FORMING a task force in preparation for the eventual exit of the garment industry would be a better alternative than opening its financial records, according to Speaker Heinz S. Hofschneider.
He said it would also be better to just push through with the 1.3 percent increase of the user fee. “Nobody believes the industry’s reports anyway,” the speaker added.
The administration recently proposed the creation of a committee that would look into the “real” income of the garment industry.
A review of its financial records would give the government a more objective basis on up to what rate could the industry raise user fee and minimum wage, the administration said.
“What I think is needed is to (form) a task force that would put together short- and long-term economic policies that include, but not limited to, the exit of the garment industry and its impact on revenue when they do exit (the island),” said Hofschneider, R-Saipan.
It is apparent that the industry is amassing huge profits on Saipan, the speaker said.
Unfortunately, Hofschneider added, the profits do not fully benefit the host.
“If it is true that the profit margin in the last 10 years is so slim, why did they manage to build factories in Subic Bay, Guatemala, Vietnam and Mexico? Where did that profit margin go? Certainly, it was not pumped into the development of the island-economy. It exited the island,” he said.
The garment industry’s gross business revenue from 1990 to 2000 based on data from the Department of Finance was $4.71 billion.
Data further indicated that despite the 1997 Asian economic crunch, the industry’s growth in earnings was sustained. Its 1997 gross revenue of $537.1 million rose to $656.4 million in 1998 and again in 1999 with $798.3 million and slightly decreased to $783.3 million in 2000.
‘Mistake’
The speaker admitted that he made a mistake when he believed the garment industry’s claim that it would leave the island should the government increase its tax obligations. He said he had realized that the CNMI gave more than what it was supposed to receive from the industry.
“I’m partly sinful and responsible for looking the other way (in my) 10 years in the Legislature. Zero excise tax when they import raw materials. They don’t pay BGRT as other businesses do. In lieu of BGRT, they pay 3.7 percent on the total value exported. But look at where most of the garment factories are situated—the bulk of productivity sits on public lands and they pay a subsidized rate,” he said.
Hofschneider said the industry is “not being totally responsible” for the impact of its operations on the island as well as for the safety of its workers.
“Mt. Puerto Rico amounts to 30 percent of the industry’s by-products. But they never step up to that and say that they will take care of their environmental impact. They won’t even pay for something as inexpensive as a pedestrian light in front of their manufacturing centers to prevent their (workers) from being run down. Just last week, another of their worker was hit by a car,” he said.
More revenue
Hofschneider said additional government revenue that would come from the increase in user fee should be pumped into the tourism industry which he wants to become the backbone of the CNMI economy.
He is finalizing a measure to raise the user fee to 5 percent.
The speaker’s proposal is similar to the suggestion made by the Bank of Hawaii in its 2001 island economic report.
According to the report, the CNMI’s comparative advantage over U.S. markets may soon be altered by the new rules on global trade stipulated by the World Trade Organization and the Multi-Fiber Agreement that will take effect in Jan. 2005.
Under the new trade regime, quotas will disappear for textiles and will make it possible for major producers of labor-intensive products such as China and Mexico to sell more textiles and garments than before in major markets such as the U.S., the European Union and Japan.
To avoid a “disruptive conversion,” the bank said the CNMI should focus on its “comparative advantage based on its resources and potential for economic growth.” It said: “The CNMI will have to look for income sources beyond garment manufacturing and its most realistic prospects lie in refurbishing its reputation as a tourist destination.”
