Finance managers sound alert on absence of substitute industry • 5% annual drop in user fee collection seen

The CNMI government is anticipating an average five percent reduction in annual earnings from user fee collection beginning this year, as finance managers raised concerns on the possible catastrophic impact of the impending departure of the Saipan garment manufacturing industry to the Northern Marianas economy.

Revenue and Taxation Division acting director Dora S. Taitingfong said the Northern Marianas is in dire need for other industries in order to provide the local economy more stability in terms of overpowering effects of the very volatile tourism sector.

“We should work double-time in identifying and establishing alternate industries to offshoot the possible economic disruptions that may be caused by the anticipated pullout of the garment sector.” said Ms. Taitingfong during the week-long tax conference attended by experts from Guam, the U.S. Virgin Islands, Palau, American Samoa and the CNMI.

While pointing out that the Commonwealth’s revenue generating capabilities have improved by close to 5,000 percent between 1978 and 2000, special consultant for finance and budget Mike Sablan said the CNMI government is concerned that the impending pullout of the garment sector may cause severe economic disruption.

The Saipan apparel manufacturing industry is expected to uproot from the island when the agreements that created the World Trade Organization takes into effect in 2005.

The agreements eliminate trade quotas to the United States, thereby, stripping the Northern Marianas of its unique duty-free access to the mainland U.S.

“We are very concerned about the departure of the garment factories from Saipan because it is sure to entail massive layoffs in all the other industries on the islands that are directly or indirectly supported by the sector,” explained Mr. Sablan.

He pointed out that traffic at the Saipan International Harbor are mainly consigned to garment manufacturers, adding that 43 percent of seaport annual revenues are generated from apparel-related activities in the facility.

Also, Mr. Sablan disclosed 23 percent of the earnings generated by the Commonwealth Utilities Corporation are derived from power use by apparel manufacturing companies and the staffhouses they provide to their nonresident workers.

Ms. Sablan also made a pitch on the disastrous effects of the pending billion-dollar class action suit filed against Saipan garment manufacturers and their mainland U.S. buyers to the industry in particular and to the Northern Marianas economy, in general.

Blaming the class action suit, Mr. Sablan said government revenues from apparel exports suffered a modest fall in the first eight months of the Fiscal Year 2000, dropping by 1.5 percent from last fiscal year’s $25.5 million to $25.1 million.

The CNMI government has consistently projected reduction in earnings from apparel exports since the billion-dollar class suit was filed in early 1999.

“It has been anticipated since the class action suit was filed. The government is very concern over user fee collection since last year. The reduction only indicates that the garment industry is not growing as much as it did in the past,” Mr. Sablan said.

The apparel manufacturing industry in the Northern Marianas has persistently manifested resilience despite downturn in local and regional economies,. which has facilitated the Commonwealth’s efforts to weather hard economic times.

In Fiscal Year 1999, user fee collection from garment export certification soared by $2.5 million to $39.3 million from the previous year’s 36.8 million, according to records obtained from the Central Statistics Division of the commerce department.

However, actual user fee collection was still lower than the original government projections of $41.1 million for FY-1999.
The FY-1999 figure represents an average of $9.825 in direct quarterly government revenue from garment export certification, up from the year-ago’s average quarterly collection of $9.2 million.

In 1998, the CNMI government generated some $36.8 million from user fee collection. Department of Finance records indicate an increasing trend in fees collected from garment export certification since 1996.