BILL WOULD EXTEND CARIBBEAN INVESTMENT PROGRAM TO ANDES

BILL WOULD EXTEND CARIBBEAN INVESTMENT PROGRAM TO ANDES

The drug-producing Andean countries soon may get new investments in their private sectors from foreign companies, thanks to a U.S. tax-policy bill introduced in the House of Representatives.

The bill, introduced Friday, would offer Colombia, Ecuador, Peru and Bolivia access to the so-called 936 Caribbean Basin investment program, a development-oriented tax shelter funded by U.S. companies operating in Puerto Rico.While passage of the bill could be extremely important to the Andean countries - particularly to Ecuador and Bolivia - the extension of the program to the Andean nations could mean that some Caribbean nations would face even greater competition for the same funds.

"It would be a major achievement to gain use of these funds; the four Andean countries probably have $700 million to $800 million worth of projects that could be affected," said Jorge Landivar, Ecuador's commercial counselor in Washington.

Mr. Landivar suggested that some of the first companies to seek loans under 936 for projects in the Andes could be U.S. pharmaceutical manufacturers, seeking to establish production capacity in the region for sales to the local market.

The bill, introduced by Rep. Philip M. Crane, R-Ill., would amend section 936 of the U.S. Internal Revenue Code to open the investment program to the Andes. Rep. Crane is the ranking Republican on the House Ways and Means Committee's subcommittee on trade.

The provisions of the bill initially were attached to the Andean Trade Preference Act, which became law in December and extended preferential tariff treatment to the Andes, but the legislation was separated for parliamentary reasons.

While Puerto Rican officials nominally support extension of the program to the Andean nations, they expressed concern over the impact on the availability of funds.

"If the bill comes with the condition that 936 funds used for the (Andes) are excluded from the 35 percent passive income (ceiling for such tax deductions) that companies have, and if the loans are grandfathered (against any future modification of the 936 program), then the pie will be bigger," said Antonio Colorado, Puerto Rico's secretary of state.

"If not, it will be much more competitive," added Mr. Colorado, whose office administers the 936 program.

Still, not all of the Andean nations will necessarily decide to take advantage of the 936 program, if the bill becomes law. To be eligible, each country must sign a tax information exchange agreement with the United States. Such tax agreements provide tracking mechanisms for money laundering, tax liabilities and payments, and capital flight.

One U.S. official in Washington, who asked not to be identified, suggested that Colombia probably wouldn't sign such a document soon, and that while Peru had nominally agreed to the information exchange, the Peruvian Congress was unlikely to ratify the measure soon.

Thus far, the nine countries that have signed tax-exchange agreements with the United States and are eligible for the 936 program are Barbados, Costa Rica, Dominica, the Dominican Republic, Grenada, Honduras, Jamaica, St. Lucia and Trinidad and Tobago. The U.S. Virgin Islands are also eligible for the program.

"We are now working with Nicaragua, El Salvador, Belize and some other small eastern Caribbean countries to sign such agreements," Mr. Colorado said.

At year end, the 936 program had invested some $800 million in 100 projects in 11 countries, creating 21,000 jobs, according to the Economic Development Administration of Puerto Rico.

Small businesses are earmarked for $100 million in loans under the program, through the participation of the Caribbean Basin Partnership for Progress, a non-profit group supported by major U.S. companies with plants in Puerto Rico.