Ideas For Improving The Economy
If you are a government employee or retired from the government, don’t think you are above being damaged by forces currently effecting our economy – because you can be hurt. As a current employee you may lose your job if the economy can’t generate the tax revenues to pay your salary.
If you are a retired person, a portion of the funds used to pay your retirement annuity is a result of investments in the stock market. When there is a downturn in business, stock prices can decline and dividend payments to the Retirement Fund fall – payments on which the liquidity of the Retirement Fund is based. Just because you don’t have a business and don’t have to worry about meeting a payroll or meeting a bank payment – your livelihood can be severely effected and in some cases your standard of living reduced.
Everyone should take a keen interest in the condition of the Commonwealth’s economy and understand the internal and external forces which can effect it for better or worse. Like the forces that effect our business sector the government is not immune from being damaged. As I observe the economic “turmoil” in certain Asian countries and the adverse influence upon our own economy and in particular the uncertain future of the garment industry, my thoughts turn to possible actions that could be taken to counter an anticipated reduction in business activity and diminished government revenues which seem to be in store for us over the next year to eighteen months before things begin to turn around in Asia. While South Korea is currently experiencing economic difficulties don’t forget that the country is a major ally of the United States with thousands of American troops stationed there to lend stability to the region.
The U.S. is not going to let it go down the drain. The Korean people are highly skilled and very productive and the nation has substantial capital invested in fixed assets of a wide range from ship building to electronic and machine assembly. In short, their economic base is intact. Turning the coin and taking stock of the situation in the Commonwealth, our own manufacturing industry faces the following threats to its continued existence and jeopardizes our attempts to maintain some measure of diversification in what would otherwise be a tourism dominated economy. U. S. government insistence on increasing the Commonwealth's minimum wage and assumption of immigration control there-by limiting the number of nonresident workers for employment within the industry; the move on the part of the U. S. to require items manufactured in the CNMI to have been produced with a minimum labor component of twenty percent by U. S. citizens;current low prices of garments produced in other countries makes CNMI products more expensive and less competitive resulting in lost markets in the U. S.; the advantages the industry can enjoy under the terms of the North American Free Trade Agreement, (NAFTA), by relocating to Mexico, Central America and elsewhere and finally, the impact of the General Agreement on Tariff and Trade (GATT) now referred to as the World Trade Organization (WTO).
The negotiations during the Uruguay Round of trade talks covered by the multi-fibre portion agreed upon a phase out of quotas on certain garments. The final phase takes effect on January 1, 2005 and it is this phase of the agreement that will impact upon the CNMI’s garment industry since it effectively negates any previous advantage the industry enjoyed when exporting their products duty free to the U. S. market. It nullifies Headnote 3 (a) of the U. S. Customs Tariff Schedule which has permitted qualified products manufactured in the Commonwealth duty free access to the United States. In addition to the Northern Marianas the process most likely will close all facilities in the Federated States of Micronesia , Palau and the Marshall Islands that manufacture products for export to the United States.
The loss of jobs in these islands may precipitate a flood of unemployed islanders to Guam and the Northern Marianas in search of work. Well you say, “seven years is a long time.” Not really when you consider that the companies need a year or two to disengage from the CNMI. The final year 2005 is as close to us as the year 1991 is in the past. To “jog “ your memory, 1991 was the year of the war with Iraq and only a year before Clinton was elected President. New opportunities must be identified to make up, or at least partially mitigate, any monetary loses within the economy. Several ideas follow: Take Advantage Of The Relief From The U. S. Jones Act Owners of shipping companies in Japan, South Korea, Taiwan, Singapore and elsewhere in Asia should be advised that the CNMI is not subject to the Jones Act, (the U.S Merchant Marine Act of 1920) which requires goods transported between any two U. S. ports – for example, as between the U. S. port of Oakland or Honolulu and Guam – such goods must be shipped on American flag vessels.
The Commonwealth is not bound by the requirements of the Jones Act and any foreign flag carrier, most of which have lower freight rates that those of American bottoms, can load cargo at any U. S. port and deliver that cargo to the Commonwealth – and indeed, Guam for that matter when transshipped – and land it here at much reduced rates. This could have the effect of lowering the cost of living for everyone. As it is now, local merchants who order American produced goods from Guam which have been delivered on U.S. flag carriers with their exorbitant freight rates have that cost added in. The commodities are then subject to a Guam port charge and go into a warehouse. When ordered by Northern Marianas’ firms they come out of the warehouse and are subject to another Guam port charge, a barge charge, and then our port change – the cost of which is passed on to the CNMI consumer in the form of higher prices. All this can be avoided when shipped directly from the U. S. west coast to Saipan on a vessel other than a U. S. flagged ship.
We must educate the people in our community to consider the island for what it is – a tourist resort area. I’m afraid that many of our citizens do not consider that they reside in such an area. Dress up Hotel Street – perhaps close the thoroughfare and make it a tree lined walking mall. Some of the outdoor advertising signs are “ticky tacky” – design standards should be established. No economy should be dependent on a single industry – especially tourism. Every effort should be made to diversify the island’s economic base with small manufacturing, fishing, agricultural activities and an aquarium. Investment laws should be reviewed with a goal toward stream lining them. More investment incentives should be offered, perhaps a tax holiday.
Repeal burdensome restrictive regulations. I have briefed dozens of potential investors and they tell me that the regulations are burdensome and confusing. There is no “one stop” shopping point where a potential investor can get all the answers – and if a problem is encountered – an ombudsman (an advocate) is needed to expedite the cutting of “red tape” and hold the investor’s hand, step by step thru the permitting process if necessary. Promote the CNMI in the United States and Canada as a business location.
A sign should be placed at the airport in several languages advising those interested in investing where they should go within the Government to seek business advice. Foreign Sales Corporations Opportunities for the location of U. S. Foreign Sales Corporations (FSC’s) should be reviewed. U.S. law provides interesting tax incentives to qualified firms exporting U. S. manufactured products. United States businesses registered in the Northern Marianas and engaged in export sales can enjoy significant tax relief from their tax obligation to the Internal Revenue Service by establishing offices within the Commonwealth since a portion of the income generated by foreign sales is exempt from U.S. tax. Any firm engaged in export transactions can become eligible for these tax benefits and will be deemed to have a foreign presence if: (a) the firm is created under the laws of the Commonwealth and maintains an office and a permanent set of financial records within the Northern Marianas; (b) has at least one member of its board of directors who is not a resident of the U.S.; (c) is not a member of a group in which a Domestic International Sales Corporation (DISC) is a participant; (d) has issued no preferred stock and (e) the number of stockholders does not exceed twenty-five. We all know that tourism is an extremely fragile industry and many forces, both internal and external, can affect its success.
Typhoons can be a disruptive force, as can droughts, pollution, crime, an area’s price structure, competition from other areas, fuel prices, the dollar yen and other currency ratios and a myriad of other factors – so plan for the “rainy day” – that you all know will come sooner or later – don’t get caught coming up short. If you are in business develop a contingency plan if you can – everyone expects the government to have a plan to mitigate any physical disaster – to the extent that its possible each business should attempt to do the same. Businesses should examine where they can reduce prices and make the island more competitive with other destinations. Accept a smaller profit margin if it is possible to do so. Some of the current prices a visitor pays for goods and services are outrageous. I was recently told by a potential Japanese investor – an individual that has already acquired a 55 year lease on land that the Northern Marianas is on the “black list” of several Japanese firms primarily because of the adverse publicity the islands were subjected to several years ago over Article Twelve issues. The unfavorable reputation of a few years ago relative to Article Twelve’s adverse impact on many otherwise large “would be” investors has not gone away – but much interest on the part of some of the more substantial investors has waned.
To my knowledge, and with the exception the expansion of several major hotels which already had their land – there has not been a major hotel open on Saipan since 1991 except one originally planned as a condominium and only one on Tinian scheduled to open soon and a couple on Rota. While the legislature passed a law to mitigate any adverse effect of Article Twelve as regards an investor – that positive action has not been publicized to any great extent. Very few know about it and I believe it should be publicize it the Asian edition of the Wall Street Journal, Asian Economic Review and other business magazines. Turning to the islands north of Saipan, one or two might be suitable for the establishment of a marine biological research laboratory operated by a Japanese university for use in training students in marine biology. Who knows – the cure for cancer may be found in the sea as a result of such basic research.
Other opportunities might be mariculturing pearls in oysters, tanning shark skin into high quality leather or a sport fishing and outdoor camping base. Tongue In Cheek If you think the above suggestions are “off the wall” here’s another for your edification: make one of the northern islands an international penal colony and charge foreign governments a hefty annual fee to incarcerate their most hardened criminals. There is not even a need to build a fence around the place. Make it a sort of modern day “Devil’s Island” but without television. What prisoner would not be delighted to trade a cold prison cell of a few square feet in exchange for a location on a beautiful, exotic tropical island, brushed by a warm ocean breeze rattling palm fronds beneath a sparkling clear sky. The only rule for detention at such a venue should be that attempted suicide be made a capital offense. The first activity of those confined would be to cut and burn all the trees to avoid their use as a raft and reforest the area with teak, mahogany or ironwood, all such vegetation classified as “sinkers” since this type of wood doesn’t float. We can’t have these permanent “guests” rafting along a Saipan beach ogling the tourists.
Charter boats could sail up north lay off the beach a short distance and charge the tourist a fee to throw rocks at the convicts. It would be another attraction and could lead to a whole new industry. For those lunatics within the American society now sitting around “ringing their hands” waiting for the end of the world on May 5, 2000, (a date when all the planets in the solar system line up on one side of the sun), who believe that the combined gravitational forces will precipitate a great cataclysmic event and destroy much of the world – sell them a ticket to sit it out in the volcanic crater on Anatahan. After all – we should try to make as much money as possible while there is still time before Armageddon -It’s all gon’a burn up anyway faster than the economy erodes its value.
