Northern Mariana Islands:

Garment and Tourist Industries Play a Dominant Role in the Commonwealth's Economy

RCED/GGD-00-79: Published: Feb 14, 2000. Publicly Released: Feb 14, 2000.

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Pursuant to a legislative requirement, GAO provided information on the state of the economy of the Commonwealth of the Northern Mariana Islands (CNMI) and its revenue-raising efforts, focusing on: (1) what the impact of the garment and tourist industries and the use of foreign washers has been on the economy of the CNMI; (2) how the revenue-raising efforts of the CNMI and the payments that CNMI receives from the U.S. Treasury compare with those of other U.S. territories and freely associated states; and (3) how the taxes and fees paid by the garment industry in the CNMI, expressed as a percentage of gross receipts, compare with the taxes and fees paid by the garment industry in the United States.

GAO noted that: (1) the garment and tourist industries contribute directly to the CNMI economy by creating jobs and producing goods and services for export; (2) they also contribute indirectly to the economy through purchases of local goods and services and with taxes and fees paid to the government; (3) the garment and tourist industries account--directly or indirectly--for about 80 percent of the employment in the CNMI and for over 90 percent of the economy's exports; (4) in 1997--the latest date for which data on visitor expenditures are available--the tourist industry contributed at least $34 million, or 14 percent, of that year's budget of $248 million; (5) the garment and tourist industries and the workers that they employ also require government spending for services and infrastructure, but GAO questions the conclusion of a January 1999 study commissioned by the Department of the Interior that this spending exceeds the industries' revenue contributions; (6) the garment and tourist industries are dependent on foreign workers for much of their workforce because the labor pool of local residents, even including those currently unemployed, is insufficient to support an economy of the size and scope that exists in the CNMI; (7) all sectors of the economy, including the government sector, hire foreign workers; (8) in addition, foreigners own and operate businesses in the CNMI; (9) the economy of the CNMI is vulnerable to outside events because of its heavy reliance on only two industries, which may be affected by changes in Asian economic conditions, legislation in the United States, or international trade agreements; (10) between 1994 and 1997, about 87 percent of the CNMI government's general revenue came from local sources rather than from payments from the U.S. Treasury; (11) the ratio of locally derived government revenue to gross domestic product in the CNMI is also higher than that of most other outlying areas and is larger than the comparable ratio for all levels of government; (12) using data on the major taxes and fees, GAO found that for the period 1993 through 1998, the taxes and fees paid by the businesses in the CNMI garment industry represented about 5.0 percent of their gross receipts, while for the period 1991 through 1996, the taxes and fees paid by the businesses in the U.S. garment industry represented about 3.3 percent of their gross receipts; and (13) however, the owners of those businesses may not ultimately bear the full economic burden of the taxes and fees that they pay.

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