WASHINGTON — José Raúl Perales, a Santurce-born regional trade expert who spent years advising the Puerto Rican government — and later the U.S. private sector and the Department of Homeland Security — says bankruptcy protection and tax breaks alone won’t help the island regain its long-term competitiveness against global rivals.
Perales, 46, is deputy director of the Center for International Private Enterprise (CIPE), a Washington-based nonprofit institution that seeks to strengthen democracy around the globe through private enterprise and market-oriented reform.
CIPE is one of four partners behind the Global Alliance for Trade Facilitation (GATF), launched in December during a WTO meeting in Nairobi. The others are the Paris-based International Chamber of Commerce, the Geneva-based World Economic Forum and the Washington-based U.S. Agency for International Development.
Perales said the GATF is a global public-private partnership that’s lobbying hard to implement WTO rules “by bringing in private-sector expertise and government capabilities to address problems in trade facilitation.”
Earlier in his career, Perales participated in negotiations for the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) and was involved in San Juan’s bid to host the secretariat of the now-defunct Free Trade Area of the Americas.
He was later senior associate of the Latin America program at the Woodrow Wilson Center, a Washington think tank, and then executive director of the Association of American Chambers of Commerce in Latin America. Until joining CIPE last month, Perales was assistant secretary for the private sector within the DHS Office of Policy.
“Puerto Rico is situated in what one could call a perfect storm,” he said. “It’s unable to make its payments, but also the tax base has become much smaller — not just because of emigration but because of who’s emigrating. Some of the most productive people, those whose work you need to amplify your tax base, are leaving the island.”
One reason the Puerto Rican economy has stagnated for such a long time, said Perales, is that the island based its entire growth model on incentives such as Section 936 and excise taxes.
“Puerto Rico used fiscal instruments to compete, which is great. But you need to be adaptable and nimble, and recognize the fact that a fiscal incentive is something other people will catch up with,” he said. “These incentives are useful, but you need to make them compatible with your fiscal situation and make sure it doesn’t crowd out other things you could be doing to improve your competitiveness.”
‘Genius pool’ to attract talent
For example, Perales has long advocated the creation of a “genius pool” to attract inventors and other people with talent to relocate to Puerto Rico. But he said the idea has met with resistance by locals who saw foreign investors only as capital, not talent — and often viewed their arrival as coming at the expense of Puerto Ricans.
“Puerto Rico’s relationship with the U.S. is mired in a tremendous amount of inconsistencies. Quite frankly, these were not addressed because, being a former colony, we’re accustomed to thinking that Washington has all the power,” he said.
“Puerto Rico is going through a macroeconomic restructuring crisis, but these are things countries face all the time — for example, Latin America in the early 1990s — because the import substitution model on which they had built their industrial base reached their exhaustion level, and that came at the price of huge indebtedness.”
On the other hand, he noted, “many of the countries surrounding Puerto Rico have built tremendous amounts of growth in the last 20 years thanks to export-led models, where countries find ways of inserting themselves into global supply chains.”
Perales said his job at the Department of Homeland Security was to be a bridge between the private sector and the department’s decision-making structure, “which meant that I acted as the secretary’s voice to industry regarding the department’s priorities and objectives — on a range of issues from customs to aviation security.”
CIPE, the organization where Perales now works, is funded by the U.S., British, Canadian, German and Australian governments, as well as by leading companies such as Wal-Mart, DHL and Maersk. It also works with other big transport and logistics firms like UPS, FedEx and Cisco.
“Right now, we have a variety of goals, but the most important is to get countries to ratify the Trade Facilitation Agreement,” he said. In Latin America and the Caribbean, the list of countries that have done so is quite short; only Grenada, Jamaica, Panama, Paraguay, St. Lucia and Trinidad & Tobago have done so.
“There are much larger countries that have free-trade agreements with the U.S., yet we still don’t see that ratification,” he said, noting that the TFA ensures that everybody has access to the instruments of trade.
Not everyone’s on board, however. India has “raised tremendous objections,” Perales noted, while “the previous Argentine government was vocal” about TFA, which in fact was the first multilateral agreement the WTO was able to conclude.
“Each country has reasons for not doing it. The U.S. has ratified it but not Canada or Mexico. It is the first order of business to get countries to ratify this agreement,” he said. “It commits countries to collaborate with their private sectors on seeking measures to improve trade facilitation. It makes sense to work with countries that have ratified the agreement and have that mechanism in place.”