Improving Economic Policies for the American Territories

On October 15, 2019, the U.S. Supreme Court heard oral arguments in Financial Oversight and Management Board for Puerto Rico v. Aurelius Investment, a case that centers on the constitutionality of the appointment process for the members of the federally established board charged with restructuring Puerto Rico’s over $100 billion in debt.  In addition to shedding light on this narrow question about debt, bankruptcy, and the U.S. Constitution, the case highlights the larger, longstanding political and economic plight of over 4 million Americans living in the unincorporated territories of the United States (the “Territories”): Puerto Rico, Guam, American Samoa, the U.S. Virgin Islands, and the Northern Mariana Islands.

The fight for full and fair economic and political rights for the Territories has been going on for more than a century without lasting success, and supporters are pursuing many paths.  Among those paths, three are particularly prominent and noteworthy: litigation, statehood, and independence.  None has been successful so far, but that does not mean they – in particular, litigation – are not worth pursuing. Rather, it  suggests that new alternative routes must be explored as well.

In a recent article, Americans, Almost and Forgotten, I offer three proposals for tangible near-term economic progress for the Territories: (1) obtaining an extended temporary waiver of the costly maritime law known as the Jones Act, (2) acquiring most-favored state status in federal veterans and disaster relief appropriations, and (3) gaining special economic empowerment zones from the federal government.  These three proposals offer, at best, partial solutions.  At the same time, they represent some of the most pragmatic and feasible means for near-term economic progress, given the constraints of political realities.

First, the Territories and their advocates should seek an extended waiver of the Jones Act, section 27 of the Merchant Marine Act of 1920, which places a significant economic strain on the Territories by restricting what ships may carry goods into their ports.  The Jones Act imposes significant costs on almost all goods for Territories subject to the Act, particularly Puerto Rico and Guam.  It mandates that all commercial shipping within the United States be conducted by ships built domestically, owned at least 75 percent by Americans, and staffed with an American crew.  It ostensibly prevents foreign ships from operating in American maritime commerce, and renders the applicable Territories particularly reliant on businesses and suppliers on the American mainland.  The Jones Act should be waived for the Territories for at least five years, or until significant progress has been made on the larger question about the political status and powers of the Territories.  An extended waiver is politically feasible  and would have an immediate and positive economic impact on Americans in the Territories, particularly those in Guam and Puerto Rico, which are the only two Territories not yet exempt from many aspects of the Jones Act.

Second, the Territories and their advocates should seek temporary most-favored state (MFS) status in appropriations related to Veterans Affairs (VA) and the Federal Emergency Management Agency (FEMA).  Lasting for a renewable period of five years, this status would help alleviate some of the economic harm from being politically powerless in Washington in the critical areas of veteran care and disaster relief.  Veterans in the Territories lack the support that their peers have on the mainland.  Furthermore, without any meaningful political power in Washington to advocate for disaster relief assistance, the priorities of the Territories are often left to the whims of elected officials in Washington, as evidenced in part in the aftermath of the horrific hurricanes that ravaged the economies of Puerto Rico and the U.S. Virgin Islands in 2017 and 2018.

Third, the Territories and their advocates should seek  from Congress temporary designation as special economic empowerment zones for 10 years.  These designations would create economic incentives across multiple federal agencies, designed to respond to the unique strengths and weaknesses of each Territory and to help stimulate the economies of the Territories.  These designations would also help attract investment and business activity to the Territories, bolstering marketplaces that have endured stagnant growth and higher unemployment rates—compared with national figures—over the last decade.  Ideally, the designating legislation and accompanying programs would be built around the input of key stakeholders from the Territories.  If designed properly, economic empowerment zone programs, coupled with smart local efforts, would help foster near-term economic growth, create local job opportunities, improve the daily lives of residents, and decrease each Territory’s reliance on funds from the federal government.

In the end, none of these three proposals would solve all or even most of the complex and diverse set of problems confronting the Territories.  Furthermore, drafting, passing, implementing, and executing them may prove difficult.  Nevertheless, these proposals offer a pragmatic trio of politically feasible policies to bring about immediate benefits to the people of the Territories while progress is being made on larger, longstanding political issues.  These proposals can hopefully broaden and move the discussions and plans of action beyond the well-traveled, but unsuccessful, paths of the past towards a more promising direction for the Territories.

This post comes to us from Professor Tom C.W. Lin at Temple University’s Beasley School of Law. It is based on his recent paper, “Americans, Almost and Forgotten,” published at 107 California Law Review 1249 (2019) and  available here.

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