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Rising costs of business, not WTO, cause of decline advisor says

By Stefan Sebastian

SAIPAN, CNMI (Saipan Tribune, June 23, 2008) –Once the lifeblood of a brief and controversial economic boom several years ago, the Commonwealth's garment manufacturing sector is now in a "free fall" due to a host of rising business costs, according to a statement issued yesterday by a key adviser to Gov. Benigno Fitial.

Federal mandates to boost the local minimum wage are the primary cause of garment factory closures over the last 18 months, the statement says.

"It's a sad state of affairs that one of the CNMI's two major industries is almost removed from Saipan, where mainland politics must be factored into the cost of doing business," said Richard Pierce, the governor's trade and economics adviser, in the June 22 statement. "It'll be very interesting to see how mainland politicians' ideas on how to manage the CNMI's guest worker program and visitor entry will affect the other major industry: tourism."

To illustrate the decline of the Commonwealth's clothing and apparel production industry, Pierce noted that the amount of local tax revenue collected for shipments of garments and other goods to retailers overseas has fallen drastically when compared to collections during the peak years for manufacturers, 1998 and 2002. Average collections in those years reached $36 million.

Data on the tax, better known as "user fee," reveal that while collections from exports earned the Commonwealth more than $35 million in 2001, for example, total collections have since fallen sharply each year, save for a slight jump in 2004.

The steepest drop occurred between 2005, when the tax collected brought more than $26 million to the Commonwealth, and 2007, when revenue totaled about $13 million.

The CNMI Finance Department estimates user fee collections for fiscal year 2008 will be near $7 million, with another $6 million collected from various other fees.

In light of these figures, Pierce dismissed suggestions that the slow death of Saipan's garment production sector is due to reduced restrictions on production quotas among World Trade Organization member-nations.

"If you look at the history of Saipan's garment industry, the decline of sales and CNMI tax revenue began in 2003," he said. "Recent factory closures have been as the result of lost orders due to increased costs and the inability to compete with Asian production. Electricity, shipping costs, labor, raw materials and production costs have been the determinants,"

In addition to reduced revenue, the statement points to a decline in the number of garment manufacturing jobs in the Commonwealth.

The remaining garment manufacturers on Saipan-United International Corp., Uno Moda Corp., RIFU Apparel, Marianas Garment Manufacturing, Onwel Manufacturing Saipan Inc. and US CNMI Development Corp.-now employ a combined 1,751 staff members, compared to the 16,000 who worked there during the heydays of the local garment industry, the statement says.

Saipan Tribune

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