User fee revenue drops by $.5M

Saipan’s garment manufacturers reported a dramatic decline in sales of about 28 percent in the last two months, resulting in a substantial $520,000 decrease in government revenue from garment user fees.

The Saipan Garment Manufacturers Association predicts that the trend would continue, projecting sales to drop by as much as 50 percent this year, which could mean a substantial decrease in user fees, which could reach up to $10 million.

The SGMA had earlier estimated that lost government revenue from the dwindling garment industry would amount to about $35 million in 2006, as local garment factories continue to close down or downsize their operations.

User fee collection last month totaled $2.08 million, a significant decline from February 2004’s user fee total of $2.5 million.

Customs director Jay Santos said the $420,000 drop in February’s user fees was “significant but not alarming.” He conceded, though, that any drop in user fees would impact on the government’s revenue.

Santos said the Customs division would beef up tax collection efforts, particularly in assessing and collecting excise and beautification taxes.

Santos said user fee collections began to drop in January, following the lifting of quota restrictions on apparel by the World Trade Organization. The Customs division collected some $2.3 million in user fees last January, $100,000 less than the $2.4 million collected in January 2004.

User fee collections in the preceding months registered equal or greater amounts compared with their counterparts in the previous year. User fees totaled $2.8 million in December 2004 and 2003, and $2.2 million in October of both years. In November 2004, user fee increased to $2.5 million compared with the $2.3 million collected in November 2003.

The Customs division has yet to release figures on excise and beautification tax collections as of press time.

User fees for fiscal year 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. The current fiscal year’s user fee collections have reached $11.88 million.

“The drop in sales in the past two months mirrors when the World Trade Organization ended the decades-old quota system limiting exports from foreign countries on Jan. 1, 2005,” said SGMA executive director Richard A. Pierce.

The SGMA said garment sales in February was at $54.6 million, nearly $24 million less than December 2004’s sales of $78.3 million. He said February’s sales figure dropped by about 20 percent compared with figures in February 2004.

“Industry leaders expect this trend to continue, with sales expected to drop by as much as 25- to 50-percent by year’s end. This would represent a user fee drop of anywhere between $5 million to $10 million for the year depending upon market trends, factory closure, U.S. administration limiting China’s export capacity and any change in the tariff treatment for the U.S. insular areas,” Pierce said.

As the CNMI’s largest industry, the garment sector claims to provide about a third of the Commonwealth government revenue, while directly employing some 15,000 workers.

Based on recent statistics from SGMA, 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.

Pierce earlier said that 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 newly created task force composed of government and industry leaders has been formed to address the mounting issues related to factory downsizing and closures.

Sometime last month, nearly 100 workers from La Mode stopped worked and complained of unpaid wages from the garment firm. Nearly a hundred workers from another factory, Mariana Fashions, complained of late notices that their employment would not be renewed.

Assistant attorney general Kevin Lynch said yesterday that the Labor Department has been issuing memoranda allowing displaced workers to transfer to other factories for employment.

The SGMA and its members have been alerting the government and the private sector of the bleak fate of Saipan’s garment industry even before the lifting of quota restrictions 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.

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—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.

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 FY 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 resulted in decreases in user fees for the CNMI government. User fees 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.