Garment shields CNMI from crisis

The export of garments in the United States has insulated the Northern Marianas from the primary effects of Asia’s financial troubles, according to a seaport financial analysis conducted by Booz Allen & Hamilton.

However, the secondary impacts of Asia’s economic problems could be felt later when the crisis spreads to the U.S. and consumer spending on premium brands slows down, said Booz Allen & Hamilton, a U.S.-based consultancy firm hired by the Commonwealth Ports Authority to determine its capability to pay the seaport bonds.

Tourism, the island’s main source of income, has been severely affected by Asia’s financial crisis as tourist arrivals continue to plunge, making the garment industry the island’s biggest source of revenue.

The study also warned that other destinations in Asia could become attractive production centers because of the devaluation of currencies in these areas although it would be difficult for these countries to duplicate Saipan’s trade advantages.

As a U.S territory, certain types of manufactured garments in CNMI are exempted from the U.S. textile quota system and import duties ranging from 16 to 30 percent of declared value.

Moreover, the CNMI has its own immigration and minimum wage laws, allowing a large number of guest workers to produce garments at a lower cost.

Due to these advantages, the value of exported garments jumped 58 percent from fiscal year 1996 to 1997 and this upward trend has continued into fiscal year 1998 thus increasing seaport volumes of both imported raw materials and exported finished products.

The study noted that manufactured garments moved in containers are the only significant exports of the CNMI. In 1997, the garment industry’s total revenue amounted to $800 million. However, the growth in garment seaport volumes in recent months may only be temporary.

While the CNMI currently enjoys the huge revenue from the garment factories, the long term future of the industry, however, remains uncertain since as a result of international trade agreements and potential legislation, the study said.

This include the phasing out of the garment quota system by 2005 under the World Trade Organization coupled with resulting reductions in tariffs, the comparative advantage of garment manufacturing in the CNMI will be largely eliminated.

Furthermore, the Saipan garment manufacturing industry also faces threats from the North American Free Trade, the Special Regime program and the 807A program which allow for the reduced or free duty entry of certain Mexican and Caribbean apparel imports.

The NAFTA effect may become severe if when it is extended to Central and South American countries. Since 1980, the garment industry in Saipan has produced almost exclusively U.S. consumed garments which is driven primarily by an artificial economic environment, giving Saipan some economic advantage over foreign and mainland U.S. locations.