‘Competitiveness is key to survival of NMI garment industry’

Washington Rep. Pete A. Tenorio called on the Babauta administration and the CNMI Legislature to support him in lobbying for a congressional amendment on the U.S. Tariff Code to reduce the value-added requirement on garment imports for local manufacturers to avail of duty-free treatment.

Tenorio aired the concern after attending the Saipan Chamber of Commerce meeting at the Hyatt Regency Saipan Wednesday, where garment industry players made elaborate presentations on the bleak future of the CNMI’s premier industry once quota restrictions are lifted beginning Jan. 1, 2004.

The U.S. Tariff Code requires that 50 percent of the value of the garment has to be added locally by transformation, in terms of additional labor, packaging or other overhead costs, so that garment products coming from U.S. exporters like the Commonwealth could enter the United States duty-free.

The Saipan Garment Manufacturers Association has been pushing for the reduction of the value-added requirement to 30 percent to help Saipan factories improve its competitiveness in the world market, amid big players such as China.

“I need these people to mobilize their support,” Tenorio said. “I want this to be a government effort rather than a private one.”

SGMA executive director Richard Pierce anticipated that there would be a slow and gradual withdrawal of orders to Saipan factories when quota restrictions are lifted.

“Unlike what has been characterized by the CNMI government, duty-free entry into the U.S. market is not enough of an advantage to maintain factories in Saipan. The loss of quota restrictions on other countries puts our factories in jeopardy like many other countries’ factories,” Pierce said.

“Without doing a single thing to lift a hand to protect the factories, they will decrease in numbers and in volume and in sales by 30 percent within one year,” he added.

Pierce said reduction in factory sales has become inevitable and would substantially impact on government revenue and the economy. Citing a study based on 2001 figures, a 30-percent decline in garment sales would result in a loss of $34.74 million in taxes and fees and local sales. Direct taxes and fees from the industry that will be lost will amount to some $19.8 million.

If garment sales drop by 20 percent, total losses would reach some $23.16 million; if the decline is about 10 percent, losses would amount to $11.58 million; and if sales dropped by 8 percent, $9.08 million.

Last October, Pierce said fees amounted to just $2.2 million, the second lowest monthly total since 1997 and the lowest for the month since 1996.

Industry should be competitive

Doug Rogers, vice president for business administration for Polo Ralph Lauren Sourcing Co. Ltd., underscored the bleak fate of the industry if it could not maintain its competitiveness once quota restrictions are lifted.

Polo has been sourcing millions of garments from Saipan factories in the last 12 years. He said that Polo would source its garments where they are competitive, without compromising quality. He expressed uncertainty as to which factories would survive when quota restrictions are lifted.

Globally, Polo sources over 80 million units per year. These include clothing for men, women and kids; accessories; home furnishings; luggage; and eyewear.

Rogers said these are sourced from 278 factories in 31 countries, 76 of which are in China. He highlighted the increasing number of U.S. imports from China from 2001 to 2003, noting a 1,796 percent growth.

Without the lifting of quota restrictions, Rogers already noted that China has risen as the number one garment supplier to the world’s most lucrative market, the United States. In 2003, China enjoyed a 12.5 percent market share in the United States, when the latter’s garment imports reached $18.864 billion.

Mexico followed China with its 10.4 percent market share, while Honduras ranked third with a market share of 6.1 percent. In 24 months, Rogers predicted highly populated India to become a competitive player that would make it into the top ten.

Rogers illustrated how competitive China is in terms of pricing. In 2003, the actual cost of a piece of knit shirt in China was only $2.82; in Hong Kong, $1.23. For cotton trousers, the actual cost per piece in China was $4.30; in Hong Kong, $1.43. Since 1997, China ranked no lower than the top four garment exporters to the Unites States, he said.

Although domestic industry players are pushing for safeguards from China’s dominance, Rogers noted that they could not be permanent.

Rogers also pointed out the low wage rate in China, amounting only to a few cents. He said the CNMI could improve its competitiveness if it reduces the minimum wage and local taxes. He also expressed support to the proposed reduction of value-added requirement on garment imports by the United States.

He said the years 2005 to 2008 would become a critical timeframe to the garment industry on Saipan and in the world. “If you don’t do that [improve competitiveness], pick a date when Saipan manufacturing is declared over.”