Prison labor in U.S. garment industry exposed by L.A. Times

They work under the watchful eyes of armed guards, putting together partially finished T-shirts on industrial sewing machines. A 14-foot fence topped with coiled razor wire surrounds the workshop and beyond that are three tiers of electrified fences.
On paper, they’re paid the U.S. minimum wage, but actually, they get to keep only about $1.14 per hour after the deductions are made. Their employer pays no medical benefits, pensions, state disability insurance, federal unemployment taxes and they get no vacations.
Even worse, these caged and exploited men, every one a convicted felon, sew the “coveted” Made in USA tags into every garment they produce, resulting in a product unfairly competitive with goods made in Mexico or Honduras.
Is this another scandal turned up by the U.S. Interior Department on Saipan in the Commonwealth of the Northern Mariana Islands, further grounds for federalization of the CNMI’s labor and immigration controls due to “well-documented” labor abuses?
No.
Actually, the scene is a prison in Southern California and a recent story in the Los Angeles Times reveals what a good deal a prison labor program is for garment makers such as CMT Blues of San Diego. The firm is already taking in millions for its prison-produced products and other manufacturers are planning to tap the same workforce. Pleased California Department of Corrections officials say: “We provide a stable, reliable workforce, a captive audience if you will. These are employees who will show up every day without hangovers, carpool or baby-sitting problems.”
Critics of the CNMI garment industry, in both national media such as ABC’s 20/20 and the current billion dollar class action lawsuits have suggested that forced labor is practiced on Saipan and that alien contract workers are in effect prisoners or slaves. According to the Times, University of California-Berkeley economist and former Clinton administration advisor David I. Levine remarked, “At a basic PR level, it looks pretty bad attacking China for its prison labor when we have it here.” Others have questioned whether such programs don’t discriminate against workers who aren’t convicted murderers or burglars.
Saipan Garment Manufacturers Association Executive Director Richard A. Pierce said, “You have to wonder how Congressman [George] Miller can bear this exploitation of fellow human beings right in his own backyard as well as watching jobs being taken away from union members. It’s certainly time for the US Department of Labor and the human rights groups to take a close look at this situation.”

Northern Marianas

Over the past decade, the garment industry in Saipan grew from 21 companies with $300 million dollars in sales in 1992, to its peak year where 34 companies had $1 billion in sales in 1999, to its current 26 companies and sales in 2003 of $796 million. The industry accounts for over 30% of local government revenue, and accounts for nearly 45% of all jobs in the Commonwealth of the Northern Marianas.
There are currently 24 of the 26 apparel manufacturing companies on the island of Saipan, in the Commonwealth of the Northern Mariana Islands, which are Members of the Saipan Garment Manufacturers Association (SGMA). SGMA was formed in 1993, after being re-named and re-organized from its original Garment Industry Association (GIA).
As the manufacturing industry grew in size and sales, and as a labor-intensive operation, so did grow problems associated with workplace safety, employer/employee relations and human rights issues where a large influx of temporary factory workers became a part of the American legal system through both federal and local enforcement offices, and their enforcement activity.
Nearly all improvements within the Saipan apparel industry have come as a result of the individual companies’ initiative, the manufacturers’ Association’s efforts, federal and local law enforcement activities, partnerships built between the factories and governmental authorities, and the apparel plants’ buyers’ and retailers’ demands and directives in America.
A whole new chapter is opening in the Saipan garment industry, and this Report will chronologically demonstrate how those improvements have been achieved, and what lies ahead for the vital revenue producing factories in the CNMI.
Apparel Industry Partnership
Although a set of industry-wide standards was first formulated and presented by SGMA’s executive director, in a 1994 meeting with the U.S. Department of Labor’s Washington D.C. Wage & Hour Compliance Administrator Dan Sweeney, it was not until a team of SGMA Members attended the Apparel Industry Partnership (AIP) Conference in New York, New York in 1997, that SGMA began preparations to build and install its own SGMA industry standards for all factories in Saipan.
Then President William Clinton created the Apparel Industry Partnership in a collaborative effort with most major American retailers to effectively guarantee minimum standards for offshore sourcing for apparel sold in America by most major retail brands.
A majority of the buyers and retailers in America had already installed their own codes of conduct at their overseas sourcing factories, and President Clinton attempted to merge those efforts and safeguard consumers in America, by making sure those offshore factories made their products in compliance with local laws, and paid living wages and protected the fundamental rights of their employees.
The SGMA Members that attended that Conference in 1997, took the AIP’s basic tenants and principles and began their work to create their own SGMA Code of Conduct, where the same buyers and retailers that became Members of the AIP, could be assured that sourcing in Saipan would meet the same minimum standards prescribed by the AIP.
The SGMA standards ended up exceeding most buyers’ and retailers codes of conduct provisions, where, for instance, no one employed in Saipan apparel operations can be under 18 years of age, while many buyers from America seek 16 years of age as an acceptable working age in their offshore sourcing factories.
SGMA Code of Conduct
The Saipan Garment Manufacturers Association (SGMA) retained a nationally recognized business and human rights organization, Business for Social Responsibility (BSR), to create and implement an industry-wide set of standards, the SGMA Code of Conduct.
A contract was signed (Appendix I) between SGMA and BSR to make recommendations for the Code of Conduct, consult on enforcement, provide training and technical assistance and help assist in the selection of independent external monitors (Appendix II). This contract was signed in October, 1998.
Many of the factories were already under their buyers’ compliance audits, and these were generally regarded as very creditable codes of conduct.
Perhaps the biggest factor in developing a consensus on the development of the standards was BSR’s work with buyers, retailers and federal Labor officials in San Francisco and Washington, D.C.
The Code of Conduct (Appendix III) was registered at the CNMI Attorney General’s Office in December 1998, and was adopted by the SGMA General Membership of 34 Members in November 1998.
Extensive and exhaustive training conferences and seminars for the SGMA Code of Conduct began in January of 1999, with mandatory attendance requirements for SGMA Members. Also attending these conferences have been local and federal enforcement and outreach officials, many company employees from other CNMI businesses, buyers’ representatives that were in Saipan on their inspection and auditing visits, local CNMI Government officials and various members of the media.
Training conferences have been held on:
January 11-15, 1999, at the Hyatt Regency Saipan
August 23-25, 1999, at the JoeTen Public Library
March 5-7, 2000, at the Hyatt Regency Saipan
May 2-5, 2000, at the Pacific Islands Club Hotel
July 2- August 14, 2001, at SGMA Office conference rooms
September 5-7, 2001, at the Joeten Public Library
March 4-6, 2002, at the Northern Marianas College
September 11-12, 2002, at the Pacific Islands Club Hotel
August 11-15, 2003, at the Saipan Dai Ichi Hotel
The SGMA Code of Conduct requires compliance on rights of employees, treatment of workers, working conditions and standards of living and standards for transshipment and manufacturing.
The Code contains its Commitment by all Members which outlines requirements for policies, objectives, rules, guidelines and procedures promulgated by the Association. Members signed the agreement in December of 1998.
Standards for the treatment of workers and working conditions, standards for living conditions, the fundamental rights of all employees, standards for transshipment and country of origin rules, compliance and enforcement principles and the monitoring outline are included in the Code of Conduct.
SGMA launched its worldwide website to highlight the SGMA Code of Conduct, its Membership listing, industry statistics and the latest news. The goal of the association increased to include more than just compliance and education. The industry now had to deal with a campaign that was aimed at destroying all efforts at being the best factories in the world.
SGMA Code of Conduct Monitoring
Perhaps the most important component of the Code of Conduct is the monitoring of the Code itself. Internal monitoring teams are required under the Code, and external independent inspection monitoring is required of all SGMA Members for compliance with the standards of the Code of Conduct.
SGMA publicly announced its Request for Proposals in mid-1999. Thirteen recognized firms submitted proposals, and the selection of SGMA’s independent monitoring firm was announced in October of 1999. Price Waterhouse Coopers was selected to inspect all SGMA Member companies in late 1999.
Factory monitoring reports were submitted to SGMA within 10 days of completion of the audit/inspections and remediation hearings began within 20 days of submission to SGMA.
Another round of monitoring, under the SGMA Code of Conduct, was conducted in June of 2002, by Global Social Compliance (GSC), an offshore operative for PWC.
These audit inspections consist of interviewing a minimum of 25 company employees per SGMA company, while inspecting for any instances of forced labor, child labor, harassment or abuse, nondiscrimination, health and safety, freedom of association and collective bargaining, wages and benefits, overtime and hours of work, workers dormitories and freedom of movement and compliance principles.
The SGMA Code of Conduct independent monitoring component has proven the most useful of tools in gauging the success of the minimum standard requirements for all SGMA Members.
Initial factory monitoring reports yielded good results. Six of the ten Code provisions were in total compliance in all factories. Some safety deficiencies were noted, overtime in excess of Code allowances was detected, not all internal monitoring was properly installed and some employees were still unaware of the Code itself. The work was in progress.
Although the purpose of the Code of Conduct and its monitoring component is to improve all conditions within the factories and for their employees, there have been both casualties and success stories. Since the adoption of the Code of Conduct in 1999, there have been 5 Member suspensions, and one reclaimed company which was re-instated.
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The factories themselves are monitored almost constantly by internal and external monitoring under the SGMA Code of Conduct, frequent monitoring by the buyers and retailers of goods manufactured here in Saipan, enforcement officials from U.S. Labor Wage & Hour and OSHA, local CNMI Government authorities, and various accreditation firms for the factories themselves.
Evidence of inspections and changes were evident as early as 1998, when then recent OSHA statistics showed that CNMI apparel factories had a 70% better compliance rate than apparel factories elsewhere in the United States, despite the fact that they were among the most frequently inspected (OSHA Internet Site www.osha.gov/oshstats)
SGMA also helped to advance a number of local CNMI government efforts to improve immigration controls. We actively supported the alien worker amnesty legislation designed to register and account for foreign workers illegally staying in the CNMI.
SGMA continues to support an industry-wide legislative cap on the number of foreign workers in our industry.
The Association will meet with Governor’s Office officials on July 8, 2003 to discuss the re-institution of a worker pool to allow for easier flow from factory to factory of currently available workers on Saipan, thus lessening any dependency on bringing new workers to the Commonwealth. Also, SGMA will work with the Governor’s Office to re-introduce a modified Memorandum of Understanding between the CNMI and the Ministry of Foreign Trade and Economic Committee (MOFTEC), as approved by the U.S. State Department, to eliminate any remaining workers in the CNMI that came through any unlicensed recruitment firms in China. This would totally legitimize all workers here in Saipan, making sure that unscrupulous recruitment scams were never seen again.
Partnerships
Excellence 2000 Partnership
A partnership agreement between the Saipan Garment Manufacturers Association (SGMA) and the Occupational Safety and Health Administration (OSHA), the Excellence 2000 Partnership, was signed as a voluntary Member commitment between SGMA and OSHA in December 1999 (Appendices IV, V, VI).
There are now 20 of SGMA’s 24 Member companies participating in the Excellence 2000 Partnership.
Under the Partnership, criteria includes an executive commitment, a commitment to develop a formal safety and health program including employee involvement, periodic safety and health inspections/audits by OSHA, training and education, employment of a Safety and Health Professional within the Factory, recordkeeping/injury analysis, worker housing accommodation, sanitation, fire safety, safety and health program analysis and cooperation with OSHA.
The Partnership has been highly successful and increased safety and health awareness in all areas of manufacturing operations, and it is understood and accepted that one or two Saipan companies will soon apply for the prestigious VPP status with OSHA.
Northern Marianas Alliance for Safety and Health

SGMA became a Member of the Northern Marianas Alliance for Safety and Health (NMASH) in September 2002 (Appendix VII), after successfully hosting a health and safety conference in early September 2002.
SGMA invited the Hotel Association of the Northern Mariana Islands (HANMI) and the Saipan Chamber of Commerce to attend a conference that had already been planned with OSHA as a part of their commitment toward the Excellence 2000 Partnership.
OSHA then proposed an Alliance between local and federal public and private sectors to promote awareness and knowledge of safety and health through the joint efforts of participants with a primary emphasis on the delivery of health and safety training and education for the benefit of the community in the Northern Marianas.
Members of the NMASH include SGMA, the Hotel Association, the Saipan Chamber of Commerce, the Saipan Contractors Association, the Office of the CNMI Governor, Division of Environmental Quality, the CNMI Department of Labor and Immigration, the CNMI Department of Public Safety, the Northern Marianas College, Region IX OSHA and the OSHA Region IX Education Center, University of California in San Diego.
A NMASH 5-day Conference was completed from August 11-14, 2003 in Saipan, where CNMI Governor Juan N. Babauta declared August 10-16, 2003 as CNMI Health and Safety Week, and the OSHA Region IX Administrator presented a $200,000 grant award for small business consultation in the CNMI.
The NMASH organization is patterned after the successful Excellence 2000 Partnership.
CNMI Garment Industry Monitoring Program
A $19 million settlement reached in April, after a $ 1 billion class action lawsuit was filed in early 1999, between garment workers and U.S. apparel manufacturers and retailers over allegations of sweatshop conditions removed some uncertainty about actual conditions and essentially defined what can be expected in the future.
Under the settlement agreement, where Saipan factories and retailers and buyers admitted no wrongdoing, nearly 25% of the settlement amount is dedicated to set up and operate a Garment Monitoring Board. The Oversight Board is comprised of 3 judges, an administrator, executive director and independent monitors.
The Oversight Board will utilize the CNMI Garment Industry Monitoring Program (Appendix VIII), and as the releases attached (Appendices IX and X) state, this will surely end all speculation as to whether there are any remaining noncompliant factories in Saipan. They simply cannot exist under the approved U.S. District Court settlement agreement.
According to one California attorney representing the workers in the suit, “Not only does this fully protect fundamental human rights of the workers, but it does so in a commercially practical way that all segments of the industry can be proud of.”
The Oversight Board’s independent monitoring firms were selected and initial factory and subcontractor inspections were conducted by Global Social Compliance in late 2003. SGMA has cooperated and joined with the Oversight Board to assist in OB monitoring. Recently, the SGMA supplied listings of all subcontractors utilized by SGMA Member companies.
What Others Say About Us

2000 Bank of Hawaii Report: “The garment industry on Saipan should be credited with preventing an economic depression in the CNMI following the decline of its tourist industry during the Asian economic crisis.”
“Garment sales for the CNMI to the U.S. market now pays about one third of the CNMI’s taxes. If this source of funds diminished substantially or disappeared abruptly, it would have immediate and severe consequences.”
U.S. General Accounting Office (GAO) February 2000: “Data suggests that the garment industry in the CNMI pays a higher share of its gross receipts as taxes and fees than the garment industry in the United States.”
OSHA Region IX Administrator Frank Strasheim March 2001: “You are quickly becoming a model in safety for the rest of the world.”
PricewaterhouseCoopers: “The SGMA and its members have made significant effort, including training and education as well as monitoring to ensure conditions are improved to meet expectations.”
National Retail Federation: “The SGMA effort represents one industry-wide attempt by suppliers to work together to improve the treatment of workers.”

SAIPAN Garment Manufacturer’s

SAIPAN — A number of recent traffic accidents involving pedestrians has the Saipan Garment Manufacturer’s Association (SGMA) pleading with the public to drive safely — and “friendly” — on Saipan’s busy, and usually fast, roadways.
Two garment workers were struck by automobiles last week in Garapan, and two more were hit last weekend along Middle Road. One of the weekend victims is in a coma at the Commonwealth Health Center. “This is a serious and tragic situation,” said SGMA Acting Chairman Richard Pierce. “It’s difficult, and very sad, to contact the parents of these injured people and tell them their son or daughter was in an accident… an accident that could have been prevented.”
Pierce went on to say that it’s everyone’s job to be careful. “We are training our employees to practice safe pedestrian habits, but that’s only part of the solution. Saipan drivers must also take responsibility by slowing down and being safe, alert, friendly drivers. This isn’t just for the sake of garment workers. Our local citizens, our children walk along these busy roads, too,” he pointed out.
According to Pierce, the private sector has done a lot to improve the situation. The funding for the lighted crosswalks throughout the island was provided by a number of individual garment factories and tourism businesses at a cost of $18,000 each, but they haven’t been properly maintained by the government. These crosswalks are located in proximity of garment factories and high traffic tourist areas, including Garapan, Gualo Rai, Susupe and San Antonio.
“It’s time for the government to step in and make safety a priority,” says Pierce. “Most of the privately-funded crosswalks have broken down, but the government hasn’t repaired them. Why is this?” he questioned. “Meanwhile, our guest workers, residents, and schoolchildren are placed at increased risk by simply walking down our streets.”
The Saipan Garment Manufacturer’s Association represents 32 of the islands’ 34 garment factories. Employing nearly 15,000 people, including 2,400 local residents, garment manufacturing is a driving economic force in the Commonwealth of the Northern Mariana Islands.

SGMA Code of Conduct

This Code of Conduct shall become effective upon its adoption by the Saipan Garment Manufacturers’ Association in accordance with their Articles and Bylaws, but in no event later than December 1, 1998. Each member of the Association shall recognize the competence and authority of the Association, and the various committees formed under the authority of the Association and the rules, guidelines and procedures promulgated by the Association and its committees in order to implement and enforce the Code. In particular, each member shall observe the following:

COMMITMENT TO CODE OF CONDUCT
Members shall carry out their activities in conformity with the policies, objectives, rules, guidelines and procedures promulgated by the Association and its committees, and work seriously towards making a positive contribution to the achievement of the goals of the Code of Conduct, and the recognition of the fundamental rights set forth in the Code.
Members shall agree to undertake all steps necessary, individually and through the assistance and cooperation of the Association and its committees, to achieve the full compliance with of the Code of Conduct using all appropriate means to realize its goals, including participation in Association sponsored training, monitoring, reporting and compliance programs, the faithful institution of internal policies and procedures, and the exercise of economic and other influence over the activities of all non-member business enterprises with ties to the Saipan garment industry, for the purpose of promoting the Code of Conduct, protecting the integrity of the industry, and guaranteeing the fundamental rights of all employees.
Members shall not use the Association, any of its committees or any rule, guideline or procedure promulgated to implement and enforce this Code of Conduct as an instrument to oppress any member or non-member or as a vehicle to impose any unlawful restraint on trade.

STANDARDS FOR THE TREATMENT OF WORKERS AND WORKING CONDITIONS:
1. Prohibition Against Forced Labor. Members shall not use any forced labor, whether in the form of prison labor, indentured labor, bonded labor or otherwise.
2. Prohibition Against Child Labor. Members shall not employ any person that is at an age younger than 18.
3. Prohibition Against Harassment or Abuse. Members shall treat each of their employees with respect and dignity. No employee shall be subject to any physical, sexual, psychological or verbal harassment or abuse.
4. Prohibition Against Unlawful Recruitment Contracts. No Member shall knowingly recruit employees from any manpower service or other contractor, if such contractor conditions the placement of its recruits upon their payment of a fee, whether such fee is characterized as a placement fee, a processing fee, a deposit or otherwise, which violates any CNMI or Federal laws.
5. Nondiscrimination. Members shall not discriminate in employment including hiring, salary, benefits, advancement, discipline, termination or retirement against any employee on the basis of gender, race, religion, age, disability, sexual orientation, nationality, political opinion, or social or ethnic origin, except as strictly necessary to comply with the CNMI Nonresident Workers Act.
6. Health and Safety. Members shall provide a safe and healthy working environment to prevent accidents and injury to health arising out of, linked with, or occurring in the course of work or as a result of the operation of Member facilities.
7. Freedom of Association and Collective Bargaining. Members shall recognize and respect the rights of their employees to associate freely and to bargain collectively .
8. Wages and Benefits. Members shall pay their employees at least the minimum wage required by CNMI law and shall provide all legally mandated benefits. No deductions other than CNMI earnings taxes (and social security where applicable) shall be made from any employee’s wages unless specifically authorized by the CNMI Department of Labor.
9. Overtime Pay. Members shall pay their employees for overtime hours at the premium rate established by CNMI law.
10. Hours of Work. Members shall not permit workers to work more than 60 hours per week unless he or she voluntarily chooses to do so in writing. Members shall grant workers at least one day off in a seven day workweek, unless the worker states in writing that he or she voluntarily chooses to work a seventh day.”

STANDARDS FOR LIVING CONDITIONS:
1. Company Housing. Members that provide their employees with company housing shall provide adequate, safe and healthy living conditions.
2. Freedom of Movement. Members shall allow the residents of company housing the freedom to come and go as they please.
3. Housing at Will. Members shall respect their employees’ right to decline company housing and to live elsewhere at will and without penalty.

FUNDAMENTAL RIGHTS OF EMPLOYEES:
1. Freedom of Expression. Members shall recognize and respect the rights of their employees to hold opinions without interference and the right to freedom of expression.
2. Freedom of Religion. Members shall recognize and respect their employees’ freedom of thought, conscience and religion, including the freedom, without coercion, to manifest their religion and beliefs in teaching, practice, worship and observance.
3. Right of Privacy. Members shall recognize and respect the rights of their employees to be free from arbitrary or unlawful interference with their privacy, family, home, personal effects and correspondence.
4. Rights of the Family. Members shall recognize and respect the rights of their employees to found and nurture a family in accordance with their beliefs. Special protection shall be accorded women during pregnancy to engage in work which is not harmful to them without fear of discrimination or dismissal based on maternity or marital status.

STANDARDS FOR TRANSSHIPMENT AND COUNTRY OF ORIGIN:
1. Entry Requirements. Members shall observe and strictly adhere to all CNMI requirements for the entry and documentation of all materials imported into the CNMI for manufacturing.
2. Manufacturing Contracts. Members shall not engage any contractor for the purpose of adding value to their goods, irrespective of the nature and scope of the contractor’s work, unless the contractor is a licensed CNMI business in good standing.
3. Transshipment. Members shall not promote, engage or participate in any form of illegal transshipment. Members shall adhere to the strict requirements for dutyfree and quota-free treatment of textile products exported from the CNMI under general headnote 3(a) of the Harmonized Tariff Schedule of the United States.

SAIPAN

The local garment industry is seeking a partnership agreement with the U.S. Department of Labor’s Wage & Hour Division to bring Saipan’s garment companies in compliance with federal labor law.
This as Saipan Garments Manufacturers Association Executive Director Richard A. Pierce asked the division to temporarily suspend its enforcement activity on Saipan until the companies are made fully aware of certain provisions of the Fair Labor Standards Act.
“We would want to have a partnership agreement with Wage & Hour, where they would audit our firms and then consult and recommend before issuing citations for violations,” said Pierce.
In a letter to Bruce Cranford, Targeted Industry Coordinator for the Wage & Hour Division, Pierce said the division should orient garment businesses more about the subcontracting practices allowed under the FLSA prior to Wage & Hour’s enforcement activity.
“The US Wage & Hour Division mission statement reads that ‘The Wage & Hour mission is to achieve compliance with labor standards through enforcement, administrative and educational programs to protect the nation’s workers,'” according to Pierce.
“We do want to comply with the law and we do recognize that ignorance is no excuse for non-compliance. We do however request that in all fairness to the businesses that the enforcement division visits, there be established a partnership between our association, your Targeted Coordinator’s office and the enforcement office of Wage & Hour,” Pierce told Cranford.
He particularly wanted more of an educational outreach by Cranford’s office with emphasis on subcontracting as it relates to the FLSA’s “hot goods” provision.
He stressed that SGMA members received very little in explanation to their questions about the areas of the said provisions.
Pierce had previously protested Wage & Hour’s threat to seize as “hot goods” the shipments of any garment firm that fails to take responsibility over unpaid wages of employees hired by subcontractors.
He, nonetheless, maintained he would like to have a partnership agreement with the Division so that SGMA and Wage & Hour could approach issues with the same cooperation the garment organization enjoys from the US Labor’s Occupational Safety and Health Administration, under the Excellence 2000 program.
The Saipan Garment Manufacturer’s Association represents 31 of the islands’ garment factories. Employing nearly 15,000 people, including 2,400 local residents, garment manufacturing is a driving economic force in the Commonwealth of the Northern Mariana Islands.

Governor’s Strategic Economic Development Council

The Office of the Governor’s Strategic Economic Development Council (SEDC) dedicated a majority of their April 11, 2005 meeting, at the Commonwealth Senate Chambers, to a Saipan garment industry update.
SEDC Co-Chairperson Marian Aldan-Pierce introduced Council Members to Saipan Garment Manufacturers Association (SGMA) Executive Director, Richard A. Pierce, who delivered a power point analysis of industry economics, trends and global developments affecting Saipan apparel factory operations and future prospects.
SEDC Co-Chairman Robert H. Jones reported on a recent trip to a Dong Guan, China, factory complex, where Jones, Pierce, Lt. Governor Diego Benevente, SGMA Chairman James C. Lin and Saipan Chamber of Commerce’s Alex Sablan visited a China factory complex, where factory officials, Onwel Manufacturing’s owner, Michael Leung and Liz Claiborne’s Chris Chan illustrated China’s overwhelming advantage in supply chain manufacturing.
Jones described the technological complex site, which defined for the touring government and business leaders how Saipan could utilize a pre-cut assembly process in the future to rejuvenate the ailing Saipan garment industry.
Pierce started his presentation with recent New York Times and International Herald Tribune stories on how surges of Chinese textile exports have lessened Saipan factory orders.
Also presented were industry economic contributions to the local community; $69 Million in taxes and fees, $50 Million in local spending, 15,000 jobs in the industry and 7,500 jobs as a result of the industry, and between $111 Million and $174 Million in combined taxes, fees and the economic multiplier effect.
SGMA also demonstrated how competing free trade agreements have eroded Saipan factory competitiveness, how China exports and pricing structure have played into lost orders in Saipan and how government leaders can best address retention of revenue from the industry.
SEDC demonstrated how the Council Members can combine with CNMI Government leaders to best address the U.S. Department of Interior’s recommendations. DOI recommended “that every effort be made to avoid an abrupt or disorderly phase-out of this industry and to retain the more productive segments of the industry as long as possible”.

Commonwealth’s economy

For some time I have been interested in the contribution of the garment industry to the Commonwealth’s economy, both in terms of what this industry means to government revenues and income for the private sector. Like an iceberg, seven eighths of its contribution might be said to be hidden. In an attempt to peer beneath the surface, I have examined the so-called “multiplier effect” of this industry on our economy from a very conservative point of view and concluded that its contribution is quite significant. For those unfamiliar with the term “multiplier” it basically operates on the principle that one individual’s expenditure is another individual’s income. The multiplier is a mathematical factor applied to represent one person or firm’s, payment – or those of a group – which in turn becomes another’s Income. The analysis is based on both a high and low factor, both of which have been conservatively estimated. It works like this:
When you go to the store with part of your paycheck and spend $50, the store operator may use a portion of that money to pay his rent. The landlord receiving the rent spends part of his income on gasoline. The service station operator also has expenses to meet such as payroll, utilities and the purchase of fuel stocks to replenish what he has sold. Economists refer to this exchange of money and its circulation within the economy as the multiplier effect. Eventually, money leaves the economy, often in the form of import purchases, vacations, gasoline and anything else purchased off island. Each time money changes hands within the economy it is known as a round.’ At some point a portion of the money is no longer circulating on the island and is “fugitive” — it leaves the island usually in the form of “off-island” purchases, imports).
The first round of expenditures represents the actual expenses related to the garment industry’s cost of doing business. For the 25 garment plants, their combined annual payments direct to the government has been estimated to total $49.6 million, (this is the actual payment – not high or low – which can be documented by the government). As this money is spent by the government (and it is spent since the government has been operating at a deficit), this “induced” expenditure flowing through the economy accounts for an estimated additional expenditure of $39.9 million. The total contribution to the government and the expenditures it induces is 89.5 million.
The total direct contribution to the economy, both in generating revenues for the government and income for the private sector is estimated to be from $163.3 million (low) to $208.7 million (high), omitting the $7g million in remitted employee salaries.
Annual payments by the garment industry for a myriad of goods and services has been estimated to total from $96.5 million (low estimate) to a high estimate of $119.1 million annually. Considering that a five percent business gross revenue tax, (BGRT), is paid on most of this private sector income, from $4.8 million to $6 million is further generated for the government in BGRT.
The entire concept is based on the premise that each level, or round, of expenditures induces further consumption, although at a reduced level. Because the Commonwealth is a consumer oriented society and almost all consumption items are imported, the multiplier effect of monetary flows is not as pronounced as in the case of other areas that have the ability to substitute imports with locally produced goods and services and thus retain the money in circulation for a longer period. Finally, one arrives at the last and weakest round of transfers within this economic model. For purposes of this representation we have elected not to go beyond a fourth round of currency flows to depict an ever diminishing impact which eventually results in much of the funds being fugitive as they leave circulation within the island economy in the form of import purchases and other external payments.
Any measure of the multiplier effect is nothing more than an elaborate combination of estimates based on a mathematical multiplier known as a “factor.” To the extent that the factor is in error then the calculation will be erroneous. However, hazardous as it is, such estimates are an improvement over the intuitive method which some would employ without any attempt to measure the elements involved. The technique can provide a measure of the value of a particular industry to the economy as well as to the government.
The analysis has been developed based on various “factored” formulas which are believed to represent conservative estimates of the various kinds of currency transactions throughout the economy.
To avoid being overly optimistic, and in maintaining a conservative approach, low (conservative) factors were developed to represent even the high estimates presented. The selection of conservative estimates of the multiplier largely negates the possibility of exaggerating the impact of the industry’s contribution to the economy. If anything, the figures are underestimated.
Major payments by the industry direct the government include: $27.2 million in User’s Fees (a form of export tax); $2.6 million in labor and immigration fees; $1/2 million in land lease payments; $4.4 million to CUC; $10.6 million in payroll taxes and $4.3 million in other expenses for a total of $49.6 million.
In examining the contribution to the private sector, the annual payroll is $92.9 million. Assuming industry workers send 85 percent of their wages to their home country, there is still $13.9 million in circulation. The direct expenditures of the industry have been estimated as follows; $8 million on freight; $8 million on food; $3.2 million on housing; $3.9 million for airline tickets; $3 million in land lease payments; $2.8 million for repair and maintenance; $2.3 million in professional fees; $1.7 million in office supplies and materials; $1.6 million for petroleum products; $1.2 million for telecommunications and another $7.1 million for a variety of other expenses. The total direct private sector payments are $149.6 million less $79 million in remitted wages, (not in circulation), for a balance of $70.6 million in circulation at the first round. The above is where the multiplier comes in. This is the money that moves through the economy, up and down – in and out. And here it is- the $49.6 million paid to the government increases within the economy as the government spends the money to $89.5 million. The $149.6 million paid throughout the private sector, (less the $79 million remitted and thus not in circulation or $70.6 million available for circulation) increases to $119.1 million (high estimate). The low estimate for the private sector of $70.6 million available increases throughout the economy to $96.5 million.
Where did I get the basic information on the industry expenditures for the fist round? From an industry questionnaire voluntarily submitted in a uniform format. I prepared the rest of the analysis from multipliers leading to the forward estimates. I’m sorry that there are so many numbers but that’s what it’s all about. If you doubt these data, ask yourself this question: “Am I involved in an activity that does business directly with the garment industry?” If not, then there is no way to know how it effects you– but you can be certain that in all probability the multiplier effect does indeed effect you in one way or the other.
Compare the above with the 1997 government budget of $163.3 million for 4,551 employees and $74.1 million for other expenses for a total of $237.4 million, not including the autonomous agencies of Commonwealth Utilities Corp.; Mariana Islands Housing Authority; Commonwealth Ports Authority, Commonwealth Development Authority; Office of Public Auditor; Retirement Fund, the judiciary and the legislature.
The $27.2 million in User’s Fees paid the government in 1997 represents 3.5 percent of the declared $777 million F.O.B. value of the garments manufactured. I don’t know the cost of imported textiles used to manufacture the clothing, but this information is not needed for this purpose since it is not in circulation within the economy and has no multiplier. The garment industry’s gross income is equal to 35.3 percent of the total $2.2 billion business gross revenue reported in 1996 by all sectors of the economy (data for 1997 BGR was not available at the time of this report, but it is expected to be less than that of 1996).
The total estimated contribution of this industry within the economy ranges from a low estimate of $163.3 million to a high estimate of $208.7 million. These figures do not include the $79 million remitted overseas in salaries.

About The Author
William Stewart was appointed by the High Commissioner of the Trust Territory of the Pacific Islands and confirmed by the Congress of Micronesia as the deputy director of the Department of Resources and Development. He has been associated with economic issues within the Pacific islands of Micronesia for more than thirty years. He has conducted their census of population; encouraged both indigenous and foreign investment in a wide variety of projects; organized and accompanied trade and investment missions to Asian nations; assisted in Micronesia’s political status negotiations; served as an advisor to businesses, presidents, governors and legislators within the islands; administered a development finance institution; managed a copra stabilization board; mapped the islands and published numerous articles and books on economic issues and military historical accounts. He is a graduate of the University of Charleston and the United States Industrial College of the Armed Forces’ Cold War curriculum of study concerning the “Economics of National Security” which encompassed the planning, resource allocation and actions required for the rehabilitation of the American economy during a national emergency or after a nuclear attack.
Prior to the association with Micronesia Bill Stewart was also employed within a U.S. State Department program designed to implement President Kennedy’s foreign policy of assisting the emerging nations of the late 50’s and early 60’s with their economy by encouraging the concept of free enterprise in Africa and Asia as an alternative to the competing economic philosophy of socialism and communism. He studied economic development at the U.S. Department of State’s Foreign Service Institute and has served in American Embassies in Africa and Asia as a career foreign service officer with a rank equivalent to Lieutenant Commander and has served as U.S. Naval instructor. Other assignments have included: economic advisor to the Royal Kingdom of Thailand’s Board of Investment; economist for the U.S. Corps of Engineers on the $120 Billion Saudi Arabian development plan; banking advisor to development banks in Tunisia, Ivory Coast, Bahamas, Micronesia and the Inter-American development Bank in Washington. He is a principal in the consulting firm of Economic Service Counsel and is the owner of a successful publishing company. He was a principal contributor in the preparation of: the Overall Economic development Plan for the Northern Marianas and is the author of the Business Reference and Investment Guide to the commonwealth; the Business Information Map of Saipan; Tourism Investment Opportunities In Northern Marianas; Saipan In flames; Ghost Fleet of the Truk Lagoon and the cartographic presentations of the Mystery Surrounding the Disappearance Of Amelia Earhart; Yap-“Island of Stone Money:’ Bikini Atoll–“nuclear Grave Of World War II Warships” and Pohnpei– The Ruins Of Lost Pacific Civilization.” As a military historical cartographer, he has mapped many of the Pacific battlefields including Saipan, Tinian, Truk and Peleliu. Many of his publications are retained by the U.S. Library of Congress, the National Geographic Society, National Archives, Vatican Archives and many universities.
Stewart has served as the senior economist for the Northern Mariana Islands, Truk and Palau and has been a frequent contributor of economic articles of the Saipan Tribune, Marianas Variety, Umanidat, A journal of the Humanities and the Journal of Pacific societies (Tokyo). Many essays have been translated and published in the Japanese and Chinese languages.

Northern Mariana Islands

The Bureau of National Affairs in an article entitled, “Trade Associations Oppose Bill Aimed At Textiles From Northern Mariana Islands,” reports that The National Retail Association, joined by three other trade associations, September 5 urged members of US Congress to oppose a measure that would subject products made in the Commonwealth of the Northern Mariana Islands (CNMI) to import duties and quotas.
The legislation, known as the “Made in the USA Label Defense Act,” (S. 922, H.R. 1621, also known as “The Franks Bill”) also would bar use of the “Made in the USA” label on CNMI products. Supporters of the legislation have alleged labor abuses and textile transshipment as reasons for the legislation.
NRF, in a joint letter with the American Manufacturers Association, the International Mass Retailers Association, and the United States Association of Importers of Textiles and apparel, said that the measure would confuse consumers and violate current federal laws. The associations represent US companies that manufacture, import, and sell clothing.
An NRF spokesman told the Bureau of National Affairs September 6 that there was concern that the measure could end up being rolled into an omnibus appropriations measure as Congress gets ready to adjourn.
“There is simply no legal, economic, or moral basis for concluding that the United States should treat products differently when they are produced in the CNMI [rather] than in California, New York, or North Carolina. No part of the United States — including other territories — has ever been subjected to US import duties and quotas on its products,” the letter stated.
Further, the trade associations argued that duties and quotas would “stifle” Saipan’s garment industry, which is the largest source of livelihood for the island. “By effectively destroying the CNMI’s manufacturing sector, this legislation would undermine the CNMI’s economy, potentially making the CNMI more dependent on the federal government,” the letter warned.
The letter said that federal law requires US companies to identify “USA” as the country of origin of products made in CNMI since CNMI is part of the United States. Other US territories are subject to the same rules. Not only would the legislation fail to achieve its stated objectives, it would discriminate against a group of US citizens and set a dangerous precedent for other US territories, the letter said.
“We are delighted to hear of these major players’ objections to legislation that would adversely affect our business,” said Richard A. Pierce, acting chairman of the Saipan Garment Manufacturers Association. “Even more importantly, we’re pleased to know that the NRF recognizes the work we’re doing in addressing our opponents arguments in the Franks Bill”
The National Retail Federation, an organization representing more than 1.4 million US retail establishments, is using the Saipan Garment Manufacturers Association (SGMA) as an international model for socially responsible factories. On its internet web site, NRF mentions SGMA prominently in the section regarding suppliers and labor standards, as well as on the site’s home page.
The web site, which can be found at www.sweatshops-retail.org, describes the high standards of NRF and what retailers are doing to make certain they don’t buy from sweatshops. The site links to the Code of Conduct page on this site, and states, “…the SGMA experience shows how suppliers can work with retailers, non-governmental organizations and the government to improve labor standards compliance. The SGMA effort represents one industry-wide attempt by suppliers to work together to improve the treatment of workers throughout an entire industry.”
The National Retail Federation is the world’s largest retail trade association with membership that comprise all retail formats and channels of distribution including department, specialty, discount, catalogue, Internet and independent stores. NRF members employ more than 20 million people or about 1 in 5 American workers. NRF’s international members operate stores in more than 50 countries. In its role as the retail industry’s umbrella group, NRF also represents 32 national and 50 state associations in the US as well as 36 international associations representing retailers abroad.

Honorable Joaquin Adriano

Senate President
Commonwealth of the Northern Mariana Islands Senate
14th Northern Marianas Legislature
Capitol Hill, Saipan
Dear President Adriano and Senate Members:
On behalf of the Board Members and General Membership of the Saipan Garment Manufacturers Association (SGMA), I want to personally thank you, and the CNMI Senate Members, for your recently adopted Senate Resolution No. 14-32, requesting Governor Juan N. Babauta, CNMI Resident Representative Pete A. Tenorio and Insular Affair’s David Cohen in seeking assistance to amend General Note 3(a)(iv)(A).
SGMA has stated on numerous occasions in the past that this single act could, very well, sustain our apparel industry through the next phase of intense global competitiveness when foreign country quotas are eliminated on January 1, 2005.
With Resolution No. 14-32, SGMA believes the CNMI Senate is addressing something within our ability to effectuate change in Saipan factory viability, where it seems all other economic variables are outside our control.
Unlike the changing worldwide global quota system, where the New Year brings new rules, or, for that matter, world global competitiveness, changing the value-added requirement under General Note 3(a), as the Senate has resolved, is something we can do with the help of the United States of America.
Unlike past critics’ concerns of jeopardizing American jobs in the domestic apparel industry, with a change in the value-added requirement, once again, as stated in Resolution No. 14-32, the CNMI as a part of America, would regain some of its lost advantage over truly foreign countries.
The CNMI House of Representatives, in a similarly adopted House Resolution, the Governor’s Strategic Economic Development Council (SEDC) and the Saipan Chamber of Commerce all have entered support to amend what is now an essentially restrictive value-added requirement for entry into the U.S. domestic market for apparel assembled in the CNMI from cut pieces, as U.S. federal trade offices have already stated they will allow cut-piece assembly in the insular area of the Commonwealth.
All we need to do now is to allow our island manufacturers to utilize what the federal government has already allowed in this type of manufacturing, by putting in place the necessary economic formula facilitating the CNMI’s ability to provide its own local industry the ability to perform.
The Senate is 100% correct in that the change in the value-added requirement would “translate into corresponding increase(s) in direct and indirect government revenues”.
With the factories’ cutting rooms turning into sewing and packaging rooms, when, as a result of amending the value-added requirement we are better able to meet buyer demands in cost-competitiveness, there will be an increase in CNMI user fee payments and spending in the CNMI.
SGMA sincerely appreciates your action in adoption of Senate Resolution No. 14-32 and we stand ready to assist the CNMI in any way we can in attaining this goal to sustain our industry and our host’s CNMI economic future.