Clock ticks for garment sector

Almost all garment manufacturers in the CNMI are downsizing their operations and closing sewing lines, as industry players experience a dramatic drop in sales—a development that the Saipan Garment Manufacturers Association described as “an economic catastrophe in its process.”

Industry players predict that apparel companies—the CNMI’s largest industry and biggest contributor to government revenue—will incur phenomenal losses in sale by about 20 percent in a short span of four months and eventually by 50 percent by the end of the year.

A newly created task force composed of government and industry leaders would meet today to address the mounting issues related to factory downsizing and closures, the SGMA said.

“There will be another factory closure at the end of the month, but that does not give a true indication of what’s really occurring now. Almost all factories are now downsizing and closing sewing lines. Employees, as their contracts expire, are being released from duty,” SGMA executive director Richard Pierce said in a media release.

The SGMA and its members have been alerting the government and the private sector to the bleak fate facing Saipan’s garment industry even before the lifting of quota restrictions on apparel took effect earlier this year. Local industry players have expressed fear of diminished competitiveness, as major players such as China are expected to dominate the U.S. market, the world’s largest market for apparel.

Pierce said industry sales have declined by about 25 percent in the past three years. The anticipated decrease in sales this year would mean a significant reduction to government revenue.

“This translates to nearly $35 million in lost government income by 2006. An additional decline in industry spending for local services and purchases could total another $50 million annually by year’s end,” he said.

Based on SGMA statistics, the 2004 fiscal year ended with a slight 3.1-percent increase in CNMI factory sales to the Unites States, which reached $821 million, higher than the previous year’s $796 million. The fiscal year’s sales nearly equaled the $821.1 million sales in Fiscal Year 2002.

The FY 2004 sales figure, however, dropped significantly by 22 percent when compared with FY 1999’s sales, which reached $1.06 billion, the local industry’s all-time high—a one-time occurrence that has not happened since then. Until FY 2003, the figures experienced consistent decline, dropping to $1.04 billion in FY 2000, and $965 million in FY 2001.

The decline in sales reflected decreases in user fees for the CNMI government. User fees—a form of tax paid for products exported from the CNMI—for FY 2004 totaled over $30.4 million, increasing slightly from FY 2003’s $29.46 million. The total, however, dropped compared with FY 2001’s $35.7 million and FY 2002’s $30.44 million.

Recent statistics showed that the garment industry actually generated some 30 percent of the government’s revenue, or some $69.9 million. Government revenues generated from the industry come directly from user fees, business gross receipts and excise taxes, which totaled $33.8 million based on latest figures; income taxes, $19.5 million; labor and immigration fees, $4.6 million; utility payments to the Commonwealth Utilities Corp., $7.6 million; medical expenses to the Commonwealth Health Center, $1.5 million; and ports fees to the Commonwealth Ports Authority, $2.9 million.

According to the SGMA, the local garment industry contributes some $47.3 million in local purchases of food, gasoline, supplies, land leases, insurance, freight, among others, adding that the sales yield another $2.36 million in BGRT.

“This association’s members are in no way insensitive to the loss of jobs within factories. They are all well aware that their most valuable assets are their employees. But without a healthy industry of competitive operations, not only are jobs lost, but also lost are any possibility of profit to the point of company closure where no one has a job, and ultimately, the loss of an entire industry in the CNMI,” Pierce said.

Recently, nearly 100 workers from La Mode Inc. stopped work to complain to the Labor Department about alleged nonpayment of wages. The Labor Department vowed to expeditiously complete its probe on the complaints, while the Garment Oversight Board also disclosed that it would convene on Tuesday to discuss La Mode’s situation and the possibility of imposing sanction against the firm.

The board has the power to place a garment manufacturer on probation. That status temporarily stops the manufacturer from accepting orders from apparel retailers that are part of a settlement agreement that ended a class action suit, which was approved by Saipan’s federal court in May 2003.

Another garment manufacturer, Mariana Fashions Inc., is reportedly shutting down its Saipan factory, laying off about a hundred workers.

SGMA raises distress call

“If there’s ever been a need, or what I’d like to call an opportunity to do something about a horribly worsening situation, this is it. Right here and right now,” Pierce said.

The SGMA wants the U.S. Congress to amend the U.S. Tariff Code to reduce value-added requirement on garment imports from 50 percent to 30 percent for local manufacturers to avail of duty-free treatment.

The U.S. Tariff Code requires that 50 percent of the value of the garment has to be added locally by transformation, in terms of additional labor, packaging or other overhead costs, so that garment products coming from U.S. exporters like the Commonwealth could enter the United States duty-free.

Various sectors in the CNMI have expressed support for the SGMA’s desire for a tariff amendment, including the Babauta administration and Washington Rep. Pete A. Tenorio.

Pierce said a task force would convene today to tackle issues related to garment factories’ current economic and employment situations.

The task force includes Pierce, Labor Secretary Joaquin Tenorio and the department’s legal counsel, attorney general Pamela Brown, U.S. Labor ombudsman Jim Bennedetto, the Garment Oversight Board, and the Chinese Economic Development Association.

“We don’t want to address only the impact the closures and downsizing will bring. We want to make sure everyone knows there is a plan, and there is a chance to effectively reverse the current trend in the loss of competitiveness in the factories on Saipan,” Pierce said.

“Against all economic realities that the factories now face, we choose to focus totally on the opportunity that’s been created by global competition. The bad situation will only worsen if we do not try to return some advantage to doing business with the Saipan factories by working with the local and federal government to regain our competitiveness through a change in our tariff privileges,” he said.

Tan Holdings Corp., which operates the largest garment factories in the CNMI, said selling prices have gone down and many buyers have begun adjusting plans about where they would place their orders.

“Our executives are working closely with our customers on their adjusted sourcing strategies,” said THC vice president for corporate affairs Lynn A. Knight. “To remain competitive locally in Saipan and globally, we will deploy our global resources accordingly to service our customers.”

Doug Rogers, vice president for business administration for Polo Ralph Lauren Sourcing Co. Ltd., said a few months ago that Polo would source out garments where competitive, without compromising quality. He expressed uncertainty as to which factories would survive when quota restrictions are lifted. Polo has been sourcing millions of garments from Saipan factories in the last 12 years.