YEAR-END REPORT Garment, 1998

As Asia sank deeper into its worst recession since World War Two, the Northern Marianas spiraled in the past year from a tourism-driven economy to an island increasingly dependent on the steady income of the garment industry.

While it has not been spared from the regional crisis, the local apparel business proved its staying power as the cash-strapped government milked the sector to raise badly needed revenues to sustain a bloated bureaucracy.

Once a playing ground for Japanese and Korean tourists with excess money to splurge, the island wobbled in 1998 as its main economic lifeblood rapidly snuffed out and forced the closure of more than 1,080 businesses in the past 12 months.

But the garment industry, whose income topped $800 million in 1997, rallied an otherwise sluggish economy and fueled business activities on the island, such as shipping, construction and other residual businesses.

At least $49.6 million was pumped directly by the industry into the government coffers by way of user fees and business taxes for the last year alone, on top of $56.6 million in other payments contributed to the commonwealth.

A recent financial report showed that user fees generated from local garment manufacturers jumped 34 percent from October the previous year to $3.32 million in 1998, an indication that it remains the only constant source of income for the financially-troubled government.

Restrictive policies

Despite its multifold contributions, garment firms stood as easy target in the past year as raids by the labor and immigration department and stringent laws passed by the CNMI Legislature dealt severe blows to investors.

The surprise inspections conducted on some factories flushed out alleged illegal workers and several violations that had tarnished the industry bent on reforming its image.

Even though charges of illegal transshipment of apparel products and presence of abortion clinics were unproven and strongly refuted, they threw the sector right at the center of another storm.

The allegations, which have haunted the industry in recent years, only bolstered criticisms of the U.S. federal government increasingly jittery over the growing relevance of the garment business in the Northern Marianas.

Apparently under pressure from Washington, the local legislative body moved to implement stricter laws in the guise of labor and immigration reforms, including a moratorium on the hiring of alien workers that practically exempted the tourism industry.

While an attrition proposal on its foreign workforce has ran roughshod in the legislature, a measure to cap the number of garment workers on the island is still pending due to opposing views between the House and the Senate.

“Instead of giving certain incentives for our garment industry to remain in the CNMI,” said a legislator, “we continue to find ways to make things harder for them to operate successfully.”

Richard Pierce, executive director of the 18-member Saipan Garment Manufacturers Association, underscored the need to be cautious in implementing regulations at a time when the local economy barely floats.

“The CNMI government needs to be cautious and prudent in its approach to any change in basic economic factor policy where it would adversely affect this undustry’s ability to compete in the global market,” he said.

Asian, Mexican competition

Lost in the midst of the heated debate stirred up by contentious issues on the island is the growing threat of cheap garment imports from Asia and Mexico flooding the U.S. domestic market.

As dollar soared and Asian currencies tumbled, many U.S. buyers began to hunt bargain prices from countries across the neighboring region, such as China, Thailand, Indonesia, Taiwan, South Korea and Pakistan.

What this means is that Saipan-made shirts and coats are becoming more expensive, dulling their market value in the giant U.S. market that adheres to the bottomline philosophy.

Garment leaders have warned the situation may hasten impending relocation of big factories to countries offering better investment incentives and attractive wage and labor package.

Because of the lieralization of trade borders under the North American Free Trade Agreement, Mexico appears the most desirable relocation site largely due to its proximity to the United States.

With minimum wage way below the rate here, the Mexican government is stepping up efforts to lure foreign investors and ease policies detrimental to the growth of its economy.

As the CNMI government attempts once again to limit their operations here, garment investors are likely to look beyond the island and explore other business venues.

“We would like to continue doing our business here,” said one garment leader, “but we would like to shape the kind of policy that is conducive to our operations.” Would next year bring better understanding among policy-makers of the differences between the service and manufacturing industries?