PUERTO RICO – STATUS AS PART OF THE USA
This writing is based, in part, on the report to the House of Representatives prepared by the
United States General Accounting Office in November 1997.
The Commonwealth of Puerto Rico is located in the Caribbean Sea, about 1,000 miles east-southeast of Miami, Florida. A territorial possession of the United States, it consists of the island of Puerto Rico plus the adjacent islets of Vieques, Culebra, and Mona. Puerto Rico has a mountainous, tropical ecosystem with very little flat land and few mineral resources.
Puerto Rico’s governor is elected directly for a four-year term. A bicameral legislature consists of a 27-member Senate and a 51-member House of Representatives, all elected for four-year terms. From 1940 to 1968, Puerto Rican politics was dominated by a party advocating voluntary association with the U.S. Since then, the New Progressive Party, a party favoring U.S. statehood, has won five of the last eight gubernatorial elections. Puerto Ricans have three times voted to determine their political status. In 1967, 1993, and 1998 and they have chosen to remain a commonwealth.
Under the Commonwealth formula, residents of Puerto Rico lack voting representation in Congress and do not participate in presidential elections. As U.S. citizens, Puerto Ricans are subject to military service and most federal laws. Residents of the Commonwealth pay no federal income tax on locally generated earnings, but Puerto Rico government income-tax rates are set at a level that closely parallels federal-plus-state levies on the mainland.
When Christopher Columbus arrived there in 1493, the island was inhabited by the peaceful Arawak Indians, who were being challenged by the warlike Carib Indians. Puerto Rico remained economically undeveloped until 1830, when sugarcane, coffee, and tobacco plantations were gradually developed. After Puerto Ricans began to press for independence, Spain granted the island broad powers of self-government in 1897. But during the Spanish-American War of 1898 American troops invaded the island and Spain ceded it to the U.S. Since then, Puerto Rico has remained an unincorporated U.S. territory. Its people were granted U.S. citizenship under the Jones Act in 1917; were permitted to elect their own governor, beginning in 1948; and now fully administer their internal affairs under a constitution approved by the U.S. Congress in 1952.
A self-help program of economic development and social welfare (called “Operation Bootstrap”) was forged in the 1940s by four-time governor Luis Muñoz Marín. In a little more than four decades, much of the island’s crushing poverty was eliminated. This was done partly through the development of manufacturing and service industries, the latter related to an enormous growth in tourism. Also, many Puerto Ricans migrated to large cities on the mainland of the USA.
Puerto Rico is a major hub of Caribbean commerce, finance, tourism, and communications. San Juan is one of the world’s busiest cruise-ship ports, and Puerto Rico’s standard of living continues to be among the highest in the hemisphere.
DEFINITION OF THE TERMS “UNITED STATES” AND “STATE”
Section 101(a)(36) of the INA provides: The term “State” includes the District of Columbia, Puerto Rico, Guam, and the Virgin Islands of the United States.
Section 101(a)(38) of the INA provides: The term “United States”, except as otherwise specifically herein provided, when used in a geographical sense, means the continental United States, Alaska, Hawaii, Puerto Rico, Guam, and the Virgin Islands of the United States.
PUERTO RICANS HAVE U.S. CITIZENSHIP
Section 302 of the INS provides: All persons born in Puerto Rico on or after April 11, 1899, and prior to January 13, 1941, subject to the jurisdiction of the United States, residing on January 13, 1941, in Puerto Rico or other territory over which the United States exercises rights of sovereignty and not citizens of the United States under any other Act, are hereby declared to be citizens of the United States as of January 13, 1941. All persons born in Puerto Rico on or after January 13, 1941, and subject to the jurisdiction of the United States, are citizens of the United States at birth.
PUERTO RICO IS INCLUDED IN NAFTA
With regard to economic development, the North American Free Trade Agreement (NAFTA), which came into effect in 1994, specifically applies to Puerto Rico. NAFTA defines the term “territory” with respect to the United States to encompass U.S. customs territory, which includes the 50 states, the District of Columbia, and Puerto Rico. (BUT DOES NOT INCLUDE OTHER TERRITORIES).
PUERTO RICO IS PART OF THE U.S. CUSTOMS TERRITORY
Puerto Rico is recognized as being part of the Customs Territory of the United States. A U.S. Customs Territory is the territory in which the U.S. Customs law applies in full. As a rule, the Customs territory of a country corresponds to its national territory including land, sea and air space. However, certain portions of the national territory may be excluded, e.g. free zones or the waters between the coastline and the country’s territorial boundary at sea.
As part of the Customs Territory of the United States, all processes with regard to imports and exports are to be handled in the same manner as they would for shipments consigned to any other location within the recognized Customs Territory of the United States.
Because Puerto Rico is part of the U.S. Customs Territory, shipments moving between Puerto Rico and the U.S. are not subject to import duties and shipments imported from outside the customs territory are all subject to the same import duty rates, regardless of whether the destination is the U.S. or Puerto Rico. Insular possessions of the United States other than Puerto Rico are also American territory but, because those insular possessions are outside the customs territory of the United States, goods imported therefrom are subject to certain rates of duty.
PUERTO RICO IS NOT SUBJECT TO FEDERAL TAXATION
Under commonwealth arrangements agreed in 1952, Puerto Ricans pay Social Security taxes but no federal income tax, and receive federal aid of up to $10 billion a year. This exemption, in part, is due to the notion that there should be no taxation without representation. As Puerto Ricans do not have a voting members in the House, no Senators and cannot vote in national elections, then no Federal Government taxation should be imposed.
SUBJECT TO MILITARY DRAFT
Puerto Ricans, however, are subject to the military draft, and tens of thousands have fought for the United States.
SPECIAL TAX ADVANTAGES FOR INVESTORS BEING PHASED OUT
A tax credit previously available for corporations doing business in insular areas is being phased out. The Puerto Rico and Possessions Tax Credit (section 936 of the Internal Revenue Code), as originally enacted, allowed corporations to receive a tax credit for business income earned in the territories in an amount equal to their full U.S. income tax liability. A 1993 amendment limited the amount of the credit. In 1996, the law was amended further to provide that, after a 10-year transition period, the credit will no longer be available.
TN-1, TN-2, E-1, E-2 NONIMMIGRANT STATUS AND EB-5 VISAS AVAILABLE TO FOREIGNERS WORKING OR INVESTING IN PUERTO RICO
Foreign nationals wishing to work or invest in Puerto Rico in TN-1 (Canadian), TN-2 (Mexico), E-1 (treaty trader) and E-2 (treaty investor) temporary nonimmigrant status (or acquire permanent residence based on an EB-5 investment) can do so based on a job/investment located in Puerto Rico.
The NAFTA specifically mentions Puerto Rico - and because PR is defined as being a part of the definition of the terms “United States” and “State” by the Immigration and Nationality Act AND is a part of the U.S. Custom Territory it would appear to qualify as a location for all other investment or trade visa categories.
The same does NOT apply to:
– the U.S. Virgin Islands and Guam even though they are included in the definition of the “United States” and “State” and their native-born inhabitants are U.S. citizens, because they are NOT mentioned by NAFTA (for TN status purposes) and because they are NOT part of the U.S. Customs Territory (for investment purposes). (Inhabitants are U.S. citizens).
–the Commonwealth of the Northern Marianas as it is NOT included in the definition of the “United States” or “State” and it is not a part of the U.S. Customs Territory. (Inhabitants are U.S. citizens).
–American Samoa and Swains Islands as they are defined as “outlying possessions” and not included in the definition of “United States” or “State” a part of the “United States” (Inhabitants are not citizens of the USA but they are merely “nationals”).
– the 9 other islands over which the USA exercises sovereignty: Palmyra Atoll, Navassa Island, Johnston Atoll, Baker Island, Howland Island, Jarvis Island, Kingman Reef, Midway Atoll, and Wake Atoll as they are uninhabited. (Not clear what the citizenship status would be as no on lives on them but it is likely that any native-born person, if any, would be a national but not a citizen of the USA. There have been few children born in Wake Islands who were citizens at birth because the parents were U.S. citizens).
–the Freely Associated States of the (1) Republic of the Marshall Islands, (2) Federated States of Micronesia and (3) Republic of Palau as they are sovereign states (independent countries) and their citizens are NOT citizens nor nationals of the United States.
Introduction
More than 4 million U.S. citizens and nationals live in insular areas under the jurisdiction of the United States. Currently, Puerto Rico has 3,897,960 inhabitants, the majority of whom are U.S. citizens, except for aliens residing there.
The Territorial Clause of the Constitution authorizes the U.S. Congress to “make all needful Rules and Regulations respecting the Territory or other Property” of the United States. Relying on the Territorial Clause, the Congress has enacted legislation making some provisions of the Constitution explicitly applicable in the insular areas, including Puerto Rico. In addition to this congressional action, courts from time to time have ruled on the application of constitutional provisions to one or more of the insular areas.
A tax credit previously available for corporations doing business in insular areas is being phased out. The Puerto Rico and Possessions Tax Credit (section 936 of the Internal Revenue Code), as originally enacted, allowed corporations to receive a tax credit for business income earned in the territories in an amount equal to their full U.S. income tax liability. A 1993 amendment limited the amount of the credit. In 1996, the law was amended further to provide that, after a 10-year transition period, the credit will no longer be available.
Several court decisions during the last 6 years have addressed the applicability of constitutional provisions to individual insular areas. Two decisions discuss, in the context of the Territorial Clause of the Constitution, the relationship of an insular area with the United States. In the specific case concerning Puerto Rico, the courts concluded that, while the Congress has granted the right of local self-government to Puerto Rico, there has been no fundamental alteration in Puerto Rico’s constitutional relationship to the United States: Puerto Rico remains subject to the Territorial Clause.
BACKGROUND
Puerto Rico was ceded to the United States by treaty at the end of the Spanish-American War in 1898.
All departments, agencies, and officials of the executive branch treat Puerto Rico administratively “as if it were a state;” any matters concerning the fundamentals of the U.S.-Puerto Rican relationship are referred to the Office of the President.
Since the United States established sovereignty over Puerto Rico, it has pursued greater self-government. Initially, military governors had responsibility for Puerto Rico; governors were later replaced by civilian administrators, most of whom were appointed by the President. Eventually, Puerto Rico was authorized to elect its own governor. In addition, the Congress authorized Puerto Rico to adopt their its own constitution. Puerto Rico has an internal self-government under locally-adopted constitution.
People born in Puerto Rico are American citizens. The residents of Puerto Rico enjoy many of the rights enjoyed by U.S. citizens in the 50 states. But some rights which, under the Constitution, are reserved for citizens residing in the states have not been extended to residents of Puerto Rico. For example, residents of Puerto Rico cannot vote in national elections, nor do they have voting representation in the final approval of legislation by the full Congress.
PUERTO RICO - AN UPDATE
Efforts to Enhance Self-Government and Economic Development
Since the 1991 report, efforts of Puerto Rico to pursue greater self-government and economic development have continued.
A referendum was held, in November 1993, in which the commonwealth option—maintaining the current political status of Puerto Rico—did not receive a majority of votes cast but prevailed by a slim margin over the statehood option.
On March 4, 1998, the U.S. House approved a special referendum in Puerto Rico that would allow voters to choose one of 3 options: continued commonwealth status, statehood or independence.
On August 13, 1998, Puerto Rico approved a December 13, 1998 referendum for statehood.
On Decemebr 13, 1998, voters rejected statehood by a vote of 50.2% to 46.5%. The winning option was none of the above, but interpreted as a decision to remain as commonwealth, a U.S. territory with local autonomy.
APPLICABILITY OF CONSTITUTIONAL PROVISIONS TO PUERTO RICO
“Fundamental” Constitutional Rights Apply to All Territories
The Constitution does not apply in its entirety to territories solely by virtue of the fact that those territories have come under the possession and control of the United States. Whether rights under the Constitution apply to a territory and, if so, to what extent depends essentially on either
of two factors, according to a series of Supreme Court decisions called the Insular Cases. The first is whether the right in question is considered to be “fundamental” or not; the second is whether the Congress has taken legislative action to extend the Constitution to the territory.
Most of the Insular Cases, which comprise the first extensive consideration of the application of constitutional and statutory rights within United States territories, date from 1901 to 1904, following a period of territorial expansion by the United States. In these cases, the Supreme
Court developed the idea that, without any action by the Congress, constitutional rights that are considered to be “fundamental” are available in all areas under the jurisdiction of the United States, but that other rights apply only when extended to such areas by law. The Court pointed
out that even though some of these fundamental rights may not be expressly stated in the Constitution, it would be wholly inconsistent with the principles that underlie our government not to preserve them in the territories. Thus, in one of the Insular Cases, Downes v. Bidwell, the Court said that the Congress, in creating governments for the territories, could not do so in such a way as to abridge fundamental rights.
The question whether particular rights are fundamental has been answered only as specific cases come before the Supreme Court. The Court has identified the Fifth Amendment privilege against
self-incrimination as a fundamental right. On the other hand, the Court has said that the Sixth Amendment right to trial by jury and the Fifth Amendment right to indictment by a grand jury “are not fundamental in their nature, but concern merely a method of procedure . . . .” Under the Insular Cases and subsequent decisions, rights other than fundamental rights, even though they may be stated in the Constitution, do not apply to the territories or possessions unless the Congress makes them applicable by legislation. The Congress can by law extend the coverage
of the Constitution in part or in its entirety to a territory or possession, and has done so with respect to some territories. In the absence of such congressional action, however, only fundamental rights apply. The Insular Cases use the term “incorporated” to distinguish territories where all constitutional rights apply, because a statute has made them applicable, from “unincorporated” territories, where fundamental rights apply as a matter of law, but other constitutional rights are not available.
Territorial Clause
Under what is commonly known as the Territorial Clause of the Constitution, the Congress has the “power to make all needful Rules and Regulations respecting the Territory or other Property” of the United States. Pursuant to this power, and in response to local desire for greater political autonomy, the Congress in 1950 approved a process for local self-government for Puerto Rico, under which its residents could establish, subject to congressional approval, its own constitution.
In the most recent case to discuss the Territorial Clause with regard to Puerto Rico, the Court of Appeals for the Eleventh Circuit held that the Congress’ decision to permit self-governance in Puerto Rico did not remove Puerto Rico from application of the Territorial Clause. The court
concluded that there has been no fundamental alteration in Puerto Rico’s relationship to the United States: “Puerto Rico is still constitutionally a territory, and not a separate sovereign.”
Congressional Representation
The Constitution establishes the House of Representatives and the Senate, comprising representatives elected by the citizens in each state. Although the insular areas cannot elect representatives or senators, the Congress has created a form of representation for them. Puerto Rico elects a resident commissioner to the United States Congress for a 4-year term.
From 1900 through 1970, under rules of the House of Representatives, territorial delegates were permitted to participate in floor debate and to be members of committees but were not allowed to vote either in committee or on the floor. In 1971, House Rule XII was changed to allow the resident commissioner from Puerto Rico the right to vote in standing committees and otherwise to possess in those committees the same powers and privileges as members of the Congress.
In 1975, Rule X of the House Rules was amended to authorize the speaker to appoint the resident commissioner to serve on conference committees considering legislation reported from a committee on which he/she served. In 1993, the rule was further amended to permit the
speaker to appoint the resident commissioner to serve on any conference committee. This rule remains in effect. In 1993, the House again amended House Rules to give the resident commissioner representing Puerto Rico the additional authority to vote in the Committee of the Whole as long as such votes were not decisive on a question.
However, this authority lasted only until the next Congress. In January 1995, the House eliminated the authority for the resident commissioner to vote in the Committee of the Whole. He/she continues to be authorized to serve in the same manner as other members on standing committees. Starting in January 1995, the resident commissioner is counted for purposes of calculating the ratio of Republican to Democrat members within a committee.
Commerce Clause
Interstate commerce and foreign trade are regulated by the Congress through the Commerce Clause. The Clause is an affirmative grant of power to the Congress “to regulate Commerce with foreign Nations, and among the several States . . . ,” but also has a “dormant” or “negative”
aspect. This dormant side “limits the power of the States to erect barriers against interstate trade.”
In a 1992 case, the Court of Appeals for the First Circuit with respect to Puerto Rico concluded that, apart from the Territorial Clause, “Puerto Rico is subject to the dormant Commerce Clause doctrine in the same fashion as the states.” The plaintiff, Trailer Marine, transported goods to Puerto Rico on trailers that could be rolled off a ship and then attached to local tractors for delivery. It contended that the imposition by Puerto Rico of a motor vehicle fee on its trailers unduly burdened or discriminated against interstate commerce. A 1980 district court decision had applied the Commerce Clause to Puerto Rico through the Territorial Clause “as an implied corollary of congressional powers thereunder.” After examining Puerto Rico’s constitutional history, “a skein of statutes and precedents as tangled as any in our history,” the court of appeals concluded that, “[w]hatever the ultimate source of its authority or its exact constitutional status, Puerto Rico today certainly has sufficient actual autonomy to justify treating it as a public entity distinct from Congress and subject to the dormant Commerce Clause doctrine.” The court held that the fee imposed by Puerto Rico unduly burdened interstate commerce.
Elections
American citizens who reside in Puerto Rico may not vote for President. The Constitution provides for the election of the President by electors appointed by the states.
Residents of Puerto Rico recently litigated the issue, with the same outcome. In 1994, American citizens in Puerto Rico filed suit contending that “Puerto Rico[’s] present political status has evolved in such a way from a Territory in 1898 to that of a ’de facto’ state” that it should be
considered a state entitled to electoral votes. The federal district court, noting the constitutional requirement for state appointment of electors who then vote for the President, held that only states (and, through the Twenty-Third Amendment, the District of Columbia) may cast electoral
votes in presidential elections. The plaintiffs’ argument that Puerto Rico has evolved into a “de facto” state was, the court said, a “political question” not suitable for judicial resolution.
Although residents of Puerto Rico cannot vote in presidential elections, Puerto Rico holds primary elections to nominate presidential candidates, and sends delegates to the Republican and Democratic national conventions. With respect to local elections, an appeal pending in Puerto Rico’s supreme court asks that court to decide whether Puerto Rico’s electoral law can restrict voting in local elections to U.S. citizens. The lawsuit had been filed in an attempt to prevent voting in Puerto Rican elections by an individual who formally renounced his U.S. citizenship and declared himself a citizen of Puerto Rico. A lower court, finding that the individual is a citizen of Puerto Rico, ruled that restricting local voting to U.S. citizens is contrary to Puerto Rico’s constitution.
The claim of Puerto Rican citizenship apparently is based, in part, on the Foraker Act, which provides that the inhabitants of Puerto Rico are “citizens of Puerto Rico and entitled to the protection of the United States.” The State Department takes the position that the citizenship of
Puerto Rico provision of the Foraker Act has no legal effect today, having been superseded by later law.
Fourth and Fifth Amendments
The Fourth Amendment protects against unreasonable searches and seizures. No search or arrest warrant may be issued except with probable cause and the warrant must specifically describe the place to be searched and persons or things to be seized.
The rights provided by the Fourth Amendment are generally considered to be “fundamental,” which means that they apply of their own force to all individuals subject to the sovereignty of the United States. No statute is necessary to extend them to U.S. territories and possessions. However, in addition, legislation or local constitutional provisions of Puerto Rico. The Fourth Amendment has been held to apply to Puerto Rico; Puerto Rico’s Constitution also provides these same protections.
The Fifth Amendment includes the right to indictment by a grand jury; protection against double jeopardy; the right against self-incrimination; the right not to be deprived of life, liberty, or property without due process of law; and the right to just compensation for public takings of private property. Puerto Rican law does not provide a right to grand jury indictment.
The Fifth Amendment protection against double jeopardy has been discussed in recent cases pertaining to Puerto Rico. In United States v. Sanchez, the Court of Appeals for the Eleventh Circuit found that the Double Jeopardy Clause would prevent separate prosecutions under Puerto Rican law and federal law for the same offense. The defendants in Sanchez, after having been acquitted in a Puerto Rican court of multiple criminal charges, were convicted in federal court in Florida on charges arising out of the same circumstances. On appeal, they claimed that the Florida prosecution violated the Double Jeopardy Clause. The United States contended that the first prosecution was undertaken not by the government of the United States, but under the authority of a separate sovereign, the Commonwealth of Puerto Rico, and therefore that the Double Jeopardy Clause did not apply.
The Court of Appeals said that the “crucial question” in determining whether two entities are separate sovereigns is whether the two derive their authority to punish from distinct sources of power. It concluded that the Congress’ decision to permit self-governance in Puerto Rico did
not make Puerto Rico a separate sovereign: “Puerto Rico is still constitutionally a territory, and not a separate sovereign. As a territory, Puerto Rico remains outside an exception to the Double Jeopardy Clause which is based upon dual sovereignty.” The court concluded that, since
Puerto Rico continues to derive its judicial authority from the federal government, the Double Jeopardy Clause precludes prosecutions for the same offense in both a state and Puerto Rico. However, the Court of Appeals for the First Circuit which, as the appellate court for the federal district court in Puerto Rico, hears most federal cases involving Puerto Rico, considers Puerto Rico to have a degree of autonomy sufficient to make it a separate sovereign for the purpose of permitting successive criminal prosecutions by the United States and Puerto Rico.
Due Process and Equal Protection Clauses
Among the rights guaranteed by the Constitution are due process and equal protection. Both rights apply to Puerto Rico. The Due Process Clause provides that no state shall “deprive any person of life, liberty, or property, without due process of law.” The Equal Protection Clause requires that people under like circumstances be given the same protection of the law in the enjoyment of personal rights, liberties, and property.
In 1976, the Supreme Court held that residents of Puerto Rico are accorded the protections of the Due Process Clause of the Fifth Amendment or, alternatively, the Due Process and Equal Protection Clauses of the Fourteenth Amendment, although the court declined to decide which.
Taxation in the Insular Areas
The Congress has authority to impose income taxes on the worldwide income of U.S. citizens and corporations, including income from the insular areas. However, federal individual and corporate income taxes as such are not currently imposed in the insular areas.
A key feature of federal income tax structure affecting U.S. corporations doing business in the insular areas has been the Puerto Rico and Possession Tax Credit (section 936 of the Internal Revenue Code.) Enacted in 1976, section 936 was for the purpose of assisting “the U.S.
possessions in obtaining employment-producing investments by U.S. corporations.” The section 936 tax credit, as originally enacted, was equal to the full amount of the U.S. income tax liability on territory-source business income earned by qualified firms. In addition, the provision
exempted from federal taxation the income from qualified investments of profits earned in the insular areas by section 936 firms. This tax credit was limited by legislation approved in 1993 by the 103d Congress and was repealed in the 104th Congress by the Small Business Job Protection Act of 1996, subject to a 10-year transition period beginning in 1996.