Lawsuits taking toll on Saipan garment industry

Opening the Northern Marianas economy to more garment manufacturing facilities may not yield good fruits both for the CNMI government and potential investors due to the present condition faced by the industry.

The billion-dollar class suit filed against garment manufacturing companies on Saipan and their mainland buyers last year has started taking its toll on the apparel industry, according to the Saipan Garment Manufacturers Association.

In a testimony submitted to the House Committee on Commerce and Tourism, SGMA said the industry is currently dealing with slow business resulting from buyers’ apprehension on placing orders from Saipan garment manufacturers.

SGMA executive director Richard Pierce blames the reduced orders from mainland buyers to the billion-dollar lawsuits filed against Saipan apparel makers in two federal courts in Los Angeles and Saipan, and another in a San Francisco state court.

“Some factories are suffering because of non-placement of orders. Although some orders are still finding their way to Saipan, prices of the goods have dropped compared with previous years before the lawsuits were filed,” the SGMA said.

Reports said apparel orders from mainland buyers have dropped by as much as 30-40 percent, with GAP reported to have completely refused doing business with Saipan garment companies.

The class action suits alleged that Saipan factories force people to work up to 12 hours a day, seven days a week and threaten them with beatings and verbal abuse if they refuse unpaid overtime to meet quotas set by factory managers.

At least 22 garment factories on Saipan were named defendants in the class action suit filed in the District Court here. It is the biggest court action facing the local garment industry.

The lawsuits are also the first legal attempt to hold US retailers accountable for alleged mistreatment of workers by subcontractors under the federal Racketeer Influenced and Corrupt Organizations Act.

Among the companies named in the suits were The Gap, Cutter & Buck, Dayton Hudson, J. Crew Group, J.C. Penny, Sears Roebuck & Co., The Limited, Oshkosh B’Gosh, The Gymboree, the Associated Merchandising Corp., the May Company, Lane Bryant, Wal-Mart, Tommy Hilfiger, and the Warnaco Group.

Garment pullout

At the same time, Mr. Pierce said plans to lift the quota in 2005 will uproot many of the apparel factories from Saipan, adding that indications point to their transfer to the Caribbean or China.

He explained that Asia and the Latin America are the most favored relocation for Saipan garment factories because the minimum wage is lower there.

The eventual pull out of the garment industry from Saipan is expected to drag consumer prices up, since the apparel manufacturing sector virtually supports the Commonwealth’s cargo segments.

In a study, financial consultant Booz Allen & Hamilton, said not only will a significant loss in garment exports have a material impact on the Commonwealth Ports Authority’s remaining cargo segments, it will also essentially eliminate container back haul.

As a result, this will likely drive up the transportation costs for Saipan imports.

With the exception of garment exports, the seaport primarily, or at least 83 percent, handles imported commodities like petroleum products, container cargo and construction materials.

Saipan’s container traffic is heavily imbalanced with nearly three times as many loads bound for the island than originating in the island during the last fiscal year. The net result of these inefficiencies and lack of scale is a higher cost to carriers.

Because 90 percent of inbound and only 20 percent of outbound traffic are loaded with cargo, mostly garment, carriers are faced with costly container repositioning charges. In fact, Sea-Land’s current ocean freight rate for grocery items to Saipan from the US West Coast is over 30 percent higher than Guam.