External And Internal Economic Issues Facing The Commonwealth
Some in the Commonwealth hold the belief that the slowdown in the economy started only a year or so ago when the economies of southeast Asia began to falter but in reality the Commonwealth is now five years into an economic slowdown that first became apparent, at least as far Japanese investment is concerned, in 1993.
Indications of a regional slowdown first appeared in late 1989 and early 1990, when the Japanese economy started to cool, partly as a result of a decline in the Japanese stock market; rising interest rates and an unexpected drop in the value of the yen against the dollar. Japan's economic difficulties worsened as stock prices continued to decline sharply resulting in a slowdown in investment in the Commonwealth. Major Japanese banks with large stock portfolios lost hundreds of millions in value and many previous loans became worthless.
Japanese banks stopped lending, particularly on the international scene, as they strived for more liquidity. Japanese investment interest in the Commonwealth all but dried up. Previously planned hotel projects were postponed or delayed. Construction activity in the Northern Marianas slowed considerably and the Japanese visitor became more prudent in his spending habits purchasing less expensive gift items and dining in more conservatively priced restaurants. The question now before us is when will local economic growth resume to a level that would be considered acceptable? In my opinion if we continue to be tied to the Japanese economy – and it appears at this point that we will – I don’t think we will see any substantial growth for another five years or so – or sometime around mid year 2003. And maybe not even then unless the confusion and uncertainty surrounding future investment in the Commonwealth is mitigated. And what about this confusion? Aside from the adverse publicity surrounding the Article X I I issues which was disseminated far and wide among potential investors several years ago which no doubt caused many to hesitate or postpone their investment plans in the Commonwealth what is the genesis of the other major economic problems?
Let Japan and the other nations of southeast Asia worry about their difficulties since their problems are external to us and we can’t do anything about it anyway – let us be concerned about our internal predicament and the steps that can be taken to find a solution in order to be ready when economic activity in the region picks up early in the next century. I suspect many potential investors, both foreign and American, are waiting to learn the eventual outcome of several vital issues for which implementation is now either imminent or remain matters for rather immediate resolution between the CNMI and the U. S. Congress. These are well known locally and don’t require a lengthy explanation here, but for the record they include: uncertainty as to whether the Commonwealth will be permitted continued duty free access to U.S. markets for locally manufactured products and when, and how, the U. S. minimum wage and federal immigration laws will be imposed on the islands?
In the case of the latter – will the Northern Marianas be permitted some latitude in importing nonresident workers to augment its limited indigenous labor force? And, in terms of a tourism market, will the islands be able to tap the growing affluent Chinese market by permitting entry to the Northern Marianas either without a U. S. visa or with a special Commonwealth visa issued for that specific and limited purpose? This, of course, is predicated upon another unknown that being the Chinese Government permitting the issuance of exit visas to their citizens for this purpose. These unresolved issues together with the economic recession in many Asian countries complicate an already uncertain business investment climate. They contribute a rather large measure of uncertainty among the investment community – the single factor such investment abhors above all else.
When investment rules and requirements are subject to frequent change, the investor views the area as unstable and loses any confidence that he or she may have had in the reliability and continuity of stable laws as they affect investment. We all know that many such changes in the past were made in an attempt to accommodate the desires of certain members of the U. S. Congress and local interests. I have come to the conclusion that the United States is as much at fault as the CNMI in creating the current high level of business uncertainty that currently prevails and I’ll tell you why. As a thirty year observer of the Northern Marianas’ economic evolution, and a former principal in the former Education For Self Government Program, I am convinced that back in the seventies the rush to offer Commonwealth status was primarily motivated by military expediency and outdated national security concerns and that many people in the islands did not comprehend the ramifications and responsibilities of such a close relationship with the United States with the result that at the time many were unprepared for American citizenship. And for that – the United States Government must bear some measure of the responsibility for many of the problems that have evolved. I suspect that the American negotiators back in the early seventies probably thought, “never mind all that political preparation for citizenship, the Cold War is a pressing issue, bring them into the fold and everything will be all right in the long run.” Today, almost twenty two years after U. S. citizenship was conferred, there are still people within the Northern Marianas that appear to be unfamiliar with the obligations and responsibilities that are inherent in citizenship, an honor bestowed upon the islanders almost in total by Presidential Order. It should be kept in mind that the people of the Northern Marianas, unlike other nationalities seeking U. S. citizenship, were not required to possess any knowledge of American history or appreciation of the principles of democracy as most Americans perceive them to be.
Most foreigners seeking U. S. citizenship must study a variety of subjects related to American history, pass an examination and swear an oath of allegiance. This was not required of the people of the Northern Marianas. Nor, during the period the Trust Territory Government conducted educational programs for self government, was civics and the duties of citizenship taught in the public schools. To have done so during this period of the early seventies when political preferences were being explored – and to have openly advocated U. S. Commonwealth status from among the other three remaining options available to the people of the Northern Marianas, namely, maintaining the status quo and remain a Trust Territory, independence or free association with the United States, would have raised the ire of the French and Soviet delegates to the United Nations and precipitate a charge of colonialism against the United States.
The political education program had to be impartial. I know this to be the case because the Soviet delegate to the U. N. Security Council learned about the civics portion of the educational program during a visit to Saipan, complained to the U. S. Government that the process had to be unbiased and we were informed to abandon the educational effort. So, in some respects, this has resulted in an educational deficiency among some in the Commonwealth and it is partly the fault of the United States for “caving in” to the Soviet demand. Thus, being unaware of certain American values, the new Commonwealth permitted many of the Asian investors to enter into business and treat their imported workers in the Commonwealth in the same manner they were permitted to treat them in their home country. This “broad brush” statement does not apply to all investors and in particular it does not apply to hotel operators. However, with respect to other businesses it first became obvious to me when, as the co-director of the 1990 census, I noticed large numbers of relatively highly educated nonresident workers employed for long hours at low hourly wages in both some of the local and foreign owned enterprises. Of course, it was soon realized that many of the foreign investors as well as their resident managers had no comprehension of the English language. They could not read or speak English and, at the time, were unaware of the various rules and regulations governing the treatment of workers. A bill had been introduced in the legislature requiring those applying for a business license to have some knowledge of either English, Chamorro or Carolinian which would ensure that there would be no excuse for not understanding local and federal laws governing the treatment of workers. The bill was later considered unconstitutional and discriminatory and was never passed. Thus, the Commonwealth was denied this very effective tool to correct the situation and contribute to reducing labor abuses and violations. I pointed out in the 1992 edition of my book: Business Reference and Investment Guide To The CNMI, the following , “As a member of the American family of states, territories and semiautonomous entities, the Commonwealth, situated on the doorstep of Asia is host to thousands of citizens of Asian nations which are allies, trading partners and friends of the United States.
For some who visit, either as tourists or nonresident workers, the islands will be the only contact many will ever have with the American way of life, its form of government and democratic principles. The treatment extended these people while they are in the islands will make a lasting impression on many. To this extent the CNMI exercises no small degree of influence in partially shaping the reputation of America around the Pacific rim and its human rights record.” I did not address the issue of what some workers from Communist societies might think of this “American mirror of democracy.” Still some businesses failed to get the message as far as the treatment of workers was concerned and continued to carry on business as usual. The extent of the political relationship of the Northern Mariana Islands with the United States of America and many of the details pertaining there-to are still largely unknown and imprecise at this time. More uncertainty. This results in part because the relationship has not been defined in any detail and also from the fact that no other member of the American political family became so associated under circumstances even remotely similar to those by which the Northern Marianas became affiliated with the United States. Not even the nexus between the Commonwealth of Puerto Rico can provide much insight as to the extent and scope of the CNMI's Covenant agreement. The issue is very much unsettled. It may be somewhat disconcerting to some when it is discovered that even students of the American legal structure will not venture to define what U.S. laws prevail in the islands and those that do not. Students of political science are uncertain of the connection with the result that there is confusion because of the many unresolved issues in this unique and complex relationship. There are those in the Commonwealth that wish to retain as much political and internal autonomy, indeed, independence from the federal government and the American legal structure as possible. This is something else that should have been made abundantly clear when a change in the political status of the Northern Marianas was being explored. Apparently, it was not. How and when a determination will be made and a method devised to clear up the legal and political ambiguities which remain in this sometimes awkward political affiliation is a subject of conjecture and will no doubt remain so until resolved at the highest level of the American judicial system, presuming, of course, that a sufficiently justified issue is brought before the U. S. Supreme Court and the Court decides to hear the case.
The CNMI /US relationship is confused because it is still in the process of evolving. Indeed, Section 902 of the Covenant permits a reassessment of the relationship every 10 years. It is probably safe to state that the people of the Northern Marianas did not clearly understand what they voted to support when the plebiscite was held in June, 1975 to accept a negotiated Covenant with the United States. Certainly they were aware of some of the tangible benefits that would flow from the U. S. Treasury such as better health care, social security, educational assistance, and a cornucopia of food stamps, housing subsidies and other grants. However, there was probably little knowledge or appreciation of the extent of the full ramifications of an association with the American judicial system and the federal bureaucracy – for better or worse – with its myriad of laws and regulatory agencies administering everything from environmental protection to occupational health and safety in the work place. Thus, the process of learning the unintended consequences of the merging relationship with the United States, by necessity, continues to evolve and be refined as time goes by. Many of the complex issues which were to arise in the future could not possibly have been foreseen in 1975 and thus a document was produced, the Covenant, to permit flexibility in the new political relationship. Several years ago an Assistant Secretary of the U. S. Department of Interior stated: "Freedom to choose a political status carries with it the responsibility, first, to make an informed choice and second, to live with the benefits and responsibilities of that choice.” Further the official stated,"for insular leaders to argue that what they freely chose several years ago is not what they thought they were choosing is a criticism of those who chose, not those who offered the choice. It is clear from the plain English of the historical documents involved that the United States has sovereignty in the Commonwealth … sovereignty is not conditional and does not lend itself to subject applicability.”
The key words here are “informed choice.” From what I can recall at the time the electorate was not that well “informed.” It is the contention of some residents in the CNMI that the Northern Marianas did not become a Commonwealth as a result of the will of the United States Congress through enactment of law, but by means of negotiation within the Trusteeship Agreement between the United States and the United Nations. The Trusteeship Agreement did not permit the United States to acquire territory or possessions since it was considered a trustee rather than sovereign and as such negotiated with the Northern Marianas for Commonwealth status. As for myself I don’t care very much about politics.
I am, however, interested in the economy and all this confuses investors. The sooner these issues are resolved – one way or the other the better. One final observation. If the Commonwealth loses control of immigration without some arrangement with the federal government permitting the continued importation of a wide variety of alien workers to augment the limited supply of indigenous labor there will be no more investment of any magnitude. Employment opportunities will be limited, government revenues will be reduced and less government services provided. Eventually an exodus of local men and women seeking better opportunities than those offered in the Commonwealth will occur and the situation will be even more aggravated than is now the case.