These critical issues should be discussed at the 2024 NMI Covenant 902 Consultation Talks

By Jose S. Dela Cruz

One of the most pressing matters that should be discussed at the next U.S.-CNMI Covenant Section 902 consultation talks is the need to resuscitate the non-performing economy of the CNMI, particularly over the past five (5) years. The only industry that the CNMI now has, and which is still viable, is the visitor industry. But this industry has been on “life support” for about five years now, and especially so since the inception of the Covid-19 public health pandemic that began in late 2019. 

With the start of the New Year 2024, the visitor industry has started to make a very slow recovery but, to date, this industry is still performing poorly– at a very low thirty percent (30%)or so  capacity. And the primary country where visitors to the CNMI have started coming from has been mainly South Korea.

A Brief Background About the CNMI Economy

In the ‘80s and ‘90s, the primary country servicing the CNMI visitor industry was Japan. But since the start of the 21^st century twenty-four years ago, visitors from Japan to the CNMI has decreased dramatically. Today, there are very few visitors from Japan who come to visit the CNMI. Indeed, Japan became a distant third in terms of the number of visitors coming to the CNMI. And this is very sad, because it was Japanese investors and visitors who started the CNMI visitor industry and spurred its growth, soon after we became a U.S. commonwealth in 1978. Today, hardly any Japanese investor come to the CNMI to invest in our visitor industry. They have literally stopped investing in the CNMI for at least two decades now. And this has clearly hurt the fledgling economy of the CNMI.

During the mid-1980s, Chinese garment manufacturers began relocating some of their garment-manufacturing production to the CNMI because the CNMI was not subject to the U.S. textile quota restrictions imposed on foreign countries. For this reason and because the CNMI (and not the U.S.) was then in control of all immigration matters in the CNMI, plus the fact that the federal minimum wage law did not, at that time, apply to the CNMI, the CNMI became an “ideal location” for garment manufacturers from China and Korea. 

But as soon as the textile quota restriction was lifted by the World Trade Organization (WTO) at the end of 2004, literally all the garment manufacturers immediately left the CNMI in 2005. They relocated back to their country of origin—China or South Korea, where the wages are much cheaper and costs of manufacturing are much less. Indeed, even the locally-owned garment manufacturer—Tan Holdings Company—decided to relocate to China because the cost of labor there is much cheaper than the CNMI. And with their departure, the garment industry in the CNMI became history.

For the next decade—from 2005 until about 2015—the CNMI economy was limping on one foot, with its only remaining industry—the visitor industry. During this ten-year period, the annual tax revenue collected by the CNMI Government dropped dramatically by at least forty percent (40%). And correspondingly, the public service being provided by the CNMI Government suffered greatly because of the huge decrease in local government revenue during this ten-year period.

Desperate for ways to try and turn around the local economy, CNMI Government leaders decided to “try their luck” with a new industry—the casino industry. The idea of establishing a casino industry in Saipan was hatched in 2014 by some of the CNMI Government elected leaders. Several of them had been to Hong Kong and Macao and saw the flourishing casino industry in Macao, a Chinese territory. Aside from Chinese casino operators, Macao also had several casino operators from Las Vegas, the mecca for casino gambling in the United States. 

The idea to start a casino industry in Saipan, the capital of the CNMI, was floated around for several months and a few companies were apparently interested in the idea, but on one condition; namely, that the casino operator would be given an exclusive license to operate all casinos on Saipan. That condition was agreed to by CNMI leaders, i.e., the idea of granting an exclusive casino license in Saipan to only one licensee. And with that, the plan to establish an exclusively licensed casino industry in Saipan was implemented by legislation that was passed by the CNMI legislature and signed into law by the CNMI executive branch.

The company awarded the exclusive Saipan casino license was Imperial Pacific International Holdings Company, Ltd. (IPI). The company, thereafter, began laying the foundation for the exclusively licensed Saipan casino. IPI started with a “temporary casino” facility at the Duty-Free Shoppers, Ltd. main store in Garapan, reportedly “to train its casino employees,” while at the same time working on the construction of its permanent facility on public land leased from the CNMI Department of Public Lands. 

Controversy arose with the use of such public land for a casino, because the land at issue was a site where the ancestral remains of ancient, indigenous islanders were buried. Notwithstanding this sacred, cultural and historical concern, construction on the permanent casino structure began and continued. Meanwhile, the temporary casino facility was operating at the DFS premises quite successfully, with “rolling chip activities” on the DFS premises reportedly amounting to billions of dollars in bets placed. IPI was apparently making millions of dollars from the temporary facility at its DFS location, with many of its so-called “high rollers” coming from China to gamble at IPI’s “Best Sunshine” location.

But once the construction at its permanent facility reached the point where the first floor was basically completed and furnished, IPI decided in 2017 to close its temporary facility at the DFS premises and moved its operations to the first floor of its permanent facility, whose structure from the third floor to the fourteenth floor was still substantially an unfinished, skeletal structure. Indeed, after construction stopped on or soon after 2019, the substantially unfinished structure posed a danger to the safety of the general public. Indeed, on the very top of this high-rise building, there remained, for about five years, two or three high-rise construction cranes that were not taken down by IPI after construction had stopped. It was not until this month—January 2024—that the high-rise construction cranes were taken down at the instruction and order of the CNMI Department of Public Works.

Casino activity at the permanent casino facility of IPI, from 2017 until the end of 2019, was neither as brisk nor as profitable as IPI’s temporary casino operations at its DFS location previously. Indeed, for one reason or another, casino activity at the new facility soon began to slow down. And by the end of 2019, casino activity at the permanent location began to trickle to a halt. Soon thereafter construction activity on the upper floors slowed down and eventually stopped, apparently for lack of funding needed to complete the construction of the casino facility. 

This unfortunate turn of event was followed by a series of lawsuits filed against IPI for unpaid wages to construction workers, for unpaid invoices to IPI vendors and suppliers, and for other unpaid IPI obligations. Finally, with the arrival of the Covid-19 public health pandemic in late 2019, operations at the permanent casino facility, both casino activity and construction work, soon came to a halt by 2020.  And today, in the middle of downtown Garapan, there stands this colossal casino structure that remains uncompleted and continues to pose a danger to the public, especially since the building structure has apparently started to decay, deteriorate and rust.

With the demise of the Saipan casino industry—the CNMI’s third industry—due to the apparent financial inability on the part of the casino owner to finish such huge project, the CNMI is essentially back to “square one” in terms of economic activity, with only one industry—again, the visitor industry—having a reasonable chance to resuscitate and revive itself. But in order for the visitor industry to “return to life,” as they say, the CNMI must formulate a clear and concrete vision and adopt a realistic plan of action regarding how to go about enticing once again prospective visitors from Japan and Korea, as well as from Australia, the Philippines and even China, to come and visit the CNMI. 

Clearly, tourism leaders in the CNMI–private, business and government leaders, together–must sit down and do the hard work of formulating a realistic plan of action to revive the CNMI visitor industry. After that, there must also be a follow-up plan as to the second, third and subsequent steps needed to ensure that the effort at reviving the CNMI visitor industry will become a success, and not wither and die. And once we begin to see some degree of success with our renewed efforts, we should remain vigilant and not “sleep at the wheel” because this was apparently one of the underlying reasons why the CNMI visitor industry literally died during the past decade or so. Our leaders basically slept at the wheel. 

The Federal Immigration and Labor Issues Affecting the CNMI

The next set of issues that should be addressed by the CNMI Government and the United States at the next Covenant Section 902 consultation talks is the matter dealing with the immigration and labor needs of the CNMI. This subject is one of the most critical issues affecting the CNMI. Federal immigration and labor law requirements with respect to the CNMI must be tailored and fine-tuned by the U.S. Government, i.e., the U.S. Congress, so that the CNMI could develop and maintain a productive, insular economy. As we all know, under the NMI Covenant the CNMI used to have local control over immigration matters in the CNMI. And such control by the CNMI with respect to immigration matters in the islands enabled the CNMI to bring into the CNMI both skilled and unskilled foreign workers needed by the visitor and its ancillary construction industry, as well as to be able to introduce any new industry in the islands. 

The CNMI used to exercise complete authority and control over local immigration and labor matters for about three decades—from 1978 to about 2008. Unfortunately, the CNMI did not provide the necessary degree of control and discipline in terms of the influx of foreign workers into the CNMI, as well as the fact that our leaders did not address the poor treatment of foreign workers by their employers in the CNMI most of whom were foreign-owned owners of the garment companies. The U.S. Congress warned CNMI leaders so many times in the mid-1990s and thereafter to do something about the uncontrolled influx of foreign workers into the CNMI and their inhumane treatment, particularly by the garment industry employers. But CNMI leaders did not heed the clear warnings given us by members of the U.S. Congress and President Bill Clinton. 

As a result, the U.S. Congress subsequently passed in 2007 and 2008 two federal legislations (a) removing CNMI control over immigration matters in the CNMI and (b) making the federal minimum wage law applicable to the CNMI. The CNMI strenuously objected to the introduction of both federal legislations, but the die was already cast and both federal legislations were passed by the Democratically controlled Congress and were signed into law by Republican President George W. Bush. 

The federal immigration “take-over legislation” immediately had a devastating impact on the economy of the CNMI, because now the CNMI cannot do as it pleases with respect to the hiring of needed foreign workers (both skilled and unskilled) that would provide the labor needed by the visitor industry and its ancillary retail businesses. Indeed, these federal “takeover laws” immediately stifled the introduction by the CNMI of any other new industry requiring foreign workers, i.e., industries needed to supplement the CNMI visitor industry. And this fact has stymied the growth of the CNMI economy ever since. 

Clearly, most of the fault regarding the influx of foreign workers into the CNMI lies with CNMI political and business leaders. Such fault on the part of CNMI government and business leaders caused the federal takeover of immigration matters in the CNMI. But although the fault lies primarily with the political and business leaders of the CNMI, the federal takeover legislation still should have been crafted and tailored by the U.S. Congress in a way that would address the critical manpower needs of the CNMI, as well as the obligation of the U.S. to help spur the CNMI’s fragile, insular economy in the Pacific, situated thousands of miles away from the continental United States.

With an indigenous population today of only about 30,000 residents and a foreign work force population that has dwindled down to about 15,000 workers, more or less, at the start 2024, there is simply no way for the CNMI to service the visitor industry, to introduce any other new industry to the islands and to be able to provide the needed skilled and unskilled workers for any CNMI industry. It is simply impossible. While the CNMI needs to have more visitors to the islands in order to improve and promote its visitor industry, it still needs skilled and unskilled foreign workers to provide the labor needs of the visitor industry, as well as any other new industry that to be introduced and which is a “good fit” for the CNMI.

So, a complete and thorough review of the existing U.S. immigration and labor laws applicable to the CNMI must be conducted by both the CNMI and the U.S. Government at this year’s consultation talks. Indeed, it is recommended that the two sides should draft a new set of federal immigration and labor law that is specifically tailored to meet the manpower needs of the CNMI and the ability to bring in more visitors from other countries, aside from Korea and Japan. This should be done by the two governments to the Covenant Section 902 consultations so that, among others, it would reduce the CNMI’s ever growing dependence on federal financial assistance. But as we also should realize, absent such federal financial assistance, the overall financial condition of the CNMI Government would have gone into bankruptcy during the past five years.

Any Federal Legislation Enacted For the CNMI Must Be Sensitive to and Should Be Tailored to Meet the CNMI’s Unique Circumstances and Needs 

Financial assistance from the Federal Government after the last two major typhoons that devastated the CNMI and during the Covid-19 pandemic over the past five years saved the CNMI Government from falling into bankruptcy. Federal financial assistance has kept the CNMI Government financially afloat over the past five years. And for that the CNMI should be grateful. 

But the CNMI is a self-governing entity under the U.S. flag, with the right to internal self-government similar to the 50 States. As a self-governing political entity under the U.S. flag, the CNMI has an obligation to develop its own economy, as each of the 50 States does, and should not rely entirely on the U.S. for all its financial needs. The CNMI Government has an obligation to develop its own economy to be able to provide essential public service for the people of the CNMI. 

To conclude this opinion piece, it is extremely important for the U.S. Government—particularly the U.S. Congress and the federal agencies dealing with the affairs of the CNMI–, in enacting any federal legislation or federal regulations specifically affecting the CNMI, that such federal legislation or regulation should and must be tailored to address the unique needs of and the deficiencies present in an insular economy such as that of the CNMI. 

Such deficiencies include the CNMI’s distant and insular location in the Pacific, its extremely small population and land area; its lack of local capital to finance any meaningful commercial development or industry; its lack of natural resources; and so forth. In this way, the CNMI will have the ability to become a productive and contributing member within the American political family. The CNMI should not be merely a recipient of federal financial assistance, which has essentially been the case over the past five-to-ten years. This unfortunate economic situation is not healthy politically, economically or otherwise. The CNMI should be able to shoulder and be responsible for its basic financial needs and obligations as a self-governing political entity within the American political family. The CNMI should not continue its substantial dependence on federal financial assistance and grants.

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Jose S. Dela Cruz is a resident of Upper Navy Hill, Saipan. He was the first chief justice of the Supreme Court of the CNMI.