Statement of

the

Saipan Garment Manufacturers Association

In Opposition to

S. 1052

The Northern Mariana Islands Covenant Implementation Act

before the

Committee on Resources

United States House of Representatives

September 14, 1999

The Saipan Garment Manufacturers Association (SGMA) appreciates the opportunity to provide this testimony concerning S. 1052, the bill before the Committee, and on conditions in the Commonwealth of the Northern Mariana Islands (CNMI) that this legislation would affect.

The SGMA is a voluntary association of 31 U.S companies engaged in garment manufacturing in the CNMI. Our member companies must all adhere to a Code of Conduct modeled after that of the Apparel Industry Partnership - adopted last year that requires that each member conduct its business operations in an ethical and commercially responsible manner, including thc provision of proper working and living conditions for employees and adherence to all local and federal laws.

This Code of Conduct is important to our association and to the future of our industry. To a significant degree, it represents our response to criticism leveled at our industry in last years hearing before this Committee and in the national press. It is a serious response because in it we commit ourselves to standards endorsed by a respected non-governmental organization and by this Administration It is a genuine commitment to those standards because member adherence must be verified by an independent external monitoring organization.

The development of this Code was a major effort. We contracted with the respected Business for Social Responsibility (BSR), a San Francisco based human rights and educational non-profit organization, whose purpose is to work with businesses worldwide in the development of codes of conduct and related compliance regimens. BSR is a member of the Apparel Industry Partnership, an Administration-organized task force composed of labor apparel companies, government ant non-government organizations dedicated to the elimination of sweatshops through voluntary compliance with accepted norms for wages, working conditions and human rights protections.

BSR advised our association in four critical areas:

• the use of model labor contracts;

• the final development of the Code of Conduct;

• the development of an association training and technical assistance package designed to promote compliance with the new Code; and

• on the selection of an independent monitoring organization.

Our Code was adopted in October last year and we have just let a contract to Price Waterhouse Coopers to perform the independent monitoring function.

SGMA recognizes that what counts most about standards is their enforcement. If we wish the Congress and the public to view our Code as genuine self-regulation, we must actually live by the rules we set for ourselves. We have proceeded to do that through a compliance mechanism built into the Code of Conduct. Our compliance committee is responsible for investigating complaints about member companies and taking appropriate action. Last year we were forced to suspend two of our members for noncompliance issues. This year, a member company withdrew from the association prior to the completion of a compliance committee investigation.

As part of SGMA's implementation of the new Code conduct, we have also entered into a regular dialogue with the Occupational Safety and Health Administration (OSHA) of the Department of Labor. This dialogue has, resulted in arrangements to increase OSHA training and consultative opportunities for our members.

RATIO OF VIOLATIONS TO INSPECTIONS (Fiscal Year 1998)

* SIC 7021, Room and Boarding Houses, covers the worker dormitories in the CNMI

Source: OSHA Internet Site: www.osha.gov/oshstats

SGMA has also worked to improve our labor compliance record The most recent OSHA statistics show that in fiscal year 1998 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. We believe this record is attributable to a number of factors:

• First, our members have increased our cooperation with 0SHA.

• Secondly, the local CNMI government authorities have increased their inspection and enforcement regimen.

SGMA welcomed and cooperated with this effort, as we promised before this Committee last year. This has included thorough inspections of all our member companies by the CNMI Department of Labor and Immigration and consistent enforcement directed against ell violations.

SGMA has helped advance a number of local CNMI government efforts to improve immigration controls, another area of this Committee's concerns. We actively supported the alien worker amnesty legislation designed to register and account for foreign workers illegally overstaying in the CNMI We also supported a legislative cap on the number of foreign workers in our industry plus a new law making it easier for employees of one company to shift to another. Finally, we have actively participated in the proceedings of a newly created local wage review committee charged with making recommendations to the CNMI Legislature on the level of our local minimum wage.

This record of self-regulation and self-limitation has not been without painful adjustment for our industry as a whole. SGMA is determined, however, to adopt this serious approach to our critics for two reasons.

Thc first is because we know that we can make our case that our factories are safe and that they are still improving. SGMA knows that our employees, the great majority of whom are foreign, are well treated and grateful for the opportunity to earn wages they could never dream of at home. Although few know it here in Washington, this good treatment is confirmed by representatives of those employees' governments resident in the CNMI. The Philippine Consulate has praised the treatment of their citizens in the CNMI as well as the processes by which any complaints are handled. A copy of the Philippine Consulate's letters are attached. SGMA knows that these workers routinely save 40-90% of what they earn (according to a 1997 Hay Group Management Consultants CNMI Minimum Wage study) to take back to their homes after their stint in the CNMI is finished. SGMA knows, finally, that our industry has a better record than many garment shops throughout the United States.

Of course, SGMA also knows that, for reasons that are not entirely objective, SGMA remains a political lightening rod. Although 60% of U.S. apparel manufacturers could be called sweatshops using the loose definition OSHA employs, and although CNMI apparel factories on average have low OSHA citation rates, it i~ CNMI apparel factories that are targeted for action by the Congress, not those in California, New York or New Jersey. It is no secret that S. 1052, the bill that is the subject of this hearing, makes accommodations for other CNMI industries that employ foreign workers, but clearly would not afford the same treatment of our industry.

So SGMA has recognized that it would have to try harder and that it would have to make its case for the very survival of its businesses to this Committee, because SGMA faces a crisis of confidence in our industry and in our territory. SGMA understood A year ago, as it does today, that it must show that it understands what this Committee was telling us and that the SGMA is willing to take the steps necessary to address those concerns. SGMA believes that our record in the last year demonstrates real commitment towards the kind of reform you have told us to embrace.

The second reason involves another crisis that is, if possibly, more serious for us as American, businesses far from Washington. Rather than the booming economy here in the 50 states, the CNMI's economy is facing recession. The Asian economic slump has gripped our largest sector, tourism, which has seen occupancy rates at only 60-70% over the last few years. Fewer visitors has meant a drop in construction and many dependent sectors. More than 1000 businesses of all sizes failed last year alone.

The reason for this slump is unique to small pacific insular economies like the CNMI. Without a significant military presence, with a small labor pool and few natural resources, the CNMI must rely on Asia for:

• investment because few American companies see much to interest them, and

• the visitors that fill our hotels, because few Americans want to travel that far.

The CNMI must compete for such business as it can attract with other Asia economies. The CNMI lives and must make its own way in Asia, because, with the exception of hearings such as these, little attention, is paid to the CNMI by the federal government. Despite this, 60% or our businesses are owned by U.S. citizens.

That is why there is a certain irony in our industry being accused of taking U.S. mainland apparel jobs, for if SGMA takes jobs from anyone it is from apparel concerns in Asian countries that also seek to ship to the U.S. SGMA can only succeed in our business by offering high quality craftsmanship, by efficient and prompt filling of orders and by maintaining working standards that meet the requirements of our buyers. SGMA can do this despite the fact that our wages are much higher than our competitors (a minimum of $3.05 per hour; $4.64 when subsidized food and lodging, free medical care and transportation are Factored in) and despite the negative influence a massive and unfounded lawsuit has had on garment orders from some customers.

Of course, another key competitive advantage is the duty-free and quota-free treatment our goods receive, a privilege available to other U.S. territories.

Despite all these factors, however, the CNMI would still not have been able to sustain the economic progress that has brought us near economic self-sufficiency without another key economic factor. The Covenant under which the CNMI entered the American family also granted the Commonwealth the unique authority to control its own immigration. This in turn has permitted the CNMI to find additional workers to augment our own small labor fore. All our major economic sectors have come to rely on the infusion of additional workers from abroad- tourism, construction, and of course our own industry.

Today, with the exception of the garment businesses SGMA operates CNMI businesses are suffering. The CNMI's dependency on the economic health of Asia has thrown the economy as a whole into reverse. The best example of this is the fact that government revenues, highly dependent on business have been curtailed 25% over the last two years. Further cuts are likely and the CNMI is facing budget deficits. Our own industry faces the prospect of added competitive pressures as the phase out of all apparel quotas within the WTO looms in 2005.

All these factors have caused economists meeting earlier this year to map out an economic strategy for the CNMI to predict that the Commonwealth faces "a slowdown at best and a prolonged and painful recession at worst" in the near term. These economists also found that the two biggest sectors of the local economy - apparel and tourism- account for an astounding four out of every five jobs in the CNMI. These experts recommended additional diversity but predicted slow growth in the few areas that offer any promise. Most importantly, they made clear that there were no quick fixes in the offing. Keeping what the CNMI has was their first advice.

These experts focused on federal policies as a major determinant of the economic future of the CNMI. They recommended that Washington recognize the potential economic disruption that could result from changes in immigration, customs or minimum wage laws affecting the CNMI. They emphasized that the consequences of policies aimed at curtailing the garment sector would be felt throughout the business community. This is hardly surprising in the case of the apparel sector, since they also found that the garment industry alone represented fully one half of the direct and indirect employment in the Commonwealth.

It is important to note that these economists did not give the business community a report card of all "A's." They noted continued instances of labor violations in the CNMI, but they urged "enforcement, deadlines and substantial penalties for non-compliance." At the same time they urged retention of local immigration control as an essential pillar of economic survival.

This emphasis on retaining the immigration structure established by the covenant was also addressed by the U.S. Commission on Immigration, which issued a report on the CNMI's immigration system in 1997. The Commission did not pull its punches. It found "numerous problems emanating from the immigration system in the CNMI " Nonetheless, it also recommended against a 'Federal takeover of responsibility." Among its findings were that:

1. Immediate impositon of all parts of the Immigration and Nationality act (INA) would harm the CNMI's economic development.

2. The federal government is not well positioned to take over the immigration functions now handled in the CNMI.

3. In keeping with the spirit of the Covenant, the federal government and the CNMI should negotiate mutually acceptable policies and procedures for the Commonwealth . . . for achieving progress in eliminating abuses.

Until just three years ago, the preservation of the CNMI's local immigration authorities was the concern of the Department of Interior as well. In its 1996 report on the Commonwealth, the department noted that imposing federal immigration controls on the CNMI must give "consideration... to self-government in the CNMI and local economic development needs." Yet, as the Committee well knows, the department and the Administration have since then poured their entire efforts into imposing the federal minimum wage and the INA on the CNMI regardless of the economic consequences. This single-minded pursuit has also ignored the obvious problems the Immigration and Naturalization Service i5 now undergoing.

What we in the SGMA and many others in CNMI government and business circles had hoped for instead was the kind of cooperative relationship urged by the Commission of Immigration. Mindful that one of the responsibilities of the Department of the Interior toward American insular possessions was the promotion - and we would hope the preservation as well- of our economic development, SGMA had thought that with federal help we could improve the local system and bring it up to high standards. The Administration's response was highly disappointing and very political. The Administration seemed to go out of its way to headline what was wrong with the CNMI rather than search for ways to help our Governor and business community make improvements.

In our view, and we believe in that of many U.S. citizens in the CNMI, this was not only an abdication of duty it has condemned the federal-CNMI relationship for the last few years to disagreement and dissention rather than advancement. It is one of the causes for the uncertain economic future for the CNMI to which the recent CNMI economic conference made particular reference. It is definitely not in the best interests of the CNMI or its people, and it shows little sign of a change for the better.

This hearing, however, is meant to focus on immigration Issues specifically, and the SGMA offers the following comments. The Governor and other of official CNMI witnesses will describe the Improvements they have made in immigration capabilities, enforcement and regulation. First, SGMA will submit its observations on the particulars of S.1052. Then SGMA will offer our view on the consequences of this particular legislative solution.

What strikes SGMA first about S. 1052, as did the identical provisions of the Committee substitute for S. 1275 in the last Congress, is that the bill creates a framework in which the CNMI's immigration system will be evaluated, with the results of a failing grade being the imposition of the INA. If the CNMI passes, that is only the beginning of the process, since these evaluations are potentially unlimited in number. Yet the standards by which the CNMI is to be judged are to be promulgated relatively quickly by the Attorney General. She alone decides what standards are "necessary." No further guidance is provided. Neither the CNMI nor the public at large can comment on what the standards for an effective immigration system ought to be, nor are the Attorney General's decisions reviewable in any way. She decides, and that's it.

The period for evaluation of the CNMI's immigration system is brief - only one year. The Commission on Immigration has recommended that the existing federal immigration authority, the INS, be completely rebuilt, a process that will last years to complete, but the CNMI gets a year to show why its immigration system should stay in existence. There is also a certain irony in having the Attorney General the overall boss of the INS, deciding whether the CNMI's immigration meets minimum standards when the INS has received a Flunking grade from an independent commission. Will she rely on the INS to tell her how to fix immigration problems in the CNMI? Will she receive objective analysis elsewhere in the Administration? In its 1998 Federal-CNMI Initiative report, using the exact language of S. 1O52, the department of the Interior has already determined that "the CNMI lacks the institutional capacity and a genuine commitment to institute" immigration reforms.

Perhaps the most important provision in S. 1052 is one that nowhere appears in the text There is no requirement that the two federal agencies most responsible for immigration, the Departments of Justice and State, actually assist the CNMI in tying to administer an effective immigration process. The commission on Immigration recommended that the State Department help pre-screen workers entering the CNMI, but the bill would leave to this Administration, which urges an immediate takeover of CNMI immigration, the option of refusing to offer any assistance to the CNMI during the trial period. The Administration could thus prevent an honest test of the CNMI's ability to administer its own system.

SGMA has already made reference to the favorites the bill establishes. Special language ensures adequate foreign workers for construction firms and hotels. They are intended to be the winners under the bill. I he garment industry is the designated loser. This selection will thus be made in Washington, and neither voters nor market forces in the CNMI will have any say in such basic economic choices.

The SGMA believes, as Members of this Committee have also expressed, that there has been inadequate federal presence and inadequate federal assumption of responsibility for federal duties in the CNMI. We wonder whether, should federal immigration and minimum wage laws be imposed in the CNMI, most federal agencies will go back to their previous practices of ignoring the CNMI. We wonder whether it will then be the judgement in Congress that federal controls bring improvements in essential services.

With this question in mind, SGMA would point to the recent illegal immigration crisis that has hit Guam. Thousands of illegal Chinese immigrants crammed into unseaworthy craft have converged on Guam in recent months. Those apprehended-many sometimes after their arrival on Guam, rather than through interdiction on the high seas- have been divided between Guam and the CNMI. The CNMI was urged by federal authorities to accept these illegals because they could be quickly deported to China under CNMI immigration laws, while those in Guam will be allowed to pursue lengthy proceedings under the INA. The same Administration that urges the protections of the INA for the CNMI in Washington actively seeks to evade its application in the western Pacific while demonstrating that its current efforts cannot detect and interdict smuggling vessels boldly sailing into Guam's principal harbor.

The SGMA urges this Committee to reconsider S. 1052 and the philosophy that the solution to your concerns lies in federal legislation. We are strongly of the view that and federal presence and federal assistance can and should be the force for the changes you seek in the CNMI. We believe, both as the industry that faces the brunt of thc criticism directed at the CNMI and as businesses concerned about the future economic health of the islands where we live, that our own efforts to reform and those of the local government to enforce appropriate standards for all workplaces provide evidence of a willingness on our part to meet federal regulators halfway. We believe we have demonstrated a genuine willingness to live by the rules that govern all American businesses.

SGMA also urges that you recognize that where there is the desire to cooperate, federal agencies and CNMI entities have demonstrated that acceptable progress will follow. SGMA is currently creating closer ties with OSHA just as CNMI law enforcement authorities and the FBI have been working effectively in a joint task force for years. This is the recipe for the kind of improvement the Committee seeks. The Committee had been critical of federal inattention to the CNMI before. We urge you to return to this issue.

SGMA urges that the Committee focus carefully on the actual consequences of any legislative solution it may consider. In the case of an immigration takeover, even one with the kind of gradual reduction in the foreign work force contemplated in S. 1052, the CNMI loses management not only of a key element of economic management, but of control over its immediate economic future. Success in driving the apparel sector out of business may translate as well into the resumption of operating subsidies for a crippled CNMI. SGMA members currently provide 25% of the (CNMI government's revenues, over $50 million, and are responsible for over half of all jobs in the CNMI - including many permanent resident jobs. That is what will be lost when garment factories are driven from the CNMI. Will it be replaced by federal appropriations or will the CNMI economy simply sink back closer to the subsistence living that characterized our pre-covenant days?

Lastly, at a time when the Congress is debating extending favorable duty and quota treatment to apparel from the Caribbean and from Africa, why is it also considering changes to discourage apparel production in a U.S. territory where all workers earn more than those in these other regions, are protected by U.S. Labor laws, and are able to save significant sums that allow them independent financial futures in the countries to which they return? It may be, as the recent CNMI economics conference suggests, that the CNMI apparel industry will be much smaller in the year 2005 than it is today. In economic terms, that is a short-term prospect of uncertainty. Why push the industry away when market forces may do that anyway, but at a time when the CNMI will have had five years to adjust to that prospect?

Thus, SGMA urges the Committee to turn from the path of near certain macroeconomic disruption to one of encouraging and directing federal cooperation in the areas of labor enforcement, training and long tern economic planning. SGMA believes, as does the larger business community of the CNMI, that this path will lead to the kind of decent living and working conditions for our workers, and for all employees in the CNMI. That should be our common goal. We strongly believe it will lead to the development of better immigration controls. We also believe that it will provide the CNMI with the economic breathing space to plan and Implement strategies to adjust to the changing world market of the next century.