‘Not many options remain’

With the closure of 10 garment factories on Saipan, including a major factory this week, and the U.S. Congress’ rejection of the CNMI’s proposed tariff amendment to help local manufacturers, what happens next for the industry other than await its own demise?

Unfortunately, there’s not much that can be done now, local authorities admit.

What can possibly be explored as a stop-gap is to lower the industry’s user fee as proposed earlier in the local Legislature.

The Fitial administration had thought of pushing for a reduced user fee but is not confident it would pass.

“In the past, Speaker Oscar Babauta introduced legislation to reduce the user fees. I’m not sure if it has a widespread support but now we see the collapse of the largest factory [Concorde]. I’m not sure whether the Legislature would be more wiling now to consider that legislation, but of course the federal government may not be happy with that. It’s a very difficult situation. Besides reducing the user fee, I’m not sure what other tools we have available to help the industry survive,” said governor press secretary Charles P. Reyes in an interview yesterday.

At present, what is more imminent is a faster rate of collapse for the industry as a result of an impending implementation of a higher minimum wage in the CNMI.

Reyes said this is “an additional dread.”

“The industry is declining but it could decline at a much faster rate if the minimum wage rate goes up. Whether it is done locally or whether it be imposed by the federal government or whether it be a compromise agreement between the local and the federal government, that would further jeopardize the industry,” said Reyes.

Hopes gone on Headnote3a

The administration has essentially given up hope that the CNMI’s proposed Headnote3[a] amendment, which was rejected by a Republican Congress this month, would make it in a Democrat-controlled Congress next year.

“If it was not considered in this Congress, the next Congress may be less receptive,” Reyes said.

The bill amending Head Note 3 (a) of the U.S. Harmonized Tariff Schedule would allow local garment factories to increase the maximum allowable foreign content material from 50 percent to 70 percent. This means savings for the factories as they would be able to do most of the work outside the CNMI, where cost is cheaper.

Reyes said the CNMI had high hopes the amendment would pass, considering the generous trade concessions that the United States has with foreign countries.

“The reason why we’re pushing that is that Richard Pierce mentioned that many foreign countries have secured generous trade agreements with the U.S. We’re hoping that the federal government would consider the plight of one of its territories,” he said.

Pierce, the governor’s special assistant for trade and economic affairs, had actively worked for the Headnote3[a] amendment bill.

Very unfortunate, extremely sad

Businessman and Saipan Chamber of Commerce president-elect Juan “Pan” Guerrero said it was “unfortunate that the U.S. government didn’t see the need for the federal amendment.”

“We’re left to our own and we have to move on. It’s very unfortunate that the garment industry will diminish substantially in a short period of time. It will have a devastating effect across the board,” said Guerrero.

Businessman Jose Ayuyu, local franchise owner of McDonalds and former president of Saipan Chamber of Commerce, said that seeing the garment industry go is “extremely sad.”

“It’s very sad especially when we are relying on its revenues to run our government. It’s going to be a big blow to the government. Whether you like the garment industry or not, it really provides money to support us,” said Ayuyu.

The garment industry used to contribute an estimated $60 million in direct taxes to the government annually.

In user fee alone, which represents 3.7 percent of total industry sales, the government used to collect an average of $30 million a year.

In fiscal year 2006, this collection plunged to $19.5 million due to the closure of factories and ongoing downsizing within the industry arising from the worldwide lifting of trade quotas effective Jan. 1, 2005.

Ayuyu said a short-term remedy to solve the current economic dilemma is to extend land lease term to 75 years to attract more investors.

“But that’s short term. We need to address the long-term solution—owning of property. It is very important because the confidence of investors is at stake. The government must move fast. We can’t do business as usual now,” Ayuyu said.

Saipan Garment Manufacturing Association chair James Lin has remained inaccessible to the media. His office said last week that he was off-island and would be back this week. When reached yesterday, his staff said he went off-island again.

At least 10 garment factories on Saipan have closed down since 2005.

These included five last year: Neo Fashions, Express Manufacturing Inc., Sako Corp., Mariana Fashions Inc., and Winners I.

This year, the factories that shut down operations were Hyunjin Saipan Inc., American Pacific Textile, Hansae Saipan Inc., Handsome Saipan, and Concorde Garment Manufacturing Inc.

This data [with the exception of Concorde] is based on the documents provided earlier by the Governor’s Office to the media.

Concorde stopped its operations Tuesday this week, resulting in the displacement of some 1,400 employees.