The effects of a decline in the garment sector

Q. Here’s a question I am interested in asking for your column: If the garment industry starts to reduce its workforce, should the CNMI be concerned? Would there be an immediate impact and if so, what would that be?

A. Garment industry is one of the main pillars of the CNMI’s economy. Both public and private sectors depend on it in many different ways. Since this dependence extends well over a decade, the result is that the mainframe of the CNMI’s economy is built around it. When this frame of economic structure becomes shaky due to reduction in workforce, the CNMI should not only be concerned but alarmed. To date, there is seemingly no realistic alternative on the drawing board that can automatically trigger support to such an expected shock to the economy. The likely timing of reduction in workforce is known but it is the unknown rate of reduction that will determine how much social, political, and economic chaos we will get into, as this process takes its course.

In my view, its immediate and the most severe impact will be on the farmers who heavily depend on selling their produce to this particular segment of consumers. Farmers who already have to crisscross the island to sell their produce will find themselves even in more precarious situation when the reduction in workforce becomes a reality. This view is based on the type and specific nature of demand for farm produce from this group. Similarly, the local people who have been working in this sector for a long time will have to look for jobs in the tourist industry or the government sector—the other two major sectors of the economy—for which they may not have adequate experience or skill. Another group of people most directly impacted will be the owners of properties being leased for factories and housing of workers. Finding alternative uses of these properties and providing relief to the owners will not be an easy task, at least in the short run.

The government, which has depended heavily on revenues both in the form of user fees and various other direct and indirect taxes from the garment sector, will be challenged to continue the provision of public services comparable to current level as this revenue source declines. The government will face a situation that will require an adjustment in size and a drastic reform in its structure. This task will be formidable since both of these things have significant social and political consequence.

The most severe impact will be in the long run in the form of rise in inflation, i.e., a general rise in prices and cost of living. This scenario is based on the fact that, as the volume of shipment to and from the CNMI go down, so will the reduction in economy-of-scale advantage both in ocean and air transportation. Should the trend in high fuel prices sustain or continue, a rise in inflation will take effect much sooner. In summary, it is hard to imagine who or which sector of the CNMI will not be affected as the downturn of the garment industry picks up steam. There is not much time left to think about and to take action to minimize the likely adverse impact of decline in garment sector as the implementation of new provisions of the General Agreement on Tariffs and Trade (GATT) are only months away.

Note: It was at the conclusion of the Uruguay Round of General Agreement on Tariffs and Trade (GATT) on April 15, 1994 that it was decided to abolish quotas in the trading of garments beginning 2005. Also, GATT was transformed into World Trade Organization (WTO).