Source: U.S. Bureau of the Census, Federal Expandilures by Slate for Fiscal Year 1988

Total Direct Federal Funds: Puerto Rico and the States with the Greater Participation in 1984

Note: Includes Grants to State and local governments, salary and
wages, direct payments to individuals, procurement contracts and
other programs.

The amount for Puerto Rico includes the additional estimated
costs to the Federal government if social programs were fully
extended according to the GAO report of 1987.

Source: U.S. Bureau of the Census, Federal Expenditures by State for Fiscal Year 1984.

The CHAIRMAN. Let me just remind you that these lights-the green light means "speak" and the red light means the time is up. Next, I will call on Mr. Domenech, Executive Director of the Commonwealth of Puerto Rico Tourism Company.

STATEMENT OF MIGUEL A. DOMENECH, EXECUTIVE DIRECTOR, COMMONWEALTH OF PUERTO RICO TOURISM CO.

Mr. DOMENECH. Good afternoon. On my right is General Bucharo, Executive Director of the Ports Authority, and perhaps there are questions you might have.

While the economic benefits of air transportation are difficult to fully quantify, it is useful to have a measure which places in perspective the need to continue to foster and develop aviation to Puerto Rico.

One such measure is the net contribution of aviation to Puerto Rico's gross domestic product. In 1988 approximately $730 million, or 5.8 percent of the GDP are attributable to visitor expenditures who arrived via air services. An estimated $3 billion worth of cargo was transported to and from Puerto Rico by air.

These numeric values provide a partial measure. The true significance of aviation to Puerto Rico must be stated qualitatively. As an island economy, Puerto Rico is heavily dependent on air transportation.

A well-developed air transportation system within Puerto Rico is important for the distribution of tourism and business activity throughout the Commonwealth and vital to the Commonwealth's economic development goals. Good international air service is important to furthering the Caribbean Initiative's objectives of developing Puerto Rico as the economic hub of the Caribbean region.

While it is clear that Puerto Rico benefits from its current role within the United States air transportation network, this review of Federal aviation policies and regulations that affect Puerto Rico impose potential constraints that limit the interest of the Commonwealth in meeting Puerto Rico's principal objective-to encourage the development of air services consistent with Puerto Rico's overall economic goals.

Air transportation service between the U.S. and foreign countries is generally provided in accordance to bilateral aviation agreements negotiated between the U.S. and the particular foreign government.

The Federal Government, and more specifically the Department of State and Department of Transportation, are responsible for formulating U.S. international aviation policy and negotiating aviation rights with foreign countries.

Puerto Rico's role in the process of securing new international air routes is indirect. That is, Puerto Rico may and does petition, advise and make recommendations to the U.S. aviation negotiators regarding international air services needs of the Commonwealth.

Puerto Rico does not, however, participate directly in negotiations between the U.S. and foreign countries. As the foreign governments approach the U.S. for rights to Puerto Rico they are asked to pay for those rights in the form of more service by U.S. carriers from the U.S. mainland to their country.

Foreign carriers always reach the conclusion that the price is too high to pay for Puerto Rico and they lose interest, or the negotiation deadlocks. Foreign nations would rather create routes between their country and Puerto Rico for the carriers of both nations to enjoy, as opposed to paying for Puerto Rico's route with additional routes from the mainland for their competitors.

So as long as Puerto Rico is tied to the U.S. Government's negotiations under the existing system, this problem will persist. Delays in negotiation have an obvious adverse impact on the tourism income for the Commonwealth. Hotel expansion and other infrastructure plans of the island are put in jeopardy.

Fomento, the Tourism Company, and the airport planning authority may find that their hard work in attracting foreign interests in new air routes, air charters, modern airport facilities, et cetera, are all frustrated through the negotiations process for prolonged periods of time. In the case of Canada, a negotiation of the long-sought-after Montreal-San Juan route took many years to con

clude.

Lost opportunities to Puerto Rico as a result of the negotiations process are real. Lost time means lost tourism and economic development. The amount of time spent by Fomento and the Tourism Company on attracting foreign interest that goes nowhere because of the negotiations process is also a cost to the island that must be considered.

The Commonwealth's interests and objectives which are best served by the broadest possible access to and from Puerto Rico, regardless of the name or flag of the airline, are subordinated to other U.S. concerns and objectives.

This is evidenced in two principal ways. First, in negotiating with the countries that did not advocate liberal agreements, the rights to serve Puerto Rico still must be bargained for and might be kept hostage.

Second, U.S. aviation policies have always strongly opposed the grant of traffic rights between two U.S. cities to foreign carriers. These rights are referred to as cabotage rights. As U.S. territory, the cabotage policy prevents a foreign carrier from carrying traffic between Puerto Rico and a U.S. mainland city.

Puerto Rico's interests would be best served by what might be referred to as an open skies policy with respect to international air service. Under such policy, Puerto Rico would be considered as a free gateway and would be authorized to be served by any foreign carrier which requests authority, as long as the foreign government also granted similar rights for a U.S. carrier to serve the Puerto Rico point.

The potential benefits to Puerto Rico are substantial. It would remove virtually all noneconomic obstacles that now limit the development of international air transportation services to and from Puerto Rico. Also, this proposal would benefit U.S. carriers on the basis of the reciprocity principle, providing them with the right to establish nonstop air service between foreign markets and Puerto Rico.

Recently the Chairman of American Airlines, Mr. Robert Crandall, announced his plans to construct a $150 million international