Once the new minimum wage reaches $4.05 next year, there will be no more garment factories on Saipan, according to a lawyer representing many garment manufacturers on the island.
Attorney Michael Dotts, in an interview with Saipan Tribune, said he believes that with the passage of the new minimum wage rate, most of the factories still on the island have only one year to go.
“Some factories feel that they could afford a wage rate of up to close to $4 per hour and some feel that they can't really afford any wage increase at all,” he said.
For those that could afford up to $4, the lawyer said, they may be able to stay here a little bit longer because the $4 will kick in after a year.
“For those who are pretty much on the rope, given all the other costs, increases such as power and transportation and the continued decline in their ability to compete with the Asian markets, they'll probably close much quicker,” he said.
“Once it gets to $4, that's it. They cannot compete. And for others they cannot even compete right now,” Dotts said.
President Bush approved the wage hike bill on May 25, 2007. The legislation will increase the local wage floor by $4.20 in nine steps, over an eight-year period. The first 50-cent increase will be in effect on July 24. Fifty cents will be added every year until the local rate reaches the federal level of $7.25 an hour.
Dotts said the garment industry can possibly survive longer if there is a substantial change in the value-added provision.
Under the value-added provision, Dotts explained, manufacturers have to do a certain amount of manufacturing in Saipan to be able to have the “Made in U.S.A.” label.
“For example, you need to do 40 or 51 percent here to say it is 'Made in U.S.A.' If the U.S. Congress changes the restrictions so that you can do 30 percent or 25 percent here and still carry the 'Made in U.S.A.' [label], a lot of the labor could be done in Asia,” he said.
Dotts said a larger percentage of the work could be done in Asia at a much cheaper rate and the pieces could be brought to Saipan for assembly and then it would carry the “Made in U.S.A.” label.
“But as it stands now, the amount of labor you have to do on material here exceeds any economic benefit of having a 'Made in U.S.A.' label,” he said.
Dotts, however, admitted that changing such restrictions has a very slim chance since CNMI has been trying to do that for a long time now and that it doesn't seem like Washington is receptive to it.
“Overall, it's hard to say. We're turning back the clock. We're going back to the economy prior to 1988 probably. Maybe back to 1985 or 1984. There's going to be a lot fewer jobs. There's going to be a lot fewer ships coming in the ports. So it's going to be a lot fewer goods available on the shelves,” he said.
Saipan Chamber of Commerce president Juan T. Guerrero had earlier warned of massive layoffs and work hour reductions following the federal wage hike legislation.
Guerrero, speaking as an individual business, said the impact of job losses and shorter work hours will offset whatever economic activity will result from the workers’ increased buying power.
The Chamber has not met since Bush signed the federal bill into law and therefore has not formed an official position on the matter.