User fees may fall short of forecast

Revenues from user fees paid by local garment manufacturers are projected to shrink between 20 to 25 percent this year to reach some $29 million — about $12 million short of government estimates, according to industry leaders.

The Saipan Garment Manufacturers Association has tied the sharp drop in income to the financial turmoil in Asia and other market conditions in global clothing trade as well as the recent lawsuits filed against local garment firms.

The latest projection is expected to alter again the CNMI government budget for fiscal year 1999 which initially anticipated more than $41 million in revenues from the user fees.

These estimates stemmed from an increase in user fees last July, from 3.5 percent to 3.7 percent, which the Tenorio administration had hoped to boost its dwindling coffers as a result of the worsening economic crisis on the island.

The fee is assessed on each merchandise manufactured in local garment factories and shipped to buyers in the United States. User tax represents about 20 percent of the total CNMI revenue estimates for this year.

Gov. Pedro P. Tenorio last November revised the government spending level from $248.26 million to $216.75 million due to continuous drop in actual revenue collections in the past few months.

The Northern Marianas is reeling from its worst crisis in years spawned by the prolonged recession in Asia, its main tourism market and source of investments, that has pulled down government revenues and forced closure of more than 1,000 local businesses.

SGMA also has pointed to the regional meltdown as one factor to the decline in its income, citing the cheap labor costs in Asia which have drawn U.S. buyers to countries like Thailand, Indonesia and South Korea.

As dollar soars and Asian currencies tumble, many U.S. buyers have begun to hunt bargain prices from the region, according to economic analysts. This means that Saipan-made products are getting more expensive.

Furthermore, the class actions lodged against local garment firms, their U.S. buyers and retailers by a New York-based law firm alleging “sweatshop conditions” in factories here, have forced some American companies to pull out their orders, SGMA said.

“It’s about time that the government realizes that they cannot expect to receive revenue that they have projected from the garment industry in FY 1999,” said Richard Pierce, SGMA executive director, in a statement.

“A combination of the Asian crisis…, other market forces and the hesitancy of current customers, where less orders are being placed than in the past due to the class action lawsuit fallout, are all contributing to this realistic SGMA projection,” he added.

Since tourism industry remains sluggish and the garment business is feeling the pinch of the crisis, Pierce warned that he “cannot for the life of me, see a single thing on the economic horizon that looks like a candidate for replacing lost tourism and apparel dollars.”