Water from the Stone of CNMI Sovereignty
I look forward to returning to this research. It has put me back in the mood for reading about the garment industry that the CNMI once boasted. Here is an article from 2005 in the Saipan Tribune that I came across recently.
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The rise and fall of the garment industry in the CNMI
by Jesus D. Camacho
Saipan Tribune
May 17, 2005
https://www.saipantribune.com/index.php/a360ee58-1dfb-11e4-aedf-250bc8c9958e/
According to the Tan Holdings Corp. website, Dr. Tan Siu Lin and his family brought THC to Guam in the early ‘70s and embarked on a variety of businesses: shipping, real estate, amusement, and movie distribution. Approximately six years after THC began conducting business in the Marianas, the Northern Marianas Islands became a bona fide Commonwealth in 1978.
Approximately five years after the CNMI came into existence, the Tan Siu Lin family made the decision to move the corporate headquarters from Guam to the CNMI in 1983. Subsequent to relocating to the Commonwealth, THC began to grow and become an extremely diversified and multifaceted corporation handling the gamut in terms of different businesses—garment manufacturing, shipping, freight forwarding, fishing, financing, real estate, ground handling, amusement, travel, wholesale, hotels, insurance, and publishing—which generated economic activity that bolstered the economies of the entire Marianas chain, as well as other island communities in the Pacific Rim, e.g., Palau, Marshall Islands, the Federated States of Micronesia, and others.
Today, THC is considered by many in the business sector, local and federal government, as well as residents of the island community, to be the strongest contributor in terms of generating monetary resources and economic activity in the CNMI and throughout the Pacific Rim, and has allowed for the opportunity for the CNMI economy to flourish and provide the residents with a more enhanced and decent quality of life.
Following THC’s move to the CNMI, then Gov. Pedro P. Tenorio and the 3rd Legislature under the leadership of the late Senate President Oly Borja and House Speaker Benigno Fitial in 1983 began discussions with THC chair Dr. Tan Siu Lin and his son, Willie Tan, regarding the development of a garment manufacturing industry in the CNMI. Shortly thereafter, the abovementioned gentlemen were instrumental, as well as successful, in terms of encouraging and attracting Asian garment manufacturers to commence operations on Saipan under specific terms and conditions. It did not take long for the garment manufacturers who set up shop in the CNMI to become competitive with other countries involved with the garment industry, e.g., China, Korea, Malaysia, Indonesia, Thailand, and Mexico. (Interestingly enough, these are the very countries that have now displaced the CNMI in terms of garment production and manufacturing worldwide.)
The positives regarding the economic benefits of the garment industry in the CNMI clearly outweigh the negatives. Substantiating the positives are comments made by organizations and individuals, e.g., the Bank of Hawaii Economic Report of 2003 released in 2004 for the CNMI, as well as the Saipan Apparel Industry Report released in 2004. The BoH Economic Report of 2003 stated that “the involvement of the garment industry in the Commonwealth made it the most self-sufficient U.S. affiliated economy in the western Pacific.” In addition, the report indicated that “the garment industry should be credited with preventing an economic depression in the CNMI following the decline of its tourist industry during the Asian economic crisis during the 1990’s.”
Prior to 1992, the data collection and monitoring of how much the garment industry was producing in terms of Gross Business Revenues—as well as in Direct General Fund Garment Revenues, which collectively combined user fees, income taxes, NRW fees, and BGR Taxes—was almost non-existent. Thus, the actual amount of total funding given to the CNMI government in the form of taxes and fees from the inception of the garment industry in 1983 and up until the early 1990s was based essentially on projections.
The economic benefit to the CNMI from the garment manufacturers coming from the various fees and taxes to the government from the onset of the industry in 1983 until 1993 is estimated to be in the vicinity of about $250 million. And for the following decade, according to the BoH 2003 Economic Report, the total direct payment of garment revenues to the CNMI government—which incorporated user fees, income taxes and other fees from 1994 through 2003—was roughly $435 million. The amount of monetary resources generated by the garment manufacturing industry substantiated what the Bo H report said, “The Commonwealth in effect enhanced its comparative economic advantage.”
Combining all of the taxes and fees submitted by the garment industry to the CNMI government over the past 22 years (1983 through 2003) is just shy of three quarters of a billion dollars. Clearly, the garment industry has been a key economic component for the CNMI and the entire Pacific Rim region and should be given credit for being a catalyst in terms of giving the residents of the island community a better quality of life.
The Garment Industry Report explained the ramifications of the “multiplier effect” regarding business revenues, employment, and income collectively, which was in the vicinity of $135 million in 1995 and $325 million in 2004.
The spending of disposable income by garment workers and the payment of taxes and fees to the government and the organizations who contribute to the island economy, e.g., small business, has for over two decades played a significantly large role in terms of keeping the economic cycle of the island community moving and thriving.
The net result from the multiplier effect was the creation several thousand direct government and private sector jobs outside the apparel industry in the CNMI. This, coupled with the tourism residuals, has kept the CNMI relatively strong in terms of the overall island economy.
According to the report generated by Burger & Comer for the Saipan Garment Manufacturers Association in October 2000, the number of people in the employ of the garment industry was estimated to be nearly 18,000, i.e., around 1,800 CNMI residents and about 16,000 non-resident aliens.
The only negative with respect to the income earned by the workers of the garment industry is the amount that is sent back to their countries, e.g., China, Korea, Thailand, Philippines, Malaysia, etc. Clearly, the income that goes out does not help the economic health and well-being of the CNMI.
Since the enactment of the General Agreement for Tariffs and Trade by the World Trade Organization in January 2005, the total number of workers in the garment industry in the CNMI has been reduced substantially. The estimation of workers in the garment industry is said to have plummeted by several thousand workers over the past six months. By the end of 2005, it is projected that more than three-fourths of the estimated 18,000 workers will be unemployed and without hope or sustenance to maintain a livelihood.
The Garment Industry Economic Report identified more than $135 million in direct economic impact provided by the garment industry workers. The report also stated that the garment industry is a major factor in the CNMI’s economy. This assertion is in direct conflict with what Gov. Juan Babauta recently told the media in May 2005 at the CNMI Department of Commerce regarding the garment industry.
In May 2005, Gov. Juan Babauta talked to the Department of Commerce personnel. Several questions were posed regarding the garment industry. Babauta was asked, “What is the administration doing to help the garment industry stay on island?”
Babauta’s response was, “They are going to shut down anyways and their contribution is not really a significant portion of the budget. We could survive without their revenue besides, they cost more than they generate for the government. We could run a smaller government without them.”
Babauta’s comment about the economic benefit of the garment industry to the CNMI government reflects a governor who is out of touch with fiscal realities. Based on a total government budget of $217 million, the total direct revenues from the garment industry is roughly $70 million or 30 percent of the total. How can nearly one-third of the budget be construed as “insignificant”?
If the garment industry is making a contribution to the budget of about one-third and is clearly a significant contributor of revenues, then the comment that Babauta made about surviving without the industry and it costing more than what they generate reflects a governor that does not understand what the true impact of the garment industry has been in the past and is to the CNMI government in the present day.
Another question posed was, “If the garment companies leave and the workers do not want to go, does the government become responsible for their benefits, e.g., food, housing, medical, return ticket? Babauta’s response was, “Where does it say the government has to take over responsibility—they have to go!”
The comments by Babauta reflect an elected governor who is not compassionate and appreciative of the garment industry and the workers who played a role in assisting their employers in making monetary payments to the tune of nearly a billion dollars to the CNMI government over a 22-year span of time. Turning his back on the industry and the workers shows Babauta’s true sentiments regarding the quest for survival of the industry and their workers.
Although there is no legislation saying there is any obligation to assist the garment workers, there should perhaps be more sensitivity and respect shown and expressed publicly and privately in terms of their displacement. And since nearly 2,000 garment workers are CNMI residents, the governor should provide some support in helping the displaced workers become acclimated back into the workforce to make a living.
To not show openly any support for the resident and nonresident garment workers, reflects leadership that is uncaring and oblivious to the people who worked painstakingly for long hours for very low wages for over two decades in the CNMI.
Since the industry has been a benefit and not a detriment economically, there should never be a nonchalant attitude about the industry and/or the garment workers who worked painstakingly to produce garments and allow the companies they worked for to compete with other garment manufacturers in the international marketplace.
Currently, Babauta is face to face with the unpleasant prospect of trying to confront the real issues surrounding the garment workers that are unemployed and stranded in the CNMI with no job, money, and encouragement from the designated political leader of the Commonwealth. His only solution thus far has been to say “leave”.
What will Babauta convey to the garment industry officials and the workers next? The island community will soon find out at his State of the Commonwealth speech slated for May 19, 2005.
Will the governor blame previous governors for not creating a sensible and systematic plan to deal with the nearly 18,000 displaced workers employed by the garment industry and the companies which will inevitably go out of business if the U.S. Tariff Code is not changed to assist the CNMI in remaining competitive in the garment industry globally? If he decides to, then he might get a stern rebuttal from the four former governors of the CNMI.
For nearly four years, the Babauta administration has done virtually nothing in terms of creating a viable and pragmatic “exit strategy” for both the companies and their workers. The problems that need to be resolved are serious and will no doubt elicit some tension throughout the entire island community. Organization development experts would describe the situation to be the essence of “crisis management.”
And to make matters even worse, Babauta and the anti-business proponents who are opposed to the garment industry have not stepped forward with alternatives to replace the garment industry, revenues to the government, as well as the positive economic impact on the island economy from the disposable income that is spent by those workers in the garment firms. In effect, they “watched what happened” to the garment industry and now Gov. Babauta is “wondering what happened” and what to do about it.
Babauta knew going into the governor’s office in January 2002 that at the onset of 2005, the GATT would go into effect and effectively dismantle the garment industry in the CNMI because it could not compete with countries like China, Korea, Malaysia, Indonesia, Thailand, and Mexico.
The expression goes, “Don’t bite the hand that feeds you.” The garment industry helped feed and sustain the economic base of the CNMI for nearly a quarter of a century. Now Gov. Juan Babauta is biting their hand when they are the ones who are hungry and struggling to survive amid the rapid dismantling and demise of the industry.
Babauta has not stepped up to the plate and shown support for a key remedy for the dilemma of the garment industry, i.e., amend General Note (3a) (iv) to grant U.S. insular possessions equivalent treatment to free trade partners by extending to all products, including textile and apparel, the current requirement that eligible products contain at least 30 percent U.S. and local content.
In addition, Babauta has not shown any strong public support for the amendment of the U.S. Tariff Code to allow foreign content to be increased from 50 to 70 percent and enable garment firms in the CNMI to cut pieces overseas at a lower cost and be able to assemble in the CNMI and remain a viable player in the garment industry internationally.
The U.S. Department of the Interior, in their findings regarding the effect of the loss of the garment industry said, “If the garment industry leaves the CNIU for whatever reason in the next few years, it could take with it one-half of the jobs in the CNMI, including one-third of the jobs of permanent residents.” The Interior Department also recommended that every effort be made to avoid an abrupt or disorderly phase-out of this industry and to retain the more productive segments of the industry as long as possible.
It does not appear that Babauta has taken to heart the serious recommendation made by the Department of the Interior regarding the current dismantling and demise of the garment industry in the CNMI. Not doing so is making a grave mistake that will negatively impact everything across the board.
Small and big businesses in the private sector are the heart and soul of every economy in a “free enterprise system.” They are the integral components in terms of producing monetary resources, which will directly and indirectly help stabilize the economy. When you take away the business element, you take away the lifeblood of an economy regardless of where it is geographically.
Whether it is the CNMI or federal government, a government cannot function effectively and adequately and maintain solvency and stability without the influx and contribution of tax dollars and/or fees that come from the business sector. To think that a government in a capitalistic system can do without the financial input of the business sector is naïve and puerile reasoning. The question now that should be posed is: “What will Gov. Babauta propose to fill the void that the garment industry will leave in the CNMI?” To not provide an answer to this extremely important question will be on the minds of the electorate as they approach and enter the voting booth in November 2005.
Dr. Jesus D. Camacho
Delano, California
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