the U.S. treasury because no taxes are withheld, creating the Treasury also cited opportunity for tax avoidance or evasion. its general opposition to this method of gaining access to forWhile Treasury supported the general -@ign capital markets. objective of insular economic development, it stated that Guam should not serve as a conduit for transitory foreign investment, and should not receive a benefit not available to the states. The Congress later affirmed Treasury's position with the passage of the Tax Reform Act of 1984 which effectively eliminated potential benefits of establishing an these types of financial transactions. intermediary to handle Guam officials said that this is another example of a federal policy action to prevent the territory from achieving greater self reliance. The Governor of Guam, in his February 1984 testimony before the House Interior and Insular Affairs Committee, called Treasury's action inconsistent because at the time it granted foreign citizens a privilege denied to U.S. citizens residing in Guam. According to the Governor, Guam would have realized about $50 million in annual revenue had its investment strategy been implemented. Guam officials said if Guam had been allowed to sell arbitrage bonds and establish itself as an international finance center, it would have become completely self-reliant and would no longer have to depend on federal assistance. Congressional proposal to eliminate an important tax benefit to Puerto Rico Puerto Rico officials cited a 1982 congressional proposal to eliminate an important tax benefit as an example of U.S. insensitivity to Puerto Rican development needs. The proposal entailed a change to section 936 of the Internal Revenue Code, which provides a federal tax exemption on profits earned by U.S. firms operating in Puerto Rico. Section 936 is an important incentive in Puerto Rico's ability to attract industry and capital to the island. The proposed change would have eliminated the tax advantage, thereby adversely impacting Puerto Rico's economy. According to Puerto Rico officials, they were not consulted about the proposed legislative change and had to lobby the White House and Congress to obtain a compromise which protected the tax benefit for firms operating in Puerto Rico. They cited this. example as a case where national tax policy was being formulated without their input, which could have had adverse effects on their economy. Puerto Rico officials said the uncertainty created by the proposed change hurt new investment in Puerto Rico, as some firms cancelled or postponed investment actions. 29