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Better Luck with Walmart?

Governor Alejandro Garcia Padilla ‘s economic advisory panel has made several recommendations requiring the U.S. Congress to approve actions that would run afoul of the U.S. Constitution. The panel has suggested that Puerto Rico be allowed to make trade agreements with other nations, as though Puerto Rico were a sovereign nation, but which would commit the U.S. Government to support those agreements. The panel also asked for a study of the effects of the Commerce Clause of the U.S. Constitution, presumably with an eye towards gaining an exemption from that clause.  In addition, the panel wants to be able to use U.S. Federal funds in ways that are different from the ways in which the U.S. government specifies those funds should be used.

It is highly unlikely that the U.S. government would agree to any of these things, since Congress, the Senate, and the White House have all previously refused to bend the Constitution for Puerto Rico.

Another of the smorgasbord of recommendations from the panel asks “mega retailers” to “invest a certain portion of their profits on the island; spend on local contractors; and hire full-time employees and extend benefits to them,”  according to Caribbean Business.

Who are Puerto Rico’s mega retailers? Walmart is probably one. Walmart is a significant private employer on the island, with 14,552 workers earning an average (for full time hourly workers) of $10.65 per hour. This is nearly 25% higher than the average hourly wage in Puerto Rico. Walmart also gave $1.2 million in local donations and raised a total of $2 million for Puerto Rican causes in 2012, the most recent year for which they publish figures.

The Puerto Rican government is the largest employer in Puerto Rico and the tourism industry provides some 60,000 jobs, so Walmart is not the only game in town, but consider that Walmart, one company, provides jobs equivalent to one quarter of the entire tourist trade. Getting Walmart to make concessions of the kind the panel envisions could be beneficial to Puerto Rico’s crippled economy.

Will Walmart play ball?

Walmart has not yet made a statement on the subject, but we can look at their actions in similar cases in the past. In India, for example, the government put in place rules that required Walmart to have a local majority partner and to source 30% of products from small and medium sized local businesses.

Walmart wanted access to one of the largest retail markets in the world, but they were not, in the end, willing to accept the restrictions. They pulled out of their retail position (though they maintained their “cash and carry” stores which are not subject to the same requirements) even though it cost them $334 million to do so.

In another example, Walmart was in the process of building stores in Washington, D.C., when the city council passed a law requiring “large retailers” (of which Walmart was the only example at that time) to set a higher minimum wage than was required of other businesses in the city.

Walmart stopped work on their stores and expressed their willingness to lose their investment in those buildings rather than giving in, even though their average hourly wage was only a few cents less than the proposed new minimum. The law was vetoed by the mayor of the city, and Walmart continued with its building plans.

Walmart has also faced criticism across the U.S. and around the world for their strategy of keeping workers at part time status in order to avoid paying benefits. While Walmart may be making changes in this policy in the face of consumer dissatisfaction, their overall response to such criticism has been to change their marketing and press efforts, not their hiring practices.

Is Puerto Rico’s business important enough to Walmart that Walmart would agree to the unspecified investments required of them and to the requirements for full time work and benefits? Sources say that Walmart would be sensitive to the current economic challenges facing Puerto Rico, but that they should be expected to “fight back.”

Walmart has 56 stores and one distribution center in Puerto Rico, and suppliers must work through legacy distributors rather than in the direct system used in Walmart stores on the mainland. Mainland vendors already often describe their relationships with these distributors as “difficult” or even “adversarial.” Walmart was already “rethinking” expansion plans in reaction to tax changes earlier in the year. With nearly 11,000 stores globally, Walmart may need Puerto Rico less than Puerto Rico needs Walmart.

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