User fee collection shrinks

In what appears to be a validation of the projected drop in apparel production due to the billion-dollar class action suit against garment manufacturers and buyers, the CNMI government reported a sharp decline in user fee collection last year.

A report from the Department of Finance disclosed that user fee collection from garment export certification fell to $9.7 million during the third quarter of the Fiscal Year 1999 compared with $11.5 million in previous year.

The suit filed against Saipan garment manufacturers and their mainland buyers halted the projected continued growth of the sector, which has become the Commonwealth’s largest revenue-generating industry since the economic slump in Asia crippled the travel sector.

Despite the drop during the third quarter tally, the CNMI government collected an average of $9.7 million in user fees during the first nine months of FY 1999, which is higher than the year ago’s $9.2 million.

User fee collection from garment export certification in FY 1998 jumped by nearly 33 percent over the 1997 figure, reaching $36.8 million. In 1997, user fee collection totaled $27.7 million, up from the previous year’s $18 million.

The drop in user fee collection has been anticipated by the government since early last year due to the billion-dollar class suit filed against the local garment manufacturing industry and their buyers in the United States.

During the first three quarters of FY-1999, income taxes amounted $23.2 million or an average of $7.73 million quarterly collection. The figure posted a modest growth from 1998’s average of $7.6 million.

In 1998, income taxes dropped by 10 percent, excise taxes dwindled 16 percent and Hotel Room Occupancy Tax was down by 29 percent. Overall, fiscal 1998 revenue collections fell 10 percent over the previous year’s level.

Initial government projections on user fee collection for FY 1999 was placed at $41.1 million but members of the Saipan Garment Manufacturers Association said they expect a significant decline in exports due to the celebrated class suit.

User fee collections, which have been a major contribution to CNMI’s economy in light of the dramatic drop in visitor arrivals, have consistently increased since 1995 when it started with $13.9 million.

This jumped to $17.9 million in 1996, climbing up to $27.7 million and $36.1 million in 1997 and 1998 respectively.

Earlier growth in CNMI’s garment manufacturing industry filled up the decline in the tourism sector. The industry has been generating millions of dollars in direct revenues for the CNMI government, and a significant multiplier boost to the local economy.

The garment sector, composed of about 30 small- and large-scale firms, is CNMI’s biggest employer, accounting for 21 percent of the 30,000 foreign workers employed in the Northern Marianas in 1995.

It was the fourth highest economic contributor, representing 12.7 percent of the $2.26 billion business gross revenues reported that year.

The sector has been expected to pull out of the CNMI in seven years when the agreement, which created the World Trade Organization, takes into effect in the year 2005 abolishing U.S. trade quotas.

This and the resulting reductions in tariffs will virtually eliminate the competitive advantage of garment manufacturing industry on Saipan.