‘Tsunami may lead garment buyers to Saipan’

The Department of Finance remains confident that garment user fee collections this year would remain “near or at the same level” as in previous fiscal years despite the worldwide lifting of quota restrictions.

For one, Finance Secretary Fermin Atalig said that garment sales in the CNMI may not dramatically drop this year as buyers from tsunami-stricken areas in Asia could shift to Saipan.

He cited that some Sri Lanka factories would not be able to meet their orders this year.

“Garment factories in Sri Lanka and maybe Thailand would not be able to operate because of the tsunami, therefore the buyers may come here,” said Atalig.

It must be noted, though, that the tsunamis hit coastal areas and islands and not major cities, such as Colombo in Sri Lanka and Bangkok in Thailand, where most garment factories are located. There have been no reports of manufacturing activities in those countries being affected by the tsunamis.

Atalig also said that the feared massive shutdown of operations may not happen drastically in the CNMI. He noted that CNMI factories are mostly run by Chinese businessmen who primarily employ Chinese workers.

“Most of the factories here are owned by Chinese. I don’t think they would do something that would hurt their compatriots here,” said Atalig.

The Finance Department collected $30.1 million in user fees in FY 2004, which Atalig said is about $1 million more than FY 2003’s $29.6 million. In FY02, the government collected $30.9 million.

“I’m hoping that we can maintain that figure [$30 million] in fiscal year 2005,” he said.

The Saipan Tribune tried to obtain comments from the SGMA but its executive director, Richard A. Pierce, is still in Washington D.C. SGMA president James Lin was also unavailable for comments.

Acknowledging that this scenario may not work out, Atalig said the government is counting on tourism-generated income to offset any potential losses.

“I think we can work hard and capitalize on the Approved Destination Status agreement with China. We can compensate for that loss,” he said.

The CNMI signed the ADS agreement with China last December, paving the influx of more high-end Chinese tourists into the CNMI.

Saipan’s garment sector leaders met with the Babauta administration last week to discuss plans to ensure the industry’s viability amid tougher international competition. The garment sector remains as the biggest contributor to the government’s revenue coffers.

Recently, the Babauta administration said garment manufacturers in the CNMI could remain competitive through tax exemptions that non-U.S. exporters could not avail themselves of.

The Attorney General’s Office said that manufacturers 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.

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 made to undergo manufacturing operations without payment of duty. Bonded warehouses currently exist throughout the United States and Canada.

“These warehouses may also be used to position the CNMI as a distribution point for goods flowing between countries in North America and Asia,” the government said.

The Saipan Garment Manufacturing Association had warned that the lifting of quota restrictions in January 2005 could result in the possible loss of up to 2,000 government jobs.

It also warned of a bank run when the apparel industry begins to feel the effect of the implementation of the General Agreement on Tariffs and Trade and displaced garment workers are forced to withdraw their monies from local banks in the Commonwealth.

Garment workers are estimated to have $90 million in direct deposit.

Further, SGMA, in a presentation to the Legislature last year, said that there is an estimated $200 million in deposits from the garment industry and the garment workers that finance CNMI bank operations, particularly loans to local borrowers.

Authorities fear that China would dominate the world’s apparel industry with the lifting of the quota restrictions, particularly since fabric and manufacturing costs are cheaper in China.

China is predicted to take up to 75 percent of the U.S. market in garment sales.