The Commonwealth of the Northern Mariana Islands is unique in its
relationship with the United States, a relationship which eventually
evolved out of the flames of World War II and a relationship entirely
different from any other territory associated with the United States. While
the people of the Northern Marianas are United States citizens and the
American judicial system prevails it is important to realize that the
Commonwealth is the only entity under the American Flag that controls its
own immigration and customs. Because of this fact, the United States
immigration and customs authorities consider the Commonwealth a foreign
country simply because it controls such entry.
       In spite of their proximity to Asia  -  in all of the islands' 476
years of recorded history -  the only time the islands  have been under the
control of an Asian nation (Japan)  was the thirty year period between the
world wars, (1914 to 1944). For the other 400 odd years, at least until
1978 when the islands became self-governing, they were controlled by
western nations, first Spain, then Germany and later by the United States
under the auspices of the United Nations. Indeed, the United States still
exercises control over defense and those federal laws that apply within the
Commonwealth.
       This unique relationship between the United States Government and
the Commonwealth stems  from the fact that the islands were never
recognized as a permanent possession of any nation since they were taken
from defeated Germany by the Allied Powers during World War One.
Subsequently assigned to Japan under a mandate from the League of Nations,
the islands' status did not change after they were occupied  by  United
States armed forces in 1944. Indeed, since their purchase by Germany from
Spain in 1899, and their  assignment to Japan for administration in 1920 by
the League of Nations, the Northern Marianas had no political identity
among the countries of the world. From the time of  Germany's loss of the
islands they were never regarded as a permanent colony within the exclusive
sovereignty of any nation, except, of course, by Japan when it left the
League  before the outbreak of World War Two.
       At the conclusion of the Second World War the United States, not
desiring to appear as having annexed the islands by virtue of "victor's
rights", placed the islands under the supervision of the Security Council
of the  newly formed United Nations. As the Marianas where considered to be
within a strategic area of the western Pacific they were to be overseen
through the Security Council where the United States had veto power, rather
than  the U.N. General Assembly. The people of the Marianas were encouraged
to choose their future political status from several options. These
included: maintaining the status quo and remaining a Trust Territory;
selecting independence; or becoming  affiliated with the United States,
either through a relationship of free association or a commonwealth status
based upon a negotiated agreement which later became known as the Covenant.
The Covenant describes the relationship agreed upon between the people of
the Northern Marianas and the United States Government.
       No other United States territory or insular possession has a similar
relationship. Alaska, Hawaii, Puerto Rico, the Virgin Islands, American
Samoa, Guam and other Pacific possessions were all acquired under
circumstances far different than that of the Northern Marianas.
       For a nation to acquire additional territory, a government must
either annex an area by force of arms or by purchase from a sovereign
government.The Northern Marianas was not a permanent legal possession of
Japan at the time of the war  as it had only been entrusted to Japan under
a mandate by a group of countries through their organization - the League
of Nations. Therefore, the United States could not strip territory from
defeated Japan at the conclusion of hostilities since the islands were
never recognized as a permanent legal possession of Japan in the first
place.
       The people of the Northern Marianas, by 78.8 percent of the votes
cast in a plebiscite held on June 17, 1975, elected to accept a negotiated
Covenant with the United States. This became U.S. Public Law 94-241 when
enacted by the United States Congress and became effective on April 1,
1976, a little more than 30 years after the end of World War Two.
       United States citizens residing in the Commonwealth are denied the
right to vote in presidential elections nor are they represented in the
United States Congress by an elected representative. This is, of course,
inconsistent with the fundamental premise of democracy, namely, that the
right to govern rests on the assent of those governed. At any rate, in
negotiating the Covenant relationship between the United States and the
Northern Mariana Islands the United States agreed to permit duty free entry
into the United States of certain “qualified” products manufactured In the
Commonwealth. A summary of the legal mechanism permitting such exports has
been summarized as follows:
Headnote 3 (a) - U. S. Tariff Schedule
     Headnote 3 a is a provision within the United States Customs
regulations which permits certain “qualified” products manufactured in the
Northern Marianas to be exported into the United States Customs territory
duty free.
     The benefits of Headnote 3(a) ( duty free entry into the United
States) provides the only real economic link the Commonwealth's private
export sector has  with the United States. Without this entry to the U. S.
market it is unlikely that the two economies would have any meaningful
nexus  at all - with only a one-way street of imports from the U. S.
flowing to the Commonwealth. The continued benefit of Headnote 3 (a) is
essential if the CNMI is to develop light manufacturing endeavors such as:
pharmaceuticals, bags and luggage, small electrical components, soap and
detergents, sporting goods, toys, jewelry and several other products.
       Asian businesses seeking access to markets in the United States and
those participating nations of  G.S.P.   have an advantage when locating in
the Commonwealth which U.S. firms establishing in the islands that seek
entry into Asian markets do not have.
       Businesses located in the Commonwealth qualify for preferential
treatment when exporting their products to the United States.  Under
Section 603(a) of the Covenant, the Commonwealth is not included within the
customs territory of the United States.  General Headnote 3(a) of the
Revised Tariff Schedules of the United States permits articles grown,
manufactured, or produced in the Northern Mariana Islands to be imported
into the customs territory of the United States free of duty if 70 percent
or less of the value of the product is derived from foreign materials.  If
more than 70 percent of the value of the product is derived from foreign
materials, the product  is subject to the usual duties.  For certain
articles - notably textiles and wearing apparel - only 50 percent or less
of the value may be derived from foreign material in order to qualify for
duty  free treatment.
       General Headnote 3(a) addresses only the issue of whether a product
of the Northern Mariana Islands may be imported into the customs territory
of the United States free of duty; it does not address the circumstances
under which products of the Commonwealth may be admitted into the customs
territory of the United States free of quota restrictions or other
non-tariff barriers.  Quotas affecting imports from the Commonwealth into
the customs territory of the United States have been imposed  thus far only
with respect to sweaters of third country manufacture assembled in the
Commonwealth for export to the United States.
       Generally, imports into the Customs Territory of the United States
under Headnote 3 (a) are not subject to quota limitations. While the United
States Government can impose a tariff or quota at any time - when a
particular product is restricted from the U. S. market by quotas - it may
be economical to assemble such products in the Northern Marianas using
materials from another country.
       The Harmonized Tariff Schedule of the United States (USITC
Publication #2333) available from the U.S. Government Printing Office,
Washington, D.C.20402, lists several thousand products eligible for duty
free treatment when exported into the United States Customs Territory
providing certain product qualifications are met.  This comprehensive
document consists of several hundred pages and twenty two sections.
Qualifying For Duty Free Treatment
       In order for a product to qualify for duty free treatment under the
GSP it must be: included on the GSP list; must be from a designated
beneficiary country or area; the beneficiary area must be eligible for GSP
treatment with respect to a particular product; the value added
requirements must be satisfied; the article must be imported directly into
the U. S. from the beneficiary area; a certificate of origin form (#3229)
must be provided and the importer must have requested GSP treatment.
Value Added Requirement
       The sum of the cost or value of materials produced in the
Commonwealth plus the direct cost of processing must equal at least 35
percent of the appraised value of the article at the time of entry into the
United States. All those costs, whether directly incurred in, or which can
be reasonably allocated to: the growth, production, manufacture or assembly
of the merchandise including; actual labor  costs, fringe benefits,
on-the-job training, cost of engineering, supervisory, quality control and
similar personnel, etc. and other items not directly attributable to the
merchandise under consideration or are not "costs" of manufacturing,
including profit and general expenses and business overhead (such as
administrative salaries, insurance, advertising, etc.), are not allowable
costs in meeting the 35 percent requirement.
       The foreign value limitation test to determine the 50 or 70 percent
foreign value limitation for articles manufactured in the Commonwealth
compares the actual purchase price of the foreign materials imported into
the Northern Marianas (plus transportation costs) and the final appraised
value in the United States determined in accordance with the value
provisions of U. S. tariff laws.
Direct Shipment
Direct shipment provisions also apply under Headnote 3 (a). Generally, in
order for assembled articles to be considered manufactured or produced in
the Commonwealth, the component parts of foreign origin used in the
assembly must be shipped from the foreign country in separate shipments so
as to constitute entireties. The constituent parts must arrive in at least
two different shipments and by separate carriers.
       To obtain a ruling on a particular product, requests should be
directed to: U. S. Customs Service, Office of Regulations and Rulings,
Washington, D. C. 20229. A detailed description of the  rules may be
examined in Part 177 of the Customs Regulations - 19CFR.
Export Assistance
       Under Section 603 (d) of the Covenant, the United States has an
obligation to seek from foreign countries favorable treatment for exports
from the Northern Marianas and to encourage other countries to consider the
Northern Marianas a developing territory.  This obligation on the part of
the United States may possibly result in trade advantages for the
Commonwealth as there is a waiver provision in the General Agreement on
Tariffs and Trade which could allow preferential treatment of goods
exported from the Northern Marianas.
       Under article 26 7653 (b) certain articles shipped from the United
States to the Commonwealth are free of certain federal excise taxes.
Section 604(a) of the Covenant does permit the United States to levy excise
taxes on goods manufactured, sold or used, or services rendered in the
Northern Marianas in the same manner and to the same extent such  taxes are
applicable within Guam.  The proceeds from such taxes, when and if imposed,
will be given the Northern Marianas Government by the federal government.
The Commonwealth, if it so desires,  can rebate the funds to the business
source.   This is permitted under Sections 602(a) and 703(b) of the
Covenant.
General System Of Preferences (G.S.P.)
       In 1984 the U.S. Congress extended the duration of the program for
the General System of Preferences (G.S.P.). Manufacturers in the
Commonwealth while benefiting from Headnote 3 (a) are also eligible for the
export benefits provided by this program.
       Of the numerous nations which are signatory to the Generalized
System  of Preferences, Australia, New Zealand and Japan are the closest
countries to which Commonwealth manufacturers of qualified products can
benefit from reduced import tariffs in the recipient countries.  With the
exception  of certain products, tariff reductions of up to fifty percent
are allowed.
       The import regulations from countries  participating in the G.S.P.
program vary depending upon the country.  Information on these regulations
may be obtained by contacting the custom authorities in the importing
countries.  More than 2,700 product categories of exports from developing
areas are listed as being eligible under the G.S.P. program.  There are
value added requirements and, in some cases, quota restrictions.Generally
for a business to benefit from the GSP its product would normally be
subject to a high duty in the importing country and the component costs
should be considerably lower that those within the country to which the
product is to be exported. Eligible articles are identified in the Tariff
Schedules of the United States and the designated countries listed
there-in. Ineligible articles under the GSP  are generally "import
sensitive" products which, if allowed free access into the U. S. could
disrupt domestic production. These articles have a high U. S. import duty.

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