own hearing examiner in making its decision. Richard C. Cooper to Robert Mat- thews, EPA Region II, October 19, 1976. 44. EPA Region II public notice, May 6, 1977. 45. David A. Luoma, Director, Facilities Technology Division, EPA to Lorenzo R. Iglesias, Associate Director for Air and Water, EQB, June 30, 1975. See also Kamlet to Hansler, August 5, 1975; Hansler to Scolnick, ruling on ocean dumping permits, October 14, 1975. 46. EPA ocean dumping permit hearing transcript, Arecibo. P.R., September 15, 1976, pp. 15-20, 30-31, 50-51. 56-60; Scolnick to Hansler, September 29, 1976; Dr. Peter' Anderson, Director, EPA Region II Marine and Wetlands Protection ("Ocean Dumping") Branch, to hearing officer, September 28, 1976. 47. N. A. Kaye, Engineering and Construction Divi- sion, American Cyanamid, to Anderson, December 12, 1977 and Jose R. Goitia, Technical Advisor, PRASA to Scolnick, February 15, 1978. 48. EPA ocean dumping permit hearing transcript, Arecibo, P.R., November 1, 1977, pp. 16-21. 49. Business International Corporation, Puerto Rico, p. 112; San Juan Star, November 3, 1977; NACLA inter- view with Dr. Neftali Garcia.

Tags: Puerto Rico, colonialism, pharmaceuticals, multinationals, labor unions

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