‘NMI apparel companies have tax incentives despite lifting of quotas’

With the upcoming lifting of quota restrictions on apparels exported to the United States, the Babauta administration said garment manufacturers in the CNMI could remain competitive through tax exemptions that non-U.S. exporters could not avail of.

In a media statement released by the Attorney General’s Office, the government said garment manufacturers in the CNMI could take advantage of duty-free treatment under federal customs law if 50 percent or more of the product’s value is added in the CNMI.

“It may be cheaper for manufacturers to produce garments outside of the CNMI, because of our relatively high cost of labor compared to some Asian countries. At the same time, the manufacturer wants a CNMI country of origin mark so that it can export duty free to the U.S.,” said Frank Taitano, the Governor’s special assistant for customs and quarantine.

“A garment manufacturer in the CNMI may want to add as much of the garment’s value as possible outside of the CNMI. Our [customs] officers need to identify garments that do meet the CNMI’s and the United States’ 50 percent value requirement,” he added.

The administration disclosed that local customs officers recently finished a training program conducted by the U.S. Customs and Border Protection, saying that it collaborated with the federal customs agency to identify federal customs law provisions that local garment manufacturers could take advantage of.

“Specifically, the training was designed to help the CNMI leverage its unique relationship with the U.S. to give its manufacturers and businesses a competitive advantage over those from other countries exporting to the U.S.,” it said.

Local customs officers learned how to determine whether or not CNMI-made garments would qualify for duty-free shipment to the U.S., the administration said.

It stressed that, although garments originating from countries like China could soon enter the U.S. without limit when World Trade Organization quotas are lifted at the end of the year, the goods would still be subject to duty.

The AGO also disclosed the enactment of CNMI customs regulations that allow garment manufacturers to import cut fabric panels into the CNMI without paying an excise tax.

“The exemption will only apply to fabric panels that are assembled for export into a finished garment, and which coincides with the United States’ 50 percent requirement for local added value,” it explained.

The administration also said it is in the process of drafting regulations that would introduce the concept of bonded warehouses in the CNMI.

The administration explained that bonded warehouses are buildings or other secured areas in which dutiable goods may be stored manipulated or undergo manufacturing operations without payment of duty. Bonded warehouses currently exist throughout the U.S. and Canada.

“It is hoped that bonded warehouses will provide the necessary tax incentives to stimulate the development of new forms of manufacturing business in the CNMI. Bonded warehouses may also be used to position the CNMI as a distribution point for goods flowing between countries in North America and Asia,” the administration said.