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Can Puerto Rico Profit from a Deal with China?

Juan Carlos Albors, a candidate for Puerto Rico Resident Commissioner in 2020, has proposed that Puerto Rico serve as a facilitator for Chinese exports, bypassing U.S. tariffs.

“The fiscal autonomy of the (“Commonwealth” of Puerto Rico) is so broad that, in addition to avoiding the imposition of the Federal income tax, it also includes exemption from the payment of Federal customs duties in the Island,” Albors said, according to Puerto Rico news outlet Noticel. “I propose to use our fiscal autonomy in terms of customs revenues to attract trade with China of products to which the Trump Administration has just imposed tariffs in the trade war that is developing between China and the United States, iron and steel.”

Albors believes that Puerto Rico could refund part of the tariffs on steel and iron, making the Island an appealing waystation for Chinese exporters. He believes that Puerto Rico’s government could collect “hundreds of millions” of dollars through this simple ruse.

Albors sent his proposal to the President of China through the U.S. Ambassador to China.

Can Puerto Rico make a deal with China?

Puerto Rico has tried to make deals with national governments in the past. In 2003, for example, Puerto Rico tried to sign a cooperation agreement with Belize and some other nations.

Then Secretary of State Colin Powell sent a memorandum to the Ambassador of Belize and those of the other relevant nations. He did not mince words:

“The Department is aware that Puerto Rican government officials have approached a number of countries . . . seeking treatment normally only accorded to a sovereign state” the memo read. “The department reiterates that the U.S. federal government is responsible for Puerto Rico’s foreign affairs.”

Powell continued, “Puerto Rico is an unincorporated territory of the United States with commonwealth status.  The U.S. federal government has full responsibility for the conduct of foreign relations of all areas subject to United States jurisdiction, including all U.S. states, territories, and possessions.  Accordingly, the Department reviews any proposed participation by a U.S. territory or possession in international bodies, or signing of documents (including agreements) with other nations [.]”

Powell went on to make it clear that this language should be used by embassies if they were ever to deal with “Puerto Rican involvement in “international organizations… or requests to sign international  treaties and/or agreements.”

Powell offered to discuss this issue with the government of Puerto Rico but did not receive a response.

In short, Puerto Rico cannot legally make any kind of trade agreement with China. The federal government can end any attempts to do so.

Source of Confusion

Albors has an unrealistic idea of the “fiscal autonomy” of Puerto Rico.

It may seem surprising that a political leader in Puerto Rico should be confused about the degree of sovereignty Puerto Rico has as a U.S. territory. All three branches of government have made it clear that Puerto Rico is not sovereign, and has only the autonomy Congress chooses to grant.

Yet this issue comes up frequently in political discussions about the Island. “Commonwealth” party supporters sometimes refer to the “enhanced commonwealth” status as implying that Puerto Rico could have the privileges of a state and the powers of a nation.

A former governor said that “Puerto Rico is not a mere territory” and court cases have been fought up to the Supreme Court, which has decided: “Puerto Rico is not on ‘equal footing’ with the States, and does not share in their ‘power, dignity and authority.’”

Incorrect statements as to what’s possible for Puerto Rico have created years of confusion over plebiscite ballots and led to a 2014 law that calls for the Department of Justice to evaluate and approve ballot options for a federally sanctioned plebiscite to provide clarity on the issue.

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