[Senate Hearing 110-388]
[From the U.S. Government Publishing Office]
S. Hrg. 110-388
IMPACT OF INCREASED MINIMUM WAGE OF AMERICAN SAMOA & CNMI
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HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
TO
RECEIVE TESTIMONY ON THE IMPACT OF INCREASED MINIMUM WAGES ON THE
ECONOMIES OF AMERICAN SAMOA AND THE COMMONWEALTH OF THE NORTHERN
MARIANA ISLANDS
__________
FEBRUARY 28, 2008
Printed for the use of the
Committee on Energy and Natural Resources
U.S. GOVERNMENT PRINTING OFFICE
42-474 PDF WASHINGTON DC: 2008
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
JEFF BINGAMAN, New Mexico, Chairman
DANIEL K. AKAKA, Hawaii PETE V. DOMENICI, New Mexico
BYRON L. DORGAN, North Dakota LARRY E. CRAIG, Idaho
RON WYDEN, Oregon LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota RICHARD BURR, North Carolina
MARY L. LANDRIEU, Louisiana JIM DeMINT, South Carolina
MARIA CANTWELL, Washington BOB CORKER, Tennessee
KEN SALAZAR, Colorado JOHN BARRASSO, Wyoming
ROBERT MENENDEZ, New Jersey JEFF SESSIONS, Alabama
BLANCHE L. LINCOLN, Arkansas GORDON H. SMITH, Oregon
BERNARD SANDERS, Vermont JIM BUNNING, Kentucky
JON TESTER, Montana MEL MARTINEZ, Florida
Robert M. Simon, Staff Director
Sam E. Fowler, Chief Counsel
Frank Macchiarola, Republican Staff Director
Judith K. Pensabene, Republican Chief Counsel
C O N T E N T S
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STATEMENTS
Page
Berman, Jay, Senior Economist, Office of the Assistant Secretary
for Policy, Department of Labor................................ 129
Bingaman, Hon. Jeff, U.S. Senator From New Mexico................ 1
Domenici, Hon. Pete V., U.S. Senator From New Mexico............. 2
Faleomavaega, Hon. Eni F.H., Member of Congress, American Samoa.. 2
Fitial, Hon. Benigno R., Governor, Commonwealth of the Northern
Mariana Islands................................................ 122
Pula, Nikolao I., Acting Deputy Assistant Secretary, Office of
Insular Affairs, Department of the Interior.................... 134
Tenorio, Pedro A., Resident Representative, Commonwealth of the
Northern Mariana Islands....................................... 118
Tulafono, Hon. Togiola T.A., Governor, American Samoa............ 28
APPENDIXES
Appendix I
Responses to additional questions................................ 145
Appendix II
Additional material submitted for the record..................... 153
IMPACT OF INCREASED MINIMUM WAGE OF AMERICAN SAMOA & CNMI
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THURSDAY, FEBRUARY 28, 2008
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 9:30 a.m. in room
SD-366, Dirksen Senate Office Building, Hon. Jeff Bingaman,
chairman, presiding.
OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW
MEXICO
The Chairman. Ok. Why don't we go ahead and get started.
I'm told that Senator Murkowski is going to be here, but she's
running a little late, but asked that we go ahead and begin.
Since 1938, the United States has had a national minimum
wage. But in recognition of the special circumstances in the
territories, the law provided that the transition from general
lower territorial wages to the national minimum would be
managed by special industry committees. The objective of these
committees was to reach the national minimum wage ``as rapidly
as is economically feasible without substantially curtailing
employment.''
This approach allowed experts to analyze specific labor and
wage conditions in the Islands; and recommend measured
increases. It successfully brought Puerto Rico and the Virgin
Islands to the national minimum wage.
Until last year, the special committees were following this
policy in American Samoa. The Mariana Islands were never
subject to the national minimum wage level because the covenant
between the United States and the Islands provided that ``the
minimum will not apply to the CNMI unless Congress decides
otherwise.'' Last May 25, the Congress enacted Public Law 110-
28 which provided that the minimum wage level in Samoa and the
Marianas will be increased by 50 cents an hour each year until
reaching the new national level of $7.25. The law also provided
that Secretary of Labor report to Congress by January 25 of
this current year on the impact of these increases.
Even before enactment, this proposal was a concern to me
and my colleagues here in the Senate from Hawaii. Three of us
wrote to the Conferees expressing our view that this fixed
schedule of increases would not be flexible enough to respond
to conditions in the Islands. I'll include a copy of that
letter* in the record.
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* See Appendix II.
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The Labor Department's July 25 report shows that our
concerns were well founded. I understand that there may be
general consensus around the bill that was introduced by the
Congressman from Samoa which calls for 50-cent increases in the
minimum wage every 2 years unless the Secretary of Labor finds
that they would have an adverse impact on the local economies.
I look forward to hearing from the witnesses today.
We have a very distinguished panel here. Why don't we go
right ahead and begin with the Congressman. Thank you for being
here. We look forward to your testimony.
[The prepared statement of Senator Domenici follows:]
Prepared Statement of Hon. Pete V. Domenici, U.S. Senator From
New Mexico
Mr. Chairman, thank you for calling this hearing. I would also like
to thank the witnesses for being here today and for traveling so far to
testify before this committee. We are grateful to be able to hear from
you and I look forward to hearing your comments.
Last May, Congress passed an Emergency Supplemental Appropriations
Act which, among other things, will incrementally raise the federal
minimum wage to $7.25 an hour. The law also requires that minimum wages
in American Samoa and the Commonwealth of Northern Mariana Islands be
increased by $.50 per year until they are equal to the minimum wage
rate in the United States. In addition, the law required the Department
of Labor to report on the impacts this proposed wage increase would
have on the economies of these territories. The Department has now
released that report, and its findings raise some concerns with the
wage increase and potentially detrimental impacts it could have on the
economies and people of these territories.
The first 50-cent increase went into effect in these territories
last July, and the Department of Labor estimates that subsequent
increases could result in the loss of American Samoa's tuna canning
industry to other countries with cheaper labor costs. An industry
spokesman is quoted in the report that, given excess processing
capacity for tuna canning worldwide, it would take ``minutes'' to
implement a decision to move tuna canning production elsewhere. As this
industry represents some 75% of economic activity in American Samoa,
its loss would have drastic effects on the Samoan economy. Similarly,
the Department of Labor stated in its report that additional wage
increases in the CNMI ``seems likely'' to worsen the current economic
decline.
While the Department of Labor was able to meet its deadline for the
report, it openly admits that its ability to evaluate these issues was
limited due to the short time frame and a lack of labor market data.
These minimum wage increases will do little good to the people of
the CNMI and American Samoa if they result in the loss of major
industries and thousands of jobs.
It is apparent that the Department of Labor and Congress need to
take a much closer look at this issue and determine if a legislative
fix is in order to ensure that wage increases will ultimately help--not
harm--the people of these territories.
I thank the witnesses for being here and I look forward to hearing
their perspectives and ideas as to resolving this issue.
STATEMENT OF HON. ENI F.H. FALEOMAVAEGA, MEMBER OF CONGRESS,
AMERICAN SAMOA
Mr. Faleomavaega. Mr. Chairman, I want to thank you and the
distinguished members of the committee for the initiative that
you have taken to conduct this hearing as it relates to what
has transpired with the passage of Public Law 110-28. I want to
certainly welcome the distinguished Governor from the
Commonwealth of the Northern Mariana Islands, Governor Fitial
and our special representative also of CNMI, Mr. Tenorio and
Mr. Nick Pula representing the Secretary of the Interior.
As I'm sure our Governor will be joining us very shortly.
I'm sure he's probably having traffic problems while coming
here. I'm not going to address this situation with CNMI, Mr.
Chairman. I'm sure that Governor Fitial and our special
representative Mr. Tenorio will address the economic situation
that is now confronting CNMI.
Mr. Chairman, in 2 months time, unbeknown to many of the
people in America, American Samoa will be celebrating 108 years
since the raising of the American flag in our shores. It was by
means of two treaties of session that we're issued by our
traditional leaders. One on April 17, 1900, and 4 years later
his majesty, King Tui Manua Elisala, also issued a treaty of
session on July 16, 1904.
It was not until 1929 that Congress finally ratified these
two treaties of session and assigned the Administration of the
territory to the President of the United States. The President,
by executive order, then simply assigned the responsibility to
the Secretary of the Navy. In 1951, President Truman modified
the executive order and then issued Administrative
responsibility to be given to the Secretary of the Interior.
Under Secretarial authority in 1960, the territory
established a local constitution subject to the authority and
the overall responsibility of the Secretary of the Interior.
For some 50 years American Samoa was subject to United States
Naval Administration by naval officers. At that time also
subsistent living was part of our economic being. The Navy
being probably the largest employer, many of our men joined
both the Marines as well as the Navy during that 50-year
period.
During World War II, American Samoa was a major staging
area for some 40,000 Marines as they prepared themselves to
move on to the Islands of Guadalcanal, Taraoa, other islands in
Micronesia as part of the World War II effort to fight against
the Japanese military forces. When the Navy left in 1950, Mr.
Chairman, the Secretary of the Interior then appointed civilian
Governors. At that time our isolation, limited resources,
problems, serious problems with surface and air travel, all of
these things added to the real serious economic situations that
we were confronted with. Thousands of Samoans, both men and
women, left the Islands and moved their families to Hawaii and
other parts of the United States.
In the early 1950s the idea of establishing a tuna canning
operation came up. I thought that it was a positive move in
trying to establish a better economic base for the territory at
the time. I might also add, Mr. Chairman, as you noted earlier
in your statement, minimum wage issue did not start in Samoa or
CNMI. As you noted earlier it was in 1938 that the Fair Labor
Standards Act took place. It was right here in the Congress.
It originated in the Congress because there was such a
tremendous disparity among wage earners even at the time
between the South as well as the North. People picking cotton
in the South were paid only 10 cents an hour. The same people
working over the Northern States were paid 75 cents to $1 an
hour. But throughout this whole time American Samoa was part of
the Fair Labor Standards Act since 1938. But the Naval
Administration never bothered enforcing any provisions of the
Fair Labor Standards Act.
But it was not until 1955 the tuna canneries appeared. But
something happened in the mid 1950s. The executives of these
corporations appeared before the Congress. I don't know if you
agree, but this is the way they brought their case before the
Congress is saying it would take five Samoans to do the work of
one state-sider, so therefore, the workers in Samoa should be
paid less. At that time the minimum wage in 1950s was one
dollar an hour.
But the executives of this company suggested that Samoan
workers be paid 27 cents an hour. So this is how the whole
thing evolved and to the point, as you noted earlier, would
establish a special industry committees. The Department of
Labor has been doing this for the past 50 years. In the three
special committee hearings that were conducted in the past 6
years that I participated, I became very concerned that I don't
think the needs of the working people were really taken into
serious consideration.
Hence the result of the Public Law 110-28 of the leadership
of Chairman George Miller as well as Chairman Kennedy, of both
committees, passed or at least with their leadership provided
this change of the law. To allow these two territories to have
this 50 cent increase in wages until two or 3 years. Hence that
it will hopefully catch up with our national trend that by the
year 2009 that minimum wage will start at about 7 dollars an
hour.
Escalation causes a very serious problem that we're faced
with right now. That's the reason why, Mr. Chairman, I
introduce H.R. 5154 which would end automatic increases that
would empower the Department of Labor in consultation with the
Secretary of the Interior and the governments of American
Samoan and CNMI to conduct economic assessments every 2 years
to determine when and if our economies can absorb future
increases. I have made Chairman Miller aware of this
legislation.
I am hopeful that as a result of the recent field hearing
that we held just last week in American Samoa. Also as a result
of your hearing today Mr. Chairman, both Chairman Miller and
Chairman Kennedy will support the intent of this legislation.
Work with us to find a solution that is fair to our workers and
good for the economies of both American Samoa and CNMI.
Mr. Chairman, given that American Samoa's economy is not
diversified. We cannot afford for our canneries to pack up and
leave. This is why the Governor, my office and the Fono, our
legislature have worked together to provide our canneries with
local and Federal incentives, tax incentives, incentives that
they need to stay in American Samoa.
According to the Department of Labor report when our
canneries go their closure will have a rippling effect on our
economy that could amount to a loss of some 7,800 jobs. This is
unacceptable. This is why I believe it is important for us to
give our tuna canneries every reason to stay until the time
comes for them to move elsewhere. Simply put, we must slow down
the departure of our canneries until our economy is
diversified.
Mr. Chairman, slowing down their departure means any
escalator clauses. Even though the Department of Labor did not
have the time it needed to fully assess the impact the
automatic increases would have on our economies in the years to
come. The Department of Labor report does show that the results
would not be positive.
The Department of Labor report also states that raising the
minimum wage in American Samoa to $7.25 an hour would be like
raising the minimum wage in the United States to $16.25 per
hour. An increase like this is not sustainable. I believe this
is an unintentional outcome of the passage of Public Law 110-28
which I hope will soon be corrected.
Finally in closing, Mr. Chairman, I want to remind the
committee that our canneries will go 1 day regardless of what
we do. Both canneries reported to the Department of Labor that
the tuna market is now focused on seal foil packages rather
than traditional canned tuna. If this is true, it stands to
reason that Starkist and Chicken of the Sea were committed to
American Samoa.
If they were committed to American Samoa they would be
shifting production in American Samoa from canned to pouches so
that we could grow with the industry. But to my knowledge
neither cannery has implemented a large scale plan that would
change their operations from cans to pouches.
I know my time is up, Mr. Chairman, but I would, again,
like to thank you and Senator Akaka and Senator Inouye in
sending this joint letter to Chairman Miller as well as to
Chairman Kennedy and see if we could adjust the provisions of
Public Law 110-28. Hopefully this will be helpful to the
economies of both CNMI as well as to American Samoa. Thank you,
Mr. Chairman.
[The prepared statement of Mr. Faleomavaega follows:]
Prepared Statement of Hon. Eni F.H. Faleomavaega, Member of Congress,
American Samoa
Mr. Chairman: Thank you for holding this important hearing
regarding Public Law (P.L.) 110-28 which increased minimum wage in
American Samoa and the Commonwealth of the Northern Mariana Islands
(CNMI) by fifty cents per hour effective in July of last year, and
automatically every year thereafter until 2014 for American Samoa, and
2015 for CNMI.
Prior to the next set of increases taking place, PL 110-28 also
required the U.S. Department of Labor's (DOL) Bureau of Statistics to
undertake a study to determine what impact these increases would have
on both economies. The DOL released its report in January of this year.
Last week, at my request, the House Resources' Subcommittee on Insular
Affairs also held a field hearing in American Samoa to receive
testimony regarding the impact of minimum wages increases in the
Territory, and to consider the DOL findings.
As you may know, the United States Territory of American Samoa lies
2,300 miles southwest of Hawaii, covers a land area of 76 square miles,
has a population of less than 70,000 and a per capita income of $4,300
per year. More than 80% of American Samoa's economy is dependent either
directly or indirectly on two United States tuna canneries which employ
more than 5,150 people of 74 percent of the workforce.
For the past ten years, StarKist and Chicken of the Sea have
refused to increase wages for Samoan workers by anything more than 3
cents an hour. Because the tuna canneries have not done right by our
local workers while exporting billions and paying their top executives
millions of dollars in salaries, bonuses, and benefits, I supported a
one-time increase of fifty cents per hour for our tuna cannery workers
and lowest-paid government employees making less than $5.15 per hour.
While both companies threatened to lay off workers due to the increase
from $3.26 per hour to $3.76, the DOL report states ``that neither
Chicken of the Sea nor StarKist has reduced output or working hours in
immediate response to the first fifty-cent increase in the minimum
wage.'' I am pleased by this outcome.
However, I am also concerned that further increases could be
harmful to our economy. This is why I opposed automatic increases, or
escalator clauses. Mr. Chairman, you also opposed automatic increases
as did Senators Inouye and Akaka. Unfortunately, we were unsuccessful
in removing this language prior to escalator clauses becoming law. Now
that the DOL report confirms our position that automatic increases
could be harmful to the economies of American Samoa and CNMI, I have
introduced H.R. 5154 which would end automatic increases and would
empower the DOL, in consultation with the Secretary of the Interior and
the governments of American Samoa and CNMI, to conduct economic
assessments every two years to determine when and if our economies can
absorb future increases. I have made Chairman Miller aware of this
legislation and I am hopeful that as a result of the recent field
hearing held in American Samoa, and also as a result of your hearing
today, that Chairman Miller will support the intent of this legislation
and work with us to find a solution that is fair to our workers and
good for our economies.
Given that American Samoa's economy is not diversified, we cannot
afford for our canneries to pack up and leave. This is why the
Governor, my office, and the Fono have worked together to provide our
canneries with the local and federal incentives they need to stay in
American Samoa. However, despite our best efforts to support our
canneries, the DOL reports that when asked how quickly a decision could
be implemented to transfer production to tuna canning facilities
elsewhere, one industry spokesman replied, `Minutes.' '' In my humble
opinion, a response like `minutes' shows a disregard for our people and
Territory and suggests that when our canneries go, they will give no
notice.
According to the DOL, when our canneries go, their closure will
have a ripple effect on our economy and could amount to a loss of 7,825
jobs. This is unacceptable and this is why I believe it is important
for us to give our tuna canneries every reason to stay until the time
comes for them to move elsewhere. Simply put, we must slow down the
departure of our canneries until our economy is diversified.
Slowing down their departure means ending escalator clauses. Even
though the DOL did not have the time it needed to fully assess the
impact automatic increases would have on our economies in the years to
come, the DOL report does show that the results would not be positive.
The DOL report also states that raising the minimum wage in American
Samoa to $7.25 an hour would be like raising the minimum wage in the
States to $16.25 per hour. An increase like this is not sustainable,
and I believe is an unintentional outcome of P.L. 110-28 which I hope
will soon be corrected.
Finally, in closing, I want to remind this committee that our
canneries will go one day regardless of what we do. Both canneries
reported to the DOL that the tuna market is now focused on sealed foil
packages rather than traditional canned tuna. If this is true, it
stands to reason that if StarKist and Chicken of the Sea were committed
to American Samoa, they would be shifting production in American Samoa
from cans to pouches so that we could grow with the industry. But, to
my knowledge, neither cannery has implemented a large-scale plan that
would change our operations from cans to pouches.
The reason for this is simple. Pouched tuna is generally hand-
packed meaning it is a labor-intensive process. Labor rates in American
Samoa are now $3.76 and more per hour. In Thailand and South America,
which are American Samoa's competitors, labor rates are sixty cents and
less per hour. If StarKist and Chicken of the Sea have told DOL the
truth, if the global tuna market is moving from cans to pouches, our
canneries will go where labor is cheapest given that their guiding
economic principle is ``to maximize the returns [they give] to [their]
investors,'' not to their workers, as stated by StarKist in testimony
it submitted before Special Industry Committees.
While I wish StarKist and Chicken of the Sea would be better
corporate partners and stay in American Samoa for the long-haul,
especially since they have exported almost $10 billion dollars worth of
tuna from our home and lived off our backs for more than 50 years,
American Samoa cannot and must not remain dependent on a single-
industry. At some point, the American Samoa Government must be about
the business of implementing the findings of the American Samoa
Economic Commission.
But as long as the tuna industry is with us, I will continue to do
everything I can to encourage them to stay including pushing for
extension of 30A tax credits, ending escalator clauses, and protecting
their interests in any and all future trade agreements.
Mr. Chairman, I thank you for holding this hearing and I look
forward to working with you and Chairman Miller to find a legislative
fix that will address the concerns I have raised. Given our time
constraints, I would like to also ask if, in addition to my testimony
today, if you would include, as a matter of record, my statement before
the House Resources' Subcommittee on Insular Affairs, which is more
comprehensive in nature.
I would also like to submit, for the record, my 2001, 2003, and
2005 testimony before the U.S. Department of Labor's Special Industry
Committees No. 24, 25, and 26, each of which provides an historical
accounting of the relationship between minimum wage rates in American
Samoa and the U.S. tuna industry, which was responsible for suppressing
wages in the Territory beginning in 1956.
Finally, on behalf of the people of American Samoa, I express our
sincere appreciation for your interest in the welfare of our future.
Attachment 1.--Statement of the Hon. Eni F.H. Faleomavaega Before the
House Resources' Subcommittee on Insular Affairs Regarding the Economic
Impact of the Recently Increased Minimum Wage in American Samoa
pago pago, american samoa
february 22, 2008
Madame Chair: I want to thank you for holding this hearing in
response to legislation introduced by Chairman George Miller of the
House Committee on Education and Labor to increase minimum wage in the
U.S. and its territories. As a result of Chairman Miller's legislation
which was passed by the House and Senate and became Public Law (P.L.)
110-28, minimum wage was increased by fifty cents per hour in American
Samoa and the Commonwealth of the Northern Mariana Islands (CNMI) on
July 24 and July 25, 2007, respectively. P.L. 110-28 also automatically
increases minimum wage by fifty cents per hour every year thereafter
until 2014 for American Samoa, and 2015 for CNMI.
At my request, Chairman Miller included language, which became law,
requiring the U.S. Department of Labor (DOL) to undertake a study to
determine the impact the imposed minimum wage increases might have on
the economies of American Samoa and CNMI. The DOL released its findings
on January 25, 2008. However, given that no hearings were held by the
House or Senate prior to passage and enactment of these minimum wage
increases, on June 6, 2007 I wrote and asked if you would be willing to
hold a hearing in your capacity as Chair of the House Resources'
Subcommittee on Insular Affairs which has broad jurisdiction for the
welfare of the U.S. territories. You agreed to this request and I
especially thank you for your leadership and concern regarding this
important matter.
For your information, my position regarding minimum wage is a
matter of public record. For the past 18 years, I have fought to
increase the wages of our tuna cannery workers because for too many
years Star Kist and Chicken of the Sea have purposely suppressed the
wages of workers in American Samoa while increasing the wages of their
corporate CEOs. For example, in 2004, it was reported that the CEO of
Del Monte, the parent company of StarKist, was paid $1.7 million in
salary, bonuses, and other compensations. With stock options included,
he earned almost $2.65 million, or over 400 times more per year than
the average cannery worker in American Samoa. The CEO of Heinz, once
the parent company of StarKist, paid its top CEO more than $65 million
in salaries, stocks, and options. Clearly, to any person of conscience,
it is difficult to oppose minimum wage increases for the poor when
companies are rich enough to pay their executives so much.
I also believe that if StarKist and Chicken of the Sea had done the
right thing and paid our workers fair wages, we would not be in the
predicament we are in today with federal law now mandating automatic
minimum wage increases. But let me briefly share with this committee a
bit of our history with the tuna industry given that American Samoa is
a single-industry economy and that more than 80% of our private sector
economy is tied, either directly or indirectly, to StarKist and Chicken
of the Sea.
On May 8, 1956, Van Camp, which later became Chicken of the Sea,
appeared before the U.S. Senate Committee on Labor and Public Welfare
to urge consideration of legislation for the exemption of American
Samoa from the wage and hour provisions of the Fair Labor Standards Act
of 1938. William D. Moore, Overseas Operations manager for the Van Camp
Sea Food Co., commenting on his company's desire to pay Samoan workers
27 cents per hour as opposed to the prevailing minimum wage rate of $1
per hour, said:
A minimum wage of $1 per hour, as required under present
laws, is unrealistic, unwarranted, and unquestionably will have
a deleterious effect upon the economic and social structure of
the islands.
As further justification for suppressing wages in American Samoa,
Mr. Moore said:
The Samoans are Polynesians. They are not American citizens.
Mr. Collins, legal counsel for Van Camp, said it this way:
The company has found that it takes from 3 to 5 Samoan
workers to perform what 1 continental worker in the United
States will do. It is therefore felt that this justifies a
lower rate for Samoans.
If Mr. Collins were with us today, he would know that Samoan
workers made Chicken of the Sea and StarKist the largest tuna canneries
in the world and, the number one and two brands in America. In other
words, at no time was either cannery justified in paying Samoan workers
less than what they were worth. But the people of American Samoa had no
real voice in these matters.
In 1956, when Van Camp was lobbying Congress to suppress our wages,
the islands of American Samoa were administered by the U.S. Department
of the Interior. It was not until 1977 that American Samoa elected its
first Territorial Governor and in 1980 we elected our first
representative to the U.S. Congress. By that time, the tuna industry
already had a 20 year jump-start on fixing wage rates in American
Samoa.
In fact, as early as 1956, Van Camp was successful in amending the
Fair Labor Standards Act of 1938 to exempt the tuna industry from
paying workers in American Samoa a minimum standard of decent living,
and a special industry committee was assigned to substitute a sub-
minimum wage structure that was supposedly commensurate with insular
economic conditions. The industry committee structure for American
Samoa was intended to be an interim measure but it remained in effect
until last year when it was abolished by the enactment of P.L. 110-28.
I supported its abolishment because special industry committees were a
sham and an insult to the intelligence of every hourly worker in
American Samoa.
Our history with the tuna industry has also been insulting. Not
once in our 50 year history has StarKist or Chicken of the Sea offered
profit-sharing incentives or stock options to our workers. Instead, our
cannery workers are given a case of wahoo at Christmas and a turkey at
Thanksgiving and we're told that our wages must remain below the
federal minimum wage rate because workers in Thailand and the Andean
countries are cleaning fish for $0.60 an hour, or because it takes 5
Samoans to do the work of one white.
With excuses like these, the tuna industry really has no
credibility left when it comes to speaking on the subject of minimum
wage. StarKist has opposed increasing minimum wage for Samoan cannery
workers based on what it calls ``guiding economic principles.'' ``One
basic idea guides the actions of all major businesses,'' Starkist says,
``and that is a business has an economic, legal, and moral
responsibility to maximize the return it gives to its investors or
shareholders.'' I am of the belief that higher laws should guide our
actions and that we have a moral responsibility to do unto others as we
would have them do unto us.
This is why, after ten years of StarKist and Chicken of the Sea
refusing to increase Samoan wages by anything more than 3 cents an
hour, I supported, in the newly enacted public law, a one-time increase
of fifty cents per hour for American Samoa's cannery workers and
lowest-paid government employees making less than $5.15 per hour. While
both companies threatened to lay off workers due to the increase from
$3.26 per hour to $3.76, the DOL report states ``that neither Chicken
of the Sea nor StarKist has reduced output or working hours in
immediate response to the first fifty-cent increase in the minimum
wage.'' I am pleased by this outcome.
On the other hand, I am concerned that further increases could be
harmful to our economy. This is why I opposed automatic increases, or
escalator clauses. Senators Inouye, Bingaman, and Akaka also opposed
automatic increases but they, too, were unsuccessful in removing this
language prior to it becoming law. Now that the DOL report confirms our
position that automatic increases could be harmful to the economies of
American Samoa and CNMI, I have introduced H.R. 5154 which would end
automatic increases and would empower the DOL, in consultation with the
Secretary of the Interior and the governments of American Samoa and
CNMI, to conduct economic assessments every two years to determine when
and if our economies can absorb future increases. I have made Chairman
Miller aware of this legislation and I am hopeful that as a result of
today's hearing, he will work with us to find a solution that is fair
to our workers and good for our economies.
Given that American Samoa's economy is not diversified, we cannot
afford for our canneries to pack up and leave. This is why the
Governor, my office, and the Fono have worked together to provide our
canneries with the local and federal incentives they need to stay in
American Samoa. However, despite our best efforts to support our
canneries, the DOL reports that when asked how quickly a decision could
be implemented to transfer production to tuna canning facilities
elsewhere, one industry spokesman replied, `Minutes.' '' In my opinion,
a response like `minutes' shows a disregard for our people and
Territory and suggests that when our canneries go, they will give no
notice.
According to the DOL, when our canneries go, their closure will
have a ripple effect on our economy and could amount to a loss of 7,825
jobs. This is unacceptable and this is why I believe it is important
for us to give our tuna canneries every reason to stay until the time
comes for them to move elsewhere. Simply put, we must slow down the
departure of our canneries until our economy is diversified.
Slowing down their departure means ending escalator clauses. Even
though the DOL did not have the time it needed to fully assess the
impact automatic increases would have on our economies in the years to
come, the DOL report does show that the results would not be positive.
The DOL report also states that raising the minimum wage in American
Samoa to $7.25 an hour would be like raising the minimum wage in the
States to $16.25 per hour. An increase like this is not sustainable,
and I believe is an unintentional outcome of P.L. 110-28 which I hope
will soon be corrected.
Finally, in closing, I want to remind this subcommittee and our
people that our canneries will go one day regardless of what we do.
Both canneries reported to the DOL that the tuna market is now focused
on sealed foil packages rather than traditional canned tuna. If this is
the case, it stands to reason that if StarKist and Chicken of the Sea
were committed to American Samoa, they would be shifting production in
American Samoa from cans to pouches so that we could grow with the
industry. But, to my knowledge, neither cannery has implemented a
large-scale plan that would change our operations.
The reason for this is simple. Pouched tuna is generally hand-
packed meaning it is a labor-intensive process. Labor rates in American
Samoa are now $3.76 and more per hour. In Thailand and South America,
which are American Samoa's competitors, labor rates are, as I stated
earlier, sixty cents and less per hour. If StarKist and Chicken of the
Sea have told DOL the truth, if the global tuna market is moving from
cans to pouches, our canneries will go where labor is cheapest given
that their guiding economic principle is to maximize the returns they
give to their investors, not to their workers.
While I wish StarKist and Chicken of the Sea would be better
corporate partners and stay in American Samoa for the long-haul,
especially since they have exported almost $10 billion dollars worth of
tuna from our home and lived off our backs for more than 50 years,
American Samoa cannot and must not remain dependent on a single-
industry. At some point, the American Samoa Government must be about
the business of implementing the findings of the American Samoa
Economic Commission.
But as long as the tuna industry is with us, I will continue to do
everything I can to encourage them to stay including pushing for
extension of 30A tax credits, ending escalator clauses, and protecting
their interests in any and all future trade agreements.
Madame Chair, I thank you for holding this hearing and I look
forward to working with you and Chairman Miller to find a legislative
fix that will address the concerns I have raised.
Given our time constraints, I would like to also ask if, in
addition to my testimony today, if you would include, as a matter of
record, my 2001, 2003, and 2005 statements before the U.S. Department
of Labor's Special Industry Committees No. 24, 25, and 26, each of
which provides an historical accounting of the relationship between
minimum wage rates in American Samoa and the U.S. tuna industry, which
was responsible for suppressing wages in the Territory beginning in
1956.
In closing, I would also like to express, on behalf of the people
of American Samoa, our sincere appreciation for your interest in the
welfare of our future.
Attachment 2.--Statement of the Hon. Eni F.H. Faleomavaega Before
Special Industry Committee No. 26, Department of Labor Wage and Hour
Division, Regarding the Minimum Wage in American Samoa
fagatogo, american samoa
june 20, 2005
I am very disappointed that StarKist is opposing an increase in
minimum wage for cannery workers based on what it calls ``guiding
economic principles.'' If you will recall, StarKist submitted identical
testimony in 2003 to Special Industry Committee No. 25 and once again
states on page 5 of its pre-hearing statement before Special Industry
Committee No. 26 that ``one basic idea guides the actions of all major
businesses [and that is] a business has an economic, legal, and moral
responsibility to maximize the return it gives to its investors or
shareholders.''
I, too, would like to talk about guiding principles and state, as I
did before Special Industry Committees No. 24 and 25, that I believe
higher laws should guide our actions and that we have a moral
responsibility to do unto others as we would have them do unto us. I
also believe all major businesses, including those of the tuna
industry, have an obligation to be fair when applying their ``guiding
economic principles.''
For example, if StarKist is going to ask Special Industry Committee
No. 26 to oppose a minimum wage increase for our cannery workers
because it has an obligation ``to maximize [its] profits'' then
StarKist must also review the salaries of its top executives to be sure
it is acting ``in the interests of its investors and/or shareholders''
as stated on page 5 of its pre-hearing statement.
On the one hand, StarKist says it cannot afford to pay our people
more than $3.26 per hour because it would be unable ``to attract needed
investment dollars'' or ``generate the best return possible'' for its
investors. On the other hand, Del Monte, which owns StarKist, paid its
CEO $1.7 million in salary, bonuses and other compensation in FY 2004.
With stock options, Del Monte's CEO earned almost $2.65 million in
FY04.
In other words, Del Monte's CEO is making 200 to 300 times more per
year than the average cannery worker in American Samoa. This said, can
an intelligent person really believe that an increase in minimum wage
is going to hurt StarKist's ability to maximize its profits? If
StarKist wishes to maximize its profits for its investors, let Del
Monte begin by cutting the salaries of its top management including its
CEO, and let Chicken of the Sea do the same.
Let StarKist also be upfront about the salaries of its President
and Vice Presidents. Let those testifying before Special Industry
Committee No. 26 tell our people how much StarKist and Chicken of the
Sea are paying them to procure protein or to oversee seafood, soup and
infant feeding operations. Until they are willing to make their
salaries known, how can we fully gauge whether StarKist or Chicken of
the Sea are doing right by their stockholders or even more importantly
by the cannery workers of American Samoa?
Quite frankly, these proceedings are a sham and an insult to the
intelligence of the 5,000 workers employed by our canneries. To
paraphrase President Franklin D. Roosevelt, it is a mockery for
calamity-howling executives with million dollar incomes to tell us that
wage increases will have a disastrous effect on our economy or that we
must exploit labor in developing countries to remain competitive.
Neither will I accept the idea that businesses are to maximize their
profits without a moral obligation to also increase the wages of our
cannery workers.
As I said before Special Industry Committees No. 24 and 25, I also
believe that the right to live is higher than the right to own a
business. Furthermore, I believe a business has an economic, legal, and
moral responsibility to pay its employees enough to enable them to live
and I believe this should be the basic idea that guides the actions of
all major businesses, including those of the tuna industry.
Nevertheless, the U.S. Department of Labor picks and chooses its
Special Industry Committee and, for the most part, the outcome is
determined before we testify. In some ways, it is unclear to me why the
U.S. Department of Labor bothers to hold these hearings. If the
Department of Labor was serious about minimum wage then it would be
serious about conducting a study to determine the cost of living in
American Samoa. If it was serious about minimum wage it would be
serious about making the tuna industry declare its margin of profit.
Simply put, until we know what the canneries are making we cannot
determine what a fair wage is for our workers.
Having spent the past four years fighting to protect American
Samoa's tuna industry in the U.S. Congress, I can tell you that I
understand what our canneries are up against when it comes to competing
against countries with low wage rates. I understand the realities of
supply and demand. I understand that production will leave high cost
locations when low cost alternatives exist. I also understand that
these are the same words the U.S. tuna industry has been regurgitating
for the past 50 years.
In 1956, as part of its lobbying effort to suppress wages in
American Samoa and pay Samoan workers only 27 cents per hour, Van Camp
(now Chicken of the Sea/Samoa Packing) said that ``a minimum wage of $1
per hour, as required under present laws, is unrealistic, unwarranted,
and unquestionably will have a deleterious effect upon the economic and
social structure of the islands.'' Almost 50 years later, there has
been no change in the way StarKist or Chicken of the Sea view the worth
of our workers.
In our 50 year history with the tuna industry, not once has
StarKist or Chicken of the Sea offered profit-sharing incentives or
stock options to our workers. Instead, our cannery workers are given a
case of wahoo at Christmas and a turkey at Thanksgiving. And now we're
told that our wages must remain below the federal minimum wage rate
because cannery workers in Thailand and the Andean countries are
cleaning fish for $0.60 an hour.
Well guess what? Autoworkers in China are building cars for less
than autoworkers in Detroit. And garment workers in India are making
clothes for less than factory workers in New York. And farmers in
Mexico are growing food for less than farmers in the Midwest. And
McDonald employees in Taiwan are flipping hamburgers for less than
McDonald employees in the United States. So what is the tuna industry's
point?
We are not here before Special Industry Committee No. 26 to discuss
the wage rates of third world countries. We are here to discuss U.S.
wage rates. American Samoa is a U.S. Territory and our cannery workers
should be entitled to American pay. If our corporate executives wish to
discuss wage rates around the world, then let us also discuss the
global wage rates of corporate executives. I believe such a discussion
would show that a CEO in Thailand or Ecuador makes nothing compared to
the CEOs of StarKist and Chicken of the Sea and I again make the point
that if our canneries are interested in maximizing their profits, let
them begin by cutting corporate salaries and make adjustments on
corporate profits.
Let me also address the issue of international trade agreements. It
is well-known that StarKist, under the management of the H.J. Heinz
Foundation, opened a pandora's box in 2001 when it went against the
entire U.S. tuna fishing and processing industries and attempted to
include canned tuna in the Andean Trade Preference Act. StarKist did
this for one simple reason, to displace $3.26 workers in American Samoa
and exploit $0.60 labor in Ecuador.
At the time, StarKist said this would not affect its business in
American Samoa. Today, at these minimum wage hearings and at the
minimum wage hearings in 2003, StarKist testified that the Committee
must not increase minimum wage rates because an increase would affect
its business in American Samoa and its ability to compete against
Ecuador, Thailand and other low wage rate countries. StarKist cannot
have it both ways and, in fairness to our cannery workers, I believe
Special Industry Committee No. 26 has an economic, legal and moral
responsibility to make sure that StarKist testifies truthfully before
this federally constituted committee.
I also want to address the issue of IRS Section 936. Again, in its
pre-hearing statement submitted to Special Industry Committee No. 25,
StarKist stated that favorable local and federal tax treatment makes
little difference to our canneries.\1\ Before this Committee, StarKist
says IRS section 936 does make a difference. While agreements are in
place to extend section 936 benefits to American Samoa, I question why
StarKist continues to contradict itself before this Committee.
---------------------------------------------------------------------------
\1\ Prehearing Statement of Barry Mills. StarKist Samoa, Inc.
Special Industry Committee No. 25.2003.20.
---------------------------------------------------------------------------
Regarding tuna loins, I would like to publicly state that I am
deeply concerned about the number of loins that are being shipped to
American Samoa for processing. It is an insult to our intelligence for
both StarKist and Samoa Packing to assume that Samoans do not
understand what this means for the Territory. Samoans understand that
the use of precooked tuna loins as a raw material in canning operations
could significantly influence the amount of labor needed in the
production process. Samoans also understand that the production of
loins, including the butchering and cleaning steps, accounts for up to
80% of the cost of labor in a full-scale cannery.\2\
---------------------------------------------------------------------------
\2\ U.S. Department of Labor. Economic Report: The Minimum wage in
American Samoa, 2001. 40.
---------------------------------------------------------------------------
This means that if a cannery buys loins instead of whole fish it
can substantially reduce its labor costs. In other words, the more
loins you send to American Samoa, the less labor you need in our
canneries. Less labor means downsizing and downsizing means many of our
cannery workers will be out of jobs if StarKist and Samoa Packing
continue to ship loins into American Samoa. Furthermore, our U.S. tuna
boat owners who not only contribute more than $22 million per year to
our economy but also supply 70% of the tuna processed in our canneries
will also be out of business.
As I have said before, I cannot and will not support an increase in
loins being shipped from foreign countries into American Samoa for use
in our canneries. This trend must stop or American Samoa must be
compensated for revenue lost as a result of this backdoor attempt to
reduce our labor force, suppress our wages, and allow foreign countries
to send their tuna into the U.S. exempt from duty.
I am also disturbed by a recent letter received in my office
regarding Project Nemo, an alleged ``plan by Chicken of the Sea and
StarKist to consolidate their tuna canneries in American Samoa.'' The
letter states, ``The objective of this plan will be to substantially
reduce tuna production, which will allow the companies to increase
prices. The effect will be closure of one of the two canneries in Samoa
and the elimination of more than 2,000 jobs.''
This letter, dated May 27, 2005 and received in my office on June
15, 2005, is unsigned and was copied to Governor Togiola, the U.S.
Federal Trade Commission, the U.S. Department of Justice and Samoa
News. The letter is addressed to me. While I cannot and will not act on
an unsigned letter, I will take steps to forward this letter to the
proper officials at the U.S. Federal Trade Commission and the U.S.
Department of Justice.
I am also including this letter as an attachment to my written
testimony. Should anything ever come of this, this letter will be on
file as a matter of record. However, I am hopeful today, under oath,
and before Special Industry Committee No. 26, both canneries will deny
any knowledge of a plan to reduce American Samoa's production or to
increase prices.
In conclusion, I would like to state that I believe workers in
American Samoa are the backbone of the U.S. tuna industry. I also
believe that men and women of conscience will agree that businesses are
obligated to act not only in the interest of their shareholders but
also in the interest of their workers. I also believe that after 50
years in our Territory, and having exported over $7 billion worth of
canned tuna to the U.S., I believe it is time for our canneries to work
with us.
I am pleased that the U.S. tuna industry has united in support of
H.R. 629--a bill I introduced in Congress to make permanent or extend
the federal IRS section 936 tax credit to American Samoa for another
ten years. I am also pleased that our local Senate issued a Concurrent
Resolution in support of H.R. 629. However, I need to understand why
StarKist stated before Special Industry No. 25 that favorable local and
federal tax treatment makes little difference to our canneries. Since
our tax incentives make little difference, I would suggest that a 10%
duty on loins coming into this Territory will be a good source of
revenue for our local government and a minimum wage increase should be
supported.
Finally, if the minimum wage cannot be increased, I believe our
canneries should subsidize the medical care of their workers. In any
other U.S. location, the tuna industry would be required to provide
health care benefits for its employees. In American Samoa, however, ASG
subsidizes the tuna industry by providing health care for sick or
injured employees and their families. In itself, this is a savings of
at least $5 million per year to our canneries and it is time for our
canneries to return this money to LBJ and assume responsibility for the
medical care of its employees.
It is also time for our canneries to increase pensions for our
workers and I believe something needs to be said on and in behalf of
Samoans who stand for 8 hours a day cleaning fish and after 20 years of
service only get a pension of approximately $160 per month. This is not
right and this is simply un-American.
For 50 years, the U.S. tuna industry has told us it would leave
American Samoa if wages were increased. Fifty years later, both
canneries are with us and only three years ago StarKist erected a sign
and declared that American Samoa is the permanent home of Charlie the
Tuna. Maybe I missed it but I did not see any fine print beneath the
sign stating that Charlie the Tuna's home is conditional on whether or
not we raise the minimum wage. In fact, as I recall, StarKist's Vice-
President was emphatic in stating that StarKist had no intention of
leaving American Samoa. However, he also said StarKist was not up for
sale and only a few months later it was sold to Del Monte.
Given that the industry often contradicts itself, I have come to
believe that the only thing we may know for certain is that our future
with the industry is uncertain. But I am hopeful that we will settle
our differences and work together to protect American Samoa's tuna
industry.
To this end, I support business and the need for business to make a
reasonable profit. To this end, I also support an increase in minimum
wage for our cannery workers. I believe this is what fair trade demands
and I am hopeful that this is what men and women of conscience will
thoughtfully consider.
Attachment 3.--Statement of the Honorable Eni F.H. Faleomavaega Before
Special Industry Committee No. 25, Department of Labor, Wage and Hour
Division, Regarding the Minimum Wage in American Samoa
fagatogo, american samoa
june 16, 2003
According to a 1954 U.S. Congressional House Report, ``from January
through April 1954, Van Camp Co. and the Tokyo Marine Products Corp.,
with whom the former had entered into contract, carried out in American
Samoa the first joint American-Japanese venture in the history of
Central Pacific tuna fishing. A fleet of 7 long-line boats, manned by
Japanese fishermen, based in Pago Pago, with the logistical support of
2 American freezer ships, fished in a several hundred mile radius of
American Samoa.''\1\
---------------------------------------------------------------------------
\1\ U.S. Congress, House. Special Subcommittee on Territorial and
Insular Affairs. Pursuant to H.Res. 89. American Samoa. 83d Cong., 2d
Sess. Nov. 1954. 419.
---------------------------------------------------------------------------
``During 1954, the cannery was in operation for only 6 months, yet
over 200 tons of fish were processed and another 400 tons of frozen
fish were sent to the United States . . . The results indicate[d] that
a continuing and expanding tuna fishery in American Samoa [was] a
distinct possibility, providing certain basic problems of supply and
organization [were] met and solved.''\2\
---------------------------------------------------------------------------
\2\ Id.
---------------------------------------------------------------------------
Forty-nine years later, American Samoa is home to the largest tuna
cannery in the world and since 1975 Chicken of the Sea/Samoa Packing
and StarKist have exported billions of dollars worth of canned tuna
from American Samoa to the United States. But our history with the
industry has been tangled and our future is in no longer certain due to
tremendous competition from foreign nations that catch and produce
canned tuna at lower labor costs.
Only last year, American Samoa faced one of its most critical hours
as a result of aggressive efforts by the H.J. Heinz Co., and its then
subsidiary StarKist Seafoods, to include canned tuna in the Andean
Trade Preference Act (ATPA). As part of the ATPA and in an effort to
curb drug production in Latin America, the U.S. agreed to provide
preferential, mostly-duty-free treatment to certain products exported
to the U.S. from Bolivia, Colombia, Ecuador, and Peru. In my honest
opinion, had StarKist been successful in its effort to include canned
tuna under the provisions of the ATPA, American Samoa would have faced
massive unemployment and insurmountable financial difficulties.
Briefly, the economy of American Samoa is more than 85% dependent
either directly or indirectly on the U.S. tuna and fishing processing
industries. Two canneries, Chicken of the Sea and StarKist, employ more
than 5,150 people or 74% of the workforce. American Samoa processes
about 950 tons of tuna per day which is equivalent to 228,000 tons of
tuna or 20.5 million cases per year.
On the other hand, the Andean Pact countries control more than 35%
of the catch in the Eastern Pacific Tropic (EPT) and, in the past ten
years, the Andean tuna fishing fleet has also grown from about 20 to 90
fishing vessels. Ecuador and Colombia now have the capacity to jointly
process 2,250 tons of tuna per day which is equivalent to 540,000 tons
of tuna or 48.6 million cases per year.
It should be noted that the U.S. only consumes 48 million cases per
year while the Andean countries have the production capacity to supply
the entire U.S. market and wipe out the economy of American Samoa.
Additionally, labor rates for cannery workers are $0.69 per hour and
less in the Andean countries but on average $3.26 per hour in American
Samoa. With these differences in wage rates, I did not believe then and
I do not believe now that StarKist's interest in the ATPA was to curb
drug production in the Andean countries. More likely, I believe
StarKist fought the matter for one reason and one reason only--to
displace $3.26 workers in American Samoa and exploit $0.60 labor in
Ecuador.
I do not believe this is what fair trade should be about and I am
pleased to state that my colleagues in both the House and Senate agreed
with me on this point and excluded canned tuna from the ATPA.
Parenthetically, I am also pleased that StarKist has since changed
ownership and I am hopeful that our new corporate partner, Del Monte
Foods, will work with us to rebuild the heap of stones that has
collapsed. E ta'ape a fatuati, or the collapse of the heap or structure
of stones, is a Samoan proverb which refers to the practice of setting
up a heap of stones under the water to attract fish. Sometimes the
structure collapses as a result of deliberate acts or accidental
causes. Either way, when the heap collapses, the fishermen will come to
rebuild it for the good of the community which is solely dependent on
the fishing industry.
For more than forty-five years, American Samoa's economy has been
dependent on a structure which is also used to attract and protect
investment in the Territory. This structure, known as the U.S. tariff
or tax structure, provides duty-free treatment for canned tuna entering
the U.S. from American Samoa. This structure also assesses a low duty
of 6% and a high duty of about 12% on canned tuna packed in water
entering the U.S. from foreign countries. For tuna packed in oil the
tax is about 30%. Whether 6%, 12%, or 30%, foreign countries must pay a
U.S. duty, or tax, to send their canned tuna to the U.S. while American
Samoa's canned tuna enters the U.S. free of charge.
Fortunately, this tariff or tax structure levels the playing field
for American Samoa and allows us to compete against countries with
lower wage rates of $0.60 and less per hour. This tax structure
safeguards us. It protects us. It maximizes the profits of our
canneries and without it American Samoa's canneries cannot survive.
This is why I am disappointed that H.J. Heinz, the once parent company
of StarKist, fought so hard to give Ecuador the same trade advantages
as American Samoa. Thanks to H.J. Heinz, Ecuador can now send tuna
packaged in pouches to the U.S. free of duty but the U.S., including
American Samoa, must pay a duty rate of 20% or more to export canned
tuna to Ecuador. Again, this is neither free nor fair trade and,
although Heinz was unsuccessful in its attempt to eliminate duties or
collapse tariff and tax rates for canned tuna, I am concerned that
American Samoa's canneries are at risk.
Whether by a deliberate act or accidental cause, the taxes (and
mostly specifically the average duty of 12%) which foreign countries
once paid to export canned tuna to the U.S. are now in question. As a
result, Heinz has left American Samoa and the U.S. tuna industry
vulnerable to other trade initiatives now being put forward to provide
duty-free treatment for canned tuna originating from ASEAN nations and
Central American countries. Heinz's aggressive efforts to give Ecuador
the same trade advantages as American Samoa also divided the U.S. tuna
industry which historically has stood united against unfair trade
practices and foreign competition.
Now StarKist is testifying before Special Industry Committee No. 25
once again stating that it cannot afford to pay our workers a decent
standard of living. What kind of sense does this make when StarKist
(under previous and present leadership) spent hundreds of thousands of
dollars trying to do away with the 12% duty protection that keeps our
canneries in business? If StarKist can live without the millions in
savings that the 12% duty provides who is to believe that StarKist
cannot afford to increase the minimum wage for its workers in American
Samoa?
For your information, lobbyists in Washington do not come cheap. At
a minimum, StarKist paid out more than $250,000 and more likely over
$500,000 to fight and lose the Andean Trade agreement. Needless to say,
I believe that $500,000 could have been better spent on increasing
wages for workers in American Samoa. It is our workers, after all, who
have made StarKist the number one brand of tuna in the U.S. and I was
hopeful that when Del Monte took over ownership of StarKist that more
thoughtful consideration would be given to the needs of our cannery
workers.
In fact, it was my sincere hope that there would be a shift in
thinking on the part of our tuna processors. I was hopeful that our
processors would come to believe that employees are as important as
stockholders and I am disappointed that this has not been the case. In
fact, I am especially disappointed that StarKist's Vice President for
Seafood Operations and Procurement began his minimum wage statement by
saying that ``one basic idea guides the actions of all major
businesses. A business has an economic, legal, and moral responsibility
to maximize the return it gives to its investors or shareholders.
Simply stated,'' he said, ``businesses are obligated to maximize their
profits.''\3\
---------------------------------------------------------------------------
\3\ Prehearing Statement of Barry Mills. StarKist Samoa, Inc.
Sepcial Industry Committee No. 25. 2003. 6.
---------------------------------------------------------------------------
My friends, I support business and the need for business to make a
reasonable profit. But to paraphrase President Franklin D. Roosevelt, I
will not let calamity-howling executives with million dollar incomes
tell me that wage increases will have a disastrous effect on the U.S.
economy or that we must exploit labor in developing countries to remain
competitive. Neither will I support the notion that businesses are to
maximize their profits without a moral obligation to also increase the
wages of our cannery workers.
As Senator Borah from Idaho said during the 1937 fair labor
standards debate, ``whether North or South, East or West, there [is] a
standard of . . . living, and we ought to recognize that and fix a
minimum wage upon that basis.''\4\ Senator Borah also said that he
looked upon ``a minimum wage such as will afford a decent living as a
part of a sound national policy.''\5\
---------------------------------------------------------------------------
\4\ 74 Cong. Rec. S. 7723. (1973).
\5\ Id. 7793.
---------------------------------------------------------------------------
``I would abolish a wage scale below a decent standard living just
as I would abolish slavery,'' he said. ``If it disturbed business, it
would be the price we must pay for good citizens . . . I take the
position that a man who employs another must pay him sufficient to
enable the one employed to live.''\6\
---------------------------------------------------------------------------
\6\ Id. 7796.
---------------------------------------------------------------------------
Senator Pepper from Florida asked, ``What if he cannot afford to
pay it?''
Senator Borah responded, and I quote, ``If he cannot afford to pay
it, then he should close up the business. No business has a right to
coin the very lifeblood of workmen into dollars and cents . . . . Every
man or woman who is worthy of hire is entitled to sufficient
compensation to maintain a decent standard of living . . . . I insist
that American industry can pay its employees enough to enable them to
live.''\7\
---------------------------------------------------------------------------
\7\ Id.
---------------------------------------------------------------------------
Senator Ellender from Louisiana then asked, ``Without
exception?''\8\
---------------------------------------------------------------------------
\8\ Id.
---------------------------------------------------------------------------
Senator Borah replied, ``Yes without exception. If it cannot do so,
let it close up . . . I am opposed to peon labor, whether it is
employed by one man or another. I start with the proposition that the
right to live is higher than the right to own a business.''\9\
---------------------------------------------------------------------------
\9\ Id.
---------------------------------------------------------------------------
As I said two years ago in my statement before Special Industry
Committee No. 24, I also believe that the right to live is higher than
the right to own a business. Furthermore, I believe a business has an
economic, legal, and moral responsibility to pay its employees enough
to enable them to live and I believe this should be the basic idea that
guides the actions of all major businesses, including those of the tuna
industry.
Quite frankly, it is an insult to our people for executives who are
paid top dollar to recommend that there be no increase to the minimum
wage and to suggest that their only obligation is to their investors or
stockholders. If this is the basic idea that guides StarKist or Del
Monte, so be it. But I believe that higher laws should guide our
actions and that we have a moral responsibility to do unto others as we
would have them do unto us.
Indeed, I do not believe one corporate executive at Del Monte,
StarKist, or Chicken of the Sea/Samoa Packing would oppose minimum wage
increases if their mothers, fathers, sisters, brothers, sons or
daughters toiled day in and day out in tuna canneries here or abroad.
If suppressed wages are not good enough for their families and low
yields are unacceptable to their stockholders, why should wages of
$3.26 and less per hour be sufficient for our cannery workers?
Furthermore, why should low wages be acceptable for cannery workers
anywhere? This is not the way the world should be and I will do
everything I can to make sure this is not the way things will be in
American Samoa.
Nevertheless, I do not have a vote in these proceedings and neither
do the people of American Samoa. The U.S. Department of Labor picks and
chooses its Special Industry Committee and, for the most part, the
outcome is determined before we testify. In some ways, it is unclear to
me why the U.S. Department of Labor bothers to hold these hearings. If
the Department of Labor was serious about minimum wage then it would be
serious about conducting a study to determine the cost of living in
American Samoa. If it was serious about minimum wage it would be
serious about making the tuna industry declare its margin of profit.
Simply put, until we know what the canneries are making we cannot
determine what a fair wage is for our workers.
Having spent the past year and half fighting to protect the
interests of American Samoa in the U.S. Congress, I can tell you that I
understand what our canneries are up against when it comes to competing
against countries with low wage rates. I understand the realities of
supply and demand. I understand that production will leave high cost
locations when low cost alternatives exist. I also understand that
these are the same words the U.S. tuna industry has been regurgitating
for the past 47 years.
In 1956, as part of its lobbying effort to suppress wages in
American Samoa and pay Samoan workers only 27 cents per hour, Van Camp
(now Chicken of the Sea/Samoa Packing) said that ``a minimum wage of $1
per hour, as required under present laws, is unrealistic, unwarranted,
and unquestionably will have a deleterious effect upon the economic and
social structure of the islands.''\10\ Forty-seven years later, neither
Samoa Packing nor StarKist thinks any more or less of our cannery
workers and I can assure you that neither will think any more or less
of cannery workers in Papua New Guinea or Ecuador, for that matter.
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\10\ U.S. Congress. Senate. Committee on Labor and Public Welfare.
Amending the Fair Labor Standards Act of 1938. Hearings, 84th Cong., 2d
Sess., May 8, 1956. p. 387.
---------------------------------------------------------------------------
In his statement before this Committee, StarKist's Vice President
mentioned that many of our neighbors in the South Pacific continue to
aggressively attempt to enter the tuna processing industry.\11\
Ironically, as the Ranking Member of the International Relations
Subcommittee on Asia and the Pacific and as American Samoa's
Representative in the U.S. Congress, I am also working just as
aggressively to protect American Samoa's tuna industry from unfair
competition.
---------------------------------------------------------------------------
\11\ Prehearing Statement of Barry Mills. StarKist Samoa, Inc.
Sepcial Industry Committee No. 25. 2003. 15.
---------------------------------------------------------------------------
In a press release dated June 11, 2003, I recently stated that
there is movement to increase the amount of tuna the Federated States
of Micronesia and the Marshall Islands could send to the U.S. exempt
from duty. This has come about as a result of negotiations to renew the
Compact of Free Association and the matter is serious for American
Samoa. While the previous Compact exempted duty for up to 10 percent of
the United States consumption of canned tuna for the Marshall Islands
and the Federated States of Micronesia collectively, U.S. State
Department and USTR officials recently announced that it is their
intent to grant each government duty-free treatment for up to 10% which
collectively equates to 20% of U.S. consumption.
Given the seriousness of the current situation, I am pleased that
State Department officials informed my office that it would favorably
grant my request and expeditiously work to revise the canned tuna
provisions before the Compacts of Free Association are submitted to
Congress. I am hopeful that the USTR will do the same. However, I will
not rest until both the USTR and the State Department are on record
stating that the canned tuna provisions will be revised to reflect our
past agreement with FSM and the Marshall Islands and this is why I must
be present on June 18, 2003 when this matter is taken up by the
International Relations Subcommittee on Asia and the Pacific. Although
I am disappointed that I will be unable to attend the minimum wage
hearings as a result of this scheduling conflict, I believe it is
critical to protect our tuna industry for generations to come.
Regarding tuna loins, I would like to publicly state that I am
deeply concerned about the number of loins that are being shipped to
American Samoa for processing. It is an insult to our intelligence for
both StarKist and Samoa Packing to assume that Samoans do not
understand what this means for the Territory. Samoans understand that
the use of precooked tuna loins as a raw material in canning operations
could significantly influence the amount of labor needed in the
production process. Samoans also understand that the production of
loins, including the butchering and cleaning steps, accounts for up to
80% of the cost of labor in a full-scale cannery.\12\
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\12\ U.S. Department of Labor. Economic Report: The Minimum Wage in
American Samoa, 2001. 40.
---------------------------------------------------------------------------
This means that if a cannery buys loins instead of whole fish it
can substantially reduce its labor costs. In other words, the more
loins you send to American Samoa, the less labor you need in our
canneries. Less labor means downsizing and downsizing means many of our
cannery workers will be out of jobs if StarKist and Samoa Packing
continue to ship loins into American Samoa. Furthermore, our U.S. tuna
boat owners who not only contribute more than $22 million per year to
our economy but also supply 70% of the tuna processed in our canneries
will also be out of business.
Let me explain. Currently, there is a tuna loin operation in the
Marshall Islands where approximately 10,000 tons of tuna is offloaded
per year. Almost all of this fish is caught by foreign flag ships
including Taiwanese, Chinese, and Japanese fishing vessels. The
Marshallese cut, clean, and convert this fish to loins. In fact, the
Marshallese process 45 tons of loins per day, 300 tons per month and
most of these loins are bought by StarKist, shipped to American Samoa
and packed directly into cans. Samoa Packing does the same thing by
shipping tuna loins from its canning operations in Thailand to American
Samoa.
Why are our canneries doing this? Our canneries are doing this
because they have to pay our workers on average $3.26 an hour to
convert whole fish to loins while workers in Thailand and the Marshall
Islands do this work for less than $1.50 per hour. Let me also say that
PM&O Shipping, based in San Francisco and the principal investor in the
Majuro factory in the Marshall Islands, asked for and received an
exemption from the country's minimum wage law of $2 per hour.
To PM&O Shipping, to Special Industry Committee No. 25, to our
friends at StarKist, Del Monte and Samoa Packing, let me be perfectly
clear. I cannot and will not support an increase in loins being shipped
from foreign countries into American Samoa for use in our canneries.
This trend must stop or American Samoa must be compensated for revenue
lost as a result of this backdoor attempt to reduce our labor force,
suppress our wages, and allow foreign countries to send their tuna into
the U.S. exempt from duty. Let me say this again.
The tuna loins being sent from the Marshall Islands and Thailand
are caught by foreign fleets and our U.S. tuna boat owners will either
be forced to offload in locations other than American Samoa or they
will be forced out of business. Either way this is also a loss to our
economy and I sincerely hope our local leaders will seriously address
this situation in the near future. Indeed, I recommend that our local
leaders assess a duty of at least 10% on all tuna loins offloaded in
this Territory.
Workers in American Samoa are the backbone of the U.S. tuna
industry and I believe that men and women of conscience will agree with
me that businesses are also obligated to act in the interest of its
workers. After 47 years of working against us, I believe it is time for
our canneries to work with us and I am pleased that the U.S. tuna
industry has united in support of H.R. 1424--a bill I introduced in
Congress to make permanent or extend the federal IRS section 936 tax
credit to American Samoa for another ten years.
I am also pleased that our local Senate issued a Concurrent
Resolution in support of H.R. 1424. However, I need to understand why
StarKist has taken the position that favorable local and federal tax
treatment makes little difference to our canneries.\13\ Since our tax
incentives make little difference, I would again suggest that a 10%
duty on loins coming into this Territory will be a good source of
revenue for our local government.
---------------------------------------------------------------------------
\13\ Prehearing Statement of Barry Mills. StarKist Samoa, Inc.
Special Industry Committee No. 25. 2003. 20.
---------------------------------------------------------------------------
My point is you can't have it both ways. Either favorable tax
treatment benefits our canneries and frees up cash to increase minimum
wages or it doesn't. If StarKist is not in need of favorable local tax
treatment and if 936 means so little, then by all means increase the
minimum wage. Increase the minimum wage for our cannery workers and
also increase the minimum wage for our government workers who make less
than the federal standard of $5.15 per hour.
The federal government has sent more than a billion dollars to
American Samoa in the past seven years and I believe this is reason
enough to support an increase in minimum wage for ASG workers. I also
believe if we take another look at the tax breaks we are giving to
foreign companies doing business in this Territory, we will be able to
find the revenue we need to increase minimum wage for entry level
workers in other industries.
Finally, if the minimum wage cannot be increased, I believe our
canneries should subsidize medical care at the LBJ Tropical Medical
Center. In any other U.S. location, the tuna industry would be required
to provide health care benefits for its employees. In American Samoa,
however, ASG subsidizes the tuna industry by providing health care for
sick or injured employees and their families. In itself, this is a
savings of at least $5 million per year to our canneries and it is time
for our canneries to return this money to LBJ and assume responsibility
for the medical care of its employees.
It is also time for our canneries to increase pensions for our
workers and I believe something needs to be said on and in behalf of
Samoans who stand for 8 hours a day cleaning fish and after 20 years of
service only get a pension of approximately $120 per month. This is not
right and this is simply un-American.
For 47 years, the U.S. tuna industry has told us it would leave
American Samoa if wages were increased. Forty-seven years later, both
canneries are with us and only last year StarKist erected a statue and
declared that American Samoa is the permanent home of Charlie the Tuna.
Maybe I missed it but I did not see any fine print beneath the statue
stating that Charlie the Tuna's home is conditional on whether or not
we raise the minimum wage. In fact, as I recall, StarKist's Vice-
President was emphatic in stating that StarKist had no intention of
leaving American Samoa. However, he also said StarKist was not up for
sale and only a few months later it was sold to Del Monte.
Given these nonsensical statements, I have come to believe that the
only thing we may know for certain is that our future with the industry
is uncertain. But with the Andean Trade agreement behind us and the
minimum wage hearings before us, I am again reminded of a Samoan
proverb--O le upega e fili i le po ae talatala i le ao--which means
that the net that became entangled at night will be disentangled in the
morning. In other words, I am hopeful that when the night passes and
the morning comes we will settle our differences and work together to
protect American Samoa's tuna industry.
To this end, I support business and the need for business to make a
reasonable profit. To this end, I also support an increase in minimum
wage for our cannery workers.
I believe this is what fair trade demands and I am hopeful that
this is what men and women of conscience will thoughtfully consider.
Attachment 4.--Statement of the Hon. Eni F. H. Faleomavaega, Member of
Congress, American Samoa, to the Special Industry Committee No. 24,
Department of Labour, Wage and Hour Division, Regarding the Minimum
Wage in American Samoa
fagatogo, american samoa
june 4, 2001
The minimum wage debate is not new to the United States or to
American Samoa. Neither are the arguments offered by those in favor of
an increase or those opposed to it. The debate has been with us since
1935 when President Franklin D. Roosevelt proposed a New Deal for an
America that had not yet established minimum wages, maximum hours, or
fair labor standards.
The debate began at a time in our nation's history when hundreds of
thousands of people were compelled to work 12 to 14 hours a day, 7 days
a week, for 5, 10 and 15 cents an hour. Congress took notice in 1937
with consideration of S. 2475, a bill to provide for the establishment
of fair labor standards in employments in and affecting interstate
commerce. During the debate, U.S. Senator Neely from West Virginia
stated that:
More than 5,800,000 American families--21 percent of our
people--are existing on incomes of less than a thousand dollars
a year. Three-fifths of American families have incomes of less
than $2,000 a year . . . . On the other hand, in 1935, the last
year for which complete figures are available, a certain
corporation executive received compensation of $500,000, or
$369 more for his service for a single day than the total
income upon which any one of more than 5,800,000 American
families lived for an entire year. In 1935 another corporation
executive received compensation of more than $398,000, and
another a salary of more than $374,000, while others received
compensation of more than a quarter of a million dollars a
year.\1\
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\1\ 74 Cong. Rec. S. 7938. (1937).
Commenting on the need for Congress to enact legislation to close
the gap between corporate income and workers' wages, Senator Neely
---------------------------------------------------------------------------
said, and I quote:
The alarming spectacle of fabulous wealth and insufferable
poverty living side by side; the menacing pageant of
corporation executives with preposterous salaries of half a
million dollars a year ruling employees of the corporation who
work long hours for starvation wages should move the Congress
to instant and heroic efforts to banish the evils and exile the
agonies which a third of the people has so long suffered and so
patiently endured.\2\
---------------------------------------------------------------------------
\2\ Id.
For four tense and anxious days, Congress argued the merits of
Senate Bill 2475. At issue was whether or not the establishment of
minimum wages and the regulation of working hours were matters for
legislation by the Federal government. Of concern was the wage
differential between the Northern and Southern states. Senator Black of
---------------------------------------------------------------------------
Alabama read this except, and I quote:
I do not see how the South can ever become prosperous when we
give our principal resources away, namely, cotton, lumber, and
labor. Our cotton, lumber, and labor is based on 10 cents and
15 cents an hour wages. Whereas everything we buy from the
North is based on 75 cents to $2 labor. The prices we pay for
mill supplies and machinery parts is based on labor which is
paid 5 to 10 times more than our labor. There can be no real
prosperity in the South until there is a leveling of wage
differential.\3\
---------------------------------------------------------------------------
\3\ Id. 7649.
To those who moved their businesses from North to South in pursuit
---------------------------------------------------------------------------
of cheap labor, Senator Black of Alabama further noted:
Many of them come south with a mill which has sometimes been
considered unfit for human use in New England and when they get
down into the South they seem to consider that a southerner is
worth only about one-fourth of what a man is worth who lives in
New England. I myself never fully subscribed to that doctrine.
I rather subscribe to the gospel that a man who is born in
Alabama, and who can do as much work as a man born in any state
in New England, or in any country across the water who
emigrates to New England, is entitled to the same pay if he
does the work.\4\
---------------------------------------------------------------------------
\4\ Id. 7655.
I have always subscribed to a similar doctrine when considering the
worth of the Samoan people. I have never understood why a corporation
that pays fish cleaners in Puerto Rico $7.00 per hour seems to think
when it gets down here that a Samoan is only worth $3 per hour. I do
not subscribe to pseudo economics that say this is the way it must be.
I rather subscribe to the gospel that a Samoan is entitled to the same
pay from the same corporation if he does the same work as any man or
woman born in any other part of America.
I would certainly like to believe that both Puerto Rico and
American Samoa are part of America. After all, our sons and daughters
fight and die for America. All we ask in so doing is that we be given
no more or no less than any other American. Senator Borah of Idaho said
it best in the heat of the 1937 fair labor standards debate. He said it
was his view that ``whether North or South, East or West, there [is] a
standard of American living, and we ought to recognize that and fix a
minimum wage upon that basis.''\5\ Senator Borah further added, and I
quote:
---------------------------------------------------------------------------
\5\ Id. 7723.
I look upon a minimum wage such as will afford a decent
living as a part of a sound national policy. I would abolish a
wage scale below a decent standard living just as I would
abolish slavery. If it disturbed business, it would be the
price we must pay for good citizens . . .\6\ I take the
position that a man who employs another must pay him sufficient
to enable the one employed to live.''\7\
---------------------------------------------------------------------------
\6\ Id. 7793.
\7\ Id. 7796.
Senator Pepper from Florida asked, ``What if he cannot afford to
pay it?''
Senator Borah responded, and I quote, ``If he cannot afford to pay
it, then he should close up the business. No business has a right to
coin the very lifeblood of workman into dollars and cents . . . .Every
man or woman who is worthy of hire is entitled to sufficient
compensation to maintain a decent standard of living . . . .I insist
that American industry can pay its employees enough to enable them to
live.\8\
---------------------------------------------------------------------------
\8\ Id.
---------------------------------------------------------------------------
Senator Ellender from Louisiana then asked, ``Without
exception?''\9\
---------------------------------------------------------------------------
\9\ Id.
---------------------------------------------------------------------------
Senator Borah replied, ``Yes without exception. If it cannot do so,
let it close up . . . I am opposed to peon labor, whether it is
employed by one man or another. I start with the proposition that the
right to live is higher than the right to own a business.''\10\
---------------------------------------------------------------------------
\10\ Id.
---------------------------------------------------------------------------
I start with the same proposition and borrow these words from
Senator Borah:
When we are fixing a minimum wage we are undertaking to
determine what is a minimum standard of decent living . . . and
that is all we are undertaking to determine. We are not
undertaking to determine what a full wage should be or what the
different conditions may be which affect wages in different
circumstances. We are simply determining what it costs to
live.\11\
---------------------------------------------------------------------------
\11\ Id. 7798.
I believe this should be the focus of our discussions during the
course of these hearings. What does it cost to live in American Samoa?
What is a minimum standard of decent living? The Department of Labor
reports that from 1986 to 2000, the American Samoa Consumer Price Index
rose 54 percent. During the same period, the tuna industry minimum wage
rose only 12 percent. Figure 19 in Section Three of the Department of
Labor's 2001 Economic Report shows the ``widening cumulative gap
between the tuna cannery minimum wage and the cost of living in
American Samoa.''\12\ While production at the canneries increased
during this period, ``6 out of 10 American Samoa residents were living
below the poverty line, according to the 1990 U.S. Census.''\13\
---------------------------------------------------------------------------
\12\ U.S. Department of Labor. Economic Report: The Minimum Wage in
American Samoa, 2001. 30.
\13\ Id. 35.
---------------------------------------------------------------------------
While there has been a significant decline in real minimum wages in
American Samoa, I have yet to see any in-depth analysis which shows how
the cost of living in American Samoa compares to other areas of the
United States, including Hawaii, Guam and the Virgin Islands, where the
U.S. minimum wage does apply. I know from experience that the cost of
fuel in American Samoa is as high as the cost of fuel in Hawaii, and
this is also true of most food items. I also know that the living wage
in the United States is calculated to be at $8.15 per hour. Can the
living wage in American Samoa be far behind? It does not appear that
statistics in this area are readily available, but I believe they would
be useful, and I urge the Department of Labor and this Committee to
consider undertaking such an analysis as the Committee deliberates on
these fundamental issues and questions.
For purposes of these hearings, I believe it is important to state
that the Fair Labor Standards Act has applied to American Samoa since
1938. However, it was not enforced until the late 1950s and only then
through a special industry committee structure. In other words, under
the Fair Labor Standards Act of 1938, American Samoans were entitled to
receive the federal minimum wage established by Congress. But under
U.S. Naval rule, the law was never enforced.
In 1951, President Truman, by Executive Order, transferred the
administration of American Samoa to the Department of the Interior. In
1953, Van Camp Sea Food came to American Samoa and established a tuna
canning operation. What happened next is a history lesson every school
child in American Samoa should be taught. It bears repeating at this
hearing.
On May 8, 1956, William D. Moore, Overseas Operations manager for
the Van Camp Sea Food Co., accompanied by the Honorable Cecil R. King
of California, and Linton M. Collins, legal counsel for the Van Camp
Sea Food Co. appeared before the U.S. Senate Committee on Labor and
Public Welfare to urge consideration of legislation for the exemption
of American Samoa from the wage and hour provisions of the Fair Labor
Standards Act of 1938. Let me share with you what the tuna industry was
saying back in 1956 as part of its lobbying effort to suppress wages in
American Samoa.
Let's begin with this statement from Mr. Moore. Commenting on his
company's desire to pay Samoan workers 27 cents per hour as opposed to
the prevailing minimum wage rate of $1 per hour, Mr. Moore said:
A minimum wage of $1 per hour, as required under present
laws, is unrealistic, unwarranted, and unquestionably will have
a deleterious effect upon the economic and social structure of
the islands.\14\
---------------------------------------------------------------------------
\14\ U.S. Congress. Senate. Committee on Labor and Public Welfare.
Amending the Fair Labor Standards Act of 1938. Hearings, 84th Cong., 2d
Sess., May 8, 1956. p. 387.
---------------------------------------------------------------------------
As justification for suppressed wages, Mr. Moore said:
The Samoans are Polynesians. They are not American
citizens.\15\
---------------------------------------------------------------------------
\15\ Id.
---------------------------------------------------------------------------
Mr. Collins, legal counsel for Van Camp, said it this way:
The company has found that it takes from 3 to 5 Samoan
workers to perform what 1 continental worker in the United
States will do. It is therefore felt that this justifies a
lower rate for Samoans.\16\
---------------------------------------------------------------------------
\16\ Id. 401.
Regarding Van Camp's intent to improve the local economy, Mr. Moore
---------------------------------------------------------------------------
said:
The economy of American Samoa, when administered by the
United States Department of the Navy prior to July 1951, was on
a higher level than at present . . . . The Department of the
Interior has diligently worked to restore the economy but on a
more stable basis. Its policy has been to encourage secondary
industries and processing plants to locate in Samoa so that the
natives may be trained in industrial procedures and skills. Any
products so produced by manufacturing on the islands would be
exported to United States markets or other countries. This will
provide wage income, make the natives self-sustaining, enlarge
the total product of the islands, now less than a half million
dollars, and thus improve the Samoan economy . . . . Van camp
is sufficiently encouraged with its progress to consider
continuation of its Samoan cannery because a nominal supply of
fish has been found. In its first 2 years of operations, Van
Camp suffered substantial losses. It is hopeful of finishing
this fiscal year in the black.\17\
---------------------------------------------------------------------------
\17\ Id. 387-88.
Regarding the labor force and associated costs of production, Mr.
---------------------------------------------------------------------------
Moore further stated:
Van Camp now employs 300 Samoans, mostly women . . . . Its
wages range from 27 cents per hour for the women who clean the
fish to $1 per hour for 1 employee, who is a technician . . . .
During the past year the cost of labor in Samoa at the rates
presently paid was 7.66 percent of the total cost of production
in the American Samoa plant. The cost of raw materials was
56.20 percent. For the sake of comparison, the cost of labor in
the company's plants in the United States is 10.52 percent of
the total cost of a case of tuna produced on stateside. The
difference in the costs of labor between the average in the
United States and Samoa is only 2.86 percent. The small
difference in labor costs is attributed to the lower production
output in Pago Pago, where we have found that it takes from 3
to 5 Samoans to produce what 1 stateside employee can
produce.\18\
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\18\ Id. 388.
I must pause here for comment. What company sincerely intent on
improving our economy and ``making the native self-sustaining'' would
use as its basis for suppressing wages a claim that more than 300
Samoan women cleaning fish for 27 cents an hour were substandard to
stateside employees being paid 75 cents to $1 per hour?
I invite you to consider the testimony used 45 years ago to
suppress wages in American Samoa. I also invite you to consider the
parallel arguments that will be presented during the course of these
hearings. I submit, that to this day, these arguments fail to recognize
that when we are fixing a minimum wage we are not undertaking to
determine what a full wage should be or what the different conditions
may be which affect wages in different circumstances. We are simply
determining what it costs to live.
I do not know what it cost to live in American Samoa in 1956. I
only know this was of no consideration to Van Camp. Mr. Moore only
spoke of Van Camp's interests and intents. He stated, and I quote:
If Van Camp were compelled to raise its wage rates to a
minimum of $1 an hour in Samoa, labor costs would increase to
18.88 percent or approximately double the cost of producing a
case of tuna in the United States . . . . Van Camp does not
expect the plant on the islands to ever be very large, much
less to be a substantial part of its overall operations. It
does not contemplate making large profits, other than a normal
return on its investment . . . . It is evident that the company
could not pay the American standard of wages because of the
disruption of the entire local economy . . . . Let me make it
clear, however, that we should look forward to a gradually
increased wage scale. Someday the territory may be ready for
the minimum wages applicable within the United States, but when
that day will be is anybody's guess. Certainly it is not
today.\19\
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\19\ Id 389.
Committee members, parties to these hearings, this is our history
with the tuna industry. Some 45 years later, the tuna industry would
have us believe that when the territory may be ready for minimum wages
is still anybody's guess. For this reason, it is important for the
people of American Samoa and members of this committee to fully
understand that the tuna industry has lobbied Congress since 1956 to
suppress wages in American Samoa. Although Van Camp made the case that
it paid wages equivalent to those paid by the government of American
Samoa, it failed to state for the public record that the islands of
American Samoa were administered by the Department of the Interior
during the time of these discussions.
The people of American Samoa had no real voice in these
proceedings. We had no local representation in Congress. We had no duly
elected Governor in our Territory. What we had was an advisory body, or
Fono, that had no authority to veto or enact law. To be precise, in
1929 and under the Territorial clause of the U.S. Constitution, the
Congress ratified the 1900 and 1904 Deeds of Cession of Tutuila/Aunu'u
and Manu'a and delegated its plenary authority for the administration
of American Samoa to the President or his designee. In 1929, the
President officially transferred administration of the Territory to the
Secretary of the Navy. From 1951 to 1977, authority fell to the
Department of Interior which in turn appointed civilian Governors from
Washington to administer the affairs of the Territory. In 1977,
American Samoa elected its first Territorial Governor and in 1980 we
elected our first representative to the U.S. Congress.
I believe it is important for us to be well aware of the history of
these islands before arbitrarily suppressing wages based on special
interest presentations that have been well rehearsed since 1956. The
fact of the matter is the Fair Labor Standards Act of 1938 was amended
in 1956 to exempt the tuna industry from paying workers in American
Samoa a minimum standard of decent living. As a direct result of Van
Camp's lobbying efforts, a special industry committee was assigned to
substitute a sub-minimum wage structure that was supposedly
commensurate with insular economic conditions.
The industry committee structure for American Samoa was intended to
be an interim measure. But 45 years later, the special industry
committee structure remains in effect and as a result we meet here
today. This can only mean that during the course of these hearings we
will once again hear tale of how the largest single industry in
American Samoa cannot afford to pay a minimum standard of decent
living.
I can assure you that the tale won't be much different than the one
told by Mr. Moore on behalf of Van Camp in 1956. It goes like this:
Mr. Chairman, it will readily be seen, we are sure, that any
application of state-side wage scales to industrial activity in
American Samoa would completely disrupt the local economy,
impose price inflation upon the people and create serious
personnel and financial problems for the Territorial
government, to say nothing of the impact which such a situation
would exert on the prevailing economic conditions of
neighboring islands and territories.\20\
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\20\ Id. 391.
The charts and tables and indexed exchange rates soon to be
presented before Special Industry Committee No. 24 may be new. But the
calculated intent to suppress wages remains the same. Maybe in 1956 it
made sense to create special arrangements for a new and developing
industry to establish operations in American Samoa. And maybe the
American Samoa legislature supported the arrangement as a will of good
faith.
After all, the tuna industry made and entered into an agreement
with the Government of American Samoa that ``only United States
citizens and nationals will be employed in the cannery and related
shore activities . . . and no aliens, or their dependents, shall be
allowed to enter American Samoa in connection with fishing operations
relating to the cannery without the permission in writing of the
Governor.''\21\
---------------------------------------------------------------------------
\21\ Id. 396.
---------------------------------------------------------------------------
This lease agreement was conditioned on a provision ``that subject
to the laws of the United States applicable to American Samoa and to
the laws of American Samoa, the Governor shall permit aliens and their
vessels to land fish for delivery to the Lessee, to enter the harbor
therefor, and to enter the harbor for the purpose of obtaining fuel and
supplies.''\22\
---------------------------------------------------------------------------
\22\ Id.
---------------------------------------------------------------------------
In turn, ``the Lessee shall take practicable positive steps, at the
earliest feasible date, and by January 1, 1958, if possible, with a
view toward the establishment of a fishery capable of supplying the
full capacity of the cannery with fish caught by Samoans on boats
operating out of American Samoa, and shall submit to the Governor
quarterly reports on the steps taken to that end.''\23\
---------------------------------------------------------------------------
\23\ Id.
---------------------------------------------------------------------------
My friends, if you were privy to recent hearings held on this
island regarding legislation proposed by our Senators to impose a 20%
duty on light meat tuna purchased from foreign vessels you would know
that after 45 years the canneries have failed to live up to their
promise of establishing a fishery capable of supplying the full
capacity of the canneries with fish caught by Samoans on boats
operating out of American Samoa. If Iread the original lease agreement
correctly, Van Camp promised that by 1958, if possible, this fishery
would be established.
Here we are 45 years later and where's the fishery? More than 30%
of light meat tuna processed in our local canneries is supplied by
foreign vessels and when our legislative body requested a 20% tax on
foreign purchased tuna, the canneries did what the canneries always do
when an increase of any kind is proposed. The canneries threatened lay-
offs and closure.
As for only United States citizens and nationals being employed in
the canneries, we know that more than 70% of the cannery workforce is
made up of foreign nationals. This begs the question, what has American
Samoa gotten out of its 45 year relationship with the tuna industry?
I don't know what American Samoa has gotten out of the arrangement.
However, I know a little of what tuna industry has gotten in return.
In FY 1999, Star Kist Samoa and Chicken of the Sea/Samoa
Packing exported a total of more than $446.5 million worth of
canned tuna from American Samoa to the United States.
Since 1975, Star Kist Samoa and Chicken of the Sea/Samoa
Packing have exported nearly $6 billion worth of canned tuna
from American Samoa to the United States.
In addition, the U.S. Department of Labor notes that the canneries
enjoy a tariff savings of $6 million for every 10 percent of processed
tuna production. In 1999, this equated to a savings of somewhere
between $61 to $66 million.\24\
---------------------------------------------------------------------------
\24\ U.S. Department of Labor. Economic Report: The Minimum Wage in
American Samoa, 2001. 63.
---------------------------------------------------------------------------
The tuna industry also enjoys Federal and local tax benefits. Some
may recall that during the debate about proposed legislation to tax
tuna purchased from foreign vessels, a Star Kist executive called into
question the special tax arrangement the industry has with our local
government. He noted that ``a tax exemption certificate incentifies a
company to invest capital and protect that investment from unknown
future costs.'' I asked then and I asked now, isn't $6 billion worth of
canned tuna exported from American Samoa a reasonable enough incentive?
I thank the U.S. Department of Labor for pointing out the
following, and I quote, ``the American Samoa government provides
medical facilities for sick or injured employees and their families.
This allows employers not to provide health insurance or other benefits
that might be subsidized by employers in the U.S. Even assuming a
modest health insurance plan costing $1,000 per employee per year, the
savings for the tuna processing industry's more than 5,000 workers
would be more than $5 million.''\25\
---------------------------------------------------------------------------
\25\ Id. 65.
---------------------------------------------------------------------------
I would also like to make a statement about pensions. In doing so,
I would invite members of this committee to visit the villages of
Amanave, Vatia, Tula, Aunu'u and Onenoa. Visit these villages at about
two or three in the morning and see our Samoan women dressed in their
white uniforms waiting to catch their one-hour long bus ride to the
canneries. Then visit the canneries and again observe these same women
cleaning fish and standing for some eight hours each day. After twenty
years of service these women are rewarded for their efforts with a
pension check of about $40.00 per month, compliments of Heinz
Corporation/Star Kist of Samoa Packing/Chicken of the Sea/Thai Union.
Committee members, when I think about our 45 year relationship with
the tuna industry, I am reminded again of the floor debate that took
place in the U.S. Senate in 1937 over minimum wage and fair labor
standards. During the course of the debate, Senator Black of Alabama
reminded his colleagues about the history of the lumber business in
Mississippi. He said:
A great deal of timber has been taken from the virgin forests
of the South and of the West, but originally in the main it was
not taken out for the benefit of those who lived in that
section. The dividends went North. The wages stayed South. The
wages were very small indeed. All over that section one may
find ghost villages. Some of those who lived there had worked
for wages so low that they were helpless to take care of
themselves for a week after the trees were gone and the plants
were closed.\26\
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\26\ 74 Cong. Rec. S. 7649-50. (1937).
I can't help but wonder how long a woman who has worked day in and
day out for 20 years cleaning fish for a multi-billion dollar
corporation can care for herself on a pension of $40 per month.
To a man from Mississippi who wrote to Senator Black advocating
higher wages in the South, the Senator said:
Perhaps the gentleman from Mississippi who wrote this letter
was somewhat familiar with the history of the lumber business
in Mississippi. Perhaps he had traveled over that great state.
Perhaps he had seen stumpage that was left, and how the winds
would come and blow the dust about from place to place. Perhaps
he had read the article in last week's Saturday Evening Post
about unknown multimillionaires. Perhaps he read about one of
those who had taken the timber from the State of Mississippi,
not to enrich the laborers who worked in his mill from 10 to 14
hours per days. If Senators will read the article in the last
week's Saturday Evening Post, they will find where
Mississippi's virgin forests went, and in whose pocket the
proceeds from them were finally found.\27\
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\27\ Id. 7649.
Committee members, just as the lumber industries left Mississippi
the tuna industry will one day take its proceeds and leave American
Samoa. Heinz Corporation/Star Kist and Chicken of the Sea/Samoa
Packing/Thai Union are not going to be part of American Samoa's economy
forever. I predict these canneries will leave American Samoa in another
7 to 10 years, if not sooner. Our leaders and our people need to face
up to this reality and we must remember, these companies are here to
make a profit on their investment, and only that--a profit.
Looking at the situation globally, countries like Columbia, Peru,
Ecuador, and Bolivia as part of the Andean Agreement, are all pushing
for duty free imports of canned tuna to the United States similar to
NAFTA and the Caribbean Basin Initiative. The countries of Japan, Costa
Rica, and Italy can now export yellow fin tuna to the United States.
You can be sure that Star Kist and Chicken of the Sea are going to find
ways to maximize their profits in other locations, and leaving American
Samoa to do it will be a reality as long as labor can be bought for 30
cents an hour in other parts of the world.
But as long as the canneries choose to operate on American soil,
they should be required to abide by fair labor standards enacted to
protect those who do not have the means to lobby Congress for an
increase in minimum wage. As noted on page 37 of the U.S. Department of
Labor's Economic Report for 2001:
The American Samoa minimum wage Committee is required to
recommend the Mainland Federal minimum wage unless evidence
`establishes that the industry, or a predominate portion
thereof is unable to pay that wage due to such economic and
competitive conditions.\28\
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\28\ U.S. Department of Labor. Economic Report: The Minimum Wage in
American Samoa, 2001. 37.
For the record, I would like to note that in 1986 Special Industry
Committee No. 17 following routine hearings and investigation concluded
that the minimum wage for American Samoa could be raised to the
mainland level without risk that it would ``substantially curtail
employment in the industries'' of the island.''\29\ However, before the
Committee's recommendations could be enacted, the Department of Labor
explained that ``several interested groups'' commenced litigation to
have them set aside. I hope this will not be the case should this
Committee find that the tuna industry can and should increase its
minimum wage rate.
---------------------------------------------------------------------------
\29\ CRS Report for Congress. Minimum Wage in the Territories and
Possessions of the United States: Application of the Fair Labor
Standards Act. June 16, 1999, p.9.
---------------------------------------------------------------------------
I would like also to note that in 1999 Special Industry Committee
No. 23 recommended an increase of 3 cents per hour for Samoan fish
cleaners. This wage increase, as reviewed and implemented through the
Wage and Hour Division of the U.S. Department of Labor, was a farce and
a sham, and quite frankly, an insult to the Samoan fish cleaners in the
Territory. I hope such a pittance of an increase is never recommended
again.
I also hope that as the Committee reviews the evidence to be
presented by the canneries that it will keep in mind CROW's Nest
November 1999 in-depth report on the status of the tuna industry.
It was reported that a change in the way Heinz accounts for
its tuna inventories means its older products are still tallied
at higher prices, depressing profits . . . . [The report also
states] that in April of 1999 the company became aware of
operational and accounting irregularities in its Ecuador tuna
processing facility and expensed $10.0 million as an estimate
of the losses. In the first quarter, the company recognized an
additional $20.0 million of expenses related to this
facility.\30\
---------------------------------------------------------------------------
\30\ CROW's Nest. November 1999.
I hope Special Industry Committee No. 24 will not make Samoan fish
cleaners pay for the way Heinz tallies its inventories or mismanages
---------------------------------------------------------------------------
its Ecuador facility. As noted in CROW's industry report:
StarKist is the leading brand of canned tuna in the United
States, followed by Bumble Bee and Chicken of the Sea. The
competition among the three brands in the U.S. market has been
fierce. It has been announced that StarKist will be advertising
for the first time in 10 years to reinforce brand loyalty.\31\
---------------------------------------------------------------------------
\31\ Id.
I ask again, should the wages of any fish cleaner in the world be
suppressed to pay for corporate competition? Should wages be suppressed
to pay the former CEO of Heinz $65 million a year? Should wages be
suppressed by a company that generates $9.4 billion in annual sales? It
is naive to assume that a company that generates $9.4 billion in sales
is operating so close to the edge that it cannot afford to raise the
wages of workers in American Samoa.
To those who make the case that secondary businesses in American
Samoa will suffer if the minimum wage is increased, I submit that
history teaches us that the multiplier effect works both ways. When
wages were raised in the South at the height of the 1938 minimum wage
debate, what happened? The South prospered as it never had prospered
before.\32\
---------------------------------------------------------------------------
\32\ 74 Cong. Rec. H. 7268. (1938).
---------------------------------------------------------------------------
Now I would like to address the subject of increased wages for
employees of the American Samoa government. I want to say from the
outset that I support Governor Tauese's efforts to stabilize our local
economy. He has my full support and I will do everything I can to
assist him in his efforts to create a better future for the people of
American Samoa.
While many have said that ASG is the second largest employer in the
Territory, the fact of the matter is 70% of the money ASG utilizes each
year comes from the Federal government. As the Bank of Hawaii sates in
its 1997 Economic Report for American Samoa, ``the main business of ASG
is the management and distribution of federal income and capital
subsides.''\33\
---------------------------------------------------------------------------
\33\ Bank of Hawaii Economic Report for American Samoa. p. 14.
(1997).
---------------------------------------------------------------------------
According to the U.S. Department of Labor\34\ and ASG fiscal
reports for 1996, the federal government provided for 64% of ASG's
budget through Congressional appropriations and other federal
assistance and grant programs. In 1997, funding from the federal
government accounted for 67% of the Territory's total budget. Audit
reports for 1998 to present have not yet been released but I suspect
that for the past ten-year period the federal government has provided
for nearly 70% of ASG's total budget and expenditures. The remaining
30% of ASG's operating budget comes from individual income taxes,
corporate taxes, excise taxes, and other duties and surcharges.
---------------------------------------------------------------------------
\34\ U.S. Department of Labor. Economic Report: The Minimum Wage in
American Samoa., 2001. 61.
---------------------------------------------------------------------------
What does this mean? This means that we must begin to account for
how we manage and distribute our federal dollars before we can have a
serious discussion about an increase in the minimum wage rate for
government employees. I will state for the record that I fully believe
the working men and women of American Samoa deserve and are entitled to
an increase in the minimum wage rate. I will also state that I believe
there is currently a wage disparity between government officials and
the lower echelons of government workers. That is why I believe it is
incumbent upon this Committee to narrow the disparity by increasing
wages for the 41% of government employees who are making less than the
mainland minimum wage. Surely, if we can find the funds to increase the
salaries of our government officials or elected leaders, we should
certainly be able to fund increases in wages for our government
employees.
However, we should keep in mind that according to ASG's quarterly
financial report for December 31, 2000, the local government is in
``serious financial and cash flow difficulty.''\35\ The estimated
general fund deficit is at $39 million. In other words, ASG owes a lot
of money to a lot of people, including $4.5 million to the working
people of American Samoa for tax refunds past due unless this problem
has now been remedied.
---------------------------------------------------------------------------
\35\ American Samoa Government Quarterly Financial Report. December
31, 2001. 1.
---------------------------------------------------------------------------
In addition to its $39 million deficit, ASG also has a long-term
debt of $18 million. Put another way, ASG has overspent its budget
every year for the past decade. It is now estimated, and I further
quote from the ASG quarterly financial report, ``that ASG will have an
operating loss of between $4 to $6 million in FY 2001 . . . . Combined
with the accumulated losses of prior years, ASG is facing a cash and
financial crisis of enormous proportions.''\36\ If action is not taken
immediately, ASG may not be able to meet its payroll, much less provide
for an increase in minimum wage.
---------------------------------------------------------------------------
\36\ Id. 3.
---------------------------------------------------------------------------
Given our present set of circumstances, it is difficult to ask the
federal government to pick up the tab for any additional increases in
funding. However, if we are serious about expeditiously moving our
wages to more reasonable rates, I believe one of the things we must re-
think is our local tax structure. As you are aware, Congress recently
passed legislation which would reduce federal taxes by $1.35 trillion
over ten years. Under American Samoa's tax law, this change in federal
law will become applicable in the Territory unless ASG enacts a local
law to prevent the change from taking place.
As every single item in the bill is either a reduction in taxes, an
increase in tax credit, or an increase in the availability of tax
reductions, we can be fairly certain that the change will reduce the
income ASG is expecting for current and future years. Given ASG's
current financial situation, I hope ASG will take a hard look at this
bill and decide very soon whether to reduce government expenditures to
compensate for reduced revenues or to enact a new local law which would
make all or part of the bill passed by Congress not applicable to
American Samoa.
I would also hope that during the course of these deliberations,
ASG would take a hard look at its corporate income tax structure. It is
my understanding that after corporate tax returns are filed, there are
routinely disagreements between ASG and the canneries, for example, as
to the correct amount of taxes to be paid. In the past this has
resulted in protracted negotiations and audits of the canneries'
financial records to determine if the correct amount of taxes have been
paid. After two or three fiscal years have passed, our canneries
continue to contest the amount of corporate taxes they owe ASG. As
such, ASG finds itself in cash flow difficulty and short in revenue
collections. Is it any wonder ASG ends up financially strained?
I have suggested before, and I wish to suggest again, that perhaps
it is time to change our local laws so that the canneries pay a fixed
tax based on a fixed unit of production. I think it is fair to mention
that in 1956 Van Camp's original agreement with ASG provided for
increased duties and rents based on increased production. I believe the
idea still has merit today. Quite frankly, I believe this taxing regime
would have several advantages including simplification of the
determination of the corporate tax owed to ASG, certainty to both ASG
and the canneries of the amount of tax to be paid, timely payment of
the tax owed, and a substantial reduction in the amount of money spent
on tax audits and compliance. Presumably, these savings could be used
to increase employee wages while maintaining acceptable corporate
profits.
While this Committee cannot make recommendations as to the taxing
policy of the local government, I wish to note my concern at this time,
and I hope that this suggestion will be given due consideration as part
of a broader effort to improve our economy. As a matter of public
policy, I believe it is time for tax rates to be publicly debated and
defined by our local government. In this manner, tax rates would be
known in advance by any investor or industry wishing to conduct
business in the Territory. In turn, ASG would have a better sense of
what it could expect in tax revenues. Simply put, every business should
be placed under a uniform and standardized period of tax holidays,
exemptions, and corporate tax rates.
As an example, a company that wants to conduct business in Western
Samoa is entitled, by law, to a seven-year tax exemption period.
Afterwards, that company pays the same tax rates as others. This causes
me to question why our canneries have been given special tax exemptions
for the past 40 years. It also causes me to question why some
businesses pay one rate while others pay another. I am convinced that
if a uniform and standardized tax law is enacted, this Territory could
avoid providing inconsistent and prolonged tax holidays and exemptions.
I also believe the Territorial Tax Exemption Board has served its
usefulness. ASG needs to standardize, by law, corporate tax rates,
exemptions, tax holidays, and capitalization requirements so that the
Tax Exemption Board can be terminated. The Governor need not be
burdened with such discretionary authority.
I also want to make a comment about immigration. Some reports
suggest that there are as many as 10,000 illegal aliens residing in the
U.S. Territory of American Samoa. Any way you cut it, our Territory
cannot absorb the associated costs of playing host to 10,000 illegal
aliens. Neither should we continually look to import labor as a means
of economic development.
I still maintain that the working people of American Samoa deserve
to be paid a minimum standard of decent living. But we must work
together to bring this change about. We must re-adjust and re-define
our tax policies. And we must insist that our canneries pay fairer
wages and corporate taxes.
I want to end with the same proposition with which I began. I
believe that the right to live is higher than the right to own a
business. I welcome business. I am for business. I support the need for
business to make a reasonable profit. But to paraphrase President
Franklin D. Roosevelt, I will not let a calamity-howling executive with
an income of $65 million a year tell me that a wage increase in
American Samoa is going to have a disastrous effect on the entire tuna
industry.\37\
---------------------------------------------------------------------------
\37\ Franklin Roosevelt. Public Papers and Address. Vol. VII. (New
York, Random House, 1937). 392.
---------------------------------------------------------------------------
After more than 45 years of rapid, uninterrupted and unsurpassed
return of prosperity to the tuna industry, it is time for the U.S.
Department of Labor to support a scheduled movement of minimum wages
that is commensurate with today's costs and standard of living which
still has not been properly determined by this Committee or ASG. What
is more aggravating is that about 10 years ago, the per capita income
in the Territory was about $6,500. Now it is about $3,500 or less, yet
consumer prices have increased. These trends are unacceptable and must
be immediately addressed.
During the 1938 House debate on Fair Labor Standards, Congressman
Maverick of Texas said, and I quote:
For my part, I want the laboring people in my section of the
country to exercise [a] spirit of independence . . . and demand
that we have better standards of living . . . .No, I don't want
my people to be docile, bowed-down beggars, but upstanding
courageous Americans demanding all their rights . . . . Yes
sir, I want them to demand the same wages as those received by
the rest of the people of the United States of America.\38\
---------------------------------------------------------------------------
\38\ 74 Cong. Rec. H. 7292 (1938).
I can assure you that I want the same for the people of American
Samoa. I realize reorganization and change is not going to be an easy
matter. But the principle of minimum wage is sound. The U.S. Congress
believed the principle was sound in 1938 and I believe the principle is
just as sound today.
For those who oppose the principle of minimum wage, I borrow these
words from Congressman Cochran of Missouri:
All I ask is for those who oppose [a minimum wage] to stop
and think for a moment, and then publicly let the people in
their community know their opposition. Let them put themselves
in the place of the workers we seek to help and see how soon
they would change their views. We are not only doing something
for the employee but we are also assisting the employer,
because the increase in wages means an increase in buying power
which brings better business . . . . In setting this standard .
. . we strike at those who for years have exploited their
labor; at those who furnish unfair competition by selling their
products at a price far below the producer who pays his
employees a fair wage . . . . Those who care nothing about a
reasonable standard of living for others so long as they can
reap a harvest in dollars, those who deny a reasonable share of
the profits of their industry to men and women who are
responsible for those profits and those who would pay
themselves hundred of thousands of dollars in wages and bonuses
annually, at the same time paying starvation wages to their
employees, for selfish reasons oppose this legislation.\39\
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\39\ Id 7409-10.
While some oppose, I think it is important for the rest of us to
remember that ``it is the community that cares for its citizens when
exploiters of labor refuse to do so.''\40\ Neither our local government
or our Federal government can continue to carry the full weight of
exploitation. Mr. Chairman and Committee members, I urge you to hold
the tuna industry more accountable in its labor dealings so that we can
begin to more fully address the serious economic conditions facing this
U.S. Territory.
---------------------------------------------------------------------------
\40\ Id. 7410.
---------------------------------------------------------------------------
In closing, I just want to say that some members of the community
have been critical of my participation in these hearings, suggesting
that minimum wage issues are not part of the Congressman's
responsibilities. But the fact of the matter is I am a federal official
responsible to the people of American Samoa on any and all issues where
there is involvement of the federal government. In this instance, these
hearings are federal in nature. The operations of this Committee come
under the purview of a federal law. The U.S. Department of Labor is the
federal agency responsible for carrying out the intent of the Congress.
And the more I look into this matter, the more I realize there are very
serious issues that need to be brought out for public discussion and
review. This is why I am here testifying before this Committee just as
I testified two years ago and two years before that.
At each hearing, I always keep in the back of my mind a discussion
the late Congressman Phillip Burton and I once had when I worked as a
staff counsel to one of the Congressional Committees he chaired. As
many may be aware, Congressman Burton was a national leader and a great
advocate and champion of the rights of working men and women throughout
America. At a time when we were discussing the issues of corporate
business and the labor movement, Congressman Burton turned to me and
said, ``Eni, don't worry about those large corporations because they
can afford to pay high priced teams of lawyers to protect their
interest, but it is the little guy out there who is struggling to make
a decent salary to support his family that you need to watch out for,
and I trust that you will not forget that.''
Mr. Chairman and members of this distinguished Committee, as you
thoroughly review all aspects of the minimum wage rates in American
Samoa, I also trust that you will not forget that. For the past 40
years, and in the absence of any established labor unions to look after
the needs and rights of the working men and women of this Territory,
the wage rate in American Samoa has always tilted in favor of
corporations and management. I submit that it is time for the wage rate
to tilt in favor of the working people in this Territory struggling to
support their families. So that there may be fairness and equity in the
process, I urge Special Industry Committee No. 24 to grant a more
reasonable increase in the minimum wage rate.
The Chairman. Thank you very much.
Governor Tulafono, you are welcome as a witness here. We're
very pleased to see you. If you wanted to add anything to what
your Congressional Representative has said, we're glad to hear
it.
STATEMENT OF HON. TOGIOLA T.A. TULAFONO, GOVERNOR, AMERICAN
SAMOA
Mr. Tulafono. Thank you very much, Mr. Chairman. I
apologize for walking in a little late and interrupting your
process here.
The Chairman. Not a problem.
Mr. Tulafono. Talofa greetings to you, Mr. Chairman and
your honorable committee. I would also like to say good morning
to his Excellency Fitial and all, the Congressman Faleomavaega
and the rest of the witnesses here. I greatly appreciate the
opportunity and invitation to testify before your committee on
the urgent need for the remedial legislation addressing the
minimum wage increases that Congress has mandated for American
Samoa.
I also wish to raise with the committee an underlying
concern over Federal policy consistency necessary to foster
economic development in American Samoa. In view of the
committee's tight hearing schedule I ask that my full statement
with attachments be inserted into the hearing record and you
will receive that. I will summarize just the chief points of
that written testimony.
In the 1960s the Federal Government initiated a policy of
economic development and in the 1970s a policy of self
government for American Samoa. Since then the American Samoan
government has utilized every opportunity to lift up the
territory from a subsistence economy. We've made progress, but
our per capita gross domestic product sale amounts to only 22.8
percent of the national average. Our per capita income amounts
to just one fourth of the national average.
In these two measurements American Samoa ranks the lowest
of all the territories. The Labor Department's January 25,
2008, report to Congress describes the economy of American
Samoa as small, developing and fragile. My administration
remains absolutely committed to raise the standard of living in
American Samoa through economic development.
The private sector as well as the people of the territory
share this goal. To achieve that objective my administration
hopes to implement a business development program similar to
initiatives undertaken by a number of United States. If
American call centers can operate in India and Guatemala they
can certainly operate in American Samoa. At each turn however,
whether due to trade and tariff modifications, tax changes or
minimum wage legislation, our efforts to foster growth and
raise the living standard in the territory seem to run into
Federal roadblocks.
This leads me to my second and crucial point. As part of
last year's minimum wage increase Congress mandated that $7.25
an hour Federal rate fully applied to American Samoa. This
replaced a program that had adjusted the territorial minimum
wage upwards in step with economic growth.
The new mandate was enacted without considering the
consequences in the territory. The legislation did instruct the
Department of Labor to assess the impact after the fact. The
Department now reports that imposing the regular Federal rate
in the territory has disastrous consequences.
The advanced economy of the United States, states can
support a much higher wage rate than a developing economy in
American Samoa. At its current level of economic development
the Department concluded American Samoa cannot sustain a rate
which is set for the States. The mandated increase for the
American Samoa economy, the Department explains is equivalent
to imposing a $16.50 hourly minimum wage on the States. The
economic and political fallout of such a drastic hike for the
United States economy is obvious. The territory must not
contend with these very consequences.
The Labor report as well as an early Interior Department
study anticipate massive run up in operational costs for
businesses as well as the government in the territory. Total
private sector wages paid in American Samoa amount to $120
million annually. The mandated Federal minimum wage will
increase wage expenses by $40 million. The territorial economy,
the report says, cannot sustain this 33 percent run up in
operating cost. As a result, nearly half of the jobs in
American Samoa will be lost and services eliminated.
Under this Federal mandate the American Samoa government
must also pay higher wages. The Labor Department reports that
payroll cost for the territorial government will increase by
$7.2 million a year at a time when due to a faltering
territorial economy our receipts are declining. As the Labor
Department report states the territorial government will then
face the difficult choices of trimming work hours for public
sector workers, raising taxes and cutting programs.
These budgetary problems caused by the congressionally
mandated wage hike will require supplemental Federal
appropriations. Economic contraction of the public and private
sector carries dire economic and social costs for American
Samoa. What remains of the territory's economy will depend
almost exclusively on Federal Government funding.
Remedial legislation is desperately needed, Mr. Chairman. I
urge expedited enactment of corrected legislation along the
lines which you, Mr. Akaka, are delicate. The Honorable Senator
Inouye had recommended in a May 18, 2007, letter to
congressional leaders. Future increases of the minimum wage in
American Samoa should be contingent on the Secretary of Labor's
determination through the Bureau of Labor Statistic Analysis
that such increase will not cause adverse impact on the
American Samoa economy.
To provide sufficient time for the analysis and
determination the adjustment should occur every 2 years. Our
delegate has introduced such a proposal. Disastrous effect of
the mandated wage increase for the territory highlights an
underlying concern.
In the rush to include the minimum wage increase in the
United States troop readiness, veterans care, Katrina recovery
and Iraq Accountability Appropriations Act, Congress had little
time to weigh the impact on American Samoa. This is partly due
to the lack of timely economic data collection for American
Samoa and partly due to scant awareness of a very small,
distant part of the country.
In other legislation the President and Congress have
changed United States trade and tax policies also to the
detriment of American Samoa. Without full awareness of the
impact these policy changes have led to the termination of
economic development programs for the territory. My full
statement refers to the specific tax and trade programs.
Some of the changes cannot be undone. The United States has
entered into binding trade agreements ending the quota and
tariff references for territorial products. The preferences
cannot be reinstituted.
Consequently reliance must be placed on other Federal and
in territorial provisions to encourage economic growth in
American Samoa. These tax and appropriation measures are
described in my full testimony presented. I request the
committee's support for these proposals. A clear coordinated
and consistent Federal policy for territorial economic
development is needed.
In conclusion, the Government Accountability Office in 1985
and again in 1994 had called attention to the lack of a clearly
defined and coordinated Federal policy for American Samoa's
economic development. In its 2006 and 2007 reports GAO
repeatedly stressed a need for policy and program coordination.
That consistency and coordination have not occurred as
demonstrated in the changes to the Federal minimum wage, tariff
and trade preferences and tax programs. These changes have
drastically impacted American Samoa.
Mr. Chairman, this committee has been acutely sensitive to
the ramifications of Federal policy change has on American
Samoa. In particular, you and Senator Akaka sought to modify
the 2007 minimum wage legislation to reflect actual economic
conditions in the territory. On behalf of the people of
American Samoa I wish to express appreciation for your attempt
to ward off a well meaning, but disastrous legislative mandate.
Now that the Department of Labor has documented a dire
impact of the 2007 legislative change on American Samoa, I
urgently request this committee and Congress to enact timely
remedial legislation. Committee support for additional
enactment of the tax and appropriation measures to correct the
unintended, but very real consequences of past legislation is
also needed.
We, in American Samoa, are proud to be Americans. We have
served our country will valor and devotion. Remedial
legislation will help us to develop our economy so that we can
stand with other territories and the 50 States as one nation.
Thank you very much.
[The prepared statement of Mr. Tulafono follows:]
Prepared Statement of Hon. Togiola T.A. Tulafono, Governor,
American Samoa
Talofa and greetings Chairman Bingaman and honorable members of the
Committee. I greatly appreciate this opportunity to testify before the
Committee on the urgent need for remedial legislation addressing the
minimum wage increases that Congress has mandated for American Samoa. I
also wish to raise with the Committee an underlying concern over
federal policy consistency necessary to foster economic development in
American Samoa.
I. CURRENT ECONOMIC CONDITIONS IN AMERICAN SAMOA
American Samoa's transition from a subsistence economy began in the
1960's with road, airport, health care, and school modernization. The
Federal Government also instituted a policy for territorial self-
government. Since 1977 American Samoa has elected its own governor.
Over the past fifty years, the territory has made significant progress,
but in its January 25, 2008 report to Congress, the Department of Labor
states that the territory's economy is still small, developing, and
fragile. Similarly, in hearings before this Committee on March 1, 2006,
Deputy Assistant Secretary David Cohen of the Department of Interior
stated, ``American Samoa has the narrowest economic base'' of the four
territories. To document this point, Secretary Cohen noted that the per
capita gross domestic product (GDP) in American Samoa ranks far below
the other territories.
Further evidencing the necessity of additional economic
development: (1) American Samoa has a per capita income that is only
one-fifth that of the rest of the United States. (2) The territory has
a large number of subsistence workers who cannot find paid employment.
(3) 88% of all farms in the territory operate on a subsistence basis.
(4) Despite a large out-migration of American Samoans to the United
States, the territory still has a young population that is growing
three times faster than the national growth rate. (5) The territory's
income primarily comes from two fish canning operations and from the
Federal Government's operational and capital grants. (6) Recent
employment gains in the territory have occurred mainly in low wage
sectors. Even in the low-wage sectors, however, the territory is at a
competitive disadvantage to the Philippines and Thailand where wages
are a fraction of the mandated federal minimum wage in American Samoa.
The Federal Government had provided trade and tax incentives for
economic development in American Samoa. Although federal funds play a
significant role in the territory, the per capita rate of federal
expenditures in American Samoa is half that for the rest of the
country. Reliance on the private sector had to be fostered.
Specifically, preferential quota allocations, particularly for canned
fish, as well as favorable tariff treatment and federal tax credits
allowed American Samoa to develop a seafood canning industry. As a
recent Department of Interior-funded study has reported, the fish
canning industry is the mainstay of the territory's economy. The two
canners in American Samoa directly employs half of the territory's
entire workforce directly and indirectly.
The growth of the fish canning industry has boosted employment and
spurred development in the territory. Such a heavy reliance on two
canneries however is not economically sound, and my Administration with
assistance from the Department of Interior has pursued every
opportunity to diversify the territory's economy. The territorial
government has actively promoted business investment opportunities in
agriculture, fisheries, tourism, call centers, electronic information
processing, and an international fiber optic cable connection for
American Samoa. If American call centers can operate in India and
Guatemala, they should certainly be able to operate in American Samoa.
But such investments have been deterred by the erosion of existing
federal policy and inconsistent federal action towards American Samoa.
II. INCONSISTENT FEDERAL ACTION TOWARDS AMERICAN SAMOA
To implement a policy of global trade expansion, the United States
has negotiated a series of trade agreements. These agreements have the
effect of reducing and soon ending the quota and tariff protections for
American Samoan products. In addition, as part of a budget offset
measure, Congress repealed the possession tax credit that had
stimulated investments in American Samoa. The subsequent reports of the
Government Accountability Office and Joint Committee on Taxation Staff
raise concerns over the adverse effect on American Samoa. As a result,
Congress has temporarily delayed full repeal of the tax credit. The
temporary delay assists only the two cannery operations that had
previously qualified for the credit. The temporary credit extension
does not apply to new businesses that might start up in the territory.
The loss of trade and tax incentives renders existing cannery
operations in American Samoa far less economical. Even starker is the
effect on the diversification and development of the territory's
economic base. Changing federal policy, with little regard to the
impact on the territory, has crippled efforts to start new businesses
in American Samoa. Furthermore, as the Department of Labor report to
Congress states, legislation in 2007 mandating annual increases of the
minimum wage in American Samoa hobbles the territory in dealing with
the threatened cutback of cannery operations.
Recognizing that the territory's economic level is far below that
of the 50 states, Congress had previously decided to establish the
federal minimum wage rate in American Samoa proportionate to economic
development. Under a procedure that had been applied to Puerto Rico and
the Virgin Islands, Congress adjusted the minimum wage in American
Samoa administratively every two years so as to reflect the territory's
progress. Such adjustments therefore were economically sustainable not
throttling the economy. The biennial adjustments over time would raise
the minimum wage in the American Samoa to parity with the regular
federal rate as had occurred in other territories.
In Public Law 110-28, the U.S. Troop Readiness, Veterans' Care,
Katrina Recovery, and Iraq Accountability Appropriations Act of 2007,
however, Congress increased the regular federal rate nationwide.
Congress also mandated an immediate 50 cent increase in the hourly
minimum wage rate for American Samoa as of July 24, 2007 with an
additional 50-cent increase every year thereafter until the minimum
wage in the territory matches the new federal rate of $7.25. This
minimum wage hike for American Samoa, similar to past tariff and tax
changes, was inserted in the rush to enact the larger legislation
without assessing the impact on the territory.
That legislation did call for an after-the-fact review of the
consequences. The Department of Labor has now submitted that report to
Congress and the report predicts bitter results for the people of
American Samoa. The Department illustrates the impact in a telling way.
At the relative level of economic development in the territory, the
mandated wage increase is equivalent to imposing a $16.50 federal
minimum wage requirements on the states. The economic and political
fall-out of such a drastic hike for the United States' economy is
obvious. The territory must now contend with these very consequences.
III. ECONOMIC IMPACT AND REMEDIAL PROPOSALS
A. Minimum Wage Legislation
The regular federal rate reflects the United States' advanced
industrialized economy. American Samoa needs to undergo major economic
development to match the United States' economic level. In the 2006
hearings, the Department of Interior reported that per capita GDP in
American Samoa amounted to $9,041 which is equal to 34.4% of per capita
GDP in the lowest of the states and 22.8% of the national average. This
also compares to a higher $13,350 per capita GDP in the Commonwealth of
the Northern Mariana Islands, $22,661 on Guam, and $25,815 in the
Virgin Islands.
Per capita income in American Samoa is also the lowest of the
territories and only one-fourth that of the United States. Can the new
minimum federal wage rate which reflects a developed, industrialized
economy be sustainable in American Samoa? To this question, the
Department of Labor reports that American Samoa cannot sustain the
mandated increase. The report notes that 77.8 percent of workers in the
territory currently earn less than the mandated hourly minimum wage.
Raising hourly wages to $7.25 an hour, the report says, will
result in an increased wage bill of $40 million per year
across all American Samoa industry sectors. Based on the $120
million annual payroll across all American Samoa industries
reported by the 2002 Economic Census, this would represent a 33
percent increase in wage costs. General economic experience
suggests that it is not likely that such an increase in wages
could be absorbed through increased productivity, reduced
profits, or higher prices passed along to consumers.
The separate Department of Interior-financed study of the minimum
wage impact on the fish canning industry also predicts the closure of
the two canneries in the territory. From this economic analysis, the
Department of Labor concludes that losing the canneries would eliminate
44 percent of all jobs in American Samoa. The economic contraction
would increase shipping and utility costs for the remaining sectors.
Moreover, the remnants of the territory's economy would depend almost
exclusively on Federal Government funds to survive. The study funded by
the Interior Department is attached as Appendix 1.
These budgetary problems caused by the congressionally mandated
wage hike will require supplemental federal appropriations. Given the
stark assessment of the Labor Department's report as well as the of the
Interior Department's study, I request expedited enactment of remedial
legislation along the same lines that you Mr. Chairman had outlined
with Senator Akaka and our Congressman in a letter on May 18, 2007 to
congressional leaders. Future increases of the minimum wage in American
Samoa should be contingent on the Secretary of Labor's determination
(through the Bureau of Labor Statistics' analysis) that such increase
will not cause adverse impact on the American Samoan economy. For the
Bureau of Labor Statistics to have sufficient time to conduct a
substantive analysis, future increases should occur every two years.
Our Congressman has introduced such a proposal.
Legislative inadvertence towards the territory is partly due to the
fact that the Bureau of Labor Statistics and the Census Bureau do not
collect timely economic data on American Samoa. Regular data collection
provides Congress with ample details on labor, employer, and household
conditions in the 50 states, the District of Columbia, Puerto Rico, and
the Virgin Islands. But the lack of such data for American Samoa leaves
Congress and the federal Departments unaware of the economic
consequences to a very distant part of the country. The remedial
legislation should also require such data collection. A proposal is
attached as Appendix 2.
B. Tax Credit
As earlier stated, federal policy had provided an incentive in the
tax code for economic development in the territories. To offset tax
expenditures in other areas, Congress later repealed this section 936
possession tax credit and provided a temporary economic activity credit
as a phase-out measure. Subsequently, the Senate Finance Committee
requested the Joint Committee on Taxation to report on the tax and
economic policy implications of the repeal again after the fact. The
Finance Committee also requested the Government Accountability to
report on the economic impact of federal tax policy on the territories.
The two reports were submitted to Congress in 2006. To secure time to
review its legislative options, Congress delayed the full repeal of the
tax credit for American Samoa through 2007.
As a further stopgap measure, the House Ways and Means Committee in
section 333 of the Temporary Tax Relief Act of 2007, H.R. 3996, would
have temporarily extended by one additional year the economic
development credit for American Samoa. The House committee explained
that ``it is important to encourage investment in American Samoa. With
the expiration of the possession tax credit, the American Samoa
economic development credit is an appropriate temporary provisions
while Congress considers long-term tax policy toward the U.S.
possessions.'' The end-of-the-year legislative calendar, however,
prevented the House from acting on this limited extension which would
have applied only to taxpayers that were already qualified.
At this Committee's hearing in 2006 I had stated that without a
consistent federal policy American Samoa would be unable to foster
economic growth. The Government of American Samoa therefore suggested
enactment of a federal economic development tax program consistent with
longstanding tax principles. The proposal has been introduced in the
House of Representative by our Congressman as H.R. 1916. It extends the
present section economic activity credit for a longer period so that
businesses can make plans and undertake investments with assurance of
qualifying for the credit. And it makes the credit available for all
business ventures so as to encourage economic diversification in
American Samoa.
I request this Committee's support for expeditious enactment of the
proposal. The loss of trade incentives for our economic development
places greater reliance on alternative programs. The proposed economic
development tax incentive is such an alternative. The proposal is
attached as Appendix 3.
C. Territorial Operational Costs and Job Incentive Program
Increased business development in American Samoa depends on
attracting investments from the United States. The economic development
in American Samoa requires the cooperation not only of the Federal
Government but also of the private sector, the people, and the
government of the territory. The Government of American Samoa is
absolutely committed to developing the territory's economy for the
purpose of raising our people's standard of living. In addition to
federal initiatives, the territory should create a local development
program just as the states have.
Following the recommendations of the American Samoa Economic
Advisory Commission, the Government Accountability Office, and the
Intergovernmental Group on Insular Areas, the American Samoa Government
has examined state development initiatives. These state programs offer
economic incentives to businesses that commit to investments, hiring,
and long-term operations in the respective state. Utilizing the states'
experience, the territorial government has drafted a similar proposal
to promote business development. The proposal is attached as Appendix
4. Resources for this proposal, however, have had to be diverted to
cope with the problems produced by the federal minimum wage increase.
Higher government payroll costs to cover the past July and the
upcoming May minimum wage hike mandated by Congress, have curtailed
funding for new territorial programs and even existing programs. The
Department of Labor's assessment of the impact of the minimum wage
increase states: ``General experience in the U.S. and elsewhere has
shown that potential adverse employment effects of minimum wage
increases can be ... offset to some degree by an expanding economy that
is generating net employment growth. In a declining economy, any
adverse effects on employment will not be offset.'' Let me note that
the territorial economy at present is anemic and that the territorial
government must deal with falling tax revenues.
The Labor report also projects that the minimum wage increase for
territorial government workers alone will increase operating costs for
the Government of American Samoa by $7.2 million a year. The report
concludes: ``Paying for the increases in government worker minimum
wages will present a significant challenge to ASG [the American Samoan
Government]. . . . These increases may force ASG to make difficult
choices between reducing government payrolls, reducing available hours
of paid work, raising taxes, or cutting non-wage expenditures.'' I
would point out that the first 50 cent mandated increase last July has
already imposed added operational costs on the territorial government
as will the second increase coming in May. As a result, the American
Samoa Government may have to request supplemental budget authorization
and appropriations to cover the additional operational costs imposed by
recent federal legislation and to implement a local development
program.
IV. CONCLUSION
The Governmental Accountability Office in 1985 and again in 1994
had called attention to the lack of a clearly defined and coordinated
federal policy for American Samoa's economic development. In its 2006
and 2007 reports, GAO repeatedly stressed the need for policy and
program coordination. Policy clarification and coordination has not
occurred. In fact the changes to the federal minimum wage, tariff and
trade preferences, and tax incentive cited above are additional
setbacks. These changes have drastically impacted American Samoa.
Mr. Chairman, this Committee has been acutely sensitive to the
ramifications federal policy change has on American Samoa. In
particular, you and Senator Akaka sought to modify the 2007 minimum
wage legislation to reflect actual economic conditions in the
territory. On behalf of the people of American Samoa, I wish to
publicly express appreciation for your attempt to ward off well-meaning
but disastrous legislative mandate.
Now that the Department of Labor has documented the dire impact of
the 2007 legislative change on American Samoa, I urgently request this
Committee and Congress to enact timely remedial legislation. Committee
support for additional enactment of the tax, procurement and
appropriation measures to correct the unintended but very real
consequences of past legislation is also needed. We in American Samoa
are proud to be Americans and we have served our country with valor and
devotion. Remedial legislation will help us to develop our economy so
that we can stand with the other territories and the 50 states as one
nation.
Appendix 1.--American Samoa's Economic Future and the Cannery Industry
Prepared for: Department of Commerce American Samoa Government
Consultants: Malcolm D. McPhee & Associates with Dick Conway and
Lewis Wolman
february 2008
this report was prepared under a grant award from the us department of
interior, office of insular affairs
Introduction
This study was undertaken to assess American Samoa's economic
future especially in view of possible serious reductions in cannery
operations or even plant closures. Reasonable prudence requires hope
for the best but preparation for the worst. The benefit of such
preparations is that even if the worst economic scenario never
materializes, the program can still yield benefits in the form of
improved economic conditions for the residents and businesses of
American Samoa. That which is not required to combat economic adversity
can be dedicated to strengthening American Samoa's economic future, its
economic self-reliance, and reducing its dependence on the federal
government. The potential economic problems American Samoa faces could
arise from two primary sources.
CANNERY INDUSTRY INSTABILITY
In the next few years, American Samoa's canneries could seriously
reduce operations or shut down completely as a result of more
competitive foreign locations emerging from NAFTA, the Andean Trade
Agreement, WTO and other international trade and investment trends. Of
immediate importance to the canneries is the continuation of federal
corporate tax incentives in American Samoa and the recent dramatic
increases in American Samoa's minimum wage. The tuna canning industry
represents approximately one-half of American Samoa's economic base.
FEDERAL REVENUE INSTABILITY
There is also the possibility for reductions in federal financial
support. The federal government has played an important role in
American Samoa's development. It provides a net injection of federal
funds that represents the other one-half of American Samoa's economic
base. The federal government ranks very close to the canneries in
importance to the American Samoa economy. This means that declining
real federal expenditures could be a source of erosion in the American
Samoa economy. This could arise because of federal policies to reduce
insular area reliance on federal funds and rising federal deficits from
war, natural disasters, and rising domestic financial liabilities.
It is generally agreed that serious cannery cutbacks or closures
could have drastic impacts on population, employment, unemployment,
average incomes, and other indicators of economic wellbeing in American
Samoa. Multiplier effects could include precipitous declines in trades
and services industries and local government revenues as local
businesses sustain heavy economic losses and closures. Unlike the US,
American Samoa has no unemployment compensation benefits to extend in
hard times. Nor does it have monetary policy or the fiscal capability
to cushion such economic shocks. This could be an economic, political
and social nightmare. If unprepared, it could be truly catastrophic.
There are things that can be done to prepare for such an economic
contingency in the future.
The following will be undertaken in this study:
Economic Impacts of a Decline in Cannery Operations.--This will
include construction of an input-output model of how American Samoa's
economy operates. It will demonstrate how employment, income and
businesses would be affected by serious reductions in cannery
operations in American Samoa.
American Samoa's History, Culture and Economy.--This will also
include a critique of American Samoan aspirations for the future,
American Samoan attitudes toward economic development, and American
Samoa's relationship to the United States.
Short Term Response to Precipitous Cannery Industry Decline.--This
will include a review of local resources and programs to deal with
economic adversity, American Samoa's dependence on federal
expenditures, US Welfare Programs in American Samoa, and other sources
of temporary assistance for unemployed workers and vulnerable families.
Long Term Response to Cannery Industry Decline.--This will include
an evaluation of American Samoa's position in the US economic system,
approaches to economic growth and development and the evolution of
American Samoa's private sector.
The Private Sector Role in Economic Development.--This will include
a survey of the private sector for their views on the cannery
industry's future, closure impacts, and perspectives on future
development directions. It will include a review of private sector
economic development constraints and private sector economic
development opportunities.
American Samoa Government Role in Economic Development.--This will
include private sector views on the American Samoa Government's role in
economic development and the importance of public-private sector
collaboration in maximizing American Samoa's future economic welfare.
Federal Role in American Samoa's Economic Development.--This will
include an examination of federal development programs and policies
regarding the territories and the role of the federal government in
territorial development.
Summary of Conclusions and Recommendations
AMERICAN SAMOA'S ECONOMY
Need for the Project.--American Samoa's largest industry, the tuna
canning industry, is in danger of serious decline or actual plant
closures. Dramatic increases in American Samoa's minimum wage, the
possible loss of federal corporate tax incentives, and reductions in
international trade and investment barriers have all eroded the
competitive position of the cannery industry in American Samoa.
Project Purpose.--The purpose of this project is (a) to estimate
the effects on American Samoa's economy of any serious reduction in
cannery operations, (b) to determine what it would take to mitigate
those impacts in the short term, and (c) to determine policies and
programs to produce longer-term economic recovery and development.
American Samoa's Economic Foundations.--American Samoa's economic
growth rate and welfare depend primarily on the growth of its
industries or sectors that attract income to the territory. These basic
sectors are primarily canned tuna exports and federal financial aid.
This basic activity brings money into the economy and supports non-
basic activities, principally in trade, services, and local government,
through the multiplier or re-spending process. When there is a decline
in these basic activities, non-basic or secondary sectors contract
proportionately through the same multiplier process.
CANNERY INDUSTRY DECLINE IMPACTS
Economic Perspective, 1975-2005.--Since 1975, American Samoa
employment and population both grew at a 2.7 percent annual rate,
compared with national rates of 1.1 and 1.9 respectively. Cannery
employment growth and a substantial increase in federal expenditures
accounted for this high employment growth rate in American Samoa. In
2005, as in 1975, the canneries and federal expenditures accounted for
over 90 percent of American Samoa's economic base. Furthermore, the
territory's real per capita income growth, a better measure of economic
wellbeing, has shown healthy growth over the period. However, American
Samoa's per capita income remains only about one-fifth the US average.
American Samoa has the lowest per capita income in the entire US system
including 3141 counties, 50 states and the other US territories.
Prospects for American Samoa's Economy.--The American Samoa economy
faces an uncertain future. Much depends upon decisions made by the
federal government with regard to the minimum wage, tax incentives and
financial support. Even if the federal government continues its current
level of financial support, a doubling of American Samoa's minimum wage
in a seven-year period could spell the end of the fish processing
industry and a calamity for the economy. The economic devastation would
be exacerbated by rising prices and costs from arbitrary increases in
the minimum wage in other industries. Transportation, energy and
utility costs would rise because the canneries would no longer be
available to share those costs. Important as they are, these costs
would pale in comparison with the job and income losses.
The Worst Case Cannery Scenario Could be the Most Likely.--The
worst case scenario could cost American Samoa 8100 of its total of
17,300 jobs, 46 percent of all jobs in the territory. Most of these
jobs would be in the canneries, but there would be serious income and
job losses among all sectors including government. The full impact
would not be immediate and could occur over several years. In the end,
the economic losses would be massive. Such a calamity would take years
for the American Samoa economy to recover fully. (The economic impact
figures prepared for this report were used by the US Department of
Labor in their study of the impact of minimum wage increases on
American Samoa and the Commonwealth of the Northern Mariana Islands.)
A Long Period of Economic and Social Dislocation would Ensue.--Many
unemployed workers and families would not have good options for
relocation. US nationals may not be prepared for employment in the
states. Many citizens of independent Samoa have been here for many
years and have children who are US nationals having been born in
American Samoa. Furthermore, there is little economic opportunity for
them in their home country, Samoa. So, American Samoa faces a very
protracted economic recovery period in the form of very high rates of
unemployment, business closures or cutbacks and precipitous declines in
local ASG revenues. These conditions would have a variety of adverse
effects on the community. They would include increased family and
social stress which sometimes translates into criminal behavior
including domestic violence; declining economic opportunities for youth
entering the workforce; declining local revenues for health, education
and general public welfare; declining investments in capital projects
and maintenance; rising economic dependence on the federal government;
and fewer resources to preserve Samoan culture and the physical
environment.
ASG Will Require Substantial Short Term Economic Recovery
Assistance.--The worst-case scenario, and to some extent anything close
to it, would trigger an economic crisis. Local government would be
unable to address the situation adequately. It has limited resources
and limited access to federal social programs, especially unemployment
compensation programs. Outside assistance would be required for those
unemployed including temporary assistance in food, shelter, relocation,
retraining, employment services, and other assistance required to get
American Samoa through the initial period of escalating unemployment
and income losses. This need will continue until lessened by out-
migration or new job development.
ASG Will Require a Long Term Economic Recovery and Development
Plan.--This is essential not just to deal with cannery industry issues,
but also to provide a clear path for economic improvement in the future
regardless of what the canneries do. This will be outlined below in the
form of constraints and opportunities and related recommendations for
future economic development.
THE LONG TERM ECONOMIC RECOVERY AND DEVELOPMENT PLAN
Economic Development Constraints.--Aside from the natural
development constraints of size and isolation about which little can be
done, there are constraints over which government and the people have
some control. The private sector in general expresses concern about the
government's receptivity to entrepreneurship, business operations and
development in general. Among the issues of concern are access to land,
lack of private sector participation, education and training, the
minimum wage, federal tax incentives, higher tax rates for foreign
firms, high business tax rates in general, and other basic elements of
American Samoa's business climate. In addition there are concerns about
the need for continued local control over immigration, the need for
achieving higher education standards, and the influence of the federal
government on American Samoa's economy.
The federal government is critical to American Samoa's development.
A stronger federal role in territorial economic development policy has
been recommended over the years. This was based on the finding that
federal legislation, policies and programs have adversely affected
development of the territories.
Economic Development Opportunities.--American Samoa has business
and investment opportunities that could result in significant economic
diversification and job creation. Those opportunities are in internet-
based businesses (e.g., call centers, data processing), light
manufacturing based on unique US advantages, and communications and
other internet-based businesses and consulting services. They include
businesses that are not bound by geography, or for whom American
Samoa's location between Australasia and the U.S. West Coast is an
advantage. They include natural resource based development in fresh and
frozen fish processing and tourism, recreation and many others. In
order to capitalize on these opportunities, several initiatives are
required to strengthening American Samoa's competitive position.
A great deal must be done to enable American Samoa to capitalize on
development opportunities. American Samoa must look to the private
sector to compensate for cannery job losses in the future and encourage
the private sector by various means. It must look to the private sector
to convey information about economic development opportunities and
problems. Efforts are already underway to forge a new working
relationship between ASG and the private sector especially the American
Samoa Chamber of Commerce.
ASG also has responded aggressively to the needs of the private
sector and has been working closely with the private sector in meeting
the requirements of new industries and responding to possible economic
adversity. The Governor has created a public-private Economic Advisory
Council, has pushed forward with plans for a major government
investment in a submarine fiber optic connection for American Samoa,
and has advocated replacement of the government's Office of Tourism
with a Visitor Industry Bureau led by the private sector.
Finally, American Samoa has an opportunity to reinvigorate its
development program in general. It can take advantage of the rising
role of technology in economic development. The driving force for
economic growth today is knowledge. It affects innovation and
productivity at all levels from the most sophisticated equipment,
products and services to the millions of productivity advances
emanating from an educated and motivated management and work force.
These technological advancements apply to efficiency in government
operations as well. American Samoa will not prosper indefinitely
competing with the lowest wage and productivity countries of the world.
It must continue to improve the quality of its education to modern
industrial country standards in order to advance its productivity and
competitive position.
Economic Development Recommendations
PRIVATE SECTOR RECOMMENDATIONS
Strengthen the Private-Public Sector Governor's Economic Advisory
Council.--Continue to participate in the newly established formal
private-public sector Economic Advisory Council. Its purpose is
facilitate the exchange of information between the public and private
sector groups pertaining to development priorities, government
operations and programs, education and training needs, general business
climate matters, and especially assistance in identifying private
sector development opportunities.
Pursue Specific Private Sector Economic Development
Opportunities.--
Continue to support private-public sector efforts to help
identify export industries and sectors that offer a comparative
advantage or identify obstacles to the development of those
industries. Examples include recent work on improved submarine
fiber optic communications access, call centers, industries
producing goods in the South Pacific region that are bound for
the U.S. market, expanding the visitor industry, and others.
Explore opportunities that arise from federal laws or
policies including labeling requirements, minority set-aside or
preference programs, military procurement, and products or
services requiring or benefiting from US domestic production.
Seek out niches from international trade trends or US trade
laws including industries which benefit from operating on
American soil (e.g., barge and small ship building and repair),
and laws and regulations pertaining to anti-dumping listees,
countervailing duties, Headnote 3(a), the Jones Act, the
Nicholson Act, and others.
Utilize American Samoa's own professional and technical
expertise in ventures to export those services to other island
nations and elsewhere (e.g., managers, engineers, lawyers,
medical personnel, and others.).
Target foreign direct investment to export income industries
(e.g., manufacturing, tourism, etc.).
Encourage the expansion of existing locally owned businesses
or the establishment of new locally owned businesses to meet
the goods and services needs of the local market.
AMERICAN SAMOA GOVERNMENT RECOMMENDATIONS
Strengthen Consultations with the Canneries on their Needs.--It is
in American Samoa's interest to retain the canneries at some level of
operation for as long as possible to retain jobs and aid in a
transition to other forms of operation (e.g., loin processing and pouch
production) or a transition to replacement industries.
Seek Contingency Assistance for Possible Precipitous Cannery
Decline.--Explore opportunities for assistance from appropriate federal
agencies such as SBA, EDA, and various social service agencies
concerning Unemployment Compensation; Supplemental Security Income; Aid
to the Aged, Blind, or Disabled; Temporary Assistance for Needy
Families; nutrition assistance; and Child Support Enforcement; Foster
Care and Adoption Assistance. Develop policies and programs for dealing
with unemployed US Nationals and foreign workers.
Continue Development of a Private-Public Sector Governor's Economic
Advisory Council.--The American Samoa Government should continue
efforts to establish more effective working relationships with the
private sector pertaining to development priorities, government
operations and programs, education and training, private sector
development opportunities, tax laws, immigration laws, business
licensing laws, procurement practices, and general business climate
matters.
Strengthen the Business and Investment Climate.--A good business
and investment climate begins with good government. The American Samoa
Government should continue to seek improvements in public
infrastructure and services in all areas. This includes all of the
usual staples including education and training, transportation,
utilities development, industrial park usage, industrial-commercial
land availability, health care, and the general business climate
including:
Make education improvements at all levels that are so
essential to productivity and income gains especially as almost
all modern developments employ technological advances to an
increasing extent. American Samoa will have to rely
increasingly on improvements in human capital and other forms
of social capital. Pursue continued improvements in aligning
educational programs with workforce needs using existing
programs. The American Samoa Government should undertake a
variety of improvements in the procedures for starting and
operating a business in the territory.
Cooperate with Samoa and other Pacific nations in production
or market sharing.
Improve Timeliness of Economic Indicators.--Begin collecting more
timely annual employment and personal income data to better track the
economy.
ASG Organization.--Consider analysis of ASG structure, management,
and functions, as a means of improving government efficiency in general
especially for economic development. The US state government model may
not the right one for American Samoa. Reorganize the American Samoa
Government so that there is a staff function devoted solely to economic
development promotion and advocacy.
ASG Operations.--Establish a system of ASG incentives for workers
and management to seek more efficient and effective ways to encourage
development through the issuance of licenses and permits, leases,
procurement, immigration, customs, and education and training.
FEDERAL GOVERNMENT RECOMMENDATIONS
Establish a Formal Federal Role in Territorial Development.--This
is crucial in view of the massive influence of the federal government
on American Samoa's development. This has been recommended over the
years by the US General Accountability Office, the American Samoa
Economic Advisory Commission, the US Congress, and others.
Establish the Form this Federal Role Could Take.--Examples include
an enhanced Office of Insular Affairs in the Department of the
Interior; a restructured Pacific Basin Development Council; or a
restructured Interagency Group for Insular Affairs. Others might
include a legislatively authorized office attached to the White House,
some form of Regional Commission (e.g., Appalachian Regional
Commission), or an organization specifically designed for this purpose.
Establish the Agenda and Work Program for this Federal Effort.--
Clearly define U.S. goals and objectives in the insular
areas and develop an overall insular area strategy to guide
federal activity toward achieving its goals, including
supporting economic development and greater economic self-
sufficiency.
Issues that might be addressed include federal taxes and
incentives, immigration and customs, minimum wage,
international trade, transportation, federal grant
requirements, federal laws and programs, consolidating data on
federal economic development expenditures in the insular areas,
OIA's conferences and business opportunities missions, and
others.
Develop procedures for formal evaluations of progress made
by the insular areas in economic development.
Chapter 1: Economic Impacts of a Decline in Cannery Operations
Over the past thirty years, the American Samoa economy has expanded
at a rapid rate. But federally legislated increases to the minimum wage
could erode the competitiveness of the tuna canneries, one of the
mainstays of the island economy. If the fish processing industry were
forced to shut down, the damage to the American Samoa economy would be
severe and widespread. Without substantial help from the federal
government, the full recovery from the loss of the tuna canneries would
likely take many years.
The principal objective of this section of the study is to provide
an understanding of how the American Samoa economy works and how it
would react to closure of the tuna canneries. Drawing upon the 1977 and
2002 American Samoa input-output studies and other economic data, the
study addresses the following questions:
In terms of employment and population, how rapidly has the
American Samoa economy grown?
What are the principal causes of this growth?
To what extent do American Samoa jobs and income depend upon
the tuna canneries?
How much of the economy depends upon financial assistance
from the federal government?
How has the structure of the American Samoa economy changed
over time?
What would be the loss to the economy if the tuna canneries
were to shut down?
What are the prospects for mitigating such a loss?
AMERICAN SAMOA INPUT-OUTPUT TABLE
A prerequisite for effective economic decision-making is good
information. Without reliable statistics describing past and present
conditions in the American Samoa economy, we can neither identify its
problems nor make helpful recommendations for its development.
The methodological centerpiece of this study is the American Samoa
input-output table, which has been updated to 2002. When combined with
the 1977 table, the 2002 input-output table provides the kind of
information required for an in-depth analysis of the economy.
More specifically, these tables serve two purposes. First, through
a systematic accounting of transactions among industries, government,
households, and other sectors of final demand (investment, exports, and
imports), the input-output tables describe the structure of the
American Samoa economy and how it has changed over time. Second, the
input-output data provide the factual basis for estimating output,
income, and employment multipliers. Used in economic impact analyses,
multipliers estimate the total change in production, labor earnings,
and jobs in the economy resulting from a given change in economic
activity, such as an increase in tuna cannery exports or federal
government expenditures.
One word of caution is in order. The economic impact model derived
from an input-output table is a complex but imperfect model of the
economy. Thus, the results of the analysis (i.e., the economic impacts
and projections) should therefore be considered as ``reasonable
estimates'' rather than exact measures.
Appendix A provides a detailed discussion of the 2002 American
Samoa input-output table. With regard to its construction and the
multipliers derived from it, the 2002 input-output table differs
somewhat from the 1977 table. These differences, however, have little
bearing on the general results of the input-output analysis or the
conclusions of the study.
AMERICAN SAMOA ECONOMY, 1977
The 1977 Economy.--In terms of employment and population, the
American Samoa economy in 1977 was about one-half as large as it is
today. Despite the rapid growth of the economy over the past thirty
years, its structure has remained essentially the same. Just as they
are now, fish processing and government were the two driving forces of
the economy back then.
In 1977, the American Samoa economy was beginning to bounce back
from a three-year downturn in employment. The recession was triggered
by a cutback in tuna cannery jobs due to a shortage of water and a
reduced supply of fish. Also contributing to the slump was a
significant reduction in federal grants to the Government of American
Samoa.
American Samoa Gross Domestic Product (GDP) totaled $49.1 million
in 1977, according to the 1977 input-output table (Table 1). This
figure was somewhat higher than previously reported estimates. On a per
capita basis, it was $1,590, making it five times greater than GDP per
capita in Western Samoa (now independent Samoa).
Personal consumption expenditures amounted to $35.1 million,
representing 71.5 percent of GDP. Per dollar of GDP, American Samoans
spent more on consumer goods and services than other households in the
United States, but the difference was not appreciable. Due to the weak
performance of the economy in the mid-1970s, which limited new business
opportunities, private investment was a lowly $2.8 million or 5.7
percent of GDP.
Reflecting American Samoa's reliance on the public sector,
government expenditures totaled $48.0 million, nearly equal to the
economy's total GDP. The Government of American Samoa spent $54.0
million on payroll and other expenses, of which $13.0 million was
funded from local appropriations (taxes and charges) and $7.0 was
earned from direct charges for public services, such as electricity and
telecommunications. The U.S. federal government contributed $35.0
million in grants and expenditures. The major grant recipient was the
American Samoa government, which used the money primarily for
education, healthcare, and capital improvements.
Typical of small economies, American Samoa has a large external
sector. In 1977, exports totaled $90.1 million, nearly double the
territory's GDP. American Samoa exported $84.4 million of canned tuna
and related fish products. Other exports included other commodities
($2.6 million), visitor expenditures ($2.0 million), and trade,
transportation, and other services ($1.1 million). Imported goods and
services totaled $126.9 million, which meant that the territory ran a
trade deficit of $36.8 million. Federal government grants, which nearly
matched that amount, had the effect of erasing the deficit in American
Samoa's external payments.
In 1977, the American Samoa economy supported 8,110 jobs with labor
earnings of $28.6 million, according to the input-output estimates
(Table 2). Labor earnings include wage and salary disbursements,
proprietors' income, and other labor income. Annual labor earnings
averaged $3,530 per job. Taking into account non-labor income, personal
income was estimated to be $40.0 million. On a per capita basis,
personal income amounted to $1,290.
Despite job gains in 1977, employment was still down 4.7 percent
from the 1973 peak. As a consequence, the unemployment rate stood at
about 15 percent.
The largest employer was the Government of American Samoa. Its
3,620 employees accounted for more than two out of every five jobs in
the territory (Table 3). Because of its relatively high pay (about one-
third above average), government, including the federal government,
accounted for three out of every five dollars of labor income earned.
Although tuna canning had been around for years, the industry was still
in an early stage of development in 1977. Fish processing employed
1,410 workers, who earned $4.6 million in labor income. The industry
constituted about one-sixth of the employment and labor earnings in the
territory.
Economic Base of American Samoa.--A strong and expanding economic
base is a key determinant of American Samoa's economic growth and
welfare. Basic activity, such as exporting, brings money into the
economy and supports non-basic activity, principally in trade,
services, and local government, through the so-called multiplier (re-
spending) process. Basic activity in America Samoa takes on several
different forms, including tuna exports, financial aid from the federal
government, visitors, and transfer payments (e.g., government
retirement benefits).
In 1977, the two most important components of American Samoa's
economic base were canned tuna exports and federal financial aid (Table
4). According to the 1977 input-output model, the fish processing
employment multiplier was 1.55, meaning that each cannery job supported
0.55 jobs elsewhere in the economy. Thus, the estimated impact of fish
processing on the American Samoa economy amounted to 2,180 jobs or 26.9
percent of the territory's employment. Of the 770 indirect jobs created
by the fish processing industry, 710 were in retail and wholesale
trade, transportation, services, and government authorities (utilities
and telecommunications).
Calculations with the 1977 input-output model also showed that the
tuna canneries were a major growth force during the decade. Taking into
account the multiplier effect, fish processing was responsible for
approximately two-fifths of the jobs created in American Samoa between
1970 and 1980. While these jobs were undoubtedly welcomed, the growing
dependence on fish processing increased the economy's sensitivity to
fluctuations in cannery production.
In spite of the importance of the canneries, the economy was
dominated by the Government of American Samoa, whose 3,620 employees
constituted 44.6 percent of total employment in the territory. The size
of the government was partly attributable to the fact that it performed
many services usually undertaken by the private sector, such as
electric service, telecommunications, and healthcare. Such services
were provided by so-called government authorities. Local appropriations
and enterprise revenues paid for one-third of the cost of government.
The other two-thirds of the cost of the American Samoa government
was financed by the federal government. Consequently, not only did
federal grants and expenditures heavily subsidize local public
services, but they also propped up a large part of the economy. Federal
funds directly supported an estimated 2,570 jobs in local government.
Including the indirect impact, federal aid generated a total of 3,890
jobs in the economy. The economic impact of the federal government
represented 48.0 percent of the jobs and 52.3 percent of the labor
income in American Samoa. This implied that without federal aid,
American Samoa per capita income in 1977 would have been only one-half
its actual level.
ECONOMIC GROWTH, 1975-2005
Employment and Income.--Since 1975 the American Samoa economy has
grown rapidly, outpacing the U.S. economy. This growth has been driven
by a four-fold expansion of tuna cannery employment. As a consequence,
the economy has increased its dependence on fish processing and has
reduced its dependence on federal grants and expenditures.
Over the past three decades, American Samoa employment has more
than doubled, rising from 7,878 in 1975 to 17,344 in 2005. Between 1975
and 2005, job growth averaged 2.7 percent per year. This was
substantially higher than the 1.9 percent rate for the United States
over the same period. The territory's employment growth rate was even
faster than the 2.6 percent rate for Washington State, which has been
touted as one of the more successful economies in the nation.
A simple economic base analysis reveals the nature of this growth
(Table 5 and Figure 1*). In 1975, there were an estimated 3,879 jobs in
the basic sector of the American Samoa economy, accounting for 49.2
percent of total employment. This included 1,300 jobs in fish
processing and 2,179 jobs in local government and authorities supported
by federal funds. The other 400 basic jobs were in the visitor industry
(primarily, hotels and restaurants) and other export activities. The
implied economic basic employment multiplier was 2.03 (=7,878/3,879).
[Note that the multipliers derived from this economic base analysis are
comparable, though somewhat higher than, the multipliers derived from
the 1977 and 2002 input-output models.]
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* Figures 1-4 have been retained in committee files.
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In 2005, basic employment totaled 8,428 jobs, accounting for 48.6
percent of total employment. As was the case in 1975, almost all of the
basic jobs were in fish processing (4,546) and the part of local
government and the authorities supported by federal grants and
expenditures (3,282). In this case, the implied aggregate employment
multiplier was 2.06 (=17,344/8,428).
Led by fish processing and federal financial aid, basic employment
grew at a 2.6 percent annual rate, nearly matching the growth rate for
total employment. But job growth in the tuna canneries (4.3 percent)
was much faster than job growth in local government supported by
federal grants and expenditures (1.4 percent).
These findings lead to four important conclusions about the nature
of the economy's growth over the three-decade period. First, the tuna
canneries and federal financial aid accounted for virtually all of the
economic growth in American Samoa between 1975 and 2005. The fact that
together these two sectors kept pace with the entire economy as well as
the fact that the economic base multiplier remained relatively constant
over that time empirically support this contention.
Second, the overall structure of the economy did not fundamentally
change. The data indicate that no other basic activity played a
significant role in the economy's growth. Between 1975 and 2005, the
economy added 200 jobs in other basic activities, but this gain was
negligible alongside the gains in fish processing (3,246) and local
government supported by federal aid (1,103).
Third, the American Samoa economy did not benefit from significant
import substitution. Import substitution is the process by which an
economy increasingly produces goods or services that were previously
imported. This kind of shift to domestic production would have been
evident in a rising employment multiplier.
Fourth, the only notable change in the structure of the economy was
the increased importance of the tuna canneries. The addition of 3,246
workers over the thirty-year period raised the fish processing's share
of total employment in the territory from 16.5 percent to 26.2 percent,
not counting the multiplier effect. Although federally-supported jobs
in local government increased 1,103, their share of total employment
fell from 27.7 percent to 18.9 percent.
Population.--Due primarily to a high natural growth rate, American
Samoa population has grown at the same rate as employment. This has had
the effect of holding down the territory's employment rate (the
fraction of population with a job) as well as its per capita income.
Over the thirty-year period, American Samoa population grew at a
2.7 percent annual rate, nearly three times the 1.1 percent national
rate (Table 6 and Figure 2). Much of the growth in the American Samoa
population was due to a high birth rate. Between 1975 and 2005,
population increased by 35,840. The natural gain amounted to 39,928
(45,920 births less 5,992 deaths). This meant that net migration
totaled -4,088. In other words, despite a robust economy, the outflow
of people was greater than the inflow during this time span of time.
The population growth rate equaled the employment growth rate. As a
consequence, the employment rate (the ratio of employment to
population) remained relatively low and constant over the entire time
period. In 2005, the employment rate was 0.265, virtually the same as
the estimate in 1975 (0.266). In contrast, the U.S. employment rate
rose from 0.357 in 1975 to 0.451 in 2005.
Given that labor income accounts for about 70 percent of personal
income, the increase in the U.S. employment rate had the effect of
boosting the average annual growth rate of personal income by about 0.5
percentage points between 1975 and 2005. Since the employment rate in
American Samoa remained unchanged, this meant that in terms of personal
income growth the territory lost ground to the nation, all else being
equal. In other words, had there been a similar rise in the employment
rate, American Samoa personal income and per capita personal income
would have been about 16 percent higher in 2005.
The pattern of migration in American Samoa, which has persisted for
at least three decades, is unusual to say the least. It is as if
American Samoa has a revolving door, with relatively large numbers of
people exiting and entering the territory at the same time.
Since 1975 many American Samoans have left the islands in search of
better job and educational opportunities in other parts of the United
States, such as Hawaii, California, and Washington. As a consequence,
more American Samoans now live in the states than their in homeland.
The out-migration of American Samoans is clearly a mixed blessing. On
the one hand, it relieves the population pressures built up by the
territory's high birth rate. On the other hand, the people who leave
tend to be a young and industrious cohort of the labor force.
At the same time, foreign workers, mostly from independent Samoa,
have come to American Samoa in search of higher pay. Even jobs in the
canneries, considered second rate to government jobs by many American
Samoans, offer wage rates two or three times the wage rates in
independent Samoa. Currently, 80 percent of the employees in fish
processing are foreign workers.
AMERICAN SAMOA ECONOMY, 2002
The 2002 Economy.--The changes in the American Samoa economy over
the past three decades are highly visible. Today, the territory is much
more densely developed than it was in 1975. With twice as many people,
there are many more houses and cars. With a more affluent population,
there is a greater selection of stores and restaurants. The tuna
cannery complex, which now provides work for about 5,000 people, looms
much larger on the shores of the harbor. And several new government and
commercial buildings dot the landscape.
This input-output analysis describes and explains in quantitative
terms what is already apparent to the eye: largely supported by fish
processing and federal financial aid, American Samoa has developed a
growing and increasingly prosperous economy.
According to the 2002 input-output table, Gross Domestic Product
(GDP) of American Samoa was $481.4 million in 2002 (Table 7). On a per
capita basis, GDP amounted to $7,918. This was one-fifth the U.S. level
($36,277) but more than three times the per capita GDP of independent
Samoa (approximately $2,400). There were similar differences in per
capita personal income. In 2002, American Samoa per capita income stood
at $6,146, also about one-fifth the U.S. level ($30,776).
American Samoa's trade statistics showed how much the economy
depended upon the outside world. Exports represented 93.3 percent of
total GDP in 2002, implying that trade was ten times more important to
American Samoa than the United States. The input-output table shows
that fish processing accounted for $438.3 million of the $449.0 million
in total exports. Total imports amounted to $532.0 million, implying a
trade deficit of $83.0 million.
Federal government grants totaled $126.8 million or 26.3 percent of
GDP. This included funds to support the operations of the American
Samoa Government and government authorities. Federal assistance
amounted to $2,086 per person.
Personal consumption expenditures in the territory totaled $331.5
million. Consumer spending accounted for 68.9 percent of GDP, just
below the U.S. share (70.2 percent). Private investment, which totaled
$43.7 million, was relatively low (9.1 percent of GDP) compared to the
United States (15.1 percent). On the other hand, the relative level of
investment was much higher than it was in 1977 (5.6 percent of GDP).
American Samoa government expenditures supported by local taxes and
charges totaled $62.4 million or 13.0 percent of GDP, slightly above
the national share for state and local government spending (12.2
percent).
As shown in the input-output table, GDP equals the sum of value
added in industry, households, and government (Figure 3). The biggest
contributors to value added were fish processing (22.3 percent of total
value added), services (23.1 percent), and government (20.8 percent).
Counting the imputed value of agricultural and fish products for self-
consumption, agriculture and fishing, two of American Samoa's
traditional economic activities, accounted for 11.3 percent of value
added.
Of the seventeen industries and governments identified in the
input-output table, the largest employer was fish processing (Table 8).
In 2002, the industry employed 5,538 workers and paid $49.4 million in
labor income (wage and salary disbursements, proprietors' income, and
other labor income). The canneries accounted for nearly one-third of
the employment in the economy but only about one-sixth of the labor
income. Annual labor earnings averaged $8,920 per employee, which was
35.9 percent below the average for the entire economy.
Not counting government authorities, the American Samoa government
accounted for 23.5 percent of total employment in 2002, making it the
second largest employer. With an average annual income of $18,916, the
4,187 workers earned a total of $79.2 million in labor income.
Other large employers included retail trade (1,854), professional
and business services (900), transportation and warehousing (786),
educational and healthcare services (766), construction (598), food
services and drinking places (571), and agriculture, fishing, and
mining (520).
Economic Welfare.--Some observers contend that rapid growth has not
substantially increased the economic welfare of the American Samoa
people. A common assertion is that there has been no significant gain
in real per capita income because of the territory's high inflation
rate. But data from the 1977 and 2002 input-output studies indicate
that the economic lot of American Samoans has greatly improved.
Measuring economic welfare, particularly in American Samoa, is
problematic. A major stumbling block is a lack of data. Three common
measures of economic welfare are the unemployment rate, per capita
income, and GDP per worker. There is scant historical data on these
variables, but the two input-output studies provide sufficient
information to make reasonable estimates for 1977 and 2002.
Did the unemployment rate decline between 1977 and 2002? At the
time of the first input-output study, the unemployment rate was
approximately 15 percent. It had been boosted by a three-year decline
in jobs. There is no official estimate of the unemployment rate in
2002. But two household surveys conducted around that time yielded
estimates of 5.2 percent in 2000 and 8.6 percent in 2004. This suggests
that the unemployment rate in 2002 was in the vicinity of 7 percent,
roughly one-half the rate in 1977.
Did real per capita income increase over the 25-year period? In
nominal dollars, personal income per capita rose from $1,290 in 1977 to
$6,146 in 2002, as reported earlier. The 6.4 percent annual growth rate
greatly exceeded the 4.6 percent inflation rate, as measured by the
American Samoa consumer price index. This suggests that real per capita
income grew at a 1.7 percent annual rate. Historically the consumer
price index has tended to overstate the ``true'' inflation rate by
about 0.4 percentage points, according to national data. Thus, it would
appear that real per capita income rose at a 2.1 percent annual rate
between 1977 and 2002, slightly faster than the 2.0 percent rate for
the nation. With regard to American Samoa's ``high inflation rate,'' it
exceeded the national rate but only by 0.2 percentage points, 4.6
percent versus 4.4 percent.
Did real GDP per worker increase during this time period? GDP per
worker is calculated by dividing total GDP by total employment (wage
and salary employees and proprietors). Climbing at a 6.2 percent annual
rate, nominal-dollar GDP per worker increased from $6,054 in 1977 to
$27,048 in 2002. Making use of the U.S. GDP deflator and recognizing
the territory's slightly higher inflation rate, the estimated American
Samoa GDP deflator increased at a 3.8 percent annual rate. This
indicates that real GDP per worker rose at a 2.3 percent rate, in line
with the growth of real per capita income, as one might expect.
impact of fish processing and the federal government
Fish Processing.--In 2002, the job impact of fish processing
extended well beyond its 5,538 employees, since the industry's payroll
and other operating expenditures created employment opportunities in
other businesses and government through the so-called multiplier (re-
spending) process.
Including the $49.4 million in labor income and $30.5 million in
operating expenditures for goods and services produced by other local
industries, the tuna canneries pumped $79.9 million into the American
Samoa economy.
The tuna canneries supported an estimated 8,118 jobs (wage and
salary employees and proprietors) in the economy, taking into account
the multiplier effect. This constituted 45.6 percent of total
employment. It meant that fish processing accounted for nearly one out
of every two jobs in the territory in 2002 (Table 9).
The implicit employment multiplier was 1.47 (=8,188/5,538). This
implies that every cannery job supported the equivalent of 0.47 jobs
elsewhere in the economy. Most of these jobs were in wholesale and
retail trade (549), transportation and warehousing (231), services and
government authorities (874), and local government (490).
In 1977, with 1,410 employees, the fish processing industry
accounted for a total of 2,180 jobs in the American Samoa economy,
according to the 1977 input-output study. This represented 26.9 percent
of total employment. The implied employment multiplier was 1.55. In
light of the various problems associated with constructing input-output
tables and estimating multipliers, the difference between the 1977 and
2002 multipliers should not be considered statistically significant.
According to the two input-output tables, the American Samoa
economy created 9,688 jobs between 1977 and 2002. The impact analyses
indicate that fish processing was responsible for 5,938 or 61.3 percent
of these new jobs. As previously noted, the only major structural
change in the economy over the past three decades has been the
increasing importance of the tuna canneries.
Federal Government.--Federal grants totaled $126.8 million in 2002.
This money directly supported 2,915 jobs in federal government,
American Samoa government, and government authorities (Table 10).
The total impact of federal grants and expenditures amounted to
6,615 jobs or 37.2 percent of the total jobs in the territory. The
implied employment multiplier was 2.27 (=6,615/2,915). This multiplier
was higher than the fish processing multiplier primarily because of the
relatively high-paying jobs in government. In 2002, American Samoa
government jobs earned more than twice as much on average ($18,916) as
fish processing jobs ($8,920).
In 1977, the total employment impact of federal government grants
and expenditures amounted to 3,890 jobs. This meant that the federal
government created 2,725 jobs between 1977 and 2002, which constituted
28.1 percent of all new jobs.
Combined, fish processing and federally-supported jobs accounted
for 82.8 percent of American Samoa employment in 2002, taking into
consideration the multiplier effect. In 1977, the combined impact was
74.9 percent. Between 1977 and 2002, tuna canneries and federal
government financial aid accounted for 89.4 percent of the economy's
new jobs.
Sources of Jobs.--The input-output model permits one to determine
the ultimate sources of employment and labor income in the American
Samoa economy. There are seven such sources: fish processing exports,
other exports, visitor expenditures, private investment, federal grants
and expenditures, transfer payments, and agriculture and fishing for
self-consumption (Table 11 and Figure 4).
As noted above, fish processing and the federal government
ultimately accounted 82.8 percent of the total jobs in 2002. But even
that estimate is probably low, since the impact of these two sectors
does not include the effect of induced private investment, which
supported 5.6 percent of total employment. Induced investment is not
counted as part of the impact because simple input-output models cannot
depict the complex behavior of capital expenditures.
The only other significant source of jobs is transfer payments,
which consist largely of government retirement and disability payments.
In 2002, transfer payments amounted to $39.5 million and indirectly
generated 1,605 jobs or 9.0 percent of American Samoa employment.
Reflecting American Samoa's narrow economic base, exports other
than canned tuna and visitor expenditures accounted for only 458 jobs
or 2.6 percent of total employment in 2002.
PROSPECTS FOR THE AMERICAN SAMOA ECONOMY
The American Samoa economy faces an uncertain future. Much depends
upon decisions made by the federal government with regard to the
minimum wage, restrictions on foreign labor, and financial support.
Even if the federal government continues its current level of financial
aid, a rising minimum wage could spell the end of the fish processing
industry and a calamity for the economy.
As a means of trying to sort things out, we posit three scenarios
for the American Samoa economy (Tables 12 and 13). Each scenario is
developed making use of the input-output model.
Bear in mind that this analysis is only suggestive, as it is
difficult to predict what is actually in store for the economy over the
next few years. Based on current developments, however, subjective
probabilities of occurrence have been attached to each scenario.
The baseline scenario (30 percent) presumes ``business as usual.''
It foresees modest increases in cannery employment and federal
government aid. It also assumes that legislated increases in the
minimum wage rate will not adversely affect the fish processing
industry.
The high scenario (10 percent) calls for a major expansion of the
tuna canneries, eventually resulting in about 6,000 workers, as well as
substantial increases in federal support. As indicated by the
subjective probability, the high scenario is considered to have little
chance of happening.
The low scenario (60 percent) assumes that a rising minimum wage
causes a complete shutdown of the tuna canneries by 2010. The full
impact of the closure is not felt until 2015.
The baseline scenario portrays an expanding economy but at a rate
below the historical trend. A modest upturn in tuna processing causes a
short-term pick-up in the economy's annual employment growth rate.
After averaging 0.7 percent between 2000 and 2005, the growth rate
increases to 1.9 percent between 2005 and 2010, still well below the
historical rate of 2.7 percent. During the subsequent five-year period,
the economy loses steam again, as the tuna canneries reach production
capacity and the rate of hiring in government slows down. The
employment growth rate falls to 0.9 percent between 2010 and 2015.
Consequently, by the end of the projection period, the American Samoa
economy is somewhat larger but not substantially different than it is
today.
In the high scenario, which is considered an unlikely case, the
federal government not only continues to provide generous financial
support for the American Samoa government, but it also reverses its
current position on the minimum wage. The tuna industry reacts
positively to the new wage policy, significantly expanding its
operations and adding another 1,000 workers to its payroll. The surge
in cannery and government employment at the end of the decade causes
the territory's employment growth rate to jump to 3.0 percent between
2005 and 2010. Between 2010 and 2015, in response to a leveling off of
cannery jobs, the growth rate falls to 1.8 percent. Although this is a
healthy employment growth rate, the high scenario suggests that even
under the best of circumstances American Samoa will have to cope with a
slower growing economy.
The low scenario is a disaster for the American Samoa economy. In
this case, the federal government begins the process of annually
raising the minimum wage in 50-cent increments until it reaches the
minimum wage established for the states. Fearing the worst, the
canneries begin to trim operations almost immediately, causing the
economy to go flat between 2005 and 2010. The economy starts to fall
precipitously when the fish processing industry closes shop for good in
2010, but the full impact is not immediately felt. There are several
reasons why the economy's response to the cannery shutdown takes time,
perhaps as long as five years, to fully play out: various spending
buffers (e.g., increased private and public spending from savings); job
sharing (cutting hours but not employment); and the delayed reaction
between employment loss and out-migration. In the end, however, the
economic losses are massive. Compared to the baseline scenario, the
economy has 7,700 fewer jobs in 2015. In other words, the closure of
the canneries causes America Samoa to lose more than two out of every
five jobs.
CONCLUSION
Relying almost exclusively on the tuna canneries and federal
financial aid, the American Samoa economy has expanded rapidly over the
past thirty years. Employment has doubled, the unemployment rate had
fallen, and real per capita income has risen at about a 2 percent
annual rate.
Perhaps because of its past success, the territory has not
broadened its economic base. Since the 1970s there has been virtually
no increase in American Samoa exports other than canned tuna. It is
also apparent that, with exception of some recent hotel construction,
the visitor industry has been allowed to languish.
The inability of the American Samoa economy to diversify has left
it vulnerable to decisions by the federal government. In particular, if
the recent legislated increases in the minimum wage were to cause a
shutdown of the tuna canneries, American Samoa could lose two-fifths of
its jobs. Such a calamity would prompt efforts to create employment
opportunities in other economic activities, such as call centers and
tourism. But even if these initiatives were successful, it would take
years before the American Samoa economy would fully recover.
Chapter 2: American Samoa's History, Culture, and Economy
The five larger US insular areas, or territories, have come under
the sovereignty of the United States in various ways. Puerto Rico and
Guam were ceded to the United States by treaty at the end of the
Spanish-American War in 1898.\1\ The Virgin Islands were purchased from
Denmark in 1917. Following the renunciation by Great Britain and
Germany of their claims to what is now American Samoa and the cession
by the Samoan chiefs to the United States of these islands, the
Congress in 1929, ratified the instruments ceding the eastern islands
to the United States. The United States was responsible for
administering the Northern Mariana Islands after World War II under a
United Nations trusteeship agreement. Ultimately, a covenant between
the United States and the Northern Marianas established the islands as
a commonwealth under the sovereignty of the United States.
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\1\ Portions of this background section were summarized from GAO/
OGC-98-5, The U.S. Constitution and Insular Areas, November 1997.
---------------------------------------------------------------------------
Federal administrative responsibility for the CNMI, Guam, the
Virgin Islands, and American Samoa is vested in the Department of the
Interior. Puerto Rico is treated administratively as if it were a
state. Any matters concerning the fundamentals of the U.S.--Puerto
Rican relationship are referred to the Office of the President.
Since the United States established sovereignty over the five
larger insular areas, each has pursued greater self government. The
residents of all five of the larger insular areas enjoy many of the
rights enjoyed by U.S. citizens in the 50 states. But some rights
which, under the Constitution, are reserved for citizens residing in
the states have not been extended to residents of the insular areas.
For example, residents of the insular areas cannot vote in national
elections, nor do they have voting representation in the final approval
of legislation by the full Congress. As a consequence of the
differences among the territories in geographic location, size and
indigenous cultures, each insular area has its own political status
arrangement with the US. As a further consequence, these differences
complicate the administrative task of the US, and it makes it even more
difficult for these small areas to convey their unique needs to the
federal government. These territories require individually tailored,
conscious approaches from Washington DC, or they could be swamped by
the giant US ship of state. The US has not been very adept at this as
is evidenced by the experience of Native Americans under federal
administration. Nowhere is this more evident than in economic
development.
SAMOAN HISTORY
About 1500 B.C., people (probably from Southeast Asia) arrived in
the Samoan Islands, after having navigated the Pacific Ocean in
rafts.\2\ This astonishing achievement occurred at approximately the
time of the Trojan War or the Exodus in Western history. Little is
known about these people who were or were to become the Polynesians and
who would populate the islands of the Central and Eastern Pacific from
Hawaii to New Zealand and Samoa to Easter Island. It was not until 1973
that Samoan prehistory was dated back this far. In that year some
pieces of clay pottery were discovered during a dredging project near
Mulifanua in independent Samoa. These pottery shards were made from
clay found in the same area. Radiocarbon dating revealed that the
pottery was made in about 1200 B.C. Another interesting aspect of this
find was that pottery making was never known to be a part of Samoan
culture. In fact there was no word for pottery in the Samoan language.
This Lapita form of pottery is found throughout the Western Pacific,
from New Guinea to Samoa. It is named after an area in New Caledonia
where the pottery was first discovered.
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\2\ Portions of this part have been summarized from American
Samoa's Comprehensive Economic Development Strategy, 2005.
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The itinerary of these early Polynesians is now thought to have
been from Southeast Asia, through Melanesia and Fiji to Samoa and
Tonga. By A.D. 400 the Lapita culture had evolved into a more
recognizable Polynesian culture.\3\ However, the greatest feats of
navigation ever undertaken by early man were yet to come. The
Polynesians would now undertake expeditions to Eastern Polynesian
(Tahiti, Hawaii, New Zealand, the Marquises, Easter Island, and
others). Early settlements in Eastern Polynesia begin to appear between
A.D. 300 and 700. They were probably settled initially from Samoa or
Tonga. This migration to Hawaii, Tahiti and other eastern islands was
probably completed by A.D. 1100, after which isolation gave rise to
different Polynesian cultures and languages as they are known today.
---------------------------------------------------------------------------
\3\ Peter Bellwood. The Polynesians: Prehistory of an Island
People, London: Thames and Hudson, 1978.
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SAMOAN CULTURE
In many ways it is not possible to capture in language the
standards, complexities and nuances of different cultures. For many
reasons, however, the effort is worthwhile. This is especially the case
where distinct cultures come together. There is a need to encourage
understanding, tolerance and, in general, promote a useful and
productive accommodation of different cultures in our society.
Samoans have adhered to the fundamental elements of their language
and culture to an extent unprecedented in most parts of the world. This
adherence to Samoan language and culture is not just ceremonial. The
Samoan people, particularly in their own lands, strive to retain as
much of their communal or aiga (family) land and matai (chief) systems
as possible. In this report the term ``matai system'' shall refer to
American Samoa's extended family and land tenure systems as well.
The basic unit of Samoan society, the aiga or extended family
group, is a group of people related by blood, marriage or adoption,
varying in number from a few to several hundred who acknowledge a
common allegiance to a particular matai. The matai possesses some
authority over the members of his family and regulates some of their
activities. Family resources, especially land, are under the authority
of the matai. Traditionally, the matai consults the aiga before
exercising his authority.
These family units represent quite close-knit groups with intense
local pride and a close community of interest. It is common for a
Samoan, when asked to give a family name for identification, to give
the name of his matai who may or may not be his or her biological
father.
In traditional Samoan society and to a large extent in American and
independent Samoa today, people continue to view themselves as integral
parts of the Samoan family, leadership and land system. This, of
course, is changing as Samoans deal with the influences of Western
society on their culture. In addition, the traditional leadership role
of matais is changing. This is especially the case in U.S. society
where their roles are becoming increasingly inapplicable in a Western
context and where there are no communal lands to administer.
Samoa's land and matai systems are ancient and complex. Each
contains nuances that are not well understood by outsiders. In modern
Samoa, disputes concerning family lands and titles are adjudicated by
special courts that rely substantially on Samoan oral history,
tradition and custom. In this regard, the institution of communal land
is especially perplexing to outsiders who are accustomed to the
availability of fee simple (individual) land ownership. This is
especially problematic because up to 90 percent of American Samoa's
land is communally owned. ASG deals with this as well as it is able by
expanding the industrial park and assisting potential investors in
securing land.
It is the matai system that is at the core of Samoan society and
which gives meaning to other Samoan institutions including the economy
to a large extent. Again and again, from the deeds of cession to more
recent deliberations on political status, Samoans express a very strong
preference for and commitment to the preservation of the matai,
extended family and communal land system. The matai system contains a
sense of social continuity, structure and order. To some extent the
matai title is independent of the holder. In addition, the rank of the
title tends to order members of different descent groups. Most
important, however, is that the system ties Samoans, their families,
villages and other political subdivisions to Samoan society itself.
Cultural diversity was once thought of in the U.S. as a temporary
condition that would ultimately result in full assimilation. There is
some reason to believe that this is at least a serious
oversimplification. What seems to be emerging is some cultural
assimilation and continued cultural diversity, something more akin to a
cultural mosaic than a cultural melting pot. This distinction is
becoming more accepted, and it has important implications. With the
assimilation concept, it was the responsibility of minorities to master
the majority culture and adopt it. With the cultural diversity model,
there is a responsibility on the part of the majority to understand the
cultures of its minorities in order to develop tolerance and an
appreciation for diversity.
AMERICAN SAMOA AND THE UNITED STATES
Samoa was first sighted by European explorers in 1722 and was
visited again 1768 and 1787. However, it was not until 1831 that
Westerners took up residence in the Samoan Islands, the beginning of
modern or recorded history in Samoa.
The islands of eastern Samoa became part of the U.S. in 1900 and
1904 through treaties which are commonly referred to as the ``deeds of
cession.'' American Samoa, located in the Central South Pacific, is the
only United States territory south of the equator. A central premise of
ceding eastern Samoa to the US was to preserve the rights and property
of the islands' inhabitants. American Samoa's constitution makes it
government policy to protect persons of Samoan ancestry from the
alienation of their lands and the destruction of the Samoan way of life
and language and to encourage business enterprise among persons of
Samoan ancestry.
American Samoa remained isolated in the early decades of its
relationship with the US, and was administered by the U.S. Navy, which
had a very limited presence outside of the harbor area. During World
War II, American Samoa was transformed from a subsistence economy to a
commercial economy. This new economic prosperity was short lived. The
end of the war and the withdrawal of the US Navy caused severe economic
distress in the late 1940's and early 1950's. In the early 1950's a
large part of American Samoa's limited work force migrated to Hawaii
and the US mainland.
In the early 1960s, the lack of modern development in American
Samoa became a minor scandal. In response, the federal government began
a crash campaign to upgrade the school system, the hospital, the
airport, the roads and the hospitality industry (i.e., building of the
Rainmaker Hotel). By the early 1970s, the crash campaign was slowing
down, but the era of extensive federal expenditures in American Samoa
had taken firm root, as had the tuna canneries. Private sector
development expanded accordingly.
In accepting the deeds of cession, the U.S. Congress placed
responsibility for civil administration of the territory with the
Executive Office. The U.S. Navy had this responsibility from 1900 to
1951. Since 1951 the territory has been administered by the U.S.
Department of the Interior. American Samoa has made extraordinary
progress in the last 40 years. In addition to building modern economic,
education, health care and infrastructure systems, American Samoa
became substantially self-governing under US jurisdiction. American
Samoa has been electing its own governor since 1977. In addition, the
territory has its own constitution, its own legislature, its own court
system, and a non-voting representative in the U.S. House of
Representatives. American Samoa has made very rapid progress in
political self-determination.
CRITIQUE OF AMERICAN SAMOAN ASPIRATIONS FOR THE FUTURE
The deeds of cession speak of the promotion of the peace and
welfare of the Samoan people, the establishment of a good and sound
government, and the preservation of Samoan rights, lands, and culture.
The deeds of cession, however, make no direct reference to the economy
for the good reason that at the time there was only what could be
described as a subsistence economy. This has changed, and the people of
American Samoa quite understand that modern economic development has a
very direct bearing on their ability to preserve their rights, lands
and culture.
The following is a statement from the 1979 American Samoa Political
Status Commission report, but it rings true today:
The Commission is fully aware that the world cannot be kept
away from American Samoa. Neither can American Samoa continue
to stand apart forever from the rest of the world. New ideas
cannot and must not be suppressed.... The Commission chooses to
view it as the inevitable result of social change, which should
neither be thoughtlessly embraced nor opposed. The new and the
old must be mixed in a suitable blend. By retaining the
fundamental principles of the old system and accepting a new,
more democratic, political structure, American Samoa can
gracefully become a part of the modern world, without casting
its rich and long established heritage aside.
American Samoa's Constitution (Section 3) makes it the policy of
the government to:
protect persons of Samoan ancestry against alienation of
their lands and the destruction of the Samoan way of life and
language, contrary to their best interests. Such legislation as
may be necessary may be enacted to protect the lands, customs,
culture and traditional family organization of persons of
Samoan ancestry and to encourage business enterprise by such
persons....
In 1986 American Samoa's Constitutional Review Committee
recommended adding the following language to Section 3 of the American
Samoan Constitution:
No new small business in whatever form, except businesses not
in direct competition with existing businesses owned and
operated by persons born of American Samoan ancestry, shall be
permitted to engage in business in American Samoa unless the
majority ownership and control of such business is vested in
persons of American Samoan ancestry.
Though this provision was not adopted, it reflects a point of view
that many American Samoans still hold today.
It has been proposed over the years that American Samoa place
limitations on businesses not owned by American Samoans. The concept
was that American Samoans should be given the first opportunity for
business ownership, especially to serve the local market. Outside
investment or ownership would be utilized primarily for firms or
industries whose production or markets were too technical or
specialized to be accommodated within such a limited population base.
Some viewed this as a logical extension of the protective language in
the deeds of cession and the American Samoa Constitution.
This issue is raised because if economic development is seen as a
threat to people, it will most likely be stymied one way or the other.
At the same time, pursuing developments which could undermine culture
and language preservation could be equally harmful and might promote
further public opposition to development initiatives.
American Samoa's 1979 Political Status Commission probably put it
quite correctly in stating that the world cannot be kept away from
American Samoa; that change is inevitable; that retaining the
fundamental principles of the old system and accepting a new, more
democratic, political structure would permit American Samoa to become
part of the modern world, without casting its rich and long established
heritage aside.
As recently as January 2, 2007, the Final Report of the Future
Political Status Study Commission stated that ``American Samoa shall
continue as unorganized and unincorporated territory and that a process
of negotiation with the U.S. Congress for a permanent political status
be initiated.''
AMERICAN SAMOAN ATTITUDES TOWARD ECONOMIC DEVELOPMENT
Earlier in a discussion of American Samoa's aspirations for the
future, concern was expressed about the role of American Samoans in
that future. Reference was made to modernity threatening Samoan
culture. There was also concern about this condition inhibiting
development from local opposition. It is primarily in the economy where
the preservation of culture and language is at risk. This takes several
forms. Modern economies have their own standards that are not
especially sensitive to indigenous culture and language preservation.
Because most modern economies place efficiency and performance above
indigenous norms, there are pressures on indigenous populations to
conform to modern economic norms pertaining to language, behavior, and
attitudes. As indicated earlier this is not an either or situation for
American Samoans. ``The new and the old must be mixed in a suitable
blend.'' In addition, the ability of an indigenous population to
preserve its culture and language depends to a large extent upon its
economic influence in the society itself. The issue of American Samoans
garnering their proportionate share of emerging economic opportunities
to the greatest extent possible is examined below.
In Table 14 American Samoa's population is shown by place of birth
for purposes of comparing those population groups with business
ownership, establishments, sales, payroll and employment. Tables 15 and
16 demonstrate that American Samoa has not maintained its proportionate
share of the Territory's private sector economy. American Samoans
accounted for 57 percent of the population in 2000, but they accounted
for only 20 percent of sales, 26 percent of payrolls and 27 percent of
employment in 2002. Interestingly, American Samoans accounted for 72
percent of the establishments indicating a disproportionately high
level of business ownership but relatively low levels of average sales
and employment.
Obviously, the canneries dominated the US Other sector with well
over half of the sales, payrolls and employment in the Territory.
However, even if the canneries are excluded from the analysis as in
Table 16, the US American Samoan born population lags behind other
groups. The US American Samoan population accounts for 57 percent of
the Territory's population. However, it accounts for significantly
lower shares of sales. The only groups whose share of economic activity
exceeds their share of the population are US Other, Korean and Others,
presumably others from other developed countries.
For example, US Other represents only 6.3 percent of the population
but 12 percent of establishments, 16 percent of sales, 11 percent of
payrolls, and 9 percent of employment. In other words, the share of
economic activity of other US citizens is twice their share of the
population. The Korean born share of sales exceeds its share of the
population by 22 times.
In considering culture and economic issues in Table 17, American
Samoans voice considerable disapproval over the lack of development in
their traditional industries, tourism and fishing. They do not think
enough is being done to inform or assist them in economic development.
They object to bringing in foreign workers which is consistent with
their view that there are not enough jobs for people who are willing to
work. That view is less consistent with their view that there are not
enough qualified people to fill available jobs in the Territory.
There are issues with which the American Samoa public is in strong
agreement in Table 18. Of course, they agree that the Territory is too
dependent upon the federal government and the canneries. They also
favor bringing in foreign industries. It is likely that there is no
great inconsistency between this and the finding in the previous table
that there is a general objection to bringing in foreign workers. This
usually refers to bringing in workers to do work that could be
performed by locals rather than workers with skills not available in
American Samoa. Three-quarters of American Samoans favor protection of
the environment and the culture.
Chapter 3: Short Term Response to Precipitous Cannery Industry Decline
The worst case scenario assumes a gradual phase-out of the
canneries. This decline, however, could be more precipitous, causing
more sudden and severe increases in unemployment and income losses. New
job development is not likely to increase rapidly enough in the short
term to offset these job losses. Therefore, American Samoa is likely to
have to look elsewhere for temporary relief. Because ASG's revenues
will fall with local incomes, it will not be in position to help much,
except possibly to accelerate public works projects and the like. ASG
will have to look to the federal government for intermediate temporary
assistance.
Ordinarily, when economic disasters strike a region of the US,
people begin migrating to other regions where employment prospects are
better. This is a primary force of equilibrium or adjustment. This is
not as strong an option for American Samoan workers. Some may move from
American Samoa to the United States or independent Samoa. But, there
are many reasons workers may not be able to relocate expeditiously.
1. American citizens or nationals may not have the education
and training to transition effectively to the states, and
foreign workers in American Samoa are not entitled to migrate
to the US by virtue of their permission to work in American
Samoa.
2. There might be few opportunities in Samoa for those who
hold Samoan citizenship many of whom have strong and
longstanding roots in American Samoa and who have children who
were born in American Samoa and who are US nationals by birth.
3. It might be, for many reasons, uneconomic or impractical
to relocate to the states or Samoa not the least of which is
the expense of transportation and relocation as well as the
disruption of family ties and obligations.
There is a strong possibility that e-conomic distress would remain
very high in American Samoa for a long time in the form of very high
rates of unemployment, business closures or cutbacks and precipitous
declines in local ASG revenues. These conditions could have a variety
of adverse effects on the community.
1. Increased family and social stress which often translates
into criminal behavior including domestic violence.
2. Declining economic opportunities for youth entering the
workforce.
3. Declining local revenues for health, education and general
public welfare, as well as investments in capital projects and
maintenance.
4. Rising economic dependence on the federal government.
5. Fewer resources to preserve Samoan culture and the
physical environment.
AMERICAN SAMOA'S DEPENDENCE ON FEDERAL EXPENDITURES
It is clear that American Samoa is a much larger economy than it
was just 30 years ago. Any precipitous decline will have adverse
effects on larger numbers of people than in past downturns. In
addition, the preceding economic analysis suggests that the decline in
employment, incomes and tax revenues will limit local ability to deal
with a downturn especially one the size of a large cannery employment
cutback. Like most areas of the US, in the face of economic or natural
disaster, American Samoa will look to the federal government for, at
least, temporary recovery assistance. It is necessary to consider this
in context.
In 2002 and 2005, the federal government spent more money, per
capita, in every state in the union than it spent in American Samoa.\4\
Unlike residents of the 50 states, residents of American Samoa do not
pay federal income tax. However, even when federal taxes paid per
capita are subtracted from federal expenditures per capita, there are
usually a dozen or more states that receive more per capita federal aid
than American Samoa.\5\
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\4\ U.S. Census Bureau. Consolidated Federal Funds Report for
Fiscal Year. U.S. Government Printing Office. Washington, DC: Years
2000-2005.
\5\ In 2002 there were fourteen such states and in 2005
approximately ten.
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It is immediately obvious from Table 19 that American Samoa's per
capita federal expenditures were only 56 percent of the US per capita
amount in 2005. American Samoa did receive 64 percent more per capita
than the US average in grants but less than one-half as much in all
other federal expenditure categories.
It is true that the American Samoa Government is more dependent
upon federal expenditures as a percent of its revenues. However, this
has more to do with extraordinarily low per capita income levels in
American Samoa, rather than extraordinarily high federal expenditures
in the territory.
American Samoa's per capita federal expenditures were only 41
percent of the US per capita in 2002 as shown in Table 20. American
Samoa does reasonably well in the grants category in 2002 as well.
However, in social spending categories in particular, American Samoa's
per capita federal expenditures are only one-third the US average. This
does not bode well for securing federal support in the event of a
serious economic crisis in American Samoa.
Table 21 demonstrates the main sources of difference between the
years 2002 and 2005. Total federal grant expenditures in American Samoa
increased $55 million between 2002 and 2005. The increase was more than
accounted for by increases in grants from the US Departments of
Education, Transportation and Homeland Security as shown. (Federal
expenditures do not correspond year to year with expenditures of
grantees.)
Table 22 demonstrates that per capita federal expenditures in
American Samoa have increased fairly steadily this decade, after some
federal revenue instability in the 1990's. This has helped close the
earlier referenced gap between American Samoa and the US in per capita
federal expenditures. However, American Samoa's General Operations
grant and CIP grant have not gone up in many, many years, despite
inflation and increases in population.
Table 23 demonstrates that the per capita gains are due to rapid
growth in federal expenditures in American Samoa rather than population
changes. The total federal expenditure average annual growth rate was
17 percent between 2000 and 2005 which is probably not sustainable over
the long run due to competing demands for federal resources. The
federal expenditure growth trend was especially strong in other direct
payments, grants, procurement and wages and salaries. Some of this
growth was attributable to FEMA funds for hurricane damage in previous
years.
Although American Samoa still lags well behind the US average in
federal receipts, the gap has been narrowed in recent years.
US WELFARE PROGRAMS IN AMERICAN SAMOA
American Samoa will probably never reach parity with the States
because of its lack of participation or eligibility in some of the
biggest federal program. The most prominent among them are the
Unemployment Compensation Program determined in the Federal
Unemployment Tax Act and the Supplemental Security Income program. The
lack of a federal unemployment compensation program is especially
difficult for American Samoa in serious economic downturns. In the US
it not only offers temporary unemployment benefit periods, the US
Congress often funds extended payments for unusually protracted
recessions.
However, most social welfare programs available in the 50 States
and the District of Columbia are also available in the territories in
some form or under selected conditions.\6\ They are of two basic forms.
One makes direct payments to individuals and the others are joint or
cooperative federal-state programs. For the latter programs, states and
sometimes localities have a role in the design, administration, and
often financing of benefits and services. For the territories to
participate in the joint federal-state programs, federal law must make
them eligible, but the territory's government must act to meet selected
conditions for federal assistance.
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\6\ US House of Representatives, Committee on House Ways and Means,
108th Congress. Section 12, Social Welfare Programs in the Territories,
Green Book, 2004.
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The Food Stamp Program itself operates only in the Virgin Islands
and Guam, with special grant programs operating in Puerto Rico, the
Northern Marianas and American Samoa. The other nutrition programs
generally apply in the territories. These are programs for which
benefits are fully federally financed but administration is left to the
states.
Most federal-state social welfare programs other than those
discussed above are grant-in-aid programs by which the federal
government helps finance benefits and services in state or local
programs. Territories, like states, may choose not to participate in
grant programs. Participation in a program entails accepting federal
rules and guidelines and sometimes requiring state or local dollars to
match federal dollars.
Table 24 provides more detail on the federal welfare programs
available to American Samoa.
The more detailed Table 25 demonstrates the extent of American
Samoa's exclusion from key US social welfare programs. American Samoa's
ineligibility for Unemployment Compensation and Supplemental Security
Income programs has been noted. American Samoa has a version of the
food stamp program. However, Table 25 indicates that American Samoa
does not participate in many other programs.
SUPPLEMENTAL SECURITY INCOME
The Social Security Amendments of 1972 (Public Law 92-603) ended
matching grant programs to the 50 States and the District of Columbia
for assistance to needy adults who were aged, blind, or disabled and
replaced them with Supplemental Security Income (SSI). The new SSI
Program provided a federal entitlement program of cash payments for
individuals in these groups. However, SSI was not extended to Puerto
Rico, Guam, American Samoa and the Virgin Islands. The old grant
programs for the needy aged, blind, and disabled authorized under four
separate titles of the Social Security Act 3 continue in those areas.
The territories determine benefit amounts. In contrast, the regular SSI
Program has federally determined benefits (though States may supplement
them). SSI also is fully federally financed. SSI is available in the
Northern Marianas.
NUTRITION ASSISTANCE BLOCK GRANT FOR AMERICAN SAMOA
Among the territories, the regular Food Stamp Program operates only
in Guam and the Virgin Islands. The Omnibus Budget Reconciliation Act
of 1981 (Public Law 95-35) replaced the Food Stamp Program in Puerto
Rico with a special Nutrition Assistance Block Grant. Puerto Rico was
given a great deal of flexibility in program design. Funding is limited
to an amount set in law, which for fiscal year 1998 is $1.204 billion,
making it by far the largest Federal needs-tested program in the
Commonwealth.
The Northern Marianas and American Samoa are also given fixed
grants with which they administer food-stamp-like programs, though the
program in American Samoa is limited to the elderly and disabled. The
programs that operate instead of the regular Food Stamp Program in
Puerto Rico, the Northern Marianas, and American Samoa were generally
unaffected by the changes to the Food Stamp Program made in the 1996
welfare reform law. Additionally, the limits on food stamp eligibility
for non-citizens do not apply in these programs. Instead, these
territories are governed by the law's rules for public benefits that
apply to needs-tested programs other than food stamps. That is, the
territory may aid those who arrive after August 22, 1996, after they
have resided in the United States for 5 years.
PUBLIC ASSISTANCE PROGRAMS
Combined federal funding for public assistance programs for Puerto
Rico, Guam, and the Virgin Islands is capped at a maximum dollar
amount. The cap for the territories covers (TANF). These caps are not
subject to adjustment or increases under current law. TANF operates in
three territories: Puerto Rico, Guam, and the Virgin Islands. American
Samoa is eligible to operate TANF but has declined to participate
because matching requirements would be disruptive to other local
priorities.
It is clear from Table 25 that some of the most important short
term economic recovery or assistance programs are not available or not
utilized in American Samoa because of caps or other requirements. They
are unemployment compensation and various forms of public assistance.
American Samoa is not in a strong position to benefit from existing
federal programs if a serious economic crisis were to develop. Major
cutbacks in cannery employment or closures would represent such a
crisis. It is necessary to petition federal agencies as soon as
possible to seek out, modify or create programs that could apply to
American Samoa in the event of such an economic disaster.
Chapter 4: Long Term Response to Cannery Industry Decline
american samoa's position in the us economic system
An important prerequisite for economic policy deliberations is to
agree on some basic concepts about what is important and how to measure
it. In one way or another economic development is related to everything
else, but some factors are much more important than others. If we give
everything equal weight then everything and nothing are important.
Through study we develop models that help us sort out what is really
important. Economic development is a complex issue, but there are ways
to engage the subject productively.
There have been various assessments of the cause of American
Samoa's economic problems. They range from the supposed negative
influence of US largess and dependency to the supposed difficulty of
blending the Samoan way with modern economics.
From an economic development standpoint, American Samoa is
comparable to many rural, isolated areas in the United States. American
Samoa is unique in many ways, especially culturally, but the challenge
of economic development in American Samoa is in many ways similar to
that faced by other rural, isolated communities in the US. There is one
major difference. American Samoa is worse off economically. American
Samoa has a lower per capita income than any of the 3141 counties in
the US.\7\ This could vary if cost of living or other adjustments were
made, but American Samoa's per capita income would certainly remain
among the lowest one percent of counties in the US. Furthermore, as
earlier noted, American Samoa's per capita income is only one-fifth the
US average.
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\7\ Answers.com: http://www.answers.com/topic/lowest-income-
counties-in-the-united-states. US Census of Population 2000.
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It is in the magnitude of differences in productivity that
separates American Samoa from most of the US. ``Any examination of
regional economic performance must begin with a clear framework for how
to measure performance and its underlying causes. A region's standard
of living is determined by the productivity of its economy.
Productivity is measured by the value of goods and services produced
per unit of labor, capital, and the natural resources employed.
Productivity sets the wages that can be sustained and the returns to
investment in the region--the two principal components of per capita
income.''\8\ This, of course, is the skeletal argument pertaining to
the minimum wage.
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\8\ Michael E. Porter with, Christian H.M. Ketels, Kaia Miller, and
Richard T. Bryden ``Competitiveness in Rural U.S. Regions: Learning and
Research Agenda'' Institute for Strategy and Competitiveness, Harvard
Business School, February 25, 2004 (page 6).
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It is said that these poorest counties in the US are generally
sparsely populated areas and isolated from larger faster growing
metropolitan areas. In general the smaller and more isolated, the
poorer they are and the lower their growth rates. It is said also that
small size translates to smaller markets and labor forces. While labor
might be cheaper because of the isolation, it is not likely to be as
abundant or as varied and skilled. Isolation adds an element of higher
costs. It is the cost of bringing goods in and exporting locally
produced goods. These isolated areas are usually less populated from
out-migration because of a dearth of opportunities for the young. On
top of all of this is the remoteness from market and industrial centers
which are thought to increase productivity through the concentration of
knowledge and skills. Infrastructure may be inadequate for many
development purposes. Small, isolated areas are everything that
thriving metropolitan areas are not. Of course, there is the periodic
exception of a remote rural area exploiting a valuable or abundant
natural resource.
The issue of rural economies is an important one in the US. Two-
thirds of the 3141 or so counties in the US are rural. The US has been
trying to deal with these differential economic conditions and growth
rates between rural and metropolitan areas for decades. Current
policies to improve the disappointing economic performance of rural
regions are often deemed, by and large, not working.\9\ However, most
might agree that this is something of an overstatement. It is fair
enough to explain on economic grounds (i.e., remoteness, smallness,
etc.) why rural areas cannot keep up with larger metropolitan areas.
However, to then fault assistance programs which do not even purport to
address those economic grounds for ``not working'' might be quite
unreasonable. Those programs were never intended to eradicate the
income and growth differentials between rural and metropolitan areas.
In fact, even in their economic doldrums, rural areas might be
performing close to economic expectations. In fact, they might be
performing their economic roles quite effectively by channeling
resources where they can secure the greatest productivity and return.
The point of these remedial programs, of course, is to assist these
areas in performing as well as they are able under difficult
circumstances. After all, they are our communities, our people and our
children.
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\9\ Michael E. Porter with, Christian H.M. Ketels, Kaia Miller, and
Richard T. Bryden ``Competitiveness in Rural U.S. Regions'' (page 3).
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The central point is this: If the federal government has had
difficulty dealing with rural areas in the US in general, it should be
no surprise that the federal government has had limited success with
economic development in American Samoa and other outlying areas.
Economically, the territory is an exaggerated case of rural areas in
the US. If small size and isolation are the precursors of low incomes
and economic growth rates, then the challenge facing American Samoa's
economic development advocates is a big one. In fact, since physical
isolation and size are primarily what these poorest counties in the US
have in common, it might be said that American Samoa's performance is
not unexpected.
This does not mean that American Samoa is doomed to economic
deprivation for all eternity. However, it does mean that American Samoa
will likely suffer from low average incomes and growth rates compared
with the US average indefinitely. Furthermore, it does not mean that
federal or local programs have been failures. Success cannot be defined
as achieving average income and growth rates in rural areas equal to
those of large metropolitan areas. A great deal can be done to narrow
this income differential or to prevent it from worsening. We simply
need to do the best we are able to stretch American Samoa's resources
to their most productive potential.
APPROACHES TO ECONOMIC GROWTH AND DEVELOPMENT
It is now necessary to determine how American Samoa can best
advance its own economic interests, through programs and policies
involving the private and other sectors.
Advances in economic theory are helpful in this regard. Typically,
regional economic development has been primarily regarded as a
promotion or sales effort to attract manufacturers. Economic
development is still regarded as largely a matter of regions getting
the word out about their location advantages and then opening a
welcoming door to direct investment. This approach, by itself, is no
longer regarded as an effective one particularly for smaller, rural
areas. This is especially the case as manufacturing employment has been
in decline all across the nation due to globalization and rapidly
rising worker productivity. In recent years, economists have been
getting a better handle on the economic growth process. There are
improved concepts for how to achieve economic development.
Education and technology have been known for a long time to have a
great influence on economic growth. However, there was never a very
clear idea of how it worked or how to account for or measure it.
Previously, economic development was viewed in a highly physical sense
as in the use of land, labor and capital and the production of goods.
Typically, the process was governed by competition, comparative
advantage, and diminishing returns, all of which remain important.
Increasingly, however, economists are coming to realize that while
these concepts apply reasonably well to the production of goods, they
apply much less well to the fastest growing sectors of the economy,
which are technology and knowledge-based activities.
The new technology and knowledge-based activities defied older
notions of diminishing returns. It became clear that innovation could
provide what appeared to be almost unlimited growth potential! This
notion has been called ``New Growth Theory''. According to a leading
exponent, Paul Romer, ``new technologies like biotech help demolish the
old specter of diminishing returns, which led economic thinkers such as
Ricardo and Keynes to suppose that growth had its limits. Instead,
these new technologies create increasing returns, because new
knowledge, which begets new products, is generated through undiminished
research.''\10\
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\10\ Kevin Kelly. Paul Romer: The Economics of Ideas (http://
www.versaggi.net/ecommerce/articles/romereconideas.htm).
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``The centerpiece of New Growth Theory is the role knowledge plays
in making growth possible. Knowledge includes everything we know about
the world, from the basic laws of physics, to the blueprint for a
microprocessor, to how to sew a shirt or paint a portrait. Our
definition should be very broad including not just the high tech, but
also the seemingly routine.''\11\ In other words, knowledge includes
everything from the most sophisticated technological advances to the
everyday innovations of millions of workers.
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\11\ Joseph Cortright ``New Growth Theory, Technology and Learning:
A Practitioners Guide'' Reviews of Economic Development Literature and
Practive No. 4, 2001.
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``Recent economic developments have underscored the relevance of
increasing returns in the world of business. Software and the Internet,
both relatively new inventions, have very high initial or fixed costs
(the cost of developing the first disk or initially programming a
website) but very low (or nearly zero) costs of serving an additional
customer or user. The first copy of Microsoft windows might cost tens
of millions of dollars to make, but each additional copy can be made
for pennies.''\12\
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\12\ Ibid. pp.4.
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The central point is this. Economic growth has traditionally been
defined as more people producing more goods and services of the same
form and by the same means. However, the New Growth Theory recognizes
that economic growth also occurs when people (a larger or smaller
number) produce more goods and services by more efficient means.
Romer likens the economic growth process to a kitchen operation in
which we mix inexpensive ingredients together according to a recipe.
The cooking one can do is limited by the supply of ingredients. If
economic growth could be achieved only by doing more and more of the
same kind of cooking, we would eventually run out of raw materials.
Human history teaches us, however, that economic growth springs from
better recipes and equipment, not just from more cooking. New recipes
generally produce fewer unpleasant side effects and generate more
economic value per unit of raw material.
Romer summarizes: ``Every generation has perceived the limits to
growth that finite resources and undesirable side effects would pose if
no new recipes or ideas were discovered. And every generation has
underestimated the potential for finding new recipes and ideas. We
consistently fail to grasp how many ideas remain to be discovered.''
Romer cites a more mundane example for which there are unlimited
opportunities. ``In most coffee shops, you can now use the same size
lid for small, medium, and large cups of coffee. That wasn't true as
recently as 1995. That small change in the geometry of the cups means
that a coffee shop can serve customers at lower cost. Store owners need
to manage the inventory for only one type of lid. Employees can
replenish supplies more quickly throughout the day. Customers can get
their coffee just a bit faster. Such big discoveries or inventions as
the transistor, antibiotics, and the electric motor attract most of the
attention, but it takes millions of little discoveries like the new
design for the cup and lid to double average income in a nation.''
New Growth Theory has much to say about how to succeed in an
economy based extensively on knowledge and innovation. There are
recommendations on the role of government in education, research, and
the legal infrastructure regarding monopoly and intellectual property
rights.
There are several important conclusions from this analysis from
American Samoa's standpoint. One is that economic growth is not
necessarily tied to population growth, nor does it rely on continued
access to declining natural resources. Because economic growth today is
largely knowledge based, we can achieve higher income growth without a
growing population.
The second is that when we refer to a knowledge-based economy that
can produce more and more with less and less through unending
innovations, we are not just talking about the role of the private
sector. This includes the public sector as well. The obvious examples
are improved education and support for research. However, also included
are the everyday innovations of government managers and workers and
improvements in skills, systems and general management. Dealing with
government can be pleasant and efficient, or it can be distasteful and
costly. A business cost is a business cost regardless of whether it is
generated by the private sector or the public sector. Hence, efficiency
in government is translatable to efficiency in the private sector.
Moreover, financial control problems can directly affect federal
funding for economic development projects by delaying or prohibiting
funding for such projects. Investors, whether local or from off-island,
can be discouraged by an inability to obtain essential information,
permits, licenses, etc.
Most of the ideas for new development directions will come from the
private sector which is in a stronger position to recognize
opportunities and to set them on a course to fruition. It is the
government's job to accommodate the process.
THE EVOLUTION OF AMERICAN SAMOA'S PRIVATE SECTOR
It has been less than 50 years since American Samoa began the
transition from a traditional subsistence economy to a modern
commercial economy. In the early 1960s, the population of the territory
was only about 20,000 and the residents were still primarily engaged in
a subsistence lifestyle based on fishing and agriculture. The
government and the fledgling tuna industry, which got underway in 1954,
employed only a small percentage of the workforce and there was no
other basic economic activity.
With the exception of the extraordinary WW II years, modern ways of
living had not yet arrived in American Samoa. From the end of WW II to
the early 1960s, the U.S. government did not seek to integrate American
Samoa into the United States or world economy. As a result, the private
sector was limited and undeveloped.
The territory's transition to a modern economy did not begin in
earnest until the middle of the 1960s when federal officials made a
conscious decision to modernize American Samoa. It did this with a new
airport, four-star hotel, new hospital, new schools, new roads and a
wide range of other improvements, including increasing local political
self-determination and modern forms of governance.
Starting with the modernization push in the 1960's, both the
government and the tuna industry have gotten much larger and more
sophisticated. The growth in the basic economy inevitably fueled growth
in the secondary private sector, as companies stepped up to fill the
expanding demand for local goods and services.
As recently as the 1980's, there were still large gaps in the goods
and services provided by the private sector. Shopping was often a hit
and miss affair, and many things were simply not available. Twenty
years ago, there was no modern movie theater, no fast food chains, no
daily newspaper, a single radio station, no cable television or private
television channels (and no same-day TV programming at all), bare
produce sections in the stores, no big box store, and a limited
selection of building materials and consumer goods.
Today, American Samoa's consumers and businesses can reliably find
a wide array of basic and not-so-basic goods and services, due to the
private sector's aggressive exploitation of emerging commercial
opportunities and improvements to telecommunications and freight
transport.
In addition to catering to the demands and desires of the general
populace, many of today's leading businesspeople became successful by
providing goods and services specifically required by the tuna industry
and the fleet of fishing boats supporting the canneries. They supplied
a wide range of services, including warehouses, bus services, welding,
construction, stevedoring, cafeteria services, night clubs, fuel and
lubricants, salt, travel agencies, rental housing, and many other goods
and services.
Despite the blossoming of the secondary private sector, there have
been limited efforts to develop new forms of export-oriented economic
activity. (e.g., garment manufacturing by BCTC and Daewoosa,
manufacturing by Bulova watches, and tourism) but none of those took
hold.
But if the canneries close or reduce employment significantly, the
associated job and income losses will have to be replaced with other
export activity to maintain American Samoa's standard of living and to
provide jobs for the displaced workers that remain in the
territory.\13\
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\13\ American Samoa's standard of living seems to already be under
pressure, even without the loss of the canneries. According to the
government's 2005 State of the Economy Report, It states that American
Samoa's per capita income remains only about 20 percent of the US
average.
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This replacement export activity can come from new export-oriented
companies moving in, or from new export activities undertaken by
today's existing private sector.
Chapter 5: Private Sector Role in American Samoa's Future Development
THE PRIVATE SECTOR SURVEY
The consulting team visited American Samoa in May, June and
September 2007 to involve the private sector and to determine their
views about the challenges ahead. The group held formal meetings with a
diverse group of approximately 30 private sector leaders employing more
than 600 workers. (See Appendix B for survey methodology.)
The sample included managers and owners involved in a range of
business activities, including retailers and wholesalers,
professionals, banks, insurers, shippers, manufacturers, and service
providers. Most interviewees were business owners and most have long
tenure in American Samoa.\14\ The businesspeople were asked what future
they foresaw for their companies and the canneries, and how American
Samoa should pursue a more diverse and stronger economy.
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\14\ In addition to the formal interviews, scores of informal
conversations were conducted with other business people, workers,
residents, government employees, retirees, etc.
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This research was carried out amidst daily front page headlines
about proposed, and then confirmed, significant increases in the
federal minimum wage law. About half of the interviews took place
before the unexpected news that American Samoa's minimum wage would
increase $.50 each year from 2007 on until it reached the US minimum
wage level of $7.25 per hour. The other interviews took place after the
new provisions of the Fair Labor Standards Act were signed into law by
President George W. Bush in late May 2007.
Throughout this period, rumors swirled throughout the community
concerning the possible effect the new minimum wage law would have on
the canneries. Soon after the U.S. minimum wage law went into effect,
the media reported that StarKist had decided abruptly to shelve its
highly publicized pouch project, which would have provided 300 new jobs
and moved the cannery in the direction the tuna industry is
heading.\15\ Samoa Packing announced during the same week that it would
be laying off 200 workers (9 percent of its workforce) in response to
the new minimum wage law.
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\15\ In August 2007, StarKist announced it was proceeding with a
scaled down pouch project, which would require 150 workers.
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As a result, the atmosphere in the interviews evolved from an
exploration of a hypothetical future to a more tense exploration of
what was beginning to seem more like the inevitable. Even though many
private sector people had been anticipating closure of the canneries in
the future, few people have been actively addressing the possibility
with advance planning. None had given any thought to how they or others
in the economy would respond to cannery closures at the same time they
were absorbing significant annual wage increases in their own
businesses.
CANNERY INDUSTRY VIEWS ON ITS FUTURE
In correspondence with the study authors, the two canneries
provided information about their employment rolls, local expenditures
and various other matters. Increases in productivity (due in large part
to automation and a shift towards loining from whole fish processing)
has accounted for the decrease in total employment at the canneries
over the past five years. The canneries have found recruitment and
retention of workers an ongoing challenge, which led to their support
for the more liberal 2007 guest worker legislation.
Regarding the future of the canneries in American Samoa, the two
companies said that elimination of the automatic $.50 per hour minimum
wage escalator clause is essential if they are to continue full
operations in American Samoa, especially in light of other trends in
the worldwide tuna industry, such as a lowering of American tariff
provisions in the name of free trade.
Both canneries presently receive significant tax incentives from
the American Samoa Government, and they both indicated that their
continued presence depends on such incentives being extended beyond
their March/April 2008 expiration dates.
The canneries both seek some form of federal tax credit to replace
Section 936, but they differ on the preferred form of such a credit.
They also mentioned the need for a reduction in their costs for
fuel and electricity in American Samoa. They claim that such costs are
many times higher than in other locales where tuna is processed (e.g.,
Thailand and the Philippines).
Lacking substantial relief of the type mentioned above, the
canneries indicate that they will begin planning for a transfer of
production from American Samoa to more favorable locations which are
eager and able to accept tuna processing industry growth. Once a
decision is made to transfer production from American Samoa, action
would probably soon follow and it would probably be very difficult to
reverse the decision.
PRIVATE SECTOR VIEWS ON THE CANNERY INDUSTRY
The canneries have dominated American Samoa's private sector
economy for a long time. Thanks to their presence and the economic
activity they generate, American Samoa enjoys many benefits. For
example, the canneries require frequent sea freight service, and thus
the territory enjoys sea freight service levels much higher than its
population would otherwise justify, at rates lower than would otherwise
prevail.
The availability of frequent and relatively economical sea freight
service has allowed the private sector to overcome some of the
difficulties associated with American Samoa's remote location and has
thus materially affected their fortunes for the better.
The same dynamic applies to a wide range of public services and
facilities. The presence and needs of the canneries has directly
justified the development of high capacity infrastructure, which many
companies and residents enjoy the benefits of. With the canneries to
support, it has been possible and necessary to improve the commercial
harbor, the petroleum farm, ASPA's electrical and water systems,
telecommunication systems, and environmental systems.
As previously indicated, many local businesses upgraded their
capacity to take advantage of the commercial opportunities presented by
the canneries. They mobilized to offer welding, plumbing, electrical
and construction services. They added machine shops, rewiring shops,
nightclubs, restaurants, rental car agents, bus owners, taxi drivers,
food purveyors, petroleum agents, travel agents, real estate owners and
literally hundreds of other goods and services.
The canneries spent $30.5 million a year in the local economy on
goods and services in 2005. This was in addition to the $49.4 million
they paid to their employees. The injection of $80 million into the
American Samoa economy directly and indirectly supports approximately
half the jobs in the territory. For these reasons and more, most
members of the private sector support efforts to retain the canneries
in American Samoa.
However, there is also some unhappiness with the price American
Samoa pays to host the canneries. Some members of the public are
unhappy with the negative environmental impact of cannery operations;
others decry the negative social impact of an economy that is dependent
on low wage, unskilled, foreign workers. Some people think the
canneries get more than they give, thanks to favorable government
treatment (such as tax exemptions and inexpensive land leases) and
their reliance on foreign workers who pay low taxes and receive
extensive public services (e.g., free education and heavily subsidized
medical care) for themselves and their families.
Others simply note that the canneries presence and growth has
stifled other forms of economic development. For example, some visitor
industry leaders believe Pago Pago Harbor with its dramatic beauty and
calm waters could be a huge tourist draw. However, as long as the
canneries are still operating there, the Harbor's appeal will be
neutralized for tourism purposes. The legacy of pollution they will
leave behind when they depart might make it difficult to capitalize on
the Harbor's tourism potential.
The growth of an economy dependent on a low skill, low wage jobs
(fish cleaning) has also had the effect of contributing to out-
migration, as local youth prefer to move off-island than to take the
jobs available locally.
The growth of the tuna industry has helped the secondary private
sector grow and prosper, but that same growth has also made the economy
more dependent on the canneries than is economically healthy.
Entrepreneurial businesspeople have for many years prospered by tapping
opportunities created by the canneries' presence and few have pursued
riskier export-oriented opportunities.
It is not surprising that an industry as prominent as the canneries
has become a major target for criticism and dissatisfaction. For
example, many business leaders resent the way the canneries sometimes
use their influence to push their agenda at the political level, and
businesspeople wish the canneries would change some of their business
practices. For example, it is hard on the community-at-large and local
companies when the canneries furlough their workforce with little
advance notice.
After years of ``the-sky-is-falling'' talk about the canneries
scaling down or leaving, most private sector members remain determined
to try and help the canneries find a way to stay in American Samoa as
long as possible. However, they are also aware that the canneries are
likely to scale down or leave some day. As much as the private sector
members dread the financial pain that will ensue, most believe a post-
cannery era is inevitable and are encouraged that the government wants
to prepare for the impacts before they appear, and to help ensure a
smooth transition to a post-cannery era.
In the meantime, the Chamber of Commerce has taken a very active
role in support of measures that will extend the canneries' tenure in
American Samoa. For example, the Chamber strongly supports efforts to
extend federal tax benefits for the canneries and to roll back the
automatic minimum wage increases. The Chamber also supported the local
guest worker legislation approved in 2007 which makes it easier for the
canneries to hire foreign nationals.
PRIVATE SECTOR VIEWS OF CANNERY INDUSTRY FUTURE
Concerns about Canneries.--The views of the private sector
interviewees who participated in the formal survey process are
summarized in the following section (See Appendix B). The vast majority
of respondents said they have given ``a lot of thought'' to what impact
they will experience from closure of the canneries. A small minority
said they had given such impacts only ``a little thought''. There was
no respondent who had not given the matter at least ``a little
thought''. A majority of the respondents were ``very worried'' about
the possible departure of the canneries. Those who were not ``very
worried'' were ``concerned'' or a little worried. There was no
respondent who was simply ``not worried.''
Responses to Cannery Contingencies.--About half the leaders
interviewed said they had not altered their business decisions in the
past year due to fears of the canneries leaving. The other businesses
said they had taken steps to reduce their risk and exposure in the
event of a further downturn in the local economy. Most business leaders
felt that 2006 and 2007 were slow years for the American Samoa economy
compared to the few years immediately prior to those. Some businesses
had done less new hiring than they would have otherwise. Some
businesses had not taken on debt or avoided investments that they would
have otherwise. Some businesses were taking their profits out of
American Samoa and investing them in other locations where they
perceived a brighter economic future, such as Samoa. Some businesses
are striking out in new or altered directions to become less dependent
on direct or spin-off cannery business. For example, one business that
historically sold ``entry level'' used clothing that is affordable to
cannery workers has discontinued importing used clothing and up-scaled
its product offerings in a conscious effort to appeal to a more
affluent clientele, such as government workers. Some businesses were
engaged in strategic planning or contingency planning for changing
their business model or exiting American Samoa entirely. It was clear
that many or most businesses are becoming increasingly conservative and
are increasingly reluctant to commit themselves to the kind of normal
business risks (e.g., expansion, updating of equipment) they would
ordinarily take in a more stable business environment.
Probability of Cannery Closures.--Virtually all respondents felt
the canneries would be operating in American Samoa in a similar manner
to their present operation at the end of 2008. However, about one-third
felt the canneries would be scaled back or closed by the end of 2009.
Some American Samoa residents, including business leaders, do not think
the canneries will leave for many years. They think American Samoa
offers so many important advantages to the canneries that they will
remain despite the loss of federal tax credits, increases in the
minimum wage, and reduced tariff protection.
Effects on Business Income.--If the canneries were to close or
scale down, most business leaders anticipate significant drops in their
revenue and the number of workers they employ. Cannery-related
businesses obviously expect huge declines in their operations, even
possible closures. Businesses that more generally serve the community
anticipate drops in their revenues ranging from 3 percent to 70
percent. Revenue drops of 25-50 percent are routinely expected by many
observant, experienced businesspeople. There is a sense that revenue
declines at the lower end (i.e., 25 percent) will reflect reduced
buying power directly due to cannery closures. Revenue declines at the
higher end (i.e., 50 percent) are anticipated to result from consumer/
business worries over the general prospects for the economy, more than
actual financial hardships experienced by the general population. For
example, a media company fears that businesses will cut back their
advertising more than they ``should'' out of an erroneous belief that
the economy and consumers are worse off than they really are. Such
cutbacks could create a self-fulfilling prophecy because a reduction in
advertising will result in a slowdown in business, which will result in
a further reduction in advertising, etc. Such a ``snowballing effect''
that feeds on itself could significantly, and unnecessarily, add to the
economic woes of American Samoa in the event of a cannery cutback or
closure.
Effects on Employment.--Most businesses expect to reduce their
workforce in relation to the revenue drops they anticipate. In general,
the workforce reductions would be smaller percentages than the revenue
reductions. For example, a 25 percent drop in revenues might result in
only a 15 percent drop in employment levels. Most companies felt they
were already operating in a ``lean'' manner, and there was little fat
to cut out of their staffing levels. Business leaders said they were
operating in a lean manner due to a slow economy in 2006 and 2007, and
fears for further slowdowns in the years ahead.
Effects on Business Survival.--Although some business leaders do
not believe they will be able to stay in business as a result of the
impact of cannery closures, most companies expect to adjust, adapt and
survive. They have guarded unspecific optimism that it will work out
for their businesses and for American Samoa's economy. Local companies
are more committed to adjusting and adapting than off-island companies.
Off-island companies are understandably more willing to contemplate
withdrawing from the American Samoa market if it shrinks too much. One
local businessperson spoke for many others when he said, ``our company
will survive, but it will be smaller and we will look at doing business
differently to be viable.'' Significantly, both commercial banks (as
well as the government-owned Development Bank) expressed a firm
commitment to stay and be part of the solution, not the problem. ``We
will not cut (our losses) and run,'' one commercial bank official said,
and the other bank said much the same thing in different words. Both
commercial banks noted that their long history and involvement in the
Pacific Islands gave them the perspective and tools to weather the
economic storm that might hit American Samoa. Banks would, however,
obviously take steps that will make it more difficult to borrow money
(e.g., raising the credit bar higher). Many business people believe at
least one bank has already tightened its lending criteria to limit its
exposure.
Effects on Indebtedness.--Despite the predictions of significant
drops in revenue, few respondents believe that a closure of the
canneries would affect their ability to repay their loans, though a
restructuring of their debt might be necessary.
Effects on Local Prices.--Virtually all businesses expect they will
have to raise their prices if the canneries close, mainly due to
increased costs of doing business (e.g., shipping and utilities) as
well as decreases in the economies of scale. Some expect to maintain
current levels of product offering and customer service, while others
anticipate a reduction in the same.\16\
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\16\ Some of the indirect impacts of a cannery reductions or
closures relate to shipping, utilities and petroleum, as the loss of
cannery business will lead to increased costs to be borne by the
remaining customer base.
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PRIVATE SECTOR VIEWS ON CANNERY CLOSURE IMPACTS
Most respondents believe that the role played by the government,
both territorial and federal, will have a huge impact on the transition
to a post-cannery era. However, businesspeople suggested no specifics
as to what form of assistance would be most welcome for a smooth and
successful transition.
Private sector leaders identified immigration policy as one area
where government has an important role to play. Currently, about 70
percent of the private sector workforce, including the tuna cannery
industry, is foreign-born. The present-day economy depends on foreign
workers to fill the jobs companies need filled. In a time of widespread
unemployment, the foreign workers might choose to return home, or might
be compelled to leave by their sponsors or by the government's
enforcement of immigration laws. The departure of the foreign workers
might reduce the labor pool to such a large extent that potential new
employers might be concerned that they would be unable to staff an
American Samoa operation. On the other hand, the departure of many low-
income workers might help ease the government's financial burden and
reduce some of the problems of high population growth rates in the
territory (e.g., traffic jams, teacher and classroom shortages, long
waits at the hospital, etc.)
Thus, many different facets of migration are seen as big issues:
from the question of what will happen to unemployed foreign cannery
workers with limited skills, to the need for an appropriate labor force
for American Samoa's economy, to the concerns about a brain drain of
American Samoa's middle class and educated young people.
Businesspeople believe that government actions and laws, as well as
the private deliberations of individuals and families, will all have a
direct influence on these issues.
Also, though American Samoa now controls its own immigration laws
and borders, local leaders are aware that federal officials and
lawmakers want to take similar local authority away from the
Commonwealth of the Northern Marianas Islands. There is, therefore, a
concern that the federal government might exercise its right to assert
immigration and customs control authority over American Samoa. Such an
action would have huge implications for American Samoa's business
community and future, given that 70 percent of the private sector
workforce is composed of foreign nationals admitted into the territory
under local, not federal, authority.
Businesspeople are uncertain as to what will happen to the foreign
workers who lose their jobs. They are aware that there are many
different categories of foreign workers and generalizations are
difficult to make.
For example, the skilled unmarried tradesman from the Philippines
who is sponsored by a company and living in a rented apartment is in a
very different situation than the unskilled Samoan couple with five
minor children born in American Samoa with U.S. National status, all of
whom live in a house they built on land that belongs to the relative
who serves as their sponsor.
Most people expect that foreign workers with weak attachments to
American Samoa will return home if they lose their jobs (or that they
will be sent home by their sponsor). However, no-one knows how many
people fit that category, just as no-one knows how many unemployed
foreign workers will seek to remain in the territory and get by somehow
while waiting for new jobs to materialize.
A large number of unemployed workers would obviously cause a great
deal of stress on the territory, and it is unclear what role the
government will play in influencing or mandating what happens to
unemployed foreign nationals. There is no clear indication what actions
the business community wants the government to take in relation to
unemployed foreigners who stay in the territory after losing their
jobs.
A related private sector concern involves American Samoans, and
whether there will be a substantial increase in the number of American
Samoans who decide to migrate to the United States during a period of
general economic weakness or high unemployment.\17\
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\17\ The consultants heard many anecdotal tales of American Samoan
parents advising their children, especially their college-educated
children, to stay in the United States and obtain valuable job
experience in their chosen fields. The parents harbor a permanent hope
that their children will one day be able to return to American Samoa
and achieve their career goals.
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Business leaders note that migration debates will also take place
in the households of American Samoans who have not become unemployed
but are discouraged by the lack of economic opportunity that might
follow cannery reductions or closures and which may last for many
years. For example, some parents told us that they are urging their
children living off-island to stay there and get an education and work
experience because there are no jobs in their fields in American Samoa.
That advice is being given now; imagine how much more common such
advice will be at a time of widespread unemployment.
It seems likely that cannery reductions or closures could intensify
the ``brain drain'' of young American Samoans who are vital to the
prospects for strengthening and diversifying the territorial economy in
the future.
private sector perspectives on future economic development directions
As part of the private sector survey, business leaders were asked
what sort of industries or new directions they believed were good fits
for American Samoa. They were specifically asked their opinion on the
recommendations made in 2002 by the American Samoa Economic Advisory
Commission, which identified five promising sectors: tourism, light
manufacturing, information technology/call centers, agriculture and
fisheries.
Virtually all the respondents felt that each of the sectors had
merit, although some people were explicitly pessimistic about tourism.
This was based on the territory's past lack of success with tourism and
the oft-cited obstacles to developing a thriving visitor industry
(e.g., expensive and limited air links to potential markets).
Regarding the other possibilities, agriculture's potential was
thought to be limited, but most respondents thought there was a basis
for successful development in the areas of information-based activity,
manufacturing and fisheries.
Most people felt that American Samoa's small size required a
focused approach instead of trying to pursue all possible avenues for
economic diversification. Most businesspeople think that manufacturing
and information industry companies offer the most promise when it comes
to replacing the thousands of jobs now provided by the tuna industry.
But private sector leaders believe there is potential in the other
sectors and hope that there will be progress on developing tourism,
fisheries, and agriculture sectors as well.
Legalized gambling was the only other specific economic opportunity
endorsed by several respondents. However, many other respondents
disagreed that gaming is a promising direction for American Samoa for a
variety of reasons, ranging from the socio-political to the strategic.
. Moreover, Governor Togiola Tulafono has recently expressed his
opposition to allowing a gaming industry in the territory.
Several respondents had specific ideas for new economic ventures
that they thought were promising, including ship/barge building,
fulfilling military contracts, data processing, furniture
manufacturing, development of a marina, liquor distilling, beer
brewing, bottled water, food processing, pet food manufacturing,
mattress manufacturing, candle manufacturing, airport handling
manufacturing, electric vehicle manufacturing, etc. Their ideas
generally fell into one of the five categories mentioned
previously.\18\
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\18\ An example of one idea that did not fit into one of those five
categories was off-shore banking, but that is not considered a
realistic idea by the consultants. Other suggestions that were
disregarded included forestry (not feasible or environmentally
appropriate) and hosting a U.S. Navy base (probably not feasible given
American Samoa's small size and non-strategic location).
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Even though the relationship between American Samoa and the United
States is central to American Samoa's economic present and future, no
respondent mentioned a different political status for American Samoa
during the open-ended interviews. Some respondents mentioned specific
political matters, like the cabotage rule affecting air transport, or
the American Samoa land tenure and immigration systems. The recent work
of the Future Political Status Commission did not appear to be a matter
of interest to the business community, despite the widespread publicity
it has received. That might be because the Commission's core
recommendation was to maintain the status quo.
Just as the recently rejuvenated Chamber of Commerce is fighting to
extend the canneries' presence in the territory, it is also fighting to
diversify the economy and promote new forms of economic development
through an improved business climate.\19\
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\19\ The Chamber's website, www.amsamoachamber.com, contains useful
information about American Samoa's private sector economy and the
Chamber's efforts to improve same.
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The Chamber has prepared ``white papers'' and formed committees to
achieve its goals. It has increased communication with the Governor,
the Fono and the Congressman in an effort to start forging public-
private ties that will be crucial to accomplishing economic development
progress. In 2007, the Chamber formed PEACAS, the Private Economic
Advisory Council of American Samoa, ``whose main objectives are to
promote all forms of economic development within the Territory, and to
facilitate and promote public/private partnership opportunities with
the ASG.''
PRIVATE SECTOR ECONOMIC DEVELOPMENT CONSTRAINTS
As mentioned previously, if the canneries closed down or scaled
down, new export-oriented economic activities would be needed to
replace the lost jobs and help maintain the standard of living of
American Samoa residents.
History and analysis reveal that it will be a challenge to attract
new companies to the island, or for existing companies to successfully
expand and transform themselves into exporters. In the sections that
follow, the disadvantages and advantages American Samoa offers to the
potential investor are reviewed, followed by a discussion of what sort
of economic opportunities American Samoa might successfully exploit.
Disadvantages.--While all communities face constraints to achieving
their goals of economic diversification and growth, the challenge in
American Samoa is decidedly more daunting. The following is an outline
of economic development disadvantages that American Samoa must work
within or remedy to more successfully promote and achieve job creation
and economic development.
1. Physical infrastructure
a. American Samoa lacks an international fiber optic
cable link. This limits the quality and quantity of
low-cost telecom, internet, etc. The government and
private parties are working to bring a fiber optic
cable to American Samoa in 2008, but that will require
a major capital investment.
b. Major roads are congested and some are in poor
condition.
c. There is a general lack of reliability (e.g.,
internet service, electrical service). This means that
operations might be compromised, or the expense of
redundancy might be necessary.
2. Social infrastructure and business environment
a. Land tenure system makes securing land cumbersome
and unpredictable.
b. Limited access to capital, and higher borrowing
costs, compared to other locales.
c. Regulatory environment is stricter than other
locales, yet government is often behind on taking care
of basic public services (e.g., condemnation of
derelict buildings, installation of traffic control,
etc.)
d. Limited air links, expansion of which is
problematic due to U.S. cabotage laws, which prevent
foreign carriers from flying between two U.S.
airports).
e. Health care services below U.S. standards. High
levels of health problems (e.g., diabetes, high blood
pressure).
3. Concerns of business community regarding business climate
a. Playing field may be tilted by political
considerations.
b. Difficulty obtaining a business licenses in a
timely manner.
c. High taxes, duties and fees.
d. Higher tax scheme for foreign corporations.
e. No title insurance and limited financial
infrastructure.
f. Federal government indifference.
g. Loss of historic federal advantages (e.g., Section
936, special minimum wage provisions and declining
importance of duty-free access to the U.S.).
h. Perceived lack of urgency or interest amongst
local population as it relates to business development.
i. Negative publicity from Daewoosa and other
corruption issues.
4. Human capital
a. Limited local labor pool.
b. Lack of immigration security for foreign labor.
c. Wages that are higher than what must be paid in
competing locations, yet wages that are so low that
they lead to a ``brain drain'' in many areas (e.g.,
nurses, teachers, and other skilled workers).
d. Limited number of CPAs or equivalent.
e. American Samoa students have lowest scores in
United States in national assessment tests. Problem
affects efficacy of Community College, which must
enroll almost all new students in developmental
classes. Low ASVAB test scores prevent many school
leavers from achieving their desire of enlisting in
U.S. armed forces.
f. Low levels of higher education attainment.
5. Geography
a. Long distance to markets and sources of supply,
compounded by not being located near major transpacific
shipping lanes.
b. Remoteness makes for expensive shipping.
c. Remoteness and small size contributes to expensive
electricity.
d. Remoteness and small size makes for expensive
telecommunications (and lack of redundancy).
e. Limited sea and air transportation.
f. Subject to hurricanes.
6. Natural resources
a. Limited land mass and developable land.
b. Limited arable land.
c. Few and small beaches.
d. Few world class dive or surf spots.
PRIVATE SECTOR ECONOMIC DEVELOPMENT OPPORTUNITIES
The list that follows summarizes many of the advantages American
Samoa can extend to companies considering locating a plant or office in
the territory.\20\ (See also the government's promotional brochure,
``American Samoa: Pacific's Best Investment Bet'').
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\20\ Many of the items featured as ``advantages'' on this list also
appear in the preceding section as ``disadvantages''. Roads are an
example. American Samoa has a decent road structure and portions of the
main road have been rebuilt to a high standard in the past few years.
But some portions of the road are in poor shape, the roads are narrow
and have low posted speed limits, and they are congested, so the roads
can also be seen as a disadvantage. Similarly, American Samoa has a
good telecommunications infrastructure with competing companies, which
is an advantage, but the cost of telecommunications is high and the
reliability and voice quality of local and off-island links is not up
to mainland standards, which is a disadvantage.
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Advantages
1. Physical infrastructure
a. Extensive commercial freight docks in a protected
deep-draft harbor.
b. Dock-side container storage yard.
c. International airport.
d. Industrial electricity.
e. U.S.-grade water, wastewater and solid waste
systems.
f. Roads.
g. Industrial park.
h. Cannery operations, including buildings and
infrastructure. Food grade facility.
2. Social infrastructure and business environment
a. Security and stability of being part of the United
States family.
i. Presence of FBI, FAA, TSA and U.S. Postal
System.
ii. Part of U.S. court system and U.S.
banking system.
iii. USDA food inspectors.
iv. USEPA drinking water standards and other
environmental standards apply.
v. Participation in federal grant programs,
including those promoting development in rural
areas, undeveloped areas, and amongst minority
populations.
vi. Stable base of federal financial support.
vii. Represented in the U.S. House of
Representatives by a locally elected Delegate.
viii. Goodwill in the Pentagon and Congress
from Samoans' service in U.S. military.
ix. Free enterprise capitalism.
x. US Essential Air Service law applies.
xi. Federal telecommunications regulation and
subsidies.
xii. National Park of American Samoa.
xiii. Fagatele Bay National Marine Sanctuary.
3. U.S. style tax code
4. U.S. trade advantages
a. Headnote 3(a) tariff protection, Jones Act,
Nicholson Act.
b. ``Made in America'' labeling.
5. Long history of success with tuna processing
a. Support for large-scale industrial operations.
6. ASG business incentives.
a. Tax exemptions possible (local control over
taxation).
b. Job training assistance available.
c. Small business counseling and other forms of
assistance.
d. No property tax.
7. Intact society/culture.
8. Lower wages relative to the US and other industrialized
places.
9. Close ties to USA, including military services.
10. Friendly and welcoming people.
11. Human capital
a. Skilled personnel and management at canneries and
elsewhere.
b. Unskilled labor pool.
c. Access to wider labor pool through immigration.
(Local control over immigration).
d. English speaking population.
e. U.S.-based education system.
12. South Pacific location
a. Proximity to fishing grounds.
b. Located between United States and Australasia.
13. Natural resources
a. Deep and protected harbor.
b. Ocean resources.
c. Plentiful fresh water.
d. Natural beauty/low pollution.
e. A few areas with good diving, surfing, fishing,
etc.
new economic foundations for american samoa
Many in the private sector, while fearing the pain of cannery
closures, are looking forward to building a new economic foundation for
American Samoa. These hopes can be realized.
To begin with, there is a firm consensus in American Samoa in favor
of transitioning to a diverse private sector-based economy. There is
widespread agreement on the desired characteristics of a new economic
foundation for American Samoa:
It is not dependent on one industry or company.
It increases local standards of living by being export-
based.
It provides jobs and business opportunities for school
leavers with limited education and training.
It provides local jobs and business opportunities for
Samoans who have obtained high levels of education or job
experience, locally or off-island.
It provides sufficient income and job opportunities so that
Samoans do not feel compelled to move off-island.
It does not injure American Samoa's environment or cultural
integrity.
It facilitates shipping and telecommunication links to the
wider world.
That's what American Samoans want. Can those desires be matched
with commercially viable economic activities? Despite the longstanding
lack of diversification, there are fundamental reasons to be optimistic
that an economically healthy post-cannery era can be realized if a
coordinated effort leverages known opportunities and overcomes known
obstacles.
To attract new industries, American Samoa (or any other locale)
must demonstrate a competitive advantage that will give prospective
investors an edge in comparison to other locales where they might
otherwise place their operations.
That American Samoa can provide impressive competitive advantages
is evidenced by the fact that it has accommodated StarKist and Chicken
of the Sea in profitably producing billions of dollars of product in
American Samoa over the past fifty years.
The tuna canneries have steadily increased their activities in
American Samoa over the past 20 years because the territory provided
compelling competitive advantages to San Pedro (California) and Puerto
Rico, and to all the other locales where tuna has been produced. The
elements of the tuna canneries' competitive advantage have been eroded
recently and are likely to be eroded further in the next few years. But
it does not follow that American Samoa cannot attract other kinds of
economic activity.
American Samoa can be an excellent location for certain investors
including:
Those who seek to produce goods and services on U.S. soil to
enjoy one advantage or another (e.g., tariff protection, legal
conformity, goodwill, etc.),
Those who are sensitive to the cost of labor and have a high
labor component in their cost structure, and
Those who are not bound by geography/proximity, or for whom
American Samoa's location between Australasia and the U.S. west
coast is an advantage.\21\
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\21\ By the same token, if a businessperson has no special need for
U.S. affiliation, it is unlikely American Samoa would be a good
candidate for a major business initiative that could be located
elsewhere, where wages might be less and natural resources more
abundant and logistics less hampered by remoteness and small size.
When companies compare the cost of operating in American Samoa with
the cost of operating in the United States or other developed nations
(e.g., New Zealand, Australia), they will find that some economic
activities can be more profitably located in American Samoa. Though
American Samoa might find it difficult to compete for jobs against such
locales as China or Fiji, American Samoa's competitive advantage
greatly expands if American Samoa is competing against Toledo or
Tacoma.
American Samoa can attract new industries that benefit from the
territory's status as American soil with a lower wage structure than
the 50 states. Though remote, American Samoa has an excellent
commercial port and airport that can handle the flow of physical goods
required for manufacturers, while advances in telecommunications will
render the territory's geographical isolation practically irrelevant to
call centers and other Information Age activities.
Though American Samoa wages may be higher than wages paid elsewhere
in the South Pacific or in third-world countries,\22\ they are
nevertheless lower than the wages which are generally paid in the USA
or other first world countries. American Samoa's U.S. affiliation
provides investors with a high level of confidence in the stability and
security of their investments (This sort of confidence has become more
important given political events and trends in places as diverse as
Fiji and Ecuador and China.).
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\22\ Sources: http://www.bls.gov/news.release/ichcc.t02.htm,
https://www.dol.gov/esa/whd/AS/PDF/EconomicReport-2007.pdf, http://
www.boi.go.th/english/how/labor_costs.asp
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Specific Economic Development Opportunities
With these considerations in mind, it is clear why call center
operators might wish to establish a call center industry in American
Samoa. An American Samoa call center can accommodate clients who want
to be located on American soil and employ workers who speak standard
American English, but are sensitive to labor costs. Physical proximity
to the United States mainland is irrelevant to such clients so long as
American Samoa offers telecommunication links of sufficient quality,
quantity and economy.
Call Centers.--Call centers, and other information processing
activities, require higher skills than tuna processing, and this is
reflected in a higher wage structure. Another bonus is that they are
non-polluting and are less dangerous than manufacturing jobs. According
to the company considering establishing a call center in American Samoa
in 2008, the total per hour ``per seat'' cost of a call center in
American Samoa would be lower than the comparable figure in India and
the 50 United States.
Manufacturing.--Just as some call center operators need a U.S.-
based location to satisfy corporate strategy or legal concerns, the
same is true for some manufacturers. For example, some military items
must be produced on American soil, and trade laws (e.g., anti-dumping
listees, countervailing duties, Headnote 3(a), the Jones Act) provide
significant advantages for certain types of manufacturing to locate on
American soil.\23\ Since the average manufacturing wage in the U.S. is
many times higher than in American Samoa, a competitive advantage
exists in American Samoa's favor for such operations.\24\
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\23\ Two examples include barge building and military procurement.
A large number of double-hulled barges for the US market have to be
built to comply with the new rules. Under the Jones Act, the keels must
be laid in the USA (American Samoa included). All the shipyards in the
USA that can build these barges are backed up with long waiting lists.
The barges could be built in American Samoa at the Ronald Reagan marine
Railway, using precut steel. The topside work can be done in Samoa to
make the business proposition even more favorable. In military
procurement, many things the military buys must be must be produced in
the USA (including American Samoa). Processed albacore is an example.
Plus the military is obligated to give work to properly credentialed
minority contractors and veteran contractors. A local company could
conceivably be credentialed as both military and veteran and thus gain
a distinct advantage in seeking federal contracts, military and non-
military.
\24\ The average wage for a tuna worker in American Samoa was $3.60
in 2006, and the average hourly wage for a manufacturing worker in the
USA was $17.19.
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Manufacturing creates a need for both inbound and outbound ocean
freight and provides jobs for adults and future school leavers
inadequately prepared to take information age jobs. Thanks to the tuna
industry, American Samoa has an excellent and lengthy track record as a
factory locale, with an impressive level of physical and social
infrastructure.
Although American Samoa is remote, the competitive ``penalty'' for
its South Pacific location might be quite low for certain forms of
manufacturing that involve adding value or transforming inputs from
South Asia, Australia, New Zealand or the South Pacific region that are
bound for the U.S. market.
This could include raw inputs from regional neighbors such as cocoa
from Samoa and vanilla from Tonga. This especially applies to goods
that would be subject to a U.S. tariff (e.g., canned tuna).
Even better would be to produce and add value to local products,
especially for export, but even for sale to the local market. Examples
of such opportunities include a range of agricultural products (e.g.,
flowers, traditional Samoan foodstuffs) and fishery products (including
aquaculture), as well as bottled drinking water.
Visitor Industry.--Although tourism does not rely on actually
exporting goods and services, it is nevertheless an export industry
from an economic base standpoint, as it brings in new dollars from
outside the territory just as manufacturing exports do.
American Samoa is blessed with great scenic beauty, a tropical
climate, and a living culture with great appeal to tourists. However,
the experience of the past 40 years has revealed, if nothing else, that
much work remains to be done to create a viable tourism industry. On
one level, the problem can be defined as the ``chicken or the egg''
conundrum involving which comes first: additional air transport
capacity or additional tourism attractions (starting with hotels). But
the problems go deeper, involving such things as access to land,
polluted beaches, littered landscapes, a lack of community support for
tourism, domination of the economic landscape by the tuna industry, and
better value destinations elsewhere in the region to name a few.
Previous studies and tourism planning documents have identified the
challenges and opportunities inherent in promoting tourism in American
Samoa.
It should be noted that Samoa has succeeded in strengthening its
tourism industry over the past 20 years, to the point that American
Samoa's tourism market ``niche'' might now be to serve as an adjunct to
Samoa tourism. Also, there are untapped opportunities to provide
visitor industry amenities to non-tourist visitors who are staying in
American Samoa for business reasons, to visit friends or relatives, or
other non-tourist reasons.
Chapter 6: American Samoa Government Role in Economic Development
The previous section is replete with references to issues for which
the government is primarily responsible. There was reference to the
respective roles of the private sector and government. There is
sometimes tension between the two arising primarily from the private
sector's concern about efficiency, profitability and survival and the
government's concern with meeting the needs of the populace in general.
The private sector is interested in the availability, convenience and
cost of government provided public services and utilities. It is also
interested in the efficiency and fairness in the entire area of
licenses, permits and regulation.
It is important that this healthy tension not escalate to the
detriment of the economy. The government must appreciate the importance
of a thriving private sector. The private sector must appreciate the
broader role of government.
There is a very widespread sentiment within the business community
that the American Samoa Government makes a difficult selling
proposition much more difficult. According to this sentiment, ASG often
seems indifferent to business needs and does not provide the kind of
transparent and level playing field that is conducive to healthy
economic development.
This perception is extensively documented in the 2006 report
published by the Department of Interior: ``A Private Sector Assessment
for American Samoa''.\25\ According to the assessment, which was based
on interviews with private sector leaders, there are several areas in
which policy changes are needed to improve the business climate:
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\25\ Jocelyn L.M. Doane and Sara E. Gray. A Private Sector
Assessment for American Samoa. US Department of the Interior, Island
Fellows Program. Washington DC: August 2006. (http://www.doi.gov/oia/
reports/IslandFellows2006PSAASDBCfinaledites.pdf).
Greater transparency.--This is especially required by local
government in such areas as procurement, conflicts of interest,
immigration, corruption, and auditing.
Less complex business licensing procedures.--This would
reduce the cumbersome and costly burden that falls heavily on
Samoan and especially non-Samoan businesses.
Lower and less complex taxes.--This would help blunt the
existing competitive disadvantage American Samoa presently
suffers from due to its complex tax structure with higher tax
rates than the United States and other non-American locales
where corporate income tax rates are often much lower. Reform
is especially important for non-U.S. businesses operating in
the territory. In addition, the current tax incentive program
needs to be reformed.
A more skilled labor pool.--This would include better
educated and more experienced workers to fill a wide range of
needs, from the vocational to the managerial. American Samoa
needs a well-run immigration program to allow guest workers to
fill easily labor pool gaps.
Other changes.--Among them are improved postal and courier
service (e.g., a street address system), utility rate
restructuring, telecommunications privatization, request a
federal cabotage waiver, improved healthcare, improved roads,
business-minded modifications to local laws (e.g., creating a
bankruptcy statute, adopting laws protecting intellectual
property, adopting a Uniform Commercial Code, improving access
to federal court system, creation of a legal search system).
Also important were making commercial land more easily
available, greater development bank funding, and an improved
climate for insurers.
PRIVATE SECTOR VIEWS ON THE AMERICAN SAMOA GOVERNMENT
Despite the government's success at promoting and managing the
rapid growth of the canneries for the past 50 years, the private sector
nevertheless believes the American Samoa Government must do more to
accommodate business if the islands' economy is going to thrive.
On the one hand, the private sector wants government to do more,
such as build more infrastructure, facilitate new industries, control
immigration, improve job training and general education, increase
access to land for commercial purposes, and address social problems. On
the other hand, they want government to also do less, as in less
regulation, less red tape, fewer public sector employees, less
spending, less fees and taxes, and other issues for which governments
the world over decry. As suggested earlier there is much merit here.
However, as indicated earlier, Government has more to concern itself
with than simply meeting the needs of business. It does tax and
regulate. Hence, the earlier reference to a natural tension between the
public and private sectors.
Under military and then civilian rule, the American Samoa
Government has maintained strong control over life in the territory for
over a 100 years. Whether overseen by naval officers, appointed
governors or elected governors, the government has been ever mindful of
its mandate to protect the Samoan way of life.
Though there has been an increase in respect for the private sector
in the past few decades, the American Samoa community still holds fast
to deep-seated feelings that government, along with traditional
cultural leaders and the churches are the institutions that hold
natural authority in the hierarchy of Samoan society.\26\
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\26\ Some businesspeople point to Samoa as an example of how a
private sector economic blossoming has resulted from a conscious effort
of the Samoan government to become more transparent, more accountable,
and more business-friendly, while retaining a strong protectionist
interest in the Samoan way of life.
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Doing business in American Samoa requires patience, persistence,
and cultural and political sensitivity. The successful private sector
companies in American Samoa devote a great deal of time and effort to
tasks that are far more simple and straightforward elsewhere (e.g.,
obtaining business license renewals, land leases, building permits,
payments for services rendered, etc.).
In some cases, the success of a company can be primarily attributed
to their ability to get things done with ASG more easily than their
competitors. This is not untypical of small communities, but American
Samoa will find it difficult to meet its economic development goals
when businesses must devote extra-ordinary resources to non-productive
activities. The government has long been attuned to the needs of the
tuna industry and many times it has risen to the challenges necessary
to keep the industry strong and growing in the territory. From building
infrastructure to modifying immigration laws, ASG has responded to the
cannery needs.
Should the canneries scale down or close, ASG will have to learn to
respond to a different set of needs as it pursues the community's
desire for a more diverse economic future. In many instances, the
government has shown itself sensitive to the private sectors needs.
Over the past year, for example, Governor Togiola Tulafono has moved
forward on some of the economic development recommendations made by the
American Samoa Chamber of Commerce (e.g., creation of a private sector-
driven Visitor's Bureau, business tax reform, etc.).\27\
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\27\ Other Chamber of Commerce recommendations include reforming
immigration to make it less difficult for expatriate business people to
maintain their legal immigrant status, guest worker programs to help
the canneries fill vacancies, efforts by the government to make it
easier for businesses to gain access to land suitable for commercial
purposes, privatizing various government operations, and strengthening
commercial ties with Samoa.
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In addition, Governor Togiola has publicly led the Chamber-endorsed
effort to get American Samoa connected to the rest of the world with a
sub-marine fiber optic cable. Such a cable is a prerequisite to the
development of a call center industry. It is the potential catalyst for
a host of economic development opportunities for American Samoa.
COLLABORATION KEY TO AMERICAN SAMOA'S DEVELOPMENT POTENTIAL
It is unlikely that the government or the private sector will have
much success transforming the American Samoa economy without working
closely together.
In larger, more mature economies than American Samoa, the private
sector can make things happen without a coordinated public-private
program. Conversely, there are places where the government can make
things happen by unilateral action.
But American Samoa is probably too small and resources are too
limited for large-scale success to be achieved unless the government
and the private sector collaborate on strategy and coordinate their
activities.
An excellent example of the value of collaboration and coordination
is the ongoing discussions about creating a call center industry in
American Samoa. A private sector company out of Hawaii is eager to
create such an industry in American Samoa, but it has requirements that
can only be satisfied by the government.
Some of those requirements involve physical infrastructure (e.g.,
fiber optic cable) and some involve social infrastructure (e.g., a
guest worker program, general education and job training in the local
schools, tax incentives, and land leases).
The government can't provide the call centers and commercial
contracts, but it can provide much of the infrastructure. Conversely,
the Hawaii investors can't provide the entire infrastructure, but it
can provide the jobs. If the government and the call centers work
together, an industry just might be conceived, birthed, nurtured and
grow to be a healthy entity.
The same dynamic applies to agriculture, fisheries, manufacturing,
tourism, or most any other sector. It is not going to be enough for the
private sector to be anxious and ready to proceed. It is not going to
be enough for the government to be anxious and raring to proceed.
For a new venture to have a reasonable chance to succeed, the
government and the private sector must play complementary and
coordinated roles. It is not the government's role to create the jobs,
nor is it the private sector's role to create the infrastructure.\28\
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\28\ Infrastructure refers to not only capital improvements, but
also human capital and social infrastructure, which are all essential
components of a business environment.
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The importance of a business-friendly social infrastructure to
economic development has been recently highlighted by the World Bank.
According to the Bank, a nation's ``intangible capital'' can be many
times more valuable than its produced capital (e.g., physical
infrastructure) or natural resources capital.\29\
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\29\ See The International Bank for Reconstruction and Development/
The World Bank. Where is the Wealth of Nations? Washington DC: 2006.
(http://siteresources.worldbank.org/INTEEI/214578-1110886258964/
20748034/All.pdf
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Moreover, in countries with few natural resources, such as American
Samoa, the importance of intangible capital is amplified in comparison
to countries that can rely on the value of their natural resources.
The most valuable forms of intangible capital, according to the
bank, are human capital (e.g., schooling, workplace skills, health and
wellbeing) and the quality of formal and informal institutions (e.g.,
rule of law, government transparency, clear property rights,
predictability, trust among people, effective government, efficient
judicial system, and other markers of civil society).
Objective data reveals American Samoa's low levels of human capital
(e.g., low educational achievement and attainment, high rates of
chronic disease), but there are no reliable measures of the quality of
the territory's formal and informal institutions. However, private
sector members have identified many such markers as areas where they
are frustrated with the American Samoa Government.
Notwithstanding these frustrations, the interviews with private
sector leaders conducted in 2007 revealed that business leaders hope
that government officials will exercise confidence-inspiring and
effective leadership through the dark days of a cannery closure period
and the transition to a diversified, post-cannery era. Few
businesspeople offered specifics as to exactly what they expected of
the government. One thing did stand out, however, and that was the need
for clear communication between the private sector and the government
(executive and legislative), as well as helpful communication with the
general public and all affected parties. Private sector leaders expect
government leaders to minimize the negative impacts of cannery
reductions or closures by inspiring public confidence in American
Samoa's ability to adapt and move forward.
Although there are many obstacles to developing a stronger and more
diverse economy in American Samoa, it does not follow that the
challenge is impossible or that opportunities are lacking.
Governor Togiola Tulafono has recognized the advantages of strong
public-private ties by forming an Economic Advisory Council in late
2007, comprised of leading members of the government and the private
sector.
Chapter 7: Federal Role in American Samoa's Economic Development
FEDERAL ECONOMIC DEVELOPMENT PROGRAMS AND POLICIES
Over the years, the US federal government has devised programs to
assist small, low income or low growth areas in economic development.
Most of these programs have been applied to the US territories as well.
There were a few programs in the 1930's which were more responsive to
the Great Depression in general. In addition, the State of Mississippi
experimented with industrial development revenue bonds in the 1930's.
The first modern rural economic development program was enacted in
1961. It was the US Area Redevelopment Administration. It became the
Economic Development Administration (EDA) in 1965.
American Samoa is familiar with these programs and has benefited
greatly from the US Economic Development Administration which has been
active in the territory since the 1960's. Its programs were
instrumental in American Samoa's modern development especially in
establishing a local economic development agency, financing the
Rainmaker Hotel, the industrial park, and many other public works,
development and planning projects. EDA programs have remained much the
same since 1965, but there have been many improvements especially in
the requirement for the preparation of Comprehensive Economic
Development Strategies for communities and jurisdictions.
In addition American Samoa has benefited from the Community
Development Block Grant program of the U.S. Department of Housing and
Urban Development (HUD). HUD annually allocates seven million dollars
of CDBG funds to the US territories in proportion to the populations of
the eligible territories. The program is administered by HUD's Field
Offices in Puerto Rico and Hawaii. The CDBG insular areas program
provides grants for economic development, housing rehabilitation,
public facilities rehab, construction or installation for the benefit
of low to moderate income persons, or to aid in the prevention of
slums. The HUD idea of designing a special program for the territories
is not the federal norm. In general, US territories have to find ways
to fit into the requirements of these large and often complex federal
programs.
The US Department of Agriculture has several private sector
community based economic development programs. They include guaranteed
business loans, rural enterprise grants, economic development loans and
grants, and community support facilities grants and loans.
Of course, the US Department of the Interior, Office of Insular
Affairs is responsible for ensuring that the responsibilities of the
Secretary of the Interior regarding the territories and freely
associated states of the United States are carried out. This includes
serving as a focal point for the coordination of the development and
implementation of policies pertaining to the territories and providing
financial oversight to ensure that federal funds provided to the
territories are used consistent with their authorized purposes. This is
spelled out in the executive order establishing OIA in 1995.\30\
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\30\ Secretary of Interior Order No. 3191 - Subject: Abolishment of
the Office of Territorial and International Affairs and Establishment
of an Office of Insular Affairs. August 4, 1995.
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This executive order called attention to the meagerness of the
resources dedicated by the federal government to the development of the
US territories or the insular areas. The staff dedicated to the Office
of Insular Affairs was 25. Currently, the Department of the Interior
has administrative responsibility for coordinating federal policy in
the territories of American Samoa, Guam, the U.S. Virgin Islands, and
the Commonwealth of the Northern Mariana Islands, and oversight of
federal programs and funds in the freely associated states of the
Federated States of Micronesia, the Republic of the Marshall Islands,
and the Republic of Palau.
OIA sponsors private sector-led economic development programs and
conferences in or for the territories. There have been three such
conferences to date, along with three trade missions. The first
conference in 2003 was held in Washington D.C. with an attendance of
about 550 people. The second conference in 2004 was in Los Angeles with
over 1000 attendees. The third conference in Honolulu held in 2006 and
limited to 500 people actually had over 700 participants. The first
Business Opportunities Mission went to Guam, Saipan and Palau. The
second went to the U.S. Virgin Islands, and the third was to American
Samoa. OIA also sponsors fellowship research programs which have dealt
with general business climate conditions in the territories and
background information for the business opportunities conferences. OIA
also funds technical assistance grants for a variety of development
purposes. OIA serves as liaison to the Congress, the four territorial
and three freely associated state governments, other federal agencies,
the media and the public.
OIA in recent years has been more active than it has ever been in
private sector development programs. While short term results for such
programs are often difficult to evaluate, such programs do enhance
networking and contacts with the private sector and encourage
territorial governments to prepare the requisite conditions for meeting
the needs of investors and economic location information.
FEDERAL ROLE IN TERRITORIAL DEVELOPMENT
There is one serious economic development deficiency that OIA, the
territories, other federal agencies and the Congress have not been able
to deal with very effectively. That is the problem of adverse
influences on the territories of federal legislation, policies and
programs. The problem has included US trade and investment policies
which have erased some territorial economic advantages in favor of
vastly larger and lower cost developing countries. More recently, the
US Congress has legislated to remove federal corporate tax incentives
and raise extraordinarily the minimum wage in American Samoa and the
CNMI.
This problem has been referenced for decades in studies of the
territories. In 1985 the US GAO reported on issues affecting US
territorial development.\31\ It concluded the following.
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\31\ US Government Accountability Office. Issues Affecting US
Territorial and Insular Policy. NSIAD-85-44. Washington DC: February 7,
1985.
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A US Policy for the Territories.--U.S. policy should be more
clearly defined, particularly for economic development and treatment of
territories under federal laws and programs. GAO found the issues
involving federal territorial relations, such as appropriate levels of
representation, treatment under federal laws and programs, and economic
and social development strategies, are becoming increasingly complex
with no simple or ready-made solutions.
Increased Territorial Self-reliance.--The United States has helped
to finance and build schools, hospitals, housing, roads, utilities, and
other infrastructure and provided health, educational, and other social
services which have enhanced the well-being of territorial residents.
Notwithstanding these efforts, most of the territories have made little
progress toward becoming economically self-reliant and remain highly
dependent on federal assistance. Most of the territories face many
indigenous constraints--such as geographic isolation from U.S. and
world markets, limited natural and manpower resources, small land
areas, limited infrastructure to support development and attract
investment, and large public sectors--which make economic self-reliance
an unlikely prospect for the foreseeable future.
Consideration of the Territories in US Trade Policy.--GAO found
that there is no federal policy which details how the territories
should be treated in formulating and extending laws and programs.
Territory officials identified instances when federal policies, laws,
and programs have constrained economic and social development because
they were inconsistently applied, insensitive to unique territorial
circumstances and needs, or inappropriate for local conditions.
Examples cited included the Caribbean Basin Initiative provisions
affecting the rum industry and the tuna industry in the Virgin Islands
and American Samoa, respectively.
Territorial Advocacy at the Federal Level.--Many territory
officials also criticize the institutional capacity of the Department
of Interior to meet their needs. For example, they believe Interior
does not have sufficient influence to represent them in the budget
agencies. Within Interior, there is some disagreement on its role vis-
a-vis the territories in terms of federal oversight, program and policy
coordination, and territory advocacy.
A High Level Federal Interagency Group for the Territories.--Many
support the concept of a high-level interagency group to handle policy-
related matters and address major territorial concerns. Establishment
of a formal interagency policy group authorized to address major policy
matters in a comprehensive fashion or a legislatively authorized office
attached to the White House, might provide the representative focal
point wanted by many territorial leaders.
Interior supports GAO's conclusion that its role as a direct
authority over territorial government has diminished, and that its role
is primarily as a provider of technical assistance and territory
advocate.
The Governor of American Samoa (at the time) supported the idea of
developing a long-term economic development and financial assistance
agreement. He also recommended establishment of an organization within
the Office of the President or a separate organization to handle
territorial affairs.
GAO believes policymakers in Congress and the executive branch are
likely to face greater pressure from the territories to establish a
policy framework which addresses these issues. However, they believe
better federal policy coordination is needed to systematically address
development needs when formulating individual agency policies.
In 1994 GAO was even more forceful about federal policy toward the
insular areas.
Although federal funding supports actions designed to enhance
economic development in the insular areas, the federal
government has not articulated a clear policy about the goals
it wants to achieve in the areas and does not always coordinate
activities among agencies. We endorse the creation of an
interagency committee charged with, among other things, (1)
defining U.S. goals and objectives in the insular areas and
developing an overall insular area strategy to guide federal
activity toward achieving its goals, including supporting
economic development and self-sufficiency and (2) establishing
a mechanism to coordinate federal activity, including
consolidating data on economic development expenditures in the
insular areas.
US policy overall is to support the economic development of
the insular areas. However, the U.S. government has no specific
objectives for its development programs; no clear overall
strategy to achieve its goals; and no formal mechanism for
coordinating the activities of the numerous federal agencies
with programs in the islands. While the Department of Commerce
reported that U.S. direct federal expenditures or obligations
in the insular areas included in our review totaled about $1.5
billion in fiscal year 1992, the U.S. government has no
consolidated data on federal spending on economic development
in the insular areas. The Secretary of the Interior has
proposed establishing an interagency committee that would
coordinate federal policy and activities. We believe an
interagency group focusing on policy, strategy, and U.S.
government coordination could play an important role in helping
to improve economic conditions in the insular areas and U.S.
government management of resources provided to the areas.\32\
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\32\ US Government Accountability Office. US Insular Areas
Development Strategy and Better Coordination Among US Agencies Needed.
GAO/NSIAD-94-62. Washington DC: 1994 (pp 1and 6).
The GAO appears to have got it right on almost all counts. While
economic, political and social conditions undoubtedly have improved
over the period, concern remains about federal policy and the
territories. GAO issued a report in 2006 documenting how the
territories are being adversely affected by federal actions concerning
federal taxes and trade. It refers specifically to the loss of the
possessions tax credits Under IRS Section 936, international trade and
investment agreements reducing tariffs or quotas on apparel and tuna
canneries, and most recently dramatic increases in the US minimum wage
in American Samoa. There is no doubt that the interests of American
Samoa and the other territories were sacrificed at every turn regarding
these issues. This is not to say that territorial representatives did
not do everything humanly and practically possible to mitigate the
effects of these actions. They may just have been overpowered
politically. Nevertheless, the issue of involving the voice of the
territories in such negotiations is still unresolved. OIA may have been
right that ``there is no federal policy which details how the
territories should be treated in formulating and extending laws and
programs.'' There is an Interagency Group for Insular Affairs, but it
does not yet appear to have the authority envisioned by GAO as
``authorized to address major policy matters in a comprehensive fashion
or a legislatively authorized office attached to the White House.''
In 2006 and 2007 GAO seemed to take a new tack in focusing more on
fiscal issues rather than economic development issues.\33\ GAO
continued in its view that the U.S. insular areas of American Samoa,
the Commonwealth of the Northern Mariana Islands, Guam, and the U.S.
Virgin Islands, face long-standing economic, fiscal, and financial
accountability challenges. The economic challenges stem from dependence
on a few key industries, scarce natural resources, small domestic
markets, limited infrastructure, shortages of skilled labor, and
reliance on federal grants to fund basic services. To help diversify
and strengthen their economies, OIA sponsors conferences and missions
to the areas to attract U.S. businesses; however, there has been little
formal evaluation of these efforts.
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\33\ US Government Accountability Office. US Insular Areas:
Economic, Fiscal, and Financial Accountability Challenges. GAO-07-119.
Washington DC: December 12. 2006.
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This GAO report recommended that the Secretary of the Interior
direct the Deputy Assistant Secretary for Insular Affairs to:
Increase coordination activities with officials from other
federal grant-making agencies on issues of common concern
relating to the insular area governments, such as late single
audit reports, high-risk grant designations, and deficiencies
in financial management systems and practices.
Conduct formal periodic evaluation of OIA's conferences and
business opportunities missions, assessing their impact on
creating private sector jobs and increasing insular area
income.
Develop a framework for OIA employees to use in conducting
site visits to help ensure objectives are achieved, to assure
that relevant information is shared with the responsible
officials, and to allow more efficient and effective monitoring
of issues.
Develop and implement procedures for formal evaluations of
progress made by the insular areas to resolve accountability
findings and set a time frame for achieving clean audit
opinions.
The GAO, at least in this report, focuses primarily on
administrative matters rather than the substantive economic
development issues it has stressed over the last few decades.
The GAO has studied this matter over the years, and the US
Department of the Interior has generally agreed with the overall need.
In fact OIA has made some progress in mobilizing federal coordination
and cooperation especially in economic development. However, it is no
easy task.
As recently as 2002 the American Samoa Economic Advisory Commission
published its report.\34\ The following is a summary of the
Commission's recommendations concerning the federal government.
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\34\ American Samoa Economic Advisory Commission. Transforming the
Economy of American Samoa: Volume III, Appendices. US Department of the
Interior Office of Insular Affairs, Washington DC: 2002.
1. The Commission recommends the United States Government and
American Samoa governments allocate and maintain the necessary
resources to develop a systematic method to record, track, and
analyze data related to GDP and other economic indicators in
order to properly measure and guide the American Samoa's
economic growth. There has been considerable progress on this.
2. In fact, it recommends that both the United Sates
Government and the American Samoa Government assume the role of
facilitating and promoting economic development by creating a
favorable economic environment that encourages entrepreneurial
activities in the territory.
3. The Commission urges the Department of the Interior be
more resourceful and to devote more resources to coordinating
federal policy for American Samoa. At a minimum OIA could add
perspective to the discussions and debate. But it can do more
by becoming an advocate for American Samoa within the Federal
government.
4. It is important for the Interior Department to assist the
territory in keeping track of, and finding applications for
technological advances. In addition, it can also help to
monitor global trends that greatly impact the territory such as
transportation, telecommunications, and trade.
5. The federal government not only has a legal and moral
obligation to assist the territory but also possesses the power
to create economic opportunities for American Samoa in ways she
cannot do on their own. Many of the economic challenges the
territory continues to struggle with are situations that the
federal government either created or influenced (tax and trade
issues, international trade agreements, minimum wage, air
transport, matching requirements, etc.)
6. American Samoa should be afforded better economic
treatment and opportunities than the most favored trading and
political partners of the United States.
7. The Commission recommends that the United States
Government and the American Samoa Government organize and fund
a Public--Private Working group.
8. The Commission recommends that a Federal-Territorial Task
Force consisting of the United States Government, American
Samoa government, and members of the American Samoa business
community be established and funded.
9. The Commission believes the United States Government
should support American Samoa's efforts to forge or strengthen
strategic economic alliances with her Pacific Island neighbors.
10. The US Department of State should regularly consult with
the American Samoa Government when international policies,
treaties, and agreements affecting the territory are being
developed or negotiated.
11. The United States Government and the American Samoa
Government should work together to address such issues as
extending the territory's exclusive fishing rights for ``alia''
boats owned by local fisherman and favorable terms in the
various international fishing agreements that are being
negotiated.
12. The Commission encourages the United States Government to
take a more active role in assisting the Territory with
identifying and securing financial capital.
Finally, the US Congress in 2006 in considering the extension of
federal corporate tax incentives for the canneries required a study of
a Congressional policy for American Samoa.
The two-year credit allowed by the provision is intended to
provide additional time for the development of a comprehensive,
long-term economic policy toward American Samoa. It is expected
that in developing a long-term policy, non-tax policy
alternatives should be carefully considered. It is expected
that long-term policy toward the possessions should take into
account the unique circumstances in each possession.\35\
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\35\ U.S. House and Senate Joint Committee on Taxation. Technical
Explanation of H.R. 6408, Tax Relief and Healthcare Act of 2006,
December 7, 2006.
OIA and ASG have made considerable progress on a number of these
matters over the years as has been indicated. However, there has been
little effective progress on the primary issue of cooperation and
coordination on federal policies, programs, and statutes that require
close coordination with the territories.
The fact of the matter is that American Samoa's worsening cannery
industry problems are due in large part to issues that were not
adequately considered by the federal government as to their potential
impacts on American Samoa. Those issues are removal of the federal
corporate tax incentive for the territories, dramatically escalating
the minimum wage in American Samoa, and phasing out tariffs on canned
tuna in various international trade agreements. For these reasons, it
is necessary to revisit this issue of federal-territorial coordination,
cooperation and consultations.
Establish a Formal Federal Role in Territorial Development.--It is
recommended that a formal federal role in territorial development be
established in view of the massive influence of the federal government
on American Samoa's economic development. This is needed to guide in
the formulation, application and implementation of federal laws,
policies and programs affecting the US territories. The U.S. government
has no specific objectives for its territorial development programs; no
clear overall strategy to achieve its goals; and no formal mechanism
for coordinating the activities of the numerous federal agencies with
programs in the territories.
Establish the Form this Formal Federal Role Could Take.--Examples
include an enhanced Office of Insular Affairs in the Department of the
Interior; a restructured Pacific Basin Development Council; or a
restructured Interagency Group for Insular Affairs. Others might
include a legislatively authorized office attached to the White House,
some form of Regional Commission (e.g., Appalachian Regional
Commission), or an organization specifically designed for this purpose.
Establish the Agenda and Work Program for this Federal Effort.--
Clearly define U.S. goals and objectives in the insular
areas and develop an overall insular area strategy to guide
federal activity toward achieving its goals, including
supporting economic development and greater economic self-
sufficiency.
Issues that might be addressed include federal taxes and
incentives, immigration and customs, minimum wage,
international trade, transportation, federal grant
requirements, federal laws and programs, consolidating data on
federal economic development expenditures in the insular areas,
OIA's conferences and business opportunities missions, and
others.
Develop procedures for formal evaluations of progress made
by the insular areas in economic development programs.
Appendix A.--Input-Output Model Technical Report/American Samoa
Input-Output Table
INTRODUCTION
The 2002 American Samoa input-output table, which is the
methodological centerpiece of this study, serves two purposes. First,
through a systematic accounting of transactions among industries,
government, households, and other sectors of final demand (investment,
exports, and imports), the input-output table describes the structure
of the American Samoa economy. As a set of accounts, the input-output
table provides important measures of economic activity, such as Gross
Domestic Product. Second, the input-output data provide the factual
basis for estimating output, income, and employment multipliers. Used
in economic impact analyses, multipliers estimate the total change in
production, labor earnings, and jobs in the economy resulting from a
given change in economic activity, such as an increase in tuna cannery
exports or federal government grants and expenditures.
The rest of this appendix, which is divided into four major parts,
describes the input-output table and how it is used in this study. The
first two parts discuss input-output definitions and conventions and
the construction of the input-output table. The third section describes
the 2002 American Samoa input-output table. Also discussed in this part
are the adjusted direct coefficients table and the adjusted inverse
coefficients table, which constitute the input-output model. The input-
output table (Table A-2), the adjusted direct coefficients table (Table
A-3), and the adjusted inverse coefficients table (Table A-4) are found
at the end of the appendix. The final section illustrates how the
input-output model is used to estimate the impact of the fish
processing industry on American Samoa employment.
DEFINITIONS AND CONVENTIONS
Base Year
The input-output table is estimated for calendar year 2002. This
year is selected because it is the latest year for which there is
complete information on the American Samoa economy. To some readers, an
input-output table for 2002 may seem outdated. With respect to the
levels of activity in the American Samoa economy, this is certainly
true. But the age of the table should be judged in light of the use to
which it is put. For applications that make use of the input-output
coefficients, such as impact analysis, the 2002 estimates should remain
useful for a number of years, since evidence with other input-output
tables indicates that these coefficients are relatively stable over
time (Conway, 1977, and Conway, 1980).
Sectors
The American Samoa input-output table identifies fifteen industrial
groups (agriculture, fishing, and mining; construction; fish
processing; other manufacturing; wholesale trade; retail trade;
transportation and warehousing; information; financial activities;
professional and business services; educational and healthcare
services; accommodation; food services and drinking places; other
services; and other government authorities). In addition, there are six
components of final demand (personal consumption expenditures; private
investment; American Samoa government expenditures; other federal
government expenditures; visitor expenditures; and other exports).
Finally, there are three final payment sectors (labor income, which is
divided into wage and salary disbursements, proprietors' income, and
other labor income; other value added; and imports).
Four government authorities are included as part of the industrial
sector: American Samoa Telecommunications, which is part of
information; Lyndon B. Johnson Hospital, which is part of educational
and healthcare services; American Samoa Power Authority, which is part
of other government authorities; and American Samoa Community College,
which is also part of other government authorities.
Following are brief definitions of the input-output sectors. The
North American Industrial Classification System (NAICS) code is shown
in parentheses for each industry:
1. Agriculture, fishing, and mining (11, 21). Value of
products for commercial sales and the imputed value of products
for self-consumption.
2. Construction (23). Value of new construction put in place
and maintenance and repair. Output covers private and public
construction by local and non-local contractors.
3. Fish processing (3117). Value of sales.
4. Other manufacturing (other 31, 32-33). Value of sales.
5. Wholesale trade (42). Value of the difference between
wholesale sales and the cost of goods purchased for resale
(i.e., the value of the wholesale margin).
6. Retail trade (44-45). Value of the difference between
retail sales and the cost of goods purchased for resale (i.e.,
the value of the retail sales margin).
7. Transportation and warehousing (48-49). Value of revenue.
8. Information (51). Value of revenue.
9. Financial activities (52-53). Value of operating revenue
less interest expenses for financial institutions. Value of
premiums received less value of benefits paid for insurance
companies. Value of revenue from selling, renting, and managing
property for real estate establishments.
10. Professional and business services (54-56). Value of
revenue.
11. Educational and healthcare services (other 61, 62). Value
of revenue.
12. Accommodation (721). Value of revenue.
13. Food and drinking places (722). Value of revenue.
14. Other services (71, 81). Value of revenue.
15. Other authorities (22, part 61). Value of revenue.
16. Personal consumption expenditures. Value of goods and
services purchased for personal use.
17. Private investment. Value of private capital expenditures
for housing, nonresidential structures, software, and
equipment. Also included is the value of the change in private
inventories.
18. American Samoa government expenditures. Value of
operating and capital expenditures by the American Samoa
government, including expenditures funded by federal government
grants.
19. Other federal government expenditures. Value of operating
and capital expenditures by the U.S. federal government,
including grants to the government authorities.
20. Visitor expenditures. Value of expenditures by tourists,
business travelers, and other visitors.
21. Other exports. Value of exported goods and services.
22. Labor income. Value of wage and salary disbursements,
proprietors' income, and other labor income.
23. Other value added. Value of rent, net interest payments,
indirect business taxes, capital consumption allowance, and
profits.
24. Imports. Value of imported goods and services.
Transactions on Current and Capital Account
Transactions in the input-output table cover expenditures on both
current and capital account. However, the transactions among industries
are on current account only. Viewing them from the standpoint of
purchases, these transactions represent the annual operating expenses
of industry.
The purchases of capital goods by the private sector are shown in
the investment column of final demand. They include the value of the
additions to housing, plant, software, and equipment that are charged
to fixed asset accounts. In the accounting of current production costs,
only the annual capital consumption allowance (the current depreciation
charge for the services of capital) is considered to be a purchased
input. The capital consumption allowance is shown as part of other
value added.
Producers' Prices
Input-output transactions are valued at producers' prices. Each
transaction represents the revenue earned by the producer and not the
cost incurred by the purchaser. To arrive at purchasers' prices, it
would be necessary to add the value of trade and transportation margins
to producers' prices.
According to input-output accounting conventions, the costs of
distributing a commodity are shown as direct sales of services from
trade (wholesale trade and retail trade) and transportation services
(trucking and warehousing, water transportation, air transportation,
and miscellaneous transportation services) to the sector purchasing the
commodity. For example, in the American Samoa input-output table, the
large purchase by households from retail trade is the mark-up earned by
retail establishments acting as intermediaries between producers and
consumers.
As a consequence of the producers' price convention, input-output
tables do not literally trace the flows to and from the trade industry.
If the buying and reselling of commodities by trade establishments were
shown, one would lose the valuable information on the linkages between
producers and consumers, since virtually all commodities would then
flow from a single source, namely trade.
CONSTRUCTION OF THE INPUT-OUTPUT TABLE
Sectoring Plan
The initial step in building the American Samoa input-output table
entails drawing up a sectoring plan. Choosing the number of sectors for
the table entails an assessment of the trade-off between the usefulness
of a more disaggregated table and the availability and reliability of
detailed input-output information. The sectoring plan also attempts to
highlight the important basic activities in the American Samoa economy,
such as fish processing.
Control Totals, Labor Income, and Employment
Control totals refer to the total expenditures and sales of each
industry (e.g., the total input and output of fish processing). Control
totals also include the total value of each final demand sector (e.g.,
total personal consumption expenditures) and the total value of each
final payments sector (e.g., total value added). The quality of the
input-output table depends in large part upon the accuracy of the
control total estimates. With the exception of agriculture, fishing,
and mining and other government authorities, the control totals for
each industry, final demand sector, and final payments sector were
obtained directly from two published sources: 2002 Economic Census of
Island Areas: American Samoa and ``Annual Nominal and Constant Dollar
Estimates of Gross Domestic Product in American Samoa, 1999 to 2005''
(Rubin, 2007).
A reliable input-output model also requires accurate estimates of
income and employment by sector. The economic census provided estimates
of wages and salaries, payroll employment, and proprietors for most of
the industries. Other related information came from the agricultural
and population censuses and the annual statistical yearbooks. Payroll
and employment data were in turn used to develop estimates of labor
income and value added by sector.
Intersectoral Transactions
Some input-output tables, such as the Washington input-output table
(Bourque and Conway, 1977) have relied upon surveys of industry and
government to obtain information on the transactions among the sectors
of the economy. The American Samoa input-output table benefited greatly
from information regarding the distribution of industry sales published
in the 2002 economic census. The input-output table also made use of
other published data, knowledge of the markets for particular goods and
services, and U.S. input-output data.
On occasion, there were contradictory estimates of particular
intersectoral transactions, necessitating a search for additional
information. In a few instances, a reconciliation of conflicting
information was not possible, and the estimates were made judgmentally.
Accuracy
There is no way of knowing for sure the degree of accuracy of the
American Samoa input-output table. Nevertheless, since the table is
largely constructed from data published in the economic census and the
Gross Domestic Product (GDP) accounts, which appear to be reasonably
accurate, the quality of the input-output estimates is deemed
sufficient for the purpose of this study.
One test of the validity of the data published in the economic
census and the GDP accounts is their ability to fit compatibly within
the two-way accounting system of the input-output table. For example,
is the estimate of total exports derived from the sales data reported
in the economic census in line with the estimate of total exports
reported in the GDP accounts? In general, the input-output table was
able to fully incorporate the data from these two sources of
information without creating any substantial problem in ultimately
balancing the input-output table.
Of course, there is always room for improving the input-output
estimates. The next study would benefit from a more comprehensive
survey of businesses, government, and households to obtain more
detailed information on sales and purchases. Such an effort would
require a substantial investment of time and money. In the meantime,
users of the current input-output table should keep in mind its
potential shortcomings.
AMERICAN SAMOA INPUT-OUTPUT TABLE
Input-Output Table
As previously noted, the American Samoa input-output table for 2002
is shown in Table A-2 at the end of this appendix. Also called the
transactions table, the input-output table shows the purchases and
sales of private and public sectors in the American Samoa economy.
Transactions are measured in millions of dollars.
Sectors listed across the top of the table are purchasers of
inputs. Sectors listed down the left-hand side of the table are sellers
of output. Numbers down a column are the 2002 purchases of inputs from
the sectors named at the left that are required to produce the output
of the sector named at the top. Conversely, numbers across a row are
the sales from the sector named at the left to the sectors named at the
top. According to input-output accounting conventions, total purchases
(input) equals total sales (output) for each industrial sector.
Table A-2 also shows employment (wage and salary employment and
proprietors) by sector. Although employment is not part of the input-
output table, it is an important variable in the input-output model.
As shown in the input-output table, transactions occur among
industries, the final demand sectors, and the final payments sectors of
the American Samoa economy. More specifically, industries sell their
products to other local industries and the sectors of final demand
(consumption expenditures, investment, government expenditures, visitor
expenditures, and other exports). Industries purchase their inputs to
production from other local industries and the final payments sectors
(labor income, other value added, and imports).
As an example, consider the transactions of the fish processing
industry. In 2002, its total output (and thus its total input) was
$503.4 million, most of which was exported ($438.3 million). To meet
its input requirements, the fish processing industry made purchases
amounting to $0.7 million from construction for maintenance and repair
and $1.6 million from information primarily for telecommunications
services. Including a $60.4 million intra-industry transaction, total
purchases from American Samoa businesses came to $90.9 million. The
industry paid $48.2 million in wages and salaries to its 5,538
employees and $305.2 million for imported goods and services, mostly
tuna. Valued added in fish processing amounted to $107.3 million.
In addition to showing detailed industry sales and purchases, the
input-output table has an estimate of American Samoa Gross Domestic
Product (GDP), which can be calculated in two ways:
GDP = C + I + G + X^M
or
GDP = VA
where
C = personal consumption expenditures
I = private investment
G = American Samoa and other federal government expenditures
X = visitor expenditures and other exports
M = imports
VA = total value added for all sectors
According to the input-output table, GDP or total value added in
2002 was $481.4 million:
GDP = 331.5 + 43.7 + 150.3 + 38.9 + 4.3 + 444.7^532.0 = 481.4
GDP = VA = 481.4
This is the estimate of GDP reported in the American Samoa Gross
Domestic Product accounts.
ADJUSTED DIRECT COEFFICIENTS TABLE
Table A-3 is the adjusted direct coefficients table. Each direct
coefficient is the direct input required from the sector named at the
left by the sector named at the top as a fraction of the purchasing
sector's total input (output). The direct coefficient for the purchase
of maintenance and repair by fish processing is 0.00139, which is
calculated by dividing $0.7 million by $503.4 million.
The direct coefficients, along with the other coefficients shown in
Table A-3 (e.g., the employment coefficients, which measure jobs
required in an industry per million dollars of output) make up the
parameters of the input-output model.
The direct coefficients of three sectors have been adjusted in an
attempt to provide more precise calculations of the impacts estimated
in this study:
1. Agriculture, fishing, and mining.--Agricultural output
includes the imputed value of production for self-consumption,
which presumably would be unaffected by a change in the market
economy, such as the shutdown of a tuna cannery. Thus, in order
to avoid overestimating the indirect impacts on agriculture,
agricultural production for self-consumption should be removed
from the input-output table prior to calculating the direct
coefficients.
Effectively eliminating this activity from consideration in
economic impacts entails reducing agricultural output and
input, agricultural proprietors' income, and agricultural sales
to households by $38.0 million, the imputed value of
agricultural production for self-consumption. Thus, the
adjusted direct coefficient for the purchase of wholesale trade
services by agriculture, fishing, and mining is 0.01154 (=0.3/
[64.0-38.0]), while the adjusted labor income direct
coefficient is 0.46923 (=[50.2-38.0]/[64.0-38.0]). The adjusted
employment coefficient is 20.000 (=520/[64.0-38.0]).
2. Fish processing.--Of the $49.4 million in wages and
salaries and other labor income earned by employees in the fish
processing industry, an estimated $9.0 million were remitted to
places outside of American Samoa. This implies that the input-
output model must show that, while labor income in fish
processing is still $49.4 million, the $9.0 million for
remittances has no indirect impact on the local economy.
This is accomplished in the following way: while leaving
the labor income coefficient (labor income in millions of
dollars per job) unchanged, reduce fish processing labor income
by $9.0 million before calculating the adjusted labor income
direct coefficient (labor income per dollar of output). The
labor income coefficient is 0.00892 (=49.4/5538), in which the
$49.4 million in labor income includes the $9.0 million in
remittances. The adjusted labor income direct coefficient is
0.08025 (=[49.4-9.0]/503.4), which incorporates the deduction
for remittances. The fish processing employment coefficient is
11.001 (=5538/503.4).
3. Consumption and government expenditures.--Calculation of
the adjusted direct coefficients for the consumer/government
sector (the last column of the adjusted direct coefficients
table) involves two considerations: the incorporation of the
government sector into the input-output model; and the choice
of the income variable for the coefficients' divisor.
Input-output models typically treat households like an
industry, thereby incorporating the impact on the economy of
labor earnings and consumer spending. This is termed a Type II
input-output model.
A Type III model, which yields somewhat higher multipliers,
also includes local government as an endogenous sector. This
inclusion is warranted to the extent that government is
supported by locally generated revenues, such as taxes and
fees. The American Samoa input-output model combines consumer
spending with that part of American Samoa government
expenditures supported by local taxes and fees. In 2002, it is
estimated that 41.5 percent of government expenditures were
supported by locally generated revenue. The remaining part was
financed by federal government funds.
With regard to the second consideration, various income
divisors have been used to determine the direct coefficients in
the consumer or consumer/government sector of an input-output
model, among them total value added, personal income, and total
labor income. In this study, the divisor is total labor income
plus transfer payments. This concept of income presumes that
transfer payments (principally, government payments for
retirement and disability), like proprietors' income from
agricultural production for self-consumption, are unaffected by
changes in the economy. This choice for the income divisor has
two beneficial features for this analysis. It permits one to
estimate the impact of transfer payments on the American Samoa
economy without double-counting. It also results in middle-
range estimates of multipliers. Using labor income as the
income divisor would result in higher multipliers, while using
personal income would result in lower multipliers.
The income divisor for the consumer/government sector is
further modified to take into account the exclusion of
agricultural production for self-consumption and remittances by
fish processing workers from the input-output model, as shown
below.
The adjustments to the direct coefficients for the
consumer/government sector are illustrated with the coefficient
for agriculture, fishing, and mining. The estimated coefficient
is 0.06942 (=[57.1-38.0+0.2]/[285.6+39.4-38.0-9.0]), where
$57.1 million is the total value of household expenditures for
agricultural and fish products, $38.0 million is the imputed
value of agricultural products for self-consumption, $0.2
million is the part of American Samoa government purchases for
agricultural and fish products supported by local taxes and
fees, $285.6 million is total labor income, $39.4 million is
total transfer payments, as reported in the Gross Domestic
Product accounts, and $9.0 million is fish processing industry
remittances.
The input-output model also requires employment and labor
income coefficients for the government sector. The employment
coefficient is defined with respect to the above income
divisor. The employment coefficient is 6.234 (=1733/
[285.6+39.4-38.0-9.0]). The labor income coefficient is the
average earnings of government workers in 2002. The estimate is
0.01893 (=32.8/1733). In both calculations, 1,733 is the
estimated number of American Samoa government employees
supported by local revenue.
The adjustments to the direct coefficients are made for two
reasons. First, the adjustments are required to eliminate double-
counting. Second, the adjustments permit one to break down the American
Samoa economy into its basic components (i.e., activities that bring
money into the economy and support jobs through the multiplier or re-
spending process): fish processing; visitor expenditures; other
exports; American Samoa government supported by federal funds; private
investment; transfer payments; and other federal government
expenditures. In other words, with this formulation of the input-output
model, one can assign all output, employment, labor income, and value
added in the American Samoa economy to one of these sources. As a
result, it is possible to express the relatively importance of each
basic activity to the economy.
ADJUSTED INVERSE COEFFICIENTS TABLE
Table A-4 is the table of adjusted inverse coefficients. Derived
from the adjusted direct coefficients, the adjusted inverse
coefficients represent the core of the American Samoa input-output
model.
The adjusted inverse coefficients show the value of output in
dollars from the sector named at the left required directly and
indirectly to support a dollar of output delivered from the sector
named at the top. For example, to support a dollar of fish processing
output, the retail trade inverse coefficient of 0.03225 indicates that
about 3.2 cents of output is required directly and indirectly from
retail trade. The adjusted direct coefficients table shows that the
direct requirement by fish processing from retail trade is
approximately 0.3 cents (0.00258). This implies that the indirect
requirement from retail trade amounts to 2.9 (=3.2-0.3) cents. Much of
the indirect impact on retail trade stems from the spending of fish
processing employee wages and salaries for consumer goods and services.
The inverse coefficients table is therefore a table of output
multipliers, representing the repercussions on the output of each
industrial sector from changes in the output of a given sector. The
labor income row of the inverse coefficients table gives the labor
income multiplier for each sector. Employment multipliers are derived
from the output multipliers and corresponding labor coefficients, as
shown in the following illustration.
FISH PROCESSING OUTPUT AND EMPLOYMENT IMPACT
A central issue in this study is the importance of the fish
processing industry to the American Samoa economy. One measure of its
importance is the number of jobs in American Samoa directly and
indirectly supported by the tuna canneries. Table A-1 shows the
calculations of the output and employment impacts of fish processing
exports. Note that each of the numbers in the calculation can be found
in the input-output table (Table A-2), the adjusted direct coefficients
table (Table A-3), or the adjusted inverse coefficients table (Table A-
4).
In 2002, tuna cannery exports amounted to $438.3 million, which
represented 87.1 percent of total fish processing output ($503.4
million). An estimated 4,822 (=5538[438.3/503.4) workers earning $43.0
(=4822[0.00892]) million in labor income were required to produce the
exports. In the terminology of impact analysis, these numbers are
called the direct impact.
The next step in the analysis is to estimate the total output
impact, taking into account the multiplier effect. The fish processing
adjusted inverse coefficients from Table A-4 are given in the first
column of Table A-1. These output multipliers are each multiplied by
the value of tuna cannery exports to obtain the direct and indirect
impact on the output of the industries named at the left. Thus, tuna
cannery exports indirectly generated $5.8 (=0.01316[438.3]) million of
output in agriculture, fishing, and mining, where 0.01316 is the
corresponding adjusted inverse coefficient. The total impact on fish
processing output was $499.2 (=1.13883[438.3]) million, which
represented nearly all of the industry's output in 2002. The impact of
fish processing exports on the total industrial output of the American
Samoa economy amounted to $603.0 million.
The employment impact on a given industry is simply the output
impact multiplied by the industry's employment coefficient. On average
20.00 workers (wage and salary employees and proprietors) were required
to produce one million dollars of agricultural, fishing, and mining
output in 2002 Thus, the fish processing industry indirectly supported
115 (=20.00[5.77]) jobs in agriculture, fishing, and mining. As shown
in Table A-1, the greatest job impact outside of fish processing
occurred in retail trade, where 526 (=37.23[14.14]) jobs were
indirectly supported by the canneries. Altogether, the fish processing
industry accounted for an estimated 8,118 jobs, which represented 45.6
percent (=8118/17798) of total American Samoa employment.
The output multiplier implied by this analysis is the total output
generated in the economy per dollar of fish processing exports. Thus,
the output multiplier is 1.38 (=603.0/438.3). The employment multiplier
is the total employment supported in the economy per export job in the
tuna canneries. The implied employment multiplier is 1.68 (=8118/4822).
According to the 1977 American Samoa input-output study, the fish
processing employment multiplier was 1.55. Thus, it appears that the
multiplier has risen over time, but this is not necessarily the case.
The 2002 and 1977 input-output models have slightly different
specifications. In particular, the 2002 model has been reformulated in
two ways that has affected the size of its multipliers. The denominator
used to calculate the direct coefficients in the consumer/government
sector is now labor income plus transfer payments (not just labor
income, as in the 1977 model), which effectively reduces the size of
the multipliers. On the other hand, the inclusion of the part of
government expenditures supported by local appropriations as an
endogenous variable in the 2002 input-output model has the effect of
raising the multipliers. In general, the difference between the 1977
and 2002 employment multipliers for the fish processing industry,
whether real or due to the reformulation of the model, is not large
enough to be considered significant. It certainly has no bearing on the
general conclusions drawn from the input-output analysis conducted for
this study.
Appendix 2.--Proposal on Minimum Wage Adjustment
PROPOSAL
Sec. 1. Applicability of the Minimum Wage to American Samoa.
(a) Biennial Adjustment of Minimum Wage Rate.--Section
8103(b)(2)(C) of Public Law 110-28 is amended by inserting in
place thereof the following:
increased by $0.50 an hour (or such lesser amount as may be
necessary to equal the minimum wage under section 6(a)(1) of
such Act), beginning 2 years after the date of the first
increase in paragraph (B) and every 2 years thereafter until
the minimum wage applicable to American Samoa under this
paragraph is equal to the minimum wage set forth in such
section, if the Secretary of Labor determines, through the
Bureau of Labor Statistics, that an increase under this
paragraph will not have an adverse impact on the economy of
American Samoa.
(b) Bureau of Labor Statistics Report.--Section 8104 of
Public Law 110-28 is amended by inserting at the end thereof
the following new subsection:
(c) Bureau of Labor Statistics Report.--To provide the
documented basis for the biennial adjustment under section
8103(b)(2)(C) until the minimum wage applicable in American
Samoa is equal to the minimum wage under section 6(a)(1) of
such Act, the Bureau of Labor Statistics shall conduct a study
and issue a timely determination on the economy of American
Samoa.
Sec. 2. Data Collection.
(a) The Bureau of Labor Statistics shall collect and publish
monthly data on the labor market conditions in American Samoa
similar to the data collected and estimates provided for the 50
states, the District of Columbia, Puerto Rico, and the Virgin
Islands in the monthly survey of employers.
(b) The Bureau of Labor Statistics and the Census Bureau
shall collect and publish monthly data on households in
American Samoa similar to the data collected and the estimates
provided for the 50 states, the District of Columbia, Puerto
Rico, and the Virgin Islands in the Current Population Survey.
Sec. 3. Effective Date.
(a) Effective Date.--The amendments made by this section
shall become effective on the date of enactment.
EXPLANATION OF PROPOSAL
Under this proposal, if the Secretary of Labor (through the Bureau
of Labor Statistics acting in consultation with the Secretary of
Interior and the Government of American Samoa) finds that a subsequent
50 cent an hour increase will not adversely impact the economy of
American Samoa, the increase will take effect on the 2-year anniversary
of the first increase under Public Law 110-28. The Bureau shall provide
its biennial analysis in a timely fashion to allow a 60 day notice
period before each increase in the minimum wage. Should the Secretary
of Labor find that such increase will have an adverse impact on the
territory's economy, the increase will not take effect. The
Department's review and determination will continue every 2 years until
the minimum wage for all industry sectors in American Samoa matches the
regular Federal minimum wage rate of $7.25.
To provide the data necessary to make such a determination, the
Bureau of Labor Statistics and the Census Bureau shall collect and
publish monthly data on labor market conditions and on households
similar to the data collected and estimates provided for the 50 states,
the District of Columbia, Puerto Rico, and the Virgin Islands in the
monthly survey of employers and the Current Population Survey.
Appendix 3.--Proposal on Economic Activity Credit
PROPOSAL
To amend the Internal Revenue Code of 1986 to expand, and extend
for 10 years, the American Samoa economic development credit.
Section 1. Expansion and Extension of American Samoa Economic
Development Credit
(a) In General.--Subpart B of part IV of subchapter A of
chapter 1 of the Internal Revenue Code of 1986 is amended by
adding at the end the following new section:
`SEC. 30D. AMERICAN SAMOA ECONOMIC DEVELOPMENT
CREDIT.
`(a) Allowance of Credit.--In the case of a qualified
domestic corporation, there shall be allowed as a
credit against the tax imposed by this chapter an
amount equal to the portion of the tax which is
attributable to the taxable income, from sources
without the United States, from--
`(1) the active conduct of a trade or
business within American Samoa, or
`(2) the sale or exchange of substantially
all of the assets used by the taxpayer in the
active conduct of such trade or business.
`(b) Limitation.--The amount of the credit determined
under subsection (a) for any taxable year shall not
exceed the sum of the following amounts (determined by
treating American Samoa as the only possession of the
United States):
`(1) 60 percent of the sum of--
`(A) the aggregate amount of the
qualified domestic corporation's
qualified possession wages for such
taxable year, plus
`(B) the allocable employee fringe
benefit expenses of the qualified
domestic corporation for such taxable
year.
`(2) The sum of--
`(A) 15 percent of the depreciation
allowances for the taxable year with
respect to short-life qualified
tangible property,
`(B) 40 percent of the depreciation
allowances for the taxable year with
respect to medium-life qualified
tangible property, and
`(C) 65 percent of the depreciation
allowances for the taxable year with
respect to long-life qualified tangible
property.
`(c) Qualified Domestic Corporation.--For purposes of
this section, the term `qualified domestic corporation'
means any domestic corporation which meets the
conditions of both paragraphs (1) and (2) of section
30A(b).
`(d) Credit Not Allowed Against Certain Taxes.--The
credit provided by subsection (a) shall not be allowed
against any tax referred to in a paragraph of section
30A(c).
`(e) Treatment of Certain Foreign Taxes.--For
purposes of this title, any tax of a foreign country or
a possession of the United States which is paid or
accrued with respect to taxable income which is taken
into account in computing the credit under subsection
(a) shall not be treated as income, war profits, or
excess profits taxes paid or accrued to a foreign
country or possession of the United States, and no
deduction shall be allowed under this title with
respect to any amounts so paid or accrued.
`(f) Administrative Provisions.--For purposes of this
title--
`(1) the credit under this section shall be
treated in the same manner as the credit under
section 936, and
`(2) a corporation to which this section
applies shall be treated in the same manner as
if it were a corporation electing the
application of section 936.
`(g) Denial of Double Benefit.--Any wages or other
expenses taken into account in determining the credit
under this section may not be taken into account in
determining the credit under section 41.
`(h) Application of Section-This section shall apply
to taxable years beginning after December 31, 2007, and
before January 1, 2019.'.
(b) Conforming Amendments.--
(1) Paragraph (1) of section 55(c) of such
Code is amended by striking `and the Puerto
Rico economic activity credit under section
30A' and inserting `the Puerto Rico economic
activity credit under section 30A, and the
American Samoa economic development credit
under section 30D'.
(2) Subclause (I) of section 56(g)(4)(C)(ii)
of such Code is amended by inserting `30D,'
after `30A,'.
(3) Subclause (VI) of section
56(g)(4)(C)(iii) of such Code is amended to
read as follows:
`(VI) Application to Sections 30A and 30D Corporations.--
References in this clause to section 936 shall be treated as
including references to sections 30A and 30D.'.
(4) Subsection (b) of section 59 of such Code
is amended by inserting `, 30D,' after `30A'
each place it appears, including the heading.
(5) The table of sections for subpart B of
part IV of subchapter A of chapter 1 of such
Code is amended by adding at the end the
following new item:
`Sec. 30D. American Samoa economic development
credit.'.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of
enactment of this bill.
EXPLANATION
I. Present and Prior Law
A. In General
For taxable years beginning before January 1, 2006, certain
domestic corporations with business operations in the U.S. possessions
were eligible for the possession tax credit. This credit offset the
U.S. tax imposed on certain income related to operations in the U.S.
possessions. For purposes of the credit, possessions included, among
other places, American Samoa. Subject to certain limitations described
below, the amount of the possession tax credit allowed to any domestic
corporation equaled the portion of that corporation's U.S. tax that was
attributable to the corporation's non-U.S. source taxable income from
(1) the active conduct of a trade or business within a U.S. possession,
(2) the sale or exchange of substantially all of the assets that were
used in such a trade or business, or (3) certain possessions
investment.
No deduction or foreign tax credit was allowed for any possessions
or foreign tax paid or accrued with respect to taxable income that was
taken into account in computing the credit under section 936. The
section 936 credit generally expired for taxable years beginning after
December 31, 2005, but a special credit, described below, was allowed
with respect to American Samoa.
To qualify for the possession tax credit for a taxable year, a
domestic corporation was required to satisfy two conditions. First, the
corporation was required to derive at least 80 percent of its gross
income for the three-year period immediately preceding the close of the
taxable year from sources within a possession. Second, the corporation
was required to derive at least 75 percent of its gross income for that
same period from the active conduct of a possession business.
The possession tax credit was available only to a corporation that
qualified as an existing credit claimant. The determination of whether
a corporation was an existing credit claimant was made separately for
each possession. The possession tax credit was computed separately for
each possession with respect to which the corporation was an existing
credit claimant, and the credit was subject to either an economic
activity-based limitation or an income-based limitation.
B. Qualification As Existing Credit Claimant
A corporation was an existing credit claimant with respect to a
possession if (1) the corporation was engaged in the active conduct of
a trade or business within the possession on October 13, 1995, and (2)
the corporation elected the benefits of the possession tax credit in an
election in effect for its taxable year that included October 13, 1995.
A corporation that added a substantial new line of business (other
than in a qualifying acquisition of all the assets of a trade or
business of an existing credit claimant) ceased to be an existing
credit claimant as of the close of the taxable year ending before the
date on which that new line of business was added.
C. Economic Activity-Based Limit
Under the economic activity-based limit, the amount of the credit
determined under the rules described above was not permitted to exceed
an amount equal to the sum of (1) 60 percent of the taxpayer's
qualified possession wages and allocable employee fringe benefit
expenses, (2) 15 percent of depreciation allowances with respect to
short-life qualified tangible property, plus 40 percent of depreciation
allowances with respect to medium-life qualified tangible property,
plus 65 percent of depreciation allowances with respect to long-life
qualified tangible property, and (3) in certain cases, a portion of the
taxpayer's possession income taxes.
D. Income-Based Limit
As an alternative to the economic activity-based limit, a taxpayer
was permitted to elect to apply a limit equal to the applicable
percentage of the credit that otherwise would have been allowable with
respect to possession business income; in taxable years beginning in
1998 and subsequent years, the applicable percentage was 40 percent.
E. Repeal and Phase Out
In 1996, the section 936 credit was repealed for new claimants for
taxable years beginning after 1995 and was phased out for existing
credit claimants over a period including taxable years beginning before
2006. The amount of the available credit during the phase-out period
generally was reduced by special limitation rules. These phase-out
period limitation rules did not apply to the credit available to
existing credit claimants for income from activities in Guam, American
Samoa, and the Northern Mariana Islands. As described previously, the
section 936 credit generally was repealed for all possessions,
including Guam, American Samoa, and the Northern Mariana Islands, for
all taxable years beginning after 2005, but a modified credit was
allowed for activities in American Samoa.
F. American Samoa Economic Development Credit
A domestic corporation that was an existing credit claimant with
respect to American Samoa and that elected the application of section
936 for its last taxable year beginning before January 1, 2006 is
allowed a credit based on the economic activity-based limitation rules
described above. The credit is not part of the Code but is computed
based on the rules secs. 30A and 936. The credit is allowed for a
corporation's first two taxable years that begin after December 31,
2005, and before January 1, 2008.
The amount of the credit allowed to a qualifying domestic
corporation under the provision is equal to the sum of the amounts used
in computing the corporation's economic activity-based limitation
(described previously) with respect to American Samoa, except that no
credit is allowed for the amount of any American Samoa income taxes.
Thus, for any qualifying corporation the amount of the credit equals
the sum of (1) 60 percent of the corporation's qualified American Samoa
wages and allocable employee fringe benefit expenses and (2) 15 percent
of the corporation's depreciation allowances with respect to short-life
qualified American Samoa tangible property, plus 40 percent of the
corporation's depreciation allowances with respect to medium-life
qualified American Samoa tangible property, plus 65 percent of the
corporation's depreciation allowances with respect to long-life
qualified American Samoa tangible property.
The section 936(c) rule denying a credit or deduction for any
possessions or foreign tax paid with respect to taxable income taken
into account in computing the credit under section 936 does not apply
with respect to the credit allowed by the provision.
II. Reasons for Enactment of Economic Development Federal Tax Incentive
for American Samoa
The repeal in 1996 of the section 936 possessions corporation
credit jeopardizes the operations of the two tuna canneries which
constitute the main source of private employment in American Samoa. The
repeal has also made it extremely difficult for American Samoa to
attract new investments.
Limited infrastructure, small land area, and scare resources are
especially pronounced obstacles for economic development in American
Samoa. Unlike the other US insular areas, it is also remote from
domestic and foreign markets. The territory has not attained a level of
development comparable to other US insular areas. The proportion of
territorial government expenditures covered by federal funds is the
largest of all insular area. The territory's unemployment rate is more
than double that of the next highest insular area. The territory's
annual per capita income is less than half of the next lowest insular
area.
Under existing law, investments on Indian reservations qualify for
shorter recovery periods; and an annual employment credit is given for
jobs created on reservations. Alaska Native corporations also receive
favorable tax treatment for consolidated losses. In the Omnibus Budget
Reconciliation Act of 1993, Congress cited the economic tax stimulus
for United States possessions as precedent for enacting the Indian
Employment Credit and depreciation incentives to encourage jobs
creation and business investments on Indian reservations.
With the repeal of the possessions corporation credit and faltering
economic conditions, American Samoa requires a new federal initiative
comparable to the economic development tax initiative for Indian
reservations.
III. Explanation of the Proposed Provisions
To provide an incentive for job creation and economic activity in
American Samoa, the proposal creates a business activity credit with
respect to operations in American Samoa. The amount of the credit
equals the portion of a corporation's U.S. tax that is attributable to
that corporation's non-U.S. source taxable income from the active
conduct of a trade or business within American Samoa and the sale or
exchange of substantially all of the assets that were used in such a
trade or business. All domestic corporations, not just the two
canneries with pre-existing operations in the territory, would qualify.
To qualify for the credit, the United States corporation must
derive at least 80 percent of its gross income from American Samoa for
the preceding three-year period. In addition the corporation must also
derive at least 75 percent of its gross income for the same period from
the active conduct of a trade or business in American Samoa. For newly
formed corporations in existence for less than three years, the
percentage requirements will apply to their period of operation.
The amount of the credit allowed to a qualifying domestic
corporation under the provision is equal to the sum of the amounts used
in computing the corporation's economic activity-based limitation with
respect to American Samoa, except that no credit is allowed for the
amount of any American Samoa income taxes. Thus, for any qualifying
corporation the amount of the credit equals the sum of (1) 60 percent
of the corporation's qualified American Samoa wages and allocable
employee fringe benefit expenses and (2) 15 percent of the
corporation's depreciation allowances with respect to short-life
qualified American Samoa tangible property, plus 40 percent of the
corporation's depreciation allowances with respect to medium-life
qualified American Samoa tangible property, plus 65 percent of the
corporation's depreciation allowances with respect to long-life
qualified American Samoa tangible property.
The economic activity credit is based on compensation paid to
employees and on tangible personal property located in American Samoa.
Service and manufacturing activities receive comparable treatment. The
incentive in this way seeks to encourage labor-intensive and capital-
intensive businesses equally.
Appendix 4.--Proposed American Samoa Territorial Employment Program
PROPOSAL
Section 1. Purpose--Improved Standard of Living Through Economic Growth
(a) Purpose.--To improve the standard of living in the
territory, the Government of American Samoa seeks to promote
economic growth. The business incentive employment program is
intended to be a part of the strategy to achieve that purpose.
(b) Job Creation and Retention.--Through the business
incentive employment program the Government will encourage
significant job creation and retention for the employment of
the people of American Samoa in key business sectors.
(c) Capital Investment.--Through the business incentive
employment program, the America Samoa Government also will
encourage key business sectors to make significant capital
investments in facilities and equipment in American Samoa to be
utilized by the workers in the jobs created or retained.
Section 2. Employment Tax Credit
(a) In General.--Under the procedures in Chapter 16 (Tax
Incentives for Businesses), the Tax Exemption Board may grant
with the Governor's approval a credit against the income tax
imposed by Title 11 (Revenue) to a business enterprise that
agrees to the creation of significant number of new full-time
jobs (or the retention of a significant number of existing
full-time jobs) and that also agrees to make major capital
investments in American Samoa.
(b) Amount of Credit.--The credit may not exceed 75 percent
of the American Samoa payroll income tax which the enterprise
withholds from the wages of a full-time employee covered by the
agreement and pays to the Treasury during the enterprise's tax
year which amount accurately reflects the employee's tax
liability.
(c) Credit Duration.--The enterprise may claim this credit
for the years specifically granted by the Board with the
Governor's approval, but in no event shall this period extend
longer than 7 years. The actual credit for each year will be
based on the established percentage of the payroll income tax
properly withheld by the enterprise and paid to the Treasury
for that year.
(d) Credit Limit.--The amount of creditable income tax
withheld and paid shall not exceed the amount attributable to
the first $20,000 in wages of an employee.
Section 3. Application Procedure
(a) Filing.--The Tax Exemption Board shall accept
applications for the employment tax credit from business
enterprises that are or will engage in active business
operations in key sectors of the American Samoa economy.
(b) Contents.--The Tax Exemption Board shall specify the form
of application to contain:
(1) The applicant's name, address, and federal
identification number;
(2) A description of the active business operations
undertaken or to be undertaken by the applicant in
American Samoa;
(3) The number of new full-time jobs which the
applicant will create or the number of existing full-
time jobs which the applicant will retain;
(4) The amount of wages and benefits that the
applicant will pay to each worker for each job created
or each job retained over a 12 month period;
(5) The capital investment which the applicant will
make in its operations in American Samoa;
(6) The sector which the applicant's capital
investment and employment will develop and the
importance of that sector for American Samoa's economic
growth;
(7) The experience and involvement of the applicant
in the described business;
(8) The applicant's financial soundness with its
ability to complete the projected capital investment
and maintain the stated number of full-time jobs to be
created or retained in American Samoa;
(9) The applicant's ability to maintain its stated
operations and stated employment in American Samoa for
at least twice the duration of the employment credit
sought; and
(10) Such other documents, plans, and specifications
as may be required by the Tax Exemption Board to make
an informed judgment on the application.
Section 4. Agreement
(a) Form of Grant.--With the Governor's approval, the Tax
Exemption Board shall enter into an agreement with a business
enterprise setting out the terms for granting the tax credit.
(b) Provisions in Agreement.--The agreement shall include:
(1) A description of the capital investment to be
made, the time frame for this investment, and the
number of full-time jobs to be created or retained by
the business enterprise as the conditions for the
credit;
(2) The duration, number of full-time employees
covered, percentage of the tax credit, maximum credit
per worker, and initial claim year for the credit
granted;
(3) A requirement that the business enterprise
maintain the described business activities in American
Samoa for at least twice the number of years of credit
granted;
(4) A requirement that the business enterprise report
annually to the Tax Exemption Board on the capital
investments made, the number of covered full-time
workers employed with their name and address, the total
wages paid to covered workers, the total amount of
income tax withheld from covered workers and paid to
the Treasury during the report year, and any other
information required by the Board to carry out the
credit program;
(5) A requirement that the Treasury audit and certify
the accuracy of the business enterprise's annual
report;
(6) A waiver by the business enterprise of any
limitation period on assessments or adjustments related
to its failure to comply with this agreement;
(7) The unilateral authority of the Tax Exemption
Board to rescind prospectively, or reduce prospectively
the percentage and duration of the credit if the
business enterprise fails to:
(A) Make the stated capital investment during
the specified time;
(B) Create or retain the stated number of
jobs;
(C) Maintain the stated number of jobs for
the required term;
(D) Submit annually the information required;
or
(E) Accurately calculate, withhold, and pay
the payroll tax on which the business credit is
based.
(8) An obligation on the part of the business
enterprise to repay:
(A) 100% of any credit previously claimed if
it fails to make the stated capital investment
during the time specified in its agreement with
the Tax Exemption Board;
(B) 100% of any credit previously claimed if
it fails to create or retain the stated number
of full-time jobs during the specified duration
of the credit;
(C) 50% of any credit previously claimed if
it maintains the stated number of full-time
jobs longer than the credit's specified
duration but less than one and one-half of that
specified period of duration;
(D) 25% of any credit previously claimed if
it maintains the stated number of full-time
jobs longer than one and one-half but less than
twice the credit's specified period of
duration.
(9) The business enterprise's indemnification of ASG,
the Governor, and the Tax Exemption Board from any and
all liabilities or claims caused by or resulting from
the former's performance of the obligations or
activities under the agreement; and
(10) The business enterprise's agreement to comply
with all applicable federal and American Samoa law
related to the activities under the agreement.
(11) The obligation of the business enterprise's
corporate parent to fulfill the repayment,
indemnification, and compliance provisions which the
enterprise undertakes in this agreement.
Section 5. Annual Tax Return
(a) Supporting Information for Treasury.--When claiming the
credit on its tax return filed with the Treasury, the business
enterprise is to include:
(1) A copy of the agreement with the Tax Exemption
Board as approved by the Governor;
(2) The amount of capital investment made during the
year pursuant to the job creation or retention program.
(3) The name and address of each covered worker;
(4) The total amount of wages paid to covered
workers; and
(5) The total amount of income tax which the business
enterprise has withheld from those covered workers and
has paid to the Treasury of the Government of American
Samoa.
(b) Copy of Information for Tax Exemption Board.
The business enterprise will submit to the
Tax Exemption Board a copy of the supporting
information specified in paragraph (2) through
(5) of subsection (a).
Section 6. Guidelines For Tax Exemption Board
(a) Total Credits.--The Board may enter into agreements which
in total do not exceed $15,000,000 annually in credits granted.
(b) Consideration of Other Support.--The Board shall set the
percentage and duration of any tax credit taking into account
all other program supports, including tax exemption and
financing afforded to the applicant, so as to constitute an
effective program for economic development but avoiding
redundant benefits.
(c) Criteria for Judging Applications.--The Board in judging
applications and awarding credits, shall particularly weigh:
(1) The applicant's ability to make the represented
capital investments;
(2) The applicant's ability to create and maintain or
retain the represented number of jobs in American
Samoa; and
(3) The applicant's impact through its projected
business operations on the development of a key sector
for American Samoa's economic growth.
(d) Rescission for Failure to Meet Commitments.--If a
business fails to meet its commitment on capital investment or
its employment commitment on the number of jobs to be created
or retained within the time period specified in the agreement,
the Board shall rescind the credit prospectively.
(e) Discretionary Re-negotiations.--The Board in its
discretion may re-negotiate the terms of the agreement if a
business fails to meet its commitment on capital investment or
its commitment on the number of jobs to be created or retained
within the time period specified in the agreement, provided the
business satisfactorily demonstrates the ability to fulfill its
commitments within a reasonable period.
(f) Jobs Counted as Created.--In determining the number of
jobs a business enterprise will create, the Board will take
into account only new jobs in American Samoa.
(g) Processing.--The Board shall act on each application
within 120 days of filing. Priority shall be given to business
enterprises that commit to significant capital investment and
significant employment growth in key sectors of American
Samoa's economy. After the Board has fully assigned the annual
credit limit, it will deny all subsequent applicants.
(h) Annual report.--The Board shall prepare an annual report
identifying:
(1) The name, address, and business of each business
enterprise which has negotiated a program grant with
the Board, as well as the amount of credit the Board
had granted to the enterprise;
(2) The amount of projected employment and investment
anticipated from each program grant;
(3) The actual investments made by businesses under
the tax credit program;
(4) The actual number of jobs that have been created
as well as the actual number of jobs that have been
retained;
(5) The amount of tax credit granted by the Board and
the amount of tax credit claimed by business
enterprises for the year; and
(6) Any amount of tax credit authorized under this
program but not granted by the Board.
Section 7. Definitions
(a) Full-time.--The term ``full-time'' refers to a worker who
is employed for at least an average of 35 hours a week over at
least 200 days during the credit year. The term does not
include a seasonal or temporary worker.
(b) Capital Investment.--The term ``capital investment''
refers to the acquisition, construction, renovation, or repair
of buildings, machinery, or equipment to be used by the workers
covered under the credit.
Section 8. Effective Date and Expiration
(a) Commencement of Credit Authority.--The authority of the
Tax Exemption Board to grant credits under section 2 shall take
effect on January 1 immediately following the date of
enactment.
(b) Expiration of Credit Authority.--Seven years after the
commencement of the Tax Exemption Board's authority to grant
credits under section 2, that authority shall expire. The
expiration will permit the Government of American Samoa to
evaluate the effectiveness of the program and to determine
whether to extend the credit.
(c) No Effect on Duration of Credit Previously Granted.--The
expiration of the Tax Exemption Board's authority to grant
credits under section 8(b) shall not affect the credits and the
duration of such credits which the Board had previously granted
pursuant to a Section 4 agreement concluded with a business
during the Board's seven year period of credit authority, nor
does the expiration affect the Board's authority to rescind or
reduce the credits or otherwise enforce the conditions pursuant
to the terms of such agreement.
EXPLANATION
In order to raise living standards in American Samoa, the proposed
program seeks to foster large-scale business investments in key sectors
that materially promote the territory's economic development. The
program is intended to create or retain permanent, full time jobs in
the territory as well as to promote significant capital investment in
the facilities and equipment which those workers will use.
The incentive takes the form of a non-refundable tax credit which
the recipient can use to reduce the income tax it owes to the
Government of American Samoa. Although the credit will offset the
business' income tax liability to the territorial government, the
amount of the credit is determined by payroll tax withholdings from the
wages which the business pays to its workers. The credit is calculated
as a percentage of the territorial payroll income tax that the business
legitimately withholds from its covered workers and which the business
pays to the territorial government on behalf of the workers. This
insures that the business achieves the desired employment to qualify
for the credit. No credit can be claimed until the business pays the
worker, withholds the worker's estimated income tax owned to the
territory, and transfers the withholdings to the territorial
government.
Only the payroll tax attributable to the worker's first $20,000 of
wages is taken into account. If the employer withholds payroll tax from
a worker beyond the established withholding table with the objective of
artificially increasing the business credit claimed, such action would
be outside the law. Such action warrants ending the business'
participation in the program.
Administration of this program is placed with the existing Tax
Exemption Board of the American Samoa Government. Businesses that wish
to qualify for the credit must submit an application to the Board
describing, among other things: The business activity that will be
conducted in the territory; the number of full-time jobs to be created
or retained; the specific wages to be paid; the capital investments to
be made in the territory, the applicant's experience and in the line of
business; and applicant's financial ability to undertake the project
and maintain operations in the territory.
The Tax Exemption Board will review applications. It will award
assistance based on the impact of the proposed business investments and
employment on the territory's economic development. The Board will
determine the appropriate level of assistance--the percentage of the
credit and the number of years in which the business can claim the
credit. The maximum credit percentage which the Board can award is 75
percent of the payroll tax withheld by the business from covered full-
time employees at the approved project. The maximum number of years
which the Board can award is seven years.
Through this program, the Government of American Samoa will forego
up to 75 percent of the payroll tax anticipated from covered workers.
But the government will still receive the remaining 25 percent. In
addition, the job creation or retention as well as the increased
capital expenditures that the business must make will benefit the
territorial economy directly and the government indirectly.
Overall program awards are subject to an annual cap. The Board
cannot award total credits which exceeds $15 million year. This places
an annual limit on the program. The Board will also oversee, yearly
monitor, and annually report on the approved projects.
The business that receives and claims the credit must make the
stated capital investments within the specified time and create the
stated number of jobs for the specified period. The jobs must be
maintained for a period equal to twice the number of years the credit
is awarded. If the recipient fails to make the required investments or
fails to maintain the specified number of full time jobs for the
agreed-upon period, it must repay the credit previously claimed. The
shorter the period that the jobs are maintained, the larger the
repayment.
The Board's authority to grant credits takes effect on January 1
immediately following the legislation's enactment. The Board's
authority to make awards expires seven years thereafter. The expiration
date allows the Government of American Samoa to evaluate the program's
effectiveness and to decide whether to renew the program. The
expiration date, however, does not affect the Board's authority to
enforce outstanding award agreements and the Board's duty to make
annual reports on such agreements.
The Chairman. Thank you very much. Why don't we go right
ahead? We have four other witnesses.
I would ask each to summarize your points. We will of
course include your full statement in the record. Then I'm sure
Senator Murkowski and I will both have questions.
Representative Tenorio, why don't we continue right across
the table with you if that's appropriate?
STATEMENT OF PEDRO A. TENORIO, RESIDENT REPRESENTATIVE,
COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS
Mr. Tenorio. Mr. Chairman, Senator Akaka, Senator Murkowski
and members of the committee, thank you for holding this
hearing and for allowing me to testify about the impact an
increased minimum wage will have on the economy of the
Commonwealth of the Northern Mariana Islands. I'm very
appreciative of this committee, its leadership and its members
for their continued advocacy for the territories on the subject
of minimum wage. I would also like to take this opportunity to
thank officials from the United States Department of Labor for
not only the timely completion of their report mandated by
Public Law 110-28, but also for their honesty and objectivity.
At the outset I would like to state that I agree completely
with the report when it describes our economy as fragile and
that the quality and quantity of data on our work force is
inadequate. I believe that it is important to note that the
study does not address the potential impact of the second
increase. Whether or not there should be a second increase. It
instead highlights a number of potential negative impacts that
could result from the implementation of the scheduled minimum
wage increases.
However, to quote the study, ``the lack of such data for
American Samoa and the CNMI significantly impairs efforts to
measure or to project the impacts of scheduled minimum wage
increases for this these territories.'' I feel that
implementation of Public Law 110-28 and its scheduled minimum
wage increases in the Northern Mariana Islands is a lot like
setting the thermostat for your heater or air conditioner in
the dark. If you set it too high, you get hot. If you set it
too low, you get cold. It is very hard to select wisely when
you're guessing or simply cannot see what you are doing.
This is my impression of the findings of the report. If the
minimum wage increases too much or too rapidly then we can
easily be faced with the loss of jobs and increased inflation
which will only add to our economic problems. If we increase
the minimum wage too slowly or not at all, we can expect an
increase in the number of residents who seek employment outside
of the CNMI due to higher wages elsewhere.
This ongoing exodus includes experienced and skilled
workers and recent high school graduates and college graduates
who are finding few, well paying jobs in the local sector. Mr.
Chairman, I am greatly concerned about the lack of reliable,
consistent and meaningful data in the CNMI's work force
including earnings, number of hours worked, number of jobs
available and number of unemployed residents or non-residents.
We cannot truly know the impact of the first of future minimum
wage increases without adequate and accurate data in these
areas.
In formulating this testimony and my position on this
subject I've had to consider many things among them are one,
the need to reduce our reliance on non-resident workers in the
private sector. For almost two decades non-resident workers
have outnumbered resident workers in the private sector.
Although our private sector wages are low by United States
standards, they were considerably higher than wages in the non-
resident workers' home countries. Wages must rise in order for
private sector jobs to appeal to local residents.
Number 2, the need to reduce the size of the CNMI
Government to coincide with the reduction in tax revenues.
Unfortunately, many of our residents will choose to leave our
islands rather than take employment in the private sector where
wages are consistently lower. The Labor Department study
reports that, currently, 68 percent of the CNMI work force
earns less than $4.99 per hour. Resolving the discrepancy
between private and public sector wages must take time in order
to prevent further economic upheaval.
Number 3, the impact low wages will have on the overall
need for social services. Both the Federal funded food stamps
program and Medicaid are capped and the matching requirement
for Medicaid is already a burden on the local government.
Number 4, the need to reduce the cost of business. An
increase in the minimum wage adds to the already high cost of
doing business in the CNMI. Many of our larger businesses are
required to generate their own electricity and purify their
water. Smaller businesses rely on the CNMI Government for
utilities and pay extremely high rates for electricity and
suffer through blackouts, brownouts, and undrinkable,
unreliable water. With these added costs, the CNMI has seen a
number of businesses close and this trend is likely to continue
if the prospects of earning a profit are minimal.
Not everyone in the CNMI agrees on the continuation of
minimum wage increases. Over the last few weeks, my office has
been inundated with faxes, emails and letters from constituents
who have asked me to support their position on the second
increase. There are valid concerns about the business closures,
loss of jobs and the resulting loss of government revenue.
These private sector concerns cannot be ignored. I have
also heard from community activists, students and parents. As
well as some businessmen and a few legislators who all believe
that the second increase is needed in order for the CNMI to
move forward in its quest for a higher standard of living.
Mr. Chairman, I have weighed my position on a second
increase very carefully. Whatever decision is made will have a
potentially devastating effect on one sector or another in the
CNMI. However, as a pragmatist and a realist, and with all due
respect, I simply do not believe that it is possible to enact
legislation by May 24 to delay the second increase.
Therefore, I would request the assistance of the committee
in the following. First, pass legislation that will cap the
minimum wage in the CNMI at $4.05 an hour. The wage expected
after the implementation of the second increase, which would
remain in effect for a period of 2 years.
This will have provided workers in the CNMI with a total
hourly increase of a dollar, which is a significant step toward
a livable wage. This 2-year hiatus would hopefully provide time
for appropriate data collection tools to be developed and
implemented so that reliable economic data would be available
to evaluate impacts and guide decisions. This 2-year period
will also provide our business community the necessary time to
restructure their business operations so that they can remain
in the CNMI.
Third--second, provide resources that will assist the CNMI
and the Department of Labor to develop, acquire and implement
the necessary surveys or related data collection devices to
adequately and accurately measure the impact of the first two
increases on the CNMI economy, as well as determine the likely
impact of future increases.
Last, Mr. Chairman, I ask that the Congress assist us with
resources to address our infrastructure crisis so that we can
reduce the cost of doing business in the CNMI and provide
breathing room for employers to pay higher wages.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Tenorio follows:]
Prepared Statement of Pedro A. Tenorio, Resident Representative,
Commonwealth of the Northern Mariana Islands
Mr. Chairman and Members of the Committee. Thank you for holding
this hearing and for allowing me to testify about the impact an
increased minimum wage will have on the economy of the Commonwealth of
the Northern Mariana Islands. I am very appreciative of this Committee,
its leadership, and its members for their continued advocacy for the
territories on the subject of minimum wage. I would also like to take
this opportunity to thank officials from the U.S. Department of Labor
for not only the timely completion of their report mandated by Public
Law 110-28, but also for their honesty and objectivity. At the outset,
I would like to state that I agree completely with the report when it
describes our economy as very fragile and that the quality and quantity
of data on our workforce is inadequate.
I believe that it is important to note that the study does not
address the potential impact of the second increase and whether or not
there should be a second increase. It instead highlights a number of
potential negative impacts that could result from the implementation of
the scheduled minimum wage increases. However, to quote the study ``the
lack of such data for American Samoa and the CNMI significantly impairs
efforts to measure or to project the impacts of scheduled minimum wage
increases for these territories.''
I feel that the implementation of Public Law 110-28 and its
scheduled minimum wage increases in the Northern Marianas is a lot like
setting the thermostat for your heater or air conditioner in the dark.
If you set it too high--you get hot, and if you set it too low--you get
cold. It is very hard to select wisely when you are guessing or simply
cannot see what you are doing. This is my impression of the findings of
the Report.
If the minimum wage increases too much or too rapidly then we can
easily be faced with the loss of jobs and increased inflation which
will only add to our economic problems.
If we increase the minimum wage too slowly or not at all we can
expect an increase in the number of residents who seek employment
outside of the CNMI due to higher wages elsewhere. This ongoing exodus
includes experienced and skilled workers and recent high school and
college graduates who are finding few well paying local opportunities.
Mr. Chairman, I am greatly concerned about the lack of reliable,
consistent and meaningful data on the CNMI's workforce including
earnings, number of hours worked, number of jobs available, and number
of unemployed residents or non-residents. We cannot truly know the
impact of the first or future minimum wage increases without accurate
data in these areas.
In formulating this testimony and my position on this subject I
have had to consider many things. Among them are:
1. The need to reduce our reliance on non-resident workers in
the private sector and provide opportunities for residents. For
almost two decades, non-resident workers have outnumbered
resident workers in the private sector, and although our
private sector wages are low by U.S. standards, they were
considerably higher than wages in the non-resident workers'
home countries. Wages must rise in order for private sector
jobs to appeal to resident workers.
2. The need to reduce the size of the CNMI Government to
coincide with the reduction in tax revenues. Unfortunately,
many of our residents will choose to leave our islands rather
than take employment in the private sector where wages are
consistently lower. The Labor Department study reports that,
currently, 68% of the CNMI workforce earns less than $4.99 per
hour. Resolving the discrepancy between private and public
sector wages must take time in order to prevent further
economic upheaval.
3. The impact low wages will have on the overall need for
food stamps and the growing number who would be eligible for
Medicaid. Both food stamps and Medicaid are capped and the
matching requirement for Medicaid is already a burden on the
local government.
4. The reality is that the decline in the garment industry
has led to increased shipping costs, which have resulted in
higher costs for consumer goods. Will higher wages lead to more
inflation, or will it help balance it out due to increased
purchasing power? While I cannot answer that question, I do
believe there is something wrong when a minimum wage earner has
to work more than an hour to purchase a gallon of gasoline.
5. The need to reduce the cost of business. An increase in
the minimum wage adds to the already high cost of doing
business in the CNMI. Many of our larger businesses are
required to generate their own electricity and purify their
water. Smaller businesses rely on the CNMI Government for
utilities and pay extremely high rates for electricity and
suffer through blackouts, brownouts, and undrinkable,
unreliable water. With these added costs, the CNMI has seen a
number of businesses close and this trend is likely to continue
if the prospects of earning a profit are minimal.
Sentiment in the CNMI regarding the second minimum wage increase,
scheduled for May 25th, and future minimum wage increases is not as
homogeneous as the Committee might be lead to believe. Over the last
few weeks, my office has been inundated with faxes, e-mails, and
letters from constituents who have asked me to support their position
on the second increase. There are valid concerns about the business
closures, loss of jobs, and the resulting loss of government revenue.
These private sector concerns cannot be ignored. I have also heard from
community activists, students, and parents, as well as some businessmen
and a few legislators who all believe that the second increase is
needed in order for the CNMI to move forward in our quest for a higher
standard of living.
Mr. Chairman, I have weighed my position on a second increase very
carefully. What ever decision is made will have a potentially
devastating effect on one sector or another in the CNMI. However, as a
pragmatist and a realist, and with all due respect, I simply do not
believe that it is possible to enact legislation by May 24th to delay
the second increase. Therefore, I would request the assistance of the
committee in the following:
1. Pass legislation that will cap the minimum wage in the
CNMI at $4.05 an hour, the wage expected after the
implementation of the second increase, which would remain in
effect for a period of two years. This will have provided
workers in the CNMI with a total hourly increase of a dollar,
which is a significant step toward a livable wage. This two
year hiatus would hopefully provide time for appropriate data
collection tools to be developed and implemented so that
reliable economic data would be available to evaluate impacts
and guide decisions. This two year period will also provide our
business community the necessary time to restructure their
business operations so that they can remain in the CNMI.
2. Provide resources that will assist the CNMI and the
Department of Labor to develop, acquire, and implement the
necessary surveys or related data collection devices to
adequately and accurately measure the impact of the first two
increases on the CNMI economy, as well as determine the likely
impact of future increases.
3. Assist us with resources to address our infrastructure
crises so that we can reduce the cost of doing business in the
CNMI, and provide breathing room for employers to pay higher
wages.
Thank you.
The Chairman. Thank you very much. Governor, we welcome you
and look forward to your testimony. Go right ahead.
STATEMENT OF HON. BENIGNO R. FITIAL, GOVERNOR, COMMONWEALTH OF
THE NORTHERN MARIANA ISLANDS
Mr. Fitial. Thank you, Mr. Chairman. Good morning, Mr.
Chairman. Good morning, Senator Murkowski. My written testimony
is already in the record so I have an oral statement summarized
that I submitted----
The Chairman. Very good.
Mr. Fitial [continuing]. In writing. When I ran for
Governor in 2005, I ran with one mission in mind, to revive the
CNMI's economy and bring back prosperity to the people of our
islands. When I took office in January 2006, I found myself
facing the greatest challenges ever encountered by a CNMI
Governor. I had to address immediately a power crisis with
rolling blackouts and insolvent Commonwealth Utilities
Corporation, the result of years of mismanagement.
Our utility company was dependent on direct financial
subsidies from the CNMI's central government, a government that
could not afford to pay for such subsidies. Our power crisis
was further compounded by rising fuel prices and diminishing
government revenues. I also had to deal with a government that
was practically broke and spending beyond its means in a
slumping economy producing significantly fewer revenues for our
government operations.
I was determined to make the Commonwealth government live
within its means. Government revenues have fallen by about 35
percent in recent years. This resulted from a decrease in our
tourism industry and the collapse of our apparel manufacturing
industry.
In 2005, the year before I was inaugurated Governor, two
events occurred that devastated the CNMI economy and the
livelihood of our Island residents. In January 2005, the World
Trade Organization implemented new trading rules that
liberalized trade and removed trade quotas for garment exports
into the United States. This development eliminated the CNMI
apparel industry's competitive advantage and marked the demise
of our manufacturing base, once a billion dollar industry for
our Islands.
Only seven of 34 garment factories are still operating in
the CNMI. These have substantially reduced our tax base along
with jobs, business activities and consumer spending throughout
local economy. In October 2005, the CNMI saw the end of an era
when Japan Airlines withdrew flight service from the CNMI
tourism market after providing 30 years of service. The CNMI
has suffered a great loss of Japanese tourism and investments
in recent years.
In view of these formidable challenges my administration
quickly moved to address the CNMI situation. We raised utility
rates to ensure full cost recovery for our public utility and
ended our central government subsidy of CUC. We revised our
budget to reflect actual revenue collections and we made
drastic cuts from going from a spending level of some 248
million dollars to $160 million today in just 2 years. We
enacted a new defined contribution plan for our government
retirement program and temporarily suspended employer
contribution to the pension program.
Although the CNMI still faces enormous challenges my
administration did meet with some successes. I have taken
numerous trips to Asia, meeting with investors persuading them
to invest in the CNMI or expand their investments in the CNMI.
I'm very pleased with Kumho Asiana's expansion into our market
with South Korean tourism experiencing double digit growth over
the past 2 years. Kumho Aisiana, a large South Korean
conglomerate expanded flight service to our Islands and
committed at least $50 million for a resort development project
that will be breaking ground very soon.
We secured more Northwest flights from Japan, including
Osaka and Nagoya routes. We secured more investment for our
emerging education industry facilitating the establishment of a
vocational nursing school, a South Korean boarding school and
an upcoming medical and business school.
Although we have made some noticeable progress the CNMI
economy is still very vulnerable to external factors beyond our
control. One such factor is the ever rising cost of fuel which
creates upward inflationary pressures and which harms our
efforts to stabilize our troubled public utilities. Another
external factor beyond our control is Federal policy toward our
Islands which brings us to this hearing here today to discuss
the impact of Federal minimum wage law in the CNMI.
I believe that the severe challenges I have just described
would be further compounded by continued minimum wage hikes.
This is not my view alone. This is a view shared by our local
business community, represented today in this hearing by the
president of the Saipan Chamber of Commerce, Mr. Jim Arenovski
and chairperson of the Hotel Association of the CNMI, Ms. Lynn
Knight.
It is also a view supported by objective economists at the
United States Department of Labor as made clear in their recent
report. It is also a view shared by Federal lawmakers when
considering the economic plight of American Samoa. We in the
CNMI fully support HR 5154, the proposal submitted by my good
friend Congressman Faleomavaega in the House of
Representatives. On behalf of the people of the Saipan, CNMI, I
thank Congressman Faleomavaega for including the CNMI in his
proposal.
I want to point out exactly how this proposed increase will
affect our visitor industry. Our survey indicates that this
second increase will affect 65 percent of the employees of our
hotels. Here are the steps that our hotels have already had to
take in reaction to the first minimum wage increase: cutting
employee hours, cutting employee head count, cutting employee
benefits, passing along cost of benefits to employees, hiring
freezes, elimination of overtime hours, elimination of some
supervisor and management positions, reduction of hotel guest
amenities and rationing of utilities.
All of these responses compromise guest comfort and
threaten the hotel's ability to conduct business. We are
informed by the Department of Labor that the increase in the
Federal minimum wage affects only 2 percent of the American
workforce. In the CNMI hotel industry we are talking about the
real and immediate impact of 65 percent of the industry's
workers.
Our local economy has already been through the WTO change
and the pullout of Japan Airlines in 2005. We have made
progress in weathering these difficulties. But if our local
economy is to recover, we must have realistic and reasonable
wage rates which will allow our small local market to recover
from our current depression.
I appeal to you, Mr. Chairman and members of this committee
on behalf of the people of the Commonwealth to defer any
additional wage increases. The CNMI economy in its present
weakened state and with all the challenges we are currently
facing is in no condition to sustain further wage increases.
Mr. Chairman, here are the facts and statistics. You have
the United States Department of Labor report completed by
objective economists. You have the testimony of the CNMI
business community. I urge you to defer future Federal wage
hikes until it is clear that our local economy can afford to
sustain such increases with healthy economic growth.
Please allow me, Mr. Chairman and members of the committee
to complete my mission of reviving our economy for the benefit
of the CNMI people. Thanks.
[The prepared statement of Mr. Fitial follows:]
Prepared Statement of Hon. Benigno R. Fital, Governor, Commonwealth of
the Northern Mariana Islands
Mr. Chairman and Members of the Committee. Thank you for the
opportunity to appear before you today to testify regarding the minimum
wage levels in the Commonwealth of the Northern Mariana Islands. We
appreciate your prompt attention to this matter in light of the second
increase currently scheduled for May 28, 2008. This is a matter of
critical importance to the CNMI.
The CNMI economy is in the third year of a serious depression. We
believe that a second increase in minimum wage level will seriously
impede our efforts to rebuild our economy over the next 12-18 months.
We ask this Committee to support deferral of this increase and to
advocate an alternative legislative approach more realistic and
flexible than is presently incorporated in Public Law No. 110-28.
We have reviewed the recently completed U.S. Department of Labor's
``Impact of Increased Minimum Wages on the Economies of American Samoa
and the Commonwealth of the Northern Mariana Islands''. We commend the
U.S. DOL for their effort, and strongly agree with the report. We
believe that the Members of this Senate Committee should carefully
consider the U.S. DOL report regarding the impact of higher wage costs
on the CNMI.
We concur with the concerns as stated in the U.S. DOL's Executive
Summary (pp. iv-v):
The scheduled minimum wage increases for the CNMI are
expected to add further challenges to an already declining
economy. With both of its major industries declining
simultaneously, the CNMI economy is in overall decline, and its
current economic situation makes it especially vulnerable to
additional shocks. While data are not readily available to
precisely quantify the impact of the recent and scheduled
increases in the minimum wage, it seems likely that the current
economic decline may be made worse. General experience in the
U.S. and elsewhere has shown that potential adverse employment
effects of minimum wage increases can be masked or offset to
some degree by an expanding economy that is generating net
employment growth. In a declining economy, any adverse effects
on employment will not be offset.
The Department of Labor acknowledged--and we agree--that the six
months since the first fifty-cents increase did not provide a long
enough period to generate comprehensive data that might document more
specifically the adverse impacts on the CNMI economy resulting from the
first increase.
We believe, as suggested by U.S. DOL's report, that the past
increase did have serious adverse effects on the CNMI's declining
economy. Our Administration has gathered enough additional evidence of
its impact to existing industry and business activity to request that
the Senate Energy and Natural Resources Committee recommend a delay of
the second minimum wage increase scheduled under P.L. No. 110-28 on May
28, 2008.
cnmi economy today
The CNMI economy is largely dependent upon its two industries;
tourism and apparel manufacturing. This sum total of revenue from the
two industries, and service companies' business activity, supply the
CNMI government with operational funds. Both industries are in severe
decline, with tourism regarded as the only long term industry.
The CNMI had the fastest growing economy in the Pacific from 1978
to 1997, but economic conditions can be best described as in decline
since 1998. Business gross revenue reported to the CNMI Division of
Revenue and Taxation peaked at $2.6 billion in 1997. The Asian economic
crisis of 1998 resulted in a 30% decrease in tourist arrivals
overnight, and reported business gross revenues dropped by $400 million
to $2.2 billion in 1998. Without a healthy apparel manufacturing base,
the CNMI would have suffered more.
Reported business growth revenue stayed at this level through 2001.
A combination of the aftermath of the 9/11 terrorist attacks and war in
Afghanistan and Iraq, as well as a regional SARS epidemic, reduced
revenue to a $2 billion level from 2002--2005. Business gross revenue
further declined to $1.9 billion in 2006, and to $1.7 billion in 2007,
as the CNMI's tourism suffered from forces outside our control, and our
apparel industry continued its dramatic because of Asia's increased
competitiveness and changes in the World Trade Organization's
elimination of quota restrictions on WTO Member nations' trade with the
United States.
Despite some few positive signs in tourism and educational
development, the CNMI's economy may further decline in 2008. Tourism
was adversely affected by the pullout of Japan Airlines in October
2005, but we are beginning to see some additional flights added. A
steady drop in arrivals has been registered by the Marianas Visitors
Authority since the peak year of 1996. The year 1996 saw 736,117
visitors, while 2007 had 389,261 (MVA attachment-I).
The Hotel Association compiled statistics showing that the average
occupancy rates for 2007 were slightly above 58%, the worst since the
terrorist attacks of 9/11. Average room rates are at $92/night, off the
peak of $136/night in 1997 (HANMI attachment-II).
There are only seven remaining licensed apparel manufacturing firms
certified to export to the United States under the CNMI's special
tariff privilege (Factory License Timeline attached-III). From a high
of 34 firms with $1.07 billion in sales in FY 1999, export sales to the
U.S. were down to $362 million in FY 2007. The largest tax paid on
production, the user certification fee, was at $39.6 million in FY
1999, $13 4 million in FY 2007 and collections are at $2 9 million in
the first third of FY 2008 (User Fee chart attached-IV). The apparel
industry accounted directly for 26% of the CNMI's general fund revenue
of $228 million in 2000, 12% of the CNMI's $163 million in 2007 and
will account for an expected 8% of the $160 million in projected 2008.
The CNMI's annual general fund revenue of debt service has followed
the same trend as business gross revenue, peaking at $242 million in FY
1997, with a continual decline since to $193 million in FY 2006 and
$163 million in 2007. FY 2008 general fund revenues net of debt service
are projected to decline to $160 million under current revenue laws due
to continuing decline in the apparel sector's contributions and lower
tourism levels as lower airline capacity from the Japan Airline pullout
has not been replaced. The CNMI Government currently has a cumulative
deficit approaching $200 million and has had increasing difficulty
funding critical public health, public safety and education services,
which account for 60% of annual expenditures, at the current revenue
levels.
The CNMI Department of Commerce's Economic Indicator quarterly
report reflects across the board decreases in banking activity,
remittances from the CNMI, automobile sales, visitor arrivals, hotel
occupancy and room rates, business gross revenue, imports and exports,
work permits issued, commercial and residential telephone lines,
building permits and other consumer and government revenue concerns
(CNMI 4th Quarter Economic Indicator attached-V).
MINIMUM WAGE INCREASE IMPACT
The inflationary effects of the first minimum wage increase of July
25, 2007 have yet to be fully realized. We know consumer prices have
reflected the new wage increase. Rising tariff rates, increasing fuel
costs and higher power rates are passed onto the consumer wherever
possible. Increases in minimum wage rates affect consumer goods
pricing, as well.
In the case of industry, where a greater number of minimum wage
earners are employed, there's a greater risk, or loss, for the CNMI
when competing for tourist arrivals and apparel sales. Industry has
done everything it can to adjust to their increased costs, but the
second increase will force many into situations never seen before.
Government revenue from business activity in the retail, wholesale and
service companies will fall further.
The CNMI is fast approaching ``tipping points'' with respect to the
cost of doing business for the private sector, while the CNMI
Government ultimately loses with unsustainable costs to its private
sector.
The Hotel Association of the Northern Mariana Islands (HANMI)
stated in a report prepared for the CNMI Administration that of 16
hotels polled (2 have yet to respond) 64% of all hotel employees will
be affected by the next minimum wage increase. The estimated impact to
the hotels is $1,655,450.00 (Association report attached-VI).
Hotel corporate responses to the past minimum wage increase include
the following:
cutting employee hours
cutting employee headcount
cutting benefits to employees
increasing costs of benefits to employees
freezes on hiring
reduction of hotel guest amenities
charging for employee staff housing and meals to offset wage
increases
reduction in buffet selection foe hotel guests
elimination of some supervisory and management positions
conducting cross-training of employees
discontinuing employee housing due as power costs are
enormous (.344/kwh)
elimination of overtime hours
rationing of utilities such as air conditioning and water
heaters
All of these responses compromise guest comfort and threaten the
hotels ability to conduct business.
The largest business organization in the CNMI, the Saipan Chamber
of Commerce, has a diverse membership of over 160 businesses. Some of
their responses to SCC's survey on minimum wage impact included the
following:
reduction in staff,
reduction in work hours
reduction in energy consumption
discontinuation of food and other benefits,
eliminating positions currently unfilled and
putting into place a hiring freeze until the economy
improves.
We know our apparel industry is a ``sunset'' industry. Once again,
forces outside the control of the CNMI will dictate the industry's
lifespan and economic benefit to the CNMI. We estimate the withdrawal
of half the remaining firms at the outset of any further increase in
minimum wage rates. Three of the firms appear to have developed a niche
market, for the time being.
In the case of the tourism industry, and the retailers, concession
firms and other tourist attraction firms in the CNMI that depend upon
the health of the industry, this is where what is effectively managed
with cost control can bring back a once vital part of the CNMI economy.
We know it takes time, effort and attractive circumstances to re-invent
ourselves as a business investment opportunity. However, we must
protect what business activity we now have in the CNMI.
This Administration requests that the Senate Energy and Natural
Resources Committee remain cautious and prudent in recommending to the
appropriate congressional committees that a second increase in minimum
wage rates in the Commonwealth of the Northern Mariana Islands be
deferred, and flexibility be installed through changes in Public Law
No. 110-28.
The CNMI would always support economically sustainable increases in
the minimum wage levels as long as measurements are conducted that
guarantee saving jobs and rebuilding the CNMI's economy.
We offer attached copies (VII and VIII) of both the December 13,
2007 correspondence to Chairman Robert C. Byrd of the Senate Committee
on Appropriations, and the May 18, 2007 correspondence to the
Appropriations Committees in the House and Senate where the Energy and
Natural Resources Committee states:
We support increases in the minimum wage but believe that
they must be based, not on a fixed schedule, but on a careful
analysis of what can be sustained without significant
disruption (May 18, 2007).
Also,
We support increases in the minimum wage, but believe they
must be based, not on a fixed schedule, but on careful analysis
(December 13, 2007).
This Administration agrees with the Senate Energy and Natural
Resources Committee in recommending that the United States Department
of Labor make determinations on minimum wage adjustments for the
Commonwealth of the Northern Mariana Islands, as well as for American
Samoa, based upon careful and thorough analysis.
As outlined in the December 13, 2007 Senate Energy and Natural
Resources Committee letter to Appropriations Chairman Robert C. Byrd,
and by applying this amendment to the CNMI, our chances to rebuild our
economy would be enhanced through the work performed by the U.S. DOL.
We further believe the Department of Labor could utilize the work
currently being undertaken by the Government Accountability Office
(GAO), requested by the Senate Committee on Energy and Natural
Resources, on impact of proposed changes within the CNMI economy. GAO's
report, utilized by U.S. DOL, could provide the Congress with a much
clearer picture of past and future impact of the substantial minimum
wage increases.
Once again, I thank you for this opportunity and for your full
consideration of our position and request for additional care when
setting minimum wage rates in the CNMI. I fully recognize the long
history on this matter, but believe we have an opportunity to carefully
move forward on the basis of consensus and good faith from all parties.
In that spirit, I look forward to working with your Committee to re-
enact wage legislation for the CNMI that will be in the interest of the
greatest number of our workers, and will help maintain and support a
viable private sector.
Commonwealth of the Northern Mariana Islands
Factory Company License Timeline
factories operating--2000
1. Advance Textile, Inc.
2. American Pacific Textile
3. Commonwealth Garment Manufacturing Corp.
4. Concorde Garment Manufacturing Corp.
5. Diorva Saipan Ltd.
6. Eurotex (Saipan), Inc.
7. Express Manufacturing, Inc.
8. Global Manufacturing, Inc.
9. Grace International, Inc.
10. Hansae (Saipan), Inc.
11. Hyunjin Saipan, Inc.
12. Jin Apparel, Inc.
13. Joo Ang Apparel, Inc.
14. Handsome Textile
15. LaMode, Inc.
16. Mariana Fashions, Inc.
17. Marianas Garment Manufacturing Inc.
18. Michigan, Inc.
19. Micronesian Garment Manufacturers, Inc.
20. Mirage (Saipan), Co., Ltd.
21. Neo Fashion, Inc.
22. N.E.T. Corp.
23. NET Apparel
24. Onwel Manufacturing Saipan, Inc.
25. Pang Jin Sang Sa Corp.
26. Sam Marianas, Inc.
27. Top Fashion Corp.
29. TransAmerica Development
30. Trans-Asia Garment Forte
31. United International Corp.
32. Uno Moda Corp.
33. US-CNMI Development Corp.
34. Winners Corporation
factory closures
2000
Eurotex (Saipan), Inc. closed operations.
2001
Global Manufacturing and Trans-Asia Garment merged with concorde
Garment Manufacturing, Inc.; NET Apparel merged with United
International Corp.; TransAmerica Development merged with Handsome
Saipan, Inc.
2002
Micronesian Garment Manufacturers, Inc. closed operations; Diorva
Saipan Limited closed operations; N.E.T. Corporation closed operations;
Advance Textile, Inc. filed for bankruptcy.
2003
RIFU Corporation was formed and acquired license and employment
quota from Micronesian Garment Manufacturing; RIFU controls operations
of former Eurotex; Winners Corporation acquired Pang Jin Sang Sa, Corp.
2004
RIFU controls operations of former N.E.T. Corporation (Suntex,
Pacific Coast); LaMode, Inc. filed for bankruptcy.
2005
RIFU controls operations of Sam Marianas, Inc.; Neo Fashions, Inc.
closes operations; Express Manufacturing, Inc. closes operations; Sako
Corporation closes operations; Mariana Fashions, Inc. closes
operations; Winners II (Pang Jin) closes operations.
2006
Hyunjin Saipan, Inc. closes operations; American pacific Textile
closes operations; RIFU reopens Neo Fashions, Inc.
The Chairman. Thank you very much for your testimony.
Mr. Berman, I notice you have fairly extensive testimony.
Could you summarize that for us? That would be very useful if
you could.
STATEMENT OF JAY BERMAN, SENIOR ECONOMIST, OFFICE OF THE
ASSISTANT SECRETARY FOR POLICY, DEPARTMENT OF LABOR
Mr. Berman. Sure. Chairman Bingaman and members of the
committee, thank you for the invitation to present testimony
regarding the findings of our recently completed study of the
economic impact of the minimum wage increases in American Samoa
and the Commonwealth of the Northern Mariana Islands. Allow me
to first mention that the Department's research was limited by
the lack of historical and contemporary labor market data and
the relatively short timeframe that we had to conduct the
study.
That said, the information available was useful to arrive
at some broad conclusions about the potential direction and
magnitude of the impacts of increasing the minimum wage to
$7.25 per hour. For example, one way to analyze the effects on
these two economies of an increase in the minimum wage is to
examine the proportion of wage and salary employees potentially
affected by the proposed increases. The latest wage surveys for
both of these territories revealed that approximately 75
percent of wage and salary FLSA covered workers earn less than
$7.25 per hour and therefore would be swept in under the
current legislation.
To get a perspective of how that would translate to the
mainland United States, if that minimum wage were increased to
include 75 percent of hourly paid workers that adjusted
mandatory wage rate would be $16.50. Now examining the
individual territories, employment in the American Samoa seems
to be about equally divided between the American Samoa
government followed by two tuna canneries and then other
industries, mostly in support of the canneries and various
retail trade establishments. Now as of today, the tuna
canneries in American Samoa continue in operation. Neither plan
has reduced output or working hours in an immediate response to
the first fifty cent increase in the minimum wage that occurred
in July of last year.
However, despite the lack of immediate effects there
appears to be genuine cause for concern that at some point
before the escalation to $7.25 per hour by 2014, that these
plants may close. Production may be shifted to facilities
outside of the United States jurisdiction where labor costs are
significantly lower.
In reference to the CNMI, it developed rapidly in the 1990s
based on tourism and a garment industry in which labor supply
was comprised largely of foreign temporary workers. The garment
industry however, has been in decline since 2000, and the
tourism industry has suffered sporadic declines since the mid
1990s.
Now with both industries currently in decline the CNMI
economy is also in overall decline. Even though it is
impossible to discern among the many adverse factors that
continue to impair the CNMI economy its current economic
situation makes it especially vulnerable to additional shocks.
Therefore at the very least, the scheduled minimum wage
increases may add further challenges to an already declining
economy.
Thank you for your time. I look forward to taking questions
from you.
[The prepared statement of Mr. Berman follows:]
Prepared Statement of Jay Berman, Senior Economist, Office of the
Assistant Secretary for Policy, Department of Labor
Chairman Bingaman and members of the Committee: Thank you for the
invitation to present testimony regarding the findings of our recently
completed study of the economic impact of minimum wage increases
recently implemented and scheduled to be implemented that affect
American Samoa and the Commonwealth of the Northern Mariana Islands
(CNMI).
Our report entitled ``Impact of Increased Minimum Wages on the
Economies of American Samoa and the Commonwealth of the Northern
Mariana Islands'' was prepared by the U.S. Department of Labor in
response to the requirement of Public Law 110-28, the U.S. Troop
Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability
Appropriations Act, 2007. That law stated that the Secretary of Labor
shall report to Congress the findings of a study assessing and
projecting the impacts of increases in the minimum wages applicable to
the territories of American Samoa and the CNMI under the Fair Labor
Standards Act (FLSA).
Pursuant to P.L. 110-28, the minimum wages applicable to American
Samoa and the CNMI were increased fifty cents per hour on July 24 and
July 25, 2007, respectively. In addition, the minimum wages applicable
to these territories will further increase annually hereafter by fifty
cents per year until parity with the projected U.S. minimum wage of
$7.25 per hour is reached. For the CNMI, the minimum wage was increased
fifty cents per hour to $3.55 on July 25, 2007 and will rise to $7.25
per hour by 2015. For American Samoa, current minimum wages vary by
industry, with the most significant being the minimum wage for the tuna
canning industry, which is currently $3.76 per hour, reflecting the
initial fifty-cent increase on July 24, 2007. The minimum wage for
American Samoa will increase across the board to $7.25 per hour by
2014.
The report that we constructed on the minimum wage increase in
American Samoa and CNMI is limited to addressing the two questions
contained in the Congressional mandate. First, what has been the impact
on living standards and employment to the present date of the fifty-
cent-per-hour increase in the minimum wages of each territory that
became effective July 2007? Second, what are the projected impacts of
the future increases scheduled under the Act?
The sections below will lay out how we went about conducting the
study, the challenges we faced in providing Congress with a
comprehensive report, and what was observed during the study.
BACKGROUND ON CONDUCTING THE STUDY
We conducted extensive interviews with persons knowledgeable
regarding the economies of American Samoa and CNMI. In total, 26
interviews were conducted regarding the recent economic trends, current
conditions and available data sources. The DOL research team also
reviewed the extensive academic research literature regarding the
economic impact of minimum wage regulations in the United States to
identify information that could be applicable to consideration of the
economic impact of minimum wage increases scheduled for American Samoa
and the Commonwealth of the Northern Mariana Islands.
Additionally, the biennial surveys conducted by the U.S. Department
of Labor's Wage and Hour Division which have looked at the economy in
relation to industry wage rates applicable in American Samoa under the
Fair Labor Standards Act (FLSA) were a good source of information on
the American Samoan economy and labor market. These surveys were
conducted in support of the biennial special industry committee process
that previously made recommendations to set and adjust industry-
specific minimum wages in American Samoa. Passage of P.L. 110-28 in
2007 replaced the minimum wage industry committee process with a fixed
schedule of increases that will bring the minimum wages across all
industries into uniformity and conformity with the U.S. minimum wage of
$7.25 per hour. Consequently, the biennial labor market surveys will no
longer be conducted.
CHALLENGES FACED IN CONDUCTING THE STUDY
The Department's research was limited by the lack of timely labor
market data available pertaining to American Samoa and the CNMI, in
addition to the relatively short time frame that we had to conduct the
study.
The reporting time-frame specified in the legislation--no later
than 8 months from the date of enactment (May 25, 2007)--did not
provide sufficient time to observe actual effects of the minimum wage
increases. The initial increases of fifty cents per hour went into
effect on July 24, 2007 in American Samoa and July 25, 2007 in the
CNMI. The specified delivery date for this report was January 25, 2008.
The period following the initial increase was too short for significant
observable effects to materialize. Adjustments of employment
arrangements and of patterns of living standards typically do not occur
instantaneously following a change in a key economic parameter. Also,
immediate changes may be too small in scale to observe, and it may
require the passage of many months before cumulative effects become
large enough to observe. In particular, a lack of significant observed
adverse employment effects in the months since the initial increase is
not indicative that such effects will not emerge in the future--
especially as subsequent increases are implemented over time.
The lack of such data for the territories significantly impaired
our efforts to measure or to project the impacts of scheduled minimum
wage increases. There is no monthly or quarterly data describing labor
market conditions in either American Samoa or CNMI, and it was very
difficult to compare what we observed to historical data for the
territories. American Samoa and CNMI are not included in the U.S.
Census Bureau's annual American Community Survey (ACS) nor are they
included in the monthly Current Population Survey (CPS). In terms of
employment data tracked by the U.S. Bureau of Labor Statistics (BLS),
the territories aren't included in the Current Employment Statistics
(CES) program monthly surveys, nor is there an unemployment insurance
system which further limits the availability of timely information on
conditions and changing trends affecting the labor market.
Additionally, it was not feasible to conduct field investigations
in connection with this study. Had there been time and resources to
conduct survey data collection in the field, travel by the research
team to the islands could have been useful. However, meaningful field
observations would have required data collection from both employers
and households over many successive months in order to discern effects
of the initial and subsequently scheduled minimum wage increases. In
addition, a systematic data collection effort would have required
approval of a survey under the terms of the Paperwork Reduction Act.
Given the short reporting timeframe, design and implementation of field
surveys were not practical.
CONCLUSION DRAWN FROM AVAILABLE DATA
Despite the lack of the preferred data described previously, we
made an effort to compile and examine such data and information as was
available. The U.S. Department of Interior, Office of Insular Affairs,
provided generous and valuable assistance to facilitate the
identification, compilation and interpretation of relevant data
sources. The staff of the Government Accountability Office provided
useful suggestions regarding information sources based on their
contemporaneous research regarding other economic issues affecting
CNMI. The Honorable Benigno R. Fitial, Governor of the Commonwealth of
the Northern Mariana Islands, and the Honorable Togiola T.A. Tulafono,
Governor of American Samoa, generously directed their staffs to provide
available information and access to knowledgeable sources to fulfill
the information needs of the DOL research team. The Honorable Eni F.H.
Faleomavaega, American Samoa's Delegate in the U.S. House of
Representatives, and his staff also provided valuable assistance.
Extensive interviews were conducted with persons knowledgeable
regarding the economies of CNMI and American Samoa. In total, 26
interviews were conducted regarding the recent economic trends, current
conditions and available data sources. The DOL research team also
reviewed the extensive academic research literature regarding the
economic impact of minimum wage regulations in the United States to
identify information that could be applicable to consideration of the
economic impact of minimum wage increases scheduled for American Samoa
and the Commonwealth of the Northern Mariana Islands. While the data
that was obtained did not reach the level of timeliness and detail that
was described above as being needed to arrive at a definitive
assessment of economic impact (particularly with respect to the
incremental effects of individual fifty-cent step increases), the
information available was useful to arrive at some broad conclusions
about the potential direction and magnitude of impacts in the context
of the ultimate rise to $7.25 per hour.
AMERICAN SAMOA
American Samoa has a small developing economy, dependent on two
primary externally funded income sources: the American Samoa Government
(ASG), which receives significant operational and capital grants from
the Federal government ($117 million of $182 million total government
revenue in FY 2005 \1\), and the Star Kist and Chicken of the Sea tuna
canneries. Tuna exports in 2006 totaled 20.7 million cases (about 147
thousand tons) valued at $431.5 million.\2\ Taxes and fees paid by the
tuna canneries are another significant source of revenue for the
government. These two primary income sources support a third economic
sector, a services sector that derives from and complements the first
two. The services segment of the economy is mostly trade, both
wholesale and retail.
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\1\ American Samoa Department of Commerce, Statistical Yearbook
2006, p. 135.
\2\ Information provided by American Samoa Department of Commerce.
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In 2006, total employment in American Samoa was 17,395, and the
American Samoa Government accounted for 5,894 workers, or 33.9 percent
of total employment, followed by the two canneries with 4,757 workers,
or 27.3 percent, and the rest of the economy with 6,744 workers, or
38.8 percent of total employment. The current minimum wages vary by
industry, with the most significant being the minimum wage for the tuna
canning industry, which is currently $3.76 per hour, reflecting the
initial fifty-cent increase on July 24, 2007. The average wage in 2006
for all workers in American Samoa covered by the Fair Labor Standards
Act (FLSA) was $5.26 per hour, and nearly 80 percent of workers covered
by the FLSA earned under $7.25 per hour. By comparison, if the U.S.
minimum wage were increased to the level of the 75th percentile of
hourly-paid U.S. workers, that adjusted, mandatory wage rate would be
$16.50 per hour. As required by P.L. 110-28, the minimum wage in
American Samoa will increase across the board to $7.25 per hour by
2014.
While the tuna industry has proved to be a major source of revenue
in American Samoa, the industry throughout the Pacific is in flux and
its future in American Samoa is widely believed to depend on a
continued mix of duty-free status, special tax benefits, and other
credits and a viable wage rate, as well as on continued use of the
harbor by fishing vessels taking their catches in other parts of the
ocean. Changing requirements for landing of catch by other Pacific
island-states could mean fewer fish for the American Samoan canneries.
Regional and global trade rules involving the United States also have
the potential effect of altering the financial arrangements under which
the canneries operate. Moreover, low labor costs in most of Central
America and Asia make for serious pressure from foreign competition.
In terms of the cost of producing tuna, labor ranges from 7 percent
to 14 percent and industry representatives claim that the increase of
the minimum wage from the current hourly rates to the $7.25 per hour
rate would more than double current labor costs for their facility
(where most workers are now paid at the existing minimum wage rate) and
would more than erase the current profit margin. When asked how quickly
a decision could be implemented to transfer production to tuna canning
facilities elsewhere, one industry spokesman replied, ``Minutes.'' It
was explained that his and other companies already outsource
significant production to Thailand and to South American countries
(both for the U. S. market and for other countries). The industry
representative stated that there are forty canneries in Thailand, and
that nothing would have to be built or moved. To implement a production
transfer, the companies would simply place more orders with existing
plants. Reference was made to the fact that there is excess processing
capacity worldwide in the tuna canning industry.\3\ It has been
reported that world tuna processing has an excess of production
capacity on the order of 20 to 40 percent.\4\
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\3\ Based on interviews conducted with industry representatives for
this report.
\4\ See statement at http://www.house.gov/list/press/
as00_faleomavaega/eniwtcstatement.html which cites a 40 percent excess
capacity. Interviews with company representatives mentioned a 20 to 40
percent excess.
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Additionally, research reports have highlighted the vulnerability
for the past decade of the American Samoa tuna processing industry to
competition from Thailand, South American countries, New Guinea and
other low cost producers.\5\ Under the North American Free Trade
Agreement, tuna canned in Mexico has tariff-free access to the U.S.
market as of January 1, 2008. The shorter transportation route and
lower labor costs expected from Mexico will further challenge the
viability of the American Samoa tuna processing industry.
---------------------------------------------------------------------------
\5\ Michael Hamnet and William Pintz, ``The Contribution of Tuna
Fishing and Transshipment to the Economies of American Samoa, the
Commonwealth of the Northern Mariana Islands and Guam,'' University of
Hawaii Institute for Marine and Atmospheric Research, Pelagic Fisheries
Research Program, 1996, p. 3.
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As of today, the two tuna canneries in American Samoa continue in
operation. Neither plant has reduced output or working hours in
immediate response to the first fifty-cent increase in the minimum
wage, although both companies have stated that they may do so in the
future.\6\ In response to questions regarding whether the initial
fifty-cent increase in the minimum wage had contributed to any change
in absenteeism or turnover costs, industry representatives presented
absenteeism records showing no change in absenteeism from a year ago.
Despite the lack of immediate effects, there appears to be genuine
cause for concern that, at some point before the escalation to $7.25
per hour in 2014, production will be shifted to facilities outside U.S.
jurisdiction where labor costs are significantly lower. An input-output
model analysis commissioned by the government of American Samoa
(conducted by McPhee and Associates) has estimated that closure of the
tuna canneries will cause a total loss of 8,118 jobs--45.6 percent of
total employment--including both direct effects (5,538 jobs) and
indirect effects (2,580 jobs).
---------------------------------------------------------------------------
\6\ Based on interviews conducted with industry representatives for
this report.
---------------------------------------------------------------------------
If the canneries were to go out of business, the remaining economy
would depend almost exclusively on transfers from the U.S. Federal
government to provide basic sector infusion of purchasing power to the
economy.\7\
---------------------------------------------------------------------------
\7\ The full report by McPhee and Associates is expected to be
published in late February 2008.
---------------------------------------------------------------------------
COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS
The economy in the Commonwealth of the Northern Mariana Islands
(CNMI) developed rapidly in the 1990s, based on tourism and a garment
industry in which labor supply was comprised largely of foreign
temporary workers; however, it has experienced a period of decline over
the past few years. In 2000, the population reached 69,221 and non-
citizens accounted for 88.8 percent of private sector employment. By
2003, the population had declined to 63,419 and evidence suggests that
the population decline is continuing.
In the past, the CNMI economy benefited from tariff-free,
unrestricted access to U.S. markets, compared to competitors in Asia
and elsewhere who benefited from lower wages but faced U.S. tariffs and
import quotas. However, both the tourism and the garment industries in
the CNMI are now in decline. The garment industry has been shrinking
since 2000 in the face of increasing global competition, and especially
since the lifting of import quotas and resulting liberalization of
textile and garment trade into the U.S. in 2005. The tourist industry
has suffered sporadic decline since the mid-1990s.
As a result of the declining economy in CNMI, the wages there have
remained relatively stagnant. The minimum wage in CNMI was set at $3.05
per hour in 1996 when the U.S. minimum wage was increased to $4.75 per
hour.\8\ P.L. 110-28 specified an increase in the CNMI minimum wage to
$3.55 per hour effective July 25, 2007 and scheduled further increases
of fifty cents per year to take effect May 26 of each subsequent year
until parity with the U.S. minimum wage is reached.\9\ The schedule
will result in the CNMI minimum wage rising to $7.25 per hour on May
26, 2015. While the minimum wage in CNMI was (and still is today) lower
than the U.S. minimum wage, it's higher than comparable wages in China,
the Philippines, Vietnam, and other Asian countries.
---------------------------------------------------------------------------
\8\ CNMI Public Law 9-73 increased the minimum wage to $3.05
effective July 1, 1996. The Minimum Wage Increase Act of 1996(Section
2104 of the Small Business Job Protection Act of 1996) raised the FLSA
minimum wage from $4.25 per hour to $4.75 per hour effective October 1,
1996 and $5.15 per hour effective September 1, 1997.
\9\ The implementation dates for CNMI and American Samoa vary by
one day because of their location with respect to the International
Date Line. Thus, the July 24, 2007 wage increase in American Samoa was
effective July 25 in CNMI, and the future May 25 wage increases in
American Samoa will be effective May 26 in CNMI.
---------------------------------------------------------------------------
With both of its major industries declining simultaneously, the
CNMI economy is in overall decline, and its current economic situation
makes it especially vulnerable to additional shocks. Future minimum
wage increases for the CNMI may add further challenges to this, and
could potentially exacerbate an already declining economy. General
experience in the U.S. and elsewhere has shown that potential adverse
employment effects of minimum wage increases can be masked or offset to
some degree by an expanding economy that is generating net employment
growth. In a declining economy, however, any adverse effects on
employment will not be offset.
One indicator of the potential labor market impact of increases in
the minimum wage is the proportion of employees affected. Data from the
CNMI 2004 household and expenditure survey show that 68.2 percent of
wage earners in the CNMI earned no more than $4.99 per hour and that
79.5 percent earned no more than $7.99 per hour. Therefore, the
scheduled increase in the minimum wage to $7.25 (by 2015) will likely
affect at least 75 percent of wage and salary workers in the CNMI. By
comparison, in the mainland U.S. the 75th percentile mark is $16.50 for
wage and salary workers who are paid hourly rates.
Because the CNMI has such a large proportion of temporary, non-
citizen workers in its labor force, it is likely that future job losses
will cause non-citizen temporary workers who lose their jobs to return
to their countries of origin or look for work elsewhere. This would
contribute to the trend of declining population that has been evident
since 2000. Because citizens of CNMI are U.S. citizens, they have
access to the U.S. labor markets, including Guam, Hawaii and the U.S.
mainland. It is possible that movements of workers from the CNMI into
these U.S. labor market areas may increase as the minimum wage schedule
for the CNMI is implemented. This could lead to additional population
and economic declines in the CNMI.
The Chairman. Thank you very much. Mr. Pula, why don't you
go right ahead.
STATEMENT OF NIKOLAO I. PULA, ACTING DEPUTY ASSISTANT
SECRETARY, OFFICE OF INSULAR AFFAIRS, DEPARTMENT OF THE
INTERIOR
Mr. Pula. Thank you, Mr. Chairman. Thank you, members of
the committee. In light of the risks to the American Samoa and
CNMI economies that are identified in my statement submitted
for the record and in the Department of Labor report. The
Administration suggests that Congress give strong consideration
to amending Public Law 110-28 in order to avoid increases in
the minimum wage that may be determined to result in
significant job loss and harm the economies of the two
territories.
We offer some suggestions regarding the factors that should
be kept in mind when evaluating any potential legislative
revision. First, regarding proposals for a determination by the
Secretary of Labor that would stop the implementation of an
increase in the minimum wage. We would draw Congress' attention
to the difficulty inherent in making any objective
determination about the impacts of a proposed minimum wage
increase before it goes into effect.
Broad language that would postpone an increase in minimum
wage based on a finding of any adverse impact on the respective
economies of the CNMI and American Samoa might have the effect
of preventing all progress to its higher minimum wage. Narrower
language requiring a determination that the increase will not
substantially curtail employment allows more flexibility. But
the difficulties for the Secretary of Labor of obtaining
reliable information upon which to base any determination would
be significant.
Another model the Congress might consider is the special
industry committee that set the minimum wage rates biannually
in certain areas of the United States and American Samoa for
over 60 years. The advantage of perhaps, a modified committee
structure is that it ensures that people who determine the
minimum wage increases share first hand knowledge of Island
economies while representing different stakeholders. When
compared with proposals to vest the decisionmaking authority in
the Secretary of Labor this model offers the advantage of
ensuring that local knowledge is fully incorporated and that
stakeholders in the territorial economies are able to play
significant roles. Thank you for the opportunity to testify.
[The prepared statement of Mr. Pula follows:]
Prepared Statement of Nikolao I. Pula, Acting Deputy Assistant
Secretary, Office of Insular Affairs, Department of the Interior
Mr. Chairman and members of the committee, thank you for the
opportunity to testify on the economic effects of the recently
increased minimum wage in American Samoa and the Commonwealth of the
Northern Mariana Islands (CNMI).
Enactment of Public Law 110-28 last May not only raised the Federal
minimum wage rate in the 50 states, but, for the first time, the
Congress took direct action to increase the minimum wage rates in
American Samoa and CNMI by 50 cents per hour on July 24 and 25, 2007,
respectively. The law also scheduled additional annual 50-cent
increases until the two territories reach the Federal minimum wage, and
required that the U.S. Department of Labor (DOL) report on the effects
of the minimum wage increases. Under this new law, American Samoa will
reach $7.25 per hour across all industries in 2014, and the CNMI will
reach $7.25 in 2015.
The new minimum wage law precipitated the following actions:
(1) In December 2007, American Samoa Governor Togiola T.A.
Tulafono proposed amending Public Law 110-28 so that (1) the
annual 50-cent increases be amended to make them biennial and
(2) any scheduled minimum wage increase be postponed for two
years if the DOL Bureau of Labor Statistics determines that
such an increase would ``substantially curtail employment in''
American Samoa.
(2) In January 2008, the U.S. Department of Labor issued its
report on the minimum wage increases in American Samoa and the
CNMI describing potential adverse economic effects of the
increases.
(3) On January 29, 2008, Congressman Eni F.H. Faleomavaega
introduced H.R. 5154, which would condition future increases in
minimum wage rates in American Samoa or the CNMI on a
determination by the Secretary of Labor that an increase will
``not have an adverse impact on the economy of'' the respective
territory.
HISTORY
In 1938, when the Fair Labor Standards Act (FLSA) first established
a United States minimum wage, special industry committees were
established to phase in the minimum wage in those places when a minimum
wage hike would substantially curtail employment. It was the intent of
Congress that the minimum wage in such areas be raised in increments
that would not destroy industries and jobs.
But after World War II, the industry committee system continued to
set local minimum wage rates only in Puerto Rico, the U.S. Virgin
Islands, and American Samoa. In 1989, the Congress determined that the
full application of the Federal minimum wage rate to the U.S. Virgin
Islands and Puerto Rico could be accomplished without significant harm
to continued economic growth and development. Both territories have
been subject to the Federal minimum wage ever since.
Before enactment of Public Law 110-28, a special industry
committee, appointed by the Secretary of Labor, determined the minimum
wage rates in American Samoa under authority of the FLSA. Composed of
members representing industry and labor as well as disinterested
persons representing the public, the committee reviewed minimum wage
rates in the various local industries every two years. The committee
recommended changes based on input from the community and an analysis
of the extent to which the economy could support increases in the
minimum wage without substantially curtailing employment. Minimum wage
increases required a majority vote of industry committee members, and
the committee's recommendations were binding. The most important aspect
of the committee process was that it took into account the economic
reality and the unique circumstances of this small island economy.
The covenant that created the CNMI ``in political union with and
under the sovereignty of the United States of America'' became law in
1978. The covenant establishing the Commonwealth provided potential
exemption or relaxation of some U.S. legal requirements affecting
employment and immigration law, including the FLSA minimum wage
provisions. The minimum wage in the CNMI was set by Public Law 9-73 at
$3.05 per hour in 1996 when the U.S. minimum wage was $4.75 per hour.
In enacting Public Law 110-28, Congress declined to continue the
special industry committee for American Samoa, but nevertheless was
concerned about whether the mandatory increases in minimum wage would
cause serious and irreversible economic and financial harm to the CNMI
and American Samoa. To provide needed information about this
possibility, the statute mandated the Department of Labor to report on
the impact of the minimum wage increases on living standards,
employment and the economy in the two territories within 8 months of
enactment of the Act.
DOL STUDY
DOL released its much anticipated report, titled ``Impact of
Increased Minimum Wages on the Economies of American Samoa and the
Commonwealth of the Northern Mariana Islands'' late last month. The
report notes that it was not possible to analyze the actual impact of
the minimum wage increase, given the short (eight-month) prescribed
timeframe for the report and absence of timely labor market data for
American Samoa and the CNMI. Nevertheless it raises concerns that
future increases in the minimum wage rate in American Samoa and the
CNMI will likely cause significant economic and financial harm to the
territories.
An economy's capacity to create jobs and wealth should be one of
the primary factors taken into account when minimum wage rates are
adjusted. While the mainland U.S. economy had the strength and
flexibility to adjust to a minimum wage increase, the economic
situations of the CNMI and American Samoa are very different from the
U.S. mainland. These territories face unique challenges in attracting
private sector businesses because of their geographic isolation and
location in a part of the world where most neighboring economies have
much lower minimum wages and living standards. Given the structure and
tempo of these economies, doubling of the minimum wage over a 10 year
period, as would happen in American Samoa and the CNMI under Public Law
110-28, would present significant challenges to each territory.
The largest sources of employment in the American Samoa economy are
the tuna cannery operations and the American Samoa Government (ASG).
The DOL report notes the likelihood that both the canneries and the ASG
would be significantly affected by future increases in minimum wage
rates. The DOL report says:
At present, the tuna canneries continue in operation, but
there is concern that they will be closed prior to the
escalation of the minimum wage to $7.25 per hour in 2014 and
that production will be shifted to facilities outside U.S.
jurisdiction where labor costs are significantly lower.
An input-output model analysis commissioned by the government
of American Samoa (conducted by McPhee and Associates) has
estimated that closure of the tuna canneries will cause a total
loss of 8,118 jobs--45.6 percent of total employment (in
American Samoa)--including both direct effects (5,538 jobs) and
indirect effects (2,580 jobs).
The canneries, which have shipped processed tuna to the United
States for more than 50 years, have noted that in the future, they may
leave the territory and take their production to other countries where
labor costs would be much lower, such as 60 cents to 70 cents per hour
in Thailand and the Philippines. The canneries are extremely important
to the American Samoa economy as a result of their export of tuna
products and the support of secondary trade and services businesses.
The canneries are not only the most critical component of the
private sector, they also make up a significant part of the tax base
supporting ASG operations. Without the canneries as an anchor for the
private sector tax base, cutbacks in local government operations and
services would likely be necessary.
ASG is the territory's single largest employer. In 2006, the 5,894
ASG employees represented 33.9 percent of total employment in the
territory. ASG is a unitary system of government, with no local or
municipal governmental layers and it performs not only the usual
governmental functions, it also manages public utilities. If ASG's
minimum wage increases continue as mandated in Public Law 110-28, the
DOL report says: ``Paying for the increases in government worker
minimum wages will present a significant challenge to ASG.''
Numerically, if the minimum wage rate rises to $7.25 in 2015, as
scheduled, ASG's increase in wage costs could be at least $5.2 million
in 2015, according to the DOL report.
The DOL report also addresses the minimum wage issue with regard to
the CNMI. The DOL report notes that the effect of the minimum wage
increase in the CNMI, would be like raising the Federal minimum wage to
$16.50 per hour in the 50 states. The report states that job losses in
the CNMI will result in the return of foreign workers to their home
countries and the migration of United States citizen workers to other
United States jurisdictions.
The DOL report suggests that scheduled minimum wage increases could
cause the canneries in American Samoa to relocate to lower cost
countries long before they are forced to pay $7.25 per hour, and that
more garment factories in the CNMI may close sooner than otherwise
expected. The shuttering of industries in American Samoa and the CNMI
could cause the respective economies to suffer prolonged and wrenching
contractions.
CONCLUSION
In light of the risks to the American Samoa and CNMI economies that
are identified in this statement and in the DOL report, the
Administration suggests that Congress give strong consideration to
amending P.L. 110-28 in order to avoid increases in the minimum wage
that could result in significant job loss and harm the economies of the
two territories. We offer some suggestions regarding the factors that
should be kept in mind in evaluating any potential legislative
revision.
First, regarding proposals for a determination by the Secretary of
Labor that would stop the implementation of an increase in the minimum
wage, we would draw Congress's attention to the difficulty inherent in
making any objective determination about the impacts of a proposed
minimum wage increase before it goes into effect. Increases in the
minimum wage have numerous, complex impacts on an economy and,
generally speaking, create some positive and some negative economic
impacts. Broad language that would postpone an increase in minimum wage
based on a finding of any adverse impact on the respective economies of
the CNMI or American Samoa might have the effect of preventing all
progress towards a higher minimum wage. Narrower language requiring a
determination that the increase will not substantially curtail
employment allows more flexibility, but the difficulties for the
Secretary of Labor of obtaining reliable information upon which to base
any determination will be significant.
Another model that Congress might consider is the special industry
committee that set the minimum wage rates biennially in certain areas
of the United States and American Samoa for over 60 years. The
advantage of the committee structure is that it ensures that the people
who determine the minimum wage increases share first-hand knowledge of
island economies, while representing different stakeholder groups
within those economies as well as the public interest. When compared
with proposals to vest the decision making authority in the Secretary
of Labor, this model offers the advantage of ensuring that local
knowledge is fully incorporated and that stakeholders in the
territorial economies are able to play significant roles.
Thank you for considering the Administration's views.
The Chairman. Thank you very much. Thank you all for your
excellent testimony. Let me ask a couple of questions and then
defer to Senator Murkowski for her questions.
Congressman, as I understand it, first I appreciate your
leadership on this issue. I think you referred to the fact that
last week the House Subcommittee on Insular Affairs had a
hearing on this bill that you've introduced, HR 5154. Were
there issues raised in that hearing that cause you to consider
any changes to the bill?
Mr. Faleomavaega. Thank you, Mr. Chairman. Just wanted to
note for the record that it was unanimously, by those who
testified both from the government as well as the private
sector, unanimously support the provisions of the bill. Of
course, in my looking at the situation, I think what some of
the recommendations or suggestions that were also offered is
that we need to determine what agency or what neutral party
could really give a comprehensive economic report status for
both of these territories.
Now, I suggested that the Department of Labor, in
consultations with the Department of Interior and our
territorial leaders, I think that's one approach. It was also
suggested that maybe the GAO may be the organization to conduct
these comprehensive reports as noted in Mr. Berman's statement.
I think, basically, with all of us here, is simply the
difficulty in getting to the bottom line. What exactly is the
economic status of both territories?
I'm open to suggestions in terms of how we can better
tighten up the proposed bill. To the extent that we want to
make sure that if it's given to the Department of Labor that we
do this in a comprehensive way. I think this will be helpful,
not only to the leaders of the administrations of both
territories, but it will certainly also help the Congress to
determine exactly what is the economic status of both of these
areas.
The Chairman. All right. As I understood the testimony of
each of the representatives from both territories, there's
general agreement on the approach that is contained in the
Congressman's bill. That's my impression.
I have a couple of questions though. Should we use the same
standard for determining impact as we have in the past? I
believe, Mr. Pula, you referred to the fact that the current
law calls for a determination that the wage increase, ``will
not substantially curtail employment.'' Now that's a different
standard than the one you have in your bill. I'd be interested
in any reaction as to whether it's an appropriate standard for
us to have in this bill.
Mr. Tulafono. I would----
The Chairman. Yes, if any of the rest of you have a comment
on that. Have you considered that?
Governor Tulafono.
Mr. Tulafono. Mr. Chairman, I would be very careful in
utilizing just a standard of curtailment to employment. Because
I don't believe that employment as a single source of the
health and state of the Island's economy is an accurate
standard. Because there are many other factors that weigh in on
what affects the progress of economic development. I believe
that to limit it to just curtailment of employment would be
terrifically unfair in determining the overall conditions of
the progress of the economy.
The Chairman. I am right that that has been the standard,
though. Am I right about that?
Mr. Tulafono. That's correct in the former----
The Chairman. In the former.
Mr. Tulafono [continuing]. Wage committees.
The Chairman. Right. Yes, Representative Tenorio. Go right
ahead.
Mr. Tenorio. Mr. Chairman, I feel that's it's our
government's responsibility to create jobs first to the United
States citizens that are residing in the CNMI. Job creation has
been a very challenging item because normally most of our
workers would rather work for the government because the
government is not subject under the minimum wage. The
government salaries are much higher than the local sector
salaries.
So in order to create employment in the private sector I
feel there's a need to entice workers. I feel that, you know,
this is where we fail in that we have not created, really
created, jobs in the private sector because we have too many
non-resident workers that can be easily employed. That's
discouraging employers themselves to create jobs for the local
people.
There is a current policy to hire 20 percent of the
employment work force in a company constituting local workers
and 80 percent is for non-resident workers. So you can see the
imbalance there in terms of job creation.
The Chairman. Right. Very good.
Mr. Tenorio. Thank you.
The Chairman. Let me go on to another issue. There's
obviously a great difference between the conditions in Samoa
and in CNMI. For example, there is this large gap between the
private sector and the public sector wages at CNMI that does
not exist, as I understand it, in Samoa.
Is it appropriate for Congress to try to apply the same
minimum wage policy to both areas? Mr. Berman, did you have a
thought on that?
Mr. Berman. In terms of differentiating between the two
territories. It's quite interesting that on one hand you have
American Samoa where there exists a genuine and legitimate
concern that although the canneries, remain in operation today.
At some point before reaching $7.25 the rising minimum wage
combined with other adverse factors may lead to their eventual
closure.
Then with CNMI even though it's impossible to discern among
the many adverse factors that continue to impair that economy.
It's the lack of labor market data that makes it very hard to
make that decision. But normally, at the very least, relatively
strong economies can absorb minimum wage increases
predominantly through increasing productivity.
But in general we question however, in the case for
American Samoa, that this would imply a 33-percent increase in
wage costs. In the case of both territories, 75 percent of the
covered workers will be swept in. We question whether or not
any economy can absorb an increase of that relative magnitude.
So in general it's given how fragile the American Samoa and
the CNMI economies are, we must be very careful in changing in
our minimum wage policies.
The Chairman. Mr. Pula, did you have a comment?
Mr. Pula. Yes. Mr. Chairman, I'm not an economist. But I
think applying the same process to both areas is appropriate.
Within the process of course, there are a variety of factors.
A lot of times the insular areas have common denominators
of challenges and things and sometimes they're very different
in their dynamics. You know, CNMI being closer to Asia has a
different set of----
The Chairman. So applying the same process makes sense, but
it may result in a different----
Mr. Pula. Different.
The Chairman [continuing]. Conclusion.
Mr. Pula. That's right.
The Chairman. Which would be appropriate.
Mr. Pula. Right.
The Chairman. Right.
Mr. Fitial. I go along with that, Mr. Chairman. You know, I
strongly believe that our situation, the economic situation now
in the CNMI cannot sustain, you know, additional increases. If
this second minimum wage will be triggered in May of this year,
just one example, you know, a big hotel in Tinian will be wiped
out completely.
We're talking about, you know, 1,600 employees will be
wiped out. So, you know, I would tend to go along with the, you
know, a standard that would be equitable and fair to both
territories.
The Chairman. Ok.
Mr. Faleomavaega. Mr. Chairman.
The Chairman. Yes. Congressman, go ahead.
Mr. Faleomavaega. The one--probably the most critical
question that I have always given thought in looking at this
situation is that we need a comprehensive economic report as
suggested by Mr. Berman, which we don't have as far as data
collection, information and all of that. I think that really
would give us a better understanding of what then we need to do
beyond coming out with the real factors to what exactly the
economic status of both territories.
At this point in time, as has been admitted, both by the
Department of Labor as well as with our witnesses this morning,
is that that's where one of the problems lie. We don't know
exactly where our economic--and now we can talk about different
factors.
The Chairman. Right.
Mr. Faleomavaega. But we don't have the bottom line saying
exactly where we are. Talk about standard of living. Talk about
cost of living. The per capita income, for example in American
Samoa is $4,300 per anum. That's way below the poverty level
here in the United States.
Another area that has also come in terms of how we've
conducted these industry committees, we have 18 minimum wages
currently being applied depending on the kind of job that
you're working for. So it's not like the minimum wage where
whether you're flipping hamburgers at McDonald's or whatever is
still the same. But it's surprising that this is how this whole
thing came about where we ended up with having 18 different
minimum wages depending on the kind of job that you working
under.
I think this is all part of the complications and the
complexity of the problems, as Mr. Berman has suggested
earlier. We need and I would say that maybe the Bureau of Labor
Statistics would be the best neutral party that I would think
that could give the Congress a best, the better picture of
exactly where we are as far as our economies are concerned.
The Chairman. Very good. Senator Murkowski? Yes, Governor,
do you have a comment?
Mr. Tulafono. Yes. To the question that you posed whether,
you know, the same process could be applied both to CNMI. With
all due respect, I would submit that as Congressman
Faleomavaega had stated previously, there was a need to break
down wage categories so that it can relate to that development
because so much of the jobs, the businesses in the territory
related their existence and their business to the existence of
the canneries.
So while there were more jobs in the private sector there
was also a lot of jobs that were dependent on just a small--a
single entity or a single industry. Other than that, all
American Samoans, who work for the American Samoan government.
So there was a great need that was recognized under that system
to break down those categories so that it can address those
varying differences.
So I would say, Mr. Chairman, that whether or not the same
process can be applied to the two territories I would
respectfully say that it--I don't see that, you know, as being
the case. We were located in two very different regions.
American Samoa exists among, you know, a whole area of foreign
countries.
We deal with a totally different, with different economies
in this region. The economic situation in American Samoa, given
the existence of the canneries, if they disappeared tomorrow,
it's a totally different situation for the Marianas. Our
transportation issues are very different from CNMI. Our
shipping issues are very different from CNMI.
I don't see the same process as being alike. I think that
in fairness to the both territories, I support what Congressman
Faleomavaega is saying. We need to have some consistency in the
policies first, before we can make that determination.
I don't think we can just say the same process should apply
at this point in time. I think we need--our need for a
consistent policy of development is something that we continue
to ask Congress to forge and to help us establish. Only in that
situation we can really honestly say what processes will be
relevant and what would be fair.
The Chairman. Very good.
Senator Murkowski.
Senator Murkowski. Thank you, Mr. Chairman. Thank you,
gentlemen. I know that many of you have traveled a long
distance to be here. We appreciate your testimony this morning
and your leadership.
You know, often times we are critical because we ask for
the reports from various agencies and the reports don't come in
on a timely manner. This time, however, the Department of Labor
comes in with their report in a timely manner requested by the
Congress. Most admittedly, recognizes that the report is
timely, but in terms of its ability to be thorough and to
really to be able to evaluate the issues in front of them. They
were limited not only due to the very short timeframe that we
imposed but clearly the lack of labor market data.
I'm listening to the testimony this morning and had read
the written comments that were prepared by you all. I look at
this and say, well, the minimum wage increases aren't going to
do anybody any good, certainly within the two territories, if
they result in the loss of the major industries and really
thousands of jobs. So we're looking at where we are and how we
move forward.
Congressman, I appreciate your leadership on this as well.
I guess I'm very troubled in knowing that we have so little
information about the labor market, about the economies of CNMI
and American Samoa. Mr. Berman, I understand from your
testimony that in conducting this study there were extensive
interviews with persons knowledgeable regarding the economies,
26 interviews conducted and also reviewing extensive academic
research literature.
But in recognizing what it is that we are or you have been
asked to evaluate, the impact to these economies of these
increases. Substantive, truly from where they have begun, that
really, that is pretty skinny in terms of what it is that you
have to base your conclusions off of. I guess my question to
you is what else--if you had had more time, let's give you
that, but if you had had more time, what would you have needed
in order to really do what you consider to be a thorough and
fair analysis of the situation in the two territories?
Mr. Berman. Sure. Allow me to first comment, dovetail, on
the Congressman's comments on the lack of data. You should keep
in mind that employment and standard of living changes do not
happen instantaneously. Cumulative effects take months, if not
years to become large enough to observe.
That said, there's no labor market data that's collected on
a continuous basis, by any agency for these territories.
Senator Murkowski. Can I ask you? You've been asked to look
at just these two. Is this our policy with all other
territories? That we don't do an analysis or a collection of
this data?
Mr. Berman. That I'm not sure.
Senator Murkowski. Ok.
Mr. Berman. I would speak to the other territories.
Senator Murkowski. All right.
Mr. Berman. But from an economist perspective what somebody
would need to make an analysis on the effect of a set minimum
wage increase is one time, and that's implied with a
historical, continuous, relevant and detailed survey data of
the economy. Everything from participation rates, employment,
unemployment, people working, people looking for work,
earnings, hours, those are the things that are needed over a
two year period to get like a base line sense of the situation.
Only then can we make assertations on whether or not a
minimum wage increase is negatively or positively affecting the
economy.
Senator Murkowski. So it's got to be long enough to be
valuable data?
Mr. Berman. Yes.
Senator Murkowski. It has to be much more extensive than
what you were able to garnish?
Mr. Berman. Exactly. If I could comment on that point in
time estimates are quite inadequate in coming to conclusions
about the effects of a minimum wage increase.
Senator Murkowski. What do you view the dangers of
inadequate analysis, then?
Mr. Berman. At the very least, they're insufficient for
tracking economic conditions. They're insufficient for
analyzing economic policies or planning economic development
strategies. You need standard of living, again, and employment
changes have been, they don't happen instantaneously. They
happen over time. You have to look at the cumulative effects
which again, takes a lot of time.
In order to see them, you need data and a point in time
estimate falls quite short of that.
Senator Murkowski. Mr. Pula, from your perspective at
Interior, how does this lack of really informed and thorough
data and the inability to have reports that are meaningful, how
does this impact your operations within the Office of Insular
Affairs?
Mr. Pula. Thank you, Senator, for raising that. This is an
issue that our office deals with a great deal and is very
frustrating. The reason why I say that is we ask the Census
Bureau for information. They have a division that we ask them
for data. For the most part we pay the Census Bureau to do
surveys for all the Insular areas.
We spent almost a million dollars a year through our
technical assistance to do that as the Islands will always come
to us for data. I understand what Mr. Berman is raising. I
think with at least American Samoa they did this industry study
every 2 years in the past. So they have some data for American
Samoa, but I don't know about any of the other territories.
This is something we've been pushing. Just to give an
example, with the Compact Impact legislation, it provided
$300,000 for our office to provide a study on compact impact
for Micronesians in Hawaii and Guam and CNMI. When we discussed
this issue for this year with the Census Bureau, their tab to
do that survey is $1.3 million.
So, I'm taking a million dollars out of my technical
assistance so that it could be done. That is expensive and like
I said, is something that we're frustrated about. We've been
trying to work for years to see how we can get some of this
information, whether it's through labor or whether through the
Census Bureau, to help us, help the territories be able to get
some data which is very important in order to make decisions on
where they're heading.
Senator Murkowski. Mr. Chairman recognizing our role in
oversight of the territories, recognizing that we're involved
in legislation that affects them to appreciate that we, through
the Department of Labor, otherwise are not doing the United
States Census Bureau's annual community surveys, the current
population surveys, the current employment statistics. All of
those data collection programs we use practically on a daily
basis as we make policy decisions in different areas. It seems
to me that we're operating a little blindly within the
territories as we pass legislation that clearly has an effect
on them without having good information and data behind them.
This has been very interesting this morning. I appreciate
it.
The Chairman. Though you raise a very good point. My
understanding, Mr. Pula, you can correct me on this. The Census
Bureau did collect census information in the territories until
about 5 years ago and made a judgment that they no longer would
do that. Is that right?
Mr. Pula. Let me just step back. In the background there
was a particular person that was doing work in the Census
Bureau. I think he may have done it ad hoc, with his experience
and with the Islands.
When we spoke with the Census Bureau folks, they said that
they don't know all the information that was collected. The
collector of information was an employee of theirs. He did it
ad hoc, along with his regular job.
The Chairman. It's never been their policy to collect this
information, as you understand it?
Mr. Pula. That's right. They only do the census and then
their 5-year survey, but only if that's Hawaii, I mean. It
doesn't affect the territories. I think that's one of the
things in which we've been trying to engage them.
The Chairman. Yes, Governor.
Mr. Fitial. Chairman, there was a census taken on CNMI in
the year 2000. That was the last one. The 2005 census was never
taken.
The Chairman. Ok. Let me just mention one other issue,
Governor.
Mr. Tulafono. Mr. Chairman.
The Chairman. Oh.
Mr. Tulafono. If I may----
The Chairman. Yes, go ahead.
Mr. Tulafono [continuing]. Comment on that issue. In
actuality every 5 years there is an economic census conducted,
I believe, on all the territories. I can't,--I know for a fact
in American Samoa the Census Bureau does that. As we speak
there's also an agricultural census happening right now with
that report coming out.
I think what we need to say here is that in the past 4
years the American Samoa government has been working on
centralizing the data collection. There is some economic
information available from our participation with other
regional agencies such as the Pacific community on some of the
economic developments such as fisheries and agriculture health.
So there are some of these information available.
Although, you know, given the time and the logistics of
what Congress had required the Department of Labor to do. I
agree that it was impossible to really, fairly and accurately
get into those kinds of things without it being collected.
Recently we had requested from Interior a technical assistance
grant to centralize the data collection under our Department of
Commerce. So, I'm not trying to pitch that we need more funds,
but we received a partial grant for that. But it falls short of
really, accurately making it happen.
So we're having to break down the--that effort into stages
so that we can begin the process of computerizing the several
departments so that we can collect the data more easier and
with that process is underway and in line with the need to
develop this economic development policy. So some of those
things are happening, they're just not in place.
The Chairman. Ok.
Mr. Tulafono. But that's--I just wanted to make sure that
the record does show that there is some effort to help in this
process and make sure that the data will become available soon.
The Chairman. Ok. Let me just indicate this has been useful
testimony. The staff will undoubtedly forward some additional
questions we would like to have answered for the record.
The Chairman. We would continue to work to refine this
proposal, and work to quickly take action on it here in the
committee. I realize the time constraints are very real. The
committee record will remain open for 2 weeks for any
additional statements that come in.
Again, thank you all for coming and testifying. Senator
Murkowski, did you have anything more?
Senator Murkowski. No, I just appreciate the hearing this
morning.
The Chairman. All right. Thank you all.
Mr. Fitial. Thank you, Mr. Chairman.
[Whereupon, at 10:45 a.m. the hearing was adjourned.]
APPENDIXES
----------
Appendix I
Responses to Additional Questions
----------
Responses of Governor Benigno R. Fitial to Questions From
Senator Bingaman
Question 1. Do you support the general approach of the
Congressman's bill--that is, to delay wage increases from one year to
two years, and to make increases contingent on a finding on a finding
by the Department of Labor on their impact?
Answer. Yes, the Commonwealth does agree generally with the
approach suggested by American Samoa's Congressman, Eni F.H.
Faleomavaega. First, we concur in the proposal to defer the presently
scheduled increase in minimum wage levels for both American Samoa and
the Commonwealth, which will go into effect in May 2008 unless Congress
acts to amend the relevant federal law. Second, we agree that future
increases should not be mandated on a fixed schedule established by
law, but should instead be based on a professional assessment by the
U.S. Department of Labor and its recommendations to Congress regarding
future increases in minimum wage levels.
Question 2. Should Congress use the same standard for determining
impact as in the past--that is, the wage increase ``will not
substantially curtail employment,'' or should there be a different
standard?
Answer. We defer to the economists specializing in labor markets
for determining, and weighing, the various factors that might be
appropriately examined in assessing the benefits and costs of any
proposed increase in minimum wage levels. Certainly we agree that the
impact on employment might well be the most significant single factor
to be examined in this process. But our experience, and American
Samoa's, also suggests that other criteria, such as the ability to
attract new investment, may also be very important. A recent study of
American Samoa by experts with long experience in examining small
island economies emphasized the need for such communities to have a
competitive advantage to attract new businesses.
Question 3. There are significant differences between the
conditions in Samoa and the CNMI. For example, there is a large gap
between private-sector and public-sector wages in the CNMI, but not in
Samoa. Do you believe Congress should apply the same minimum wage
policy to both areas?
Answer. We agree that there are significant differences in
conditions between the Commonwealth and American Samoa. One such
difference is the extent to which the American Samoan economy depends
on local government employment (44% of total employment) and on the
federal government's financing of two-thirds of the local government's
costs. On the other hand, the similarities between the two economies
are even more important--remoteness from the Mainland, limited natural
resources and population, dependence on foreign workers, vulnerability
to changing international rules, and the difficulties encountered over
the years in seeking to diversify their economies. In answering your
question, we believe it is important to distinguish between policy (or
process) and outcome.
We believe that Congress should apply the same policy (or process)
to the economies of both the Commonwealth and American Samoa. The
principal choice here is whether to vest the decision-making authority
in the Secretary of Labor or to require the use of the special industry
committees as has been done recently in American Samoa and earlier with
respect to Puerto Rico and the U.S. Virgin Islands. As Acting Deputy
Secretary of Interior Nikolao I. Pula stated during his testimony on
February 28, 2008, the committee approach ``ensures that the people who
determine the minimum wage increases share first-hand knowledge of
island economics, while representing different stakeholder groups
within those economies as well as the public interest.''
Applying the same policy (or process) might lead to different
outcomes at different times for American Samoa and the Commonwealth.
With a return to the industry committees, for example, wages would
increase only in industries that can afford these increases without
curtailing employment in the industry, as well as in the economy as a
whole. This flexibility could lead to adjustments reflecting the
differences between the two insular areas.
Question 4. As I understand it, the CNMI has enacted new policies
to reduce its high dependence on alien labor and to encourage the
hiring of permanent residents. Do you believe that a higher minimum
wage would help attract U.S. permanent residents to the private sector
workforce?
Answer. We respectfully suggest that potential workers even at the
entry level consider factors other than compensation in deciding
whether to take the job--the nature of the work, the opportunity for
training, and the potential for upward mobility that will lead to
increased compensation and job satisfaction. We do not believe that one
or more minimum wage increases will persuade U.S. permanent residents
in the Commonwealth to take jobs as hotel housekeepers or maintenance
personnel, construction workers, or garment factory sewers.
Commonwealth employers who operate businesses in Guam as well as in the
CNMI have found that United States wage levels have not persuaded U.S.
permanent residents there to take entry level positions in factories,
hotels, or maintenance.
Our emphasis under the recently enacted Commonwealth labor law and
its regulations is on those ``good jobs'' currently held by foreign
workers where we believe there are U.S. and FAS citizens ready and able
to perform these jobs. The new law and regulations provide a wide range
of incentives for employers to hire U.S. and FAS citizens in these
jobs. Based on the initial reactions of employers and workers, we
expect some significant progress in advancing the employment
opportunities of our local citizens in the near term. In these
instances, we would agree that gradual increases in the minimum wage
level over time would add to the appeal of private sector employment,
assuming that such increases are based on an expert assessment that the
increases will not adversely affect the economy.
One of the major objectives of my Administration has been to
convince the Commonwealth community--and especially its workforce--that
the CNMI Government is no longer the ``employer of last resort.'' Our
steady reduction in the number of government employees since 2006, in
order to adjust to our serious decline in government revenues, has made
this point very clear. We now are emphasizing the need to find jobs in
the private sector for former government employees and to prepare our
high school students more effectively to take advantage of private
sector employment opportunities. The lack of a vocational school and
appropriate training programs in various trades make it very difficult
to equip high school students to make the transition from secondary
education to a meaningful job in the private sector.
Among the many challenges involved in addressing these workforce
issues is the serious lack of data emphasized during the February 28
hearings. The Office of Insular Affairs and all the insular areas would
welcome the support of this Committee in obtaining the funds necessary
to generate data regarding insular areas comparable to that routinely
collected with respect to the States and other local American
communities.
______
Responses of Pedro A. Tenorio to Questions From Senator Bingaman
Question 1. Do you support the general approach of the
Congressman's bill--that is, to delay wage increases from one year to
two years and to make increases contingent on a finding by the
Department of Labor on their impact.
Answer. While I support the concept of allowing future increases to
be contingent on findings by the Department of Labor. However, because
I am concerned that the substantial discrepancy between public sector
and private sector wages will only continue to discourage U.S.
permanent residents and citizens from seeking private sector jobs, I
believe that the second increase due this May is necessary to close
this gap.
Question 2. Should Congress use the same standard for determining
impact as in the past--that is, the wage increase ``will not
substantially curtail employment,'' or should that be a different
standard?
Answer. For the CNMI I believe that a number of factors should be
examined to determine the appropriateness for additional increases. As
I outlined in my testimony we need to reduce our reliance on non-
resident workers, create opportunities for residents in the private
sector, and reduce the wage differences between public and private.
Certainly the overall number of jobs needs to be examined, but this
alone does not provide a measure of these other objectives.
Question 3. There are significant differences between conditions in
Samoa and the CNMI. For example, there is a large gap between private-
sector and public sector wages in the CNMI, but not in Samoa. Do you
believe Congress should apply the same minimum wage policy to both
areas?
Answer. I believe that the same methodology can be utilized to
determine the timing and amount of future increases. However, since the
data will be distinctly different for each, the decision of how much of
an increase and when it should apply should be unique for each
territory. The FLSA industry committee concept is a realistic process
for the CNMI because of the diversity of business types and gaps in
business gross incomes.
Question 4. As I understand it, the CNMI has enacted new policies
to reduce its high dependence on alien labor and to encourage the
hiring of permanent residents. Do you believe that a higher minimum
wage would help attract U.S. permanent residents to the private sector
workforce?
Answer. Absolutely. Not only will higher wages make private sector
employment more attractive, but it may also make hiring nonresidents
less attractive considering the cost of required benefits,
transportation and permitting. The key to making this a reality is for
local businesses to be a willing partner and to commit themselves to
employing residents.
______
Responses of Jay Berman to Questions From Senator Bingaman
Question 1. Which periodically conducted surveys of the Bureau of
Labor Statistics and the Bureau of the Census, if conducted in the
territories, would provide the data needed to make reasonable
determinations regarding the territorial economies, including
sustainable minimum wage/employment levels?
Answer. As an initial matter, it should be said that there is no
data collected by the Bureau of Labor Statistics (BLS) or the Bureau of
the Census (Census) that would enable a determination of a
``sustainable minimum wage [or] employment levels'' in the U.S.
territories. In fact, the Department does not use, nor has ever used,
any BLS or Census data to determine a sustainable minimum wage or
employment level in the United States. BLS and Census do operate
several data collection programs that provide information on the state
of the U.S. economy, including the Current Population Survey (CPS, the
household survey), the Current Employment Statistics program (CES, the
establishment payroll survey), and the Occupational Employment
Statistics (OES) program. CPS and CES surveys are conducted monthly and
the OES survey is conducted in six semi-annual panels collected over
three years, with results published annually. If data similar to that
provided by those instruments in the U.S. was available for the
territories that would provide us with information about the state of
the economy in the various territories and in turn may provide Congress
with relevant information upon which to make economic policy decisions
affecting the territories.
For the reasons outlined below, however, simply extending existing
BLS and Census data collection to the territories (if that were even
possible) is not likely to produce relevant or reliable information for
several years. In addition, numerous other factors and conditions, not
captured by the current data collection instruments, would also need to
be examined in order to provide more complete information upon which to
make economic policy decisions affecting the territories.
Rigorous analysis of the economic impact of minimum wage
increases and other policies affecting labor markets requires
accumulation of a historical time series of data observations
sufficient to enable estimation of the parameters of the
relevant labor market demand and supply functions. About three
years of complete data would need to be accumulated before
meaningful analysis could be conducted, especially given the
expectation that analysis would need to focus on wage changes
of fifty cents per hour.
To characterize individual losses or gains associated with
minimum wage changes, it is necessary to know how the demand
for labor hours varies in relation to the variation in wages.
In order to estimate such effects for variations in the minimum
wage, it may be necessary to obtain more detailed data than
that provided by the standard surveys conducted by BLS and
Census. Therefore, customization of surveys would likely be
needed.
The Census Bureau's Economic Census is conducted in each
territory every five years. The Economic Census data could be
useful for analysis in conjunction with labor market
information, but the lag time between collections could
diminish the data's usefulness. An initial feasibility study,
however, would likely be required to determine whether more
frequent collection of the data could provide additional
relevant information.
Because migration from the island territories is a potential
effect of local changes in minimum wage policy, data collection
should also facilitate tracking of population migration. This
may require either longitudinal sample surveys to track changes
in household composition and existence or more frequent
complete censuses of the populations.
The federal minimum wage is just one factor affecting
employment in the island territories. Changes in other factors
can also result in net job loss over time regardless of the
minimum wage policies on the islands, and so it may be
incorrect to believe that a specific minimum wage policy can
itself result in sustainable employment levels.
Question 2. What would be the cost of extending the surveys
described above to CNMI, AS, Guam and Virgin Islands?
Answer. As noted above, simply extending existing BLS and Census
data collection to the territories may not be possible in all cases,
and even it were, such collections are not likely to produce relevant
or reliable information for several years. The precise costs of
implementing appropriate data collection programs for American Samoa
and the CNMI cannot be estimated without a detailed feasibility study,
including field investigations in the territories. The following points
highlight significant factors that may affect costs and feasibility of
data collection.
Guam currently has a program of surveys and other data
tabulations to monitor economic conditions. The program is
operated independently by the local government and funded from
both local and federal grant sources. The Guam program may
provide a reasonable model for estimating the cost for similar
programs in American Samoa and the CNMI. Currently, the Guam
labor statistics program employs about 16 full-time technical
and professional staff members and costs $490,000 per year for
direct personnel compensation.\1\ Addition of overhead costs
for office space, equipment, and other items brings the total
cost for the labor statistics program to about $1.1 million.
---------------------------------------------------------------------------
\1\ See Guam Department of Labor, http://staffing.guam.gov:9995/
gateway/retrievegovguamstaffpattern.do?deptcode=24
---------------------------------------------------------------------------
The Guam labor statistics program cost experience provides
some insight on the cost of implementing labor market
information programs for American Samoa and the CNMI. However,
the Guam model does not fit the circumstances and analytical
context that would need to be addressed in American Samoa and
the CNMI. Additional considerations to adapt the Guam model to
the needs of these two territories would add considerably to
the annual operating costs of labor market data collection
programs for American Samoa and the CNMI. There would also be
significant initial costs for conducting a thorough feasibility
study to develop a practical approach and data collection
methods and instruments tailored to the unique circumstances of
the island territories. There would also be initial costs for
setting up the necessary infrastructure for collecting and
tabulating data, establishing initial universe frames and
recruiting and training professional and technical staff. These
considerations are discussed below.
Because the minimum wage in Guam is already at parity with
the federal minimum wage, some of the frequency and detail that
would be needed for American Samoa and the CNMI to monitor,
analyze and project the effects of minimum wage increases at
increments of fifty cents are unnecessary for Guam and are not
reflected in the current Guam labor market data program.
Perhaps the largest obstacle to adapting the Guam program,
or even extending BLS or Census surveys, to American Samoa and
the CNMI is the lack of an existing standard master address
list of households in these territories from which to select
random samples. It is noteworthy that the U.S. Census Bureau
cited the lack of master address lists as the reason for not
conducting the American Community Survey in these territories.
Overcoming this major obstacle would require development of an
alternative strategy for selecting random samples. Several
alternative approaches could be developed based on the
practical realities of these territories and that would add
additional time and substantial cost to the program. In
addition, each of the alternative approaches would first have
to be evaluated for reliability in order to determine the
optimal approach and that would also add additional time and
cost to the program. It would be safe to assume that the
development and implementation of alternative approaches for
sampling frame construction would add significantly to both
initial costs and the on-going annual operational costs
presently incurred for the Guam program.
As indicated earlier, a feasibility study to identify data needs
and to examine sampling and data collection alternatives would be
necessary to accurately determine the costs of implementing appropriate
data collection programs for American Samoa and the CNMI . Such a study
would take significant time to implement in order to identify obstacles
and special circumstances, develop practical approaches, and conduct
pilot surveys to confirm the practicality of approach. It would also be
necessary to develop an appropriate data infrastructure of sampling
frames and procedures and to recruit and train local personnel.
The Virgin Islands would present similar challenges as described
for American Samoa and CNMI, especially with regard to the development
of appropriate sampling frames. A thorough feasibility study would be
needed to assess potential approaches and costs.
Question 3. What additional cost would there be for additional data
and analysis if DOL were tasked to make a determination every two years
regarding the feasibility of an additional 50 cent increase in the
minimum wage in CNMI and AS?
Answer. The Department has no special expertise in determining the
``feasibility'' of imposing a minimum wage (or adjusting a minimum
wage) and therefore is not well-suited to determine what minimum wage,
if any, should be imposed on American Samoa and the CNMI. There are a
myriad of factors affecting labor market conditions in the territories
just as there are in the U.S. The Department can consolidate and
analyze survey data from BLS and the Census, as well as other
Government agencies, but DOL is not well suited to ultimately decide
for the territories what economic policy choices are in the
territories' best interest.
______
Responses of Governor Togiola T.A. Tulafono to Questions From
Senator Bingaman
Question 1. Have territorial officials met together, and with the
Administration, to develop a consensus on appropriate investment
incentives to replace those that were lost? If what is the status of
those discussions?
Answer. After several meetings to formulate the provisions, my
office supports the proposal introduced by our Congressman as H.R.
1916. This bill was drafted with the advice of the House tax staff. My
office earlier had discussed these provisions with the staffs of the
Senate Finance Committee, the House Ways and Means Committee, the Joint
Committee on Taxation, the Department of Interior, and the Department
of the Treasury.
At the time of our meeting with Treasuary, the Department staff
supported a temporary extension of the current credit for the canneries
in order to secure additional time to review all options for economic
development. Since then, the House Ways and Means Committee in section
333 of the Temporary Tax Relief Act of 2007, H.R. 3996, decided to
extend temporarily the economic development credit for American Samoa.
The House committee explained, ``it is important to encourage
investment in American Samoa. With the expiration of the possession tax
credit, the American Samoa economic development credit is an
appropriate temporary provision while Congress considers long-term tax
policy toward the U.S. possessions.'' But the rush of business at the
end of 2007 prevented the House from acting on this extension.
The long-term provisions proposed in H.R. 1916 reflect a tax policy
which is appropriate for American Samoa's economic development and
comports with existing measures. Under current federal tax law
investments on Indian reservations qualify for shorter recovery
periods, and an annual employment credit is also provided for jobs
created on reservations. In these tax incentives which date from the
Omnibus Budget Reconciliation Act of 1993, Congress encourages job
creation and business investment on Indian reservations. Following
these precedents, the proposal in H.R. 1916 is consonant with long-
established federal tax policy.
Now that the Department of Labor has documented the bleak economic
conditions in American Samoa to the Committee on Energy and Natural
Resources, a letter from the Committee setting out the Department's
findings and requesting the Finance Committee to act on the provisions
in H.R. 1916 would be extremely helpful.
Question 2. What tax breaks under local law do the canneries
receive? Are the terms of any tax breaks set to expire? Upon
expiration, how much revenue will that generate for the American Samoa
government?
Currently the fish canneries operate under an exemption from a
portion of their territorial corporate income taxes and full excise tax
exemption on goods imported for use in their canning operations. The
Tax Exemption Board periodically reviews that exemption, which is set
to expire as early as April 2008 for Star Kist Samoa.
Facing revenue shortfalls, the Government of American Samoa has
examined the potential receipts from a partial or complete withdrawal
of that tax exemption. As the Department of Labor's January 2008 report
to Congress described, however, tuna canneries in Thailand and other
countries where wages are far lower than American Samoa currently have
excess processing capacity.
In light of the annually mandated increase in the American Samoa
minimum wage rate, the local cannery operations will have less and less
financial incentive to remain in the territory. In other words, rising
cost of operations in American Samoa put these canneries on the brink
of outsourcing the operations abroad just as American manufacturers
have resorted to foreign production in place of domestic operations.
Consequently, if the territorial government withdrew the current tax
exemption for the canneries, the government would gain no revenue
because the action would precipitate the canneries' departure from
American Samoa. The territorial government is nonetheless considering
alternative programs to better support business investment and
employment in place of the current tax exemption.
Question 3. Will this increase [of $7.2 million in operating costs
for the American Samoa government] occur in the current fiscal year and
what contingency plans do you have to deal with it?
The projected $7.2 million increase in governmental operating costs
comes directly from the Department of Labor's January 2008 report to
Congress. At pages l2-13 the Department states:
In 2006, the government sector minimum wage increased to
$2.91 per hour. The wage survey that year (in preparation for
the planned 2007 special industry committee) showed that, among
government sector workers covered by the FLSA [Fair Labor
Standards Act of 1938], less than 1 percent earned at the
minimum rate and 10 percent earned at or below $4.05 per hour.
Among government workers covered by the FLSA, 34 percent earned
no more than $5.15 per hour and 48 percent earned no more than
$6.15 per hour. The average hourly wage or covered government
sector workers in 2006 was $7.49 per hour, and the average
annual earnings of government workers were $28,351.
Table 1 shows that the scheduled minimum wage increases
mandated by P.L. 110-28 will bring the minimum wage for covered
ASG [American Samoa Government] workers to $7.25 per hour by
2015. Paying for the increases in government worker minimum
wages will present a significant challenge to ASG. While
available data are insufficient to make an exact computation,
the facts that 48 percent of covered government workers earned
less than or equal to $6.15 per hour prior to the scheduled
minimum wage increase suggests that at least half of covered
government employees will be affected by the time that the
adjustment schedule reaches $7.25 per hour. Based on the 2006
wage survey, 1,293 covered government employees who previously
earned no more than $5.25 per how will be entitled to hourly
increases of $2.00 or more. Assuming 2,000 hours of work per
year for full-time workers, these increases imply at least $5.2
million per year in increased wage costs for ASG. Wage
increases attributed to government employees earning between
$5.25 and $7.25 per hour before the first wage increase could
result in an additional $2 million or more in annual wage costs
when the full increase schedule takes effect. These increases
may force ASG to make difficult choices between reducing
government payrolls, reducing available hours of paid work,
raising taxes or cutting non-wage expenditures. [Footnotes
omitted.]
As quoted above, the Department's projection of $7.2 million cost
hike covers a 9-year period. A separate economic analysis conducted for
the Government of American Samoa indicates that the cost may be greater
and occur sooner. According to this analysis, the 2007 mandated minimum
wage increase raised operational costs for 18 surveyed industrial
sectors in American Samoa by $4.5 million. Subsequent increases will
raise costs by $5.4 million in 2008, $6.0 million in 2009, $6.7 million
in 2010, $7.2 million in 2011, $7.9 million in 2012, $8.0 million in
2013, $7.8 million in 2014, and $1.95 million in 2015. The cumulative
increase in operational costs for these 18 sectors will be $55.6
million over 9 years. The higher operational costs lead to lower tax
revenue for the territorial government annually.
Furthermore, the Department of Labor's report noted that as the
minimum wage in the territory increases, the fish canneries will
transfer production to lower-wage foreign facilities. The outsourcing
and resulting loss of the canning operations will reduce territorial
government revenues by $10.4 million.
As described in my testimony, the Government of American Samoa has
tried to apprise Congress of the consequences of mandating increases in
territorial miniimum wage rates without regard to actual economic
conditions. The Government of American Samoa has also made countless
recruitment efforts to attract new business operations to the
territory, for example in fiber-optic cable communication, call center,
marine laboratory, and tourist facilities. Such diversification would
make the territory less dependent on the canning industry. Such
business investments would also create the economic growth needed to
sustain higher wages and a higher standard of living. But at every
turn, peremptory federal policy changes--in trade, in taxes, in minimum
wage--created roadblocks to investments. The transformation of the
territory's subsistence economy requires supportive and consistent
policy. Federal policy towards the territory's economic development has
been inconsistent and often neglectful.
______
Responses of Nikolao I. Pula to Questions From
Senator Bingaman
Question 1. I understand that the ``lack of timely data'' cited as
a constraint by the Labor Department may be a part of a larger problem
of reduced data collection in the territories. Would you please briefly
describe the overall situation on data collection in the territories,
how that's affecting your ability to develop policy in the territories,
and what steps are being taken to deal with the problem?
Answer. The territories of American Samoa, the Commonwealth of the
Northern Mariana Islands (CNMI), Guam and the U.S. Virgin Islands
(USVI) are included in the Bureau of the Census' decennial census, and
its economic census (every five years), and the USDA's agriculture
census (every five years, which concerns itself with agricultural
activity and land use).
The territories are not included in any of the major surveys the
various Federal agencies conduct between the decennial censuses to
collect current information on population and demographic changes, the
labor market and income.
American Samoa, the CNMI, Guam and the USVI are not included in the
Current Population Survey (CPS) or the Current Employment Statistics
(CES) program establishment survey. The CPS is conducted by the Bureau
of the Census for the Department of Labor's (IDOL) Bureau of Labor
Statistics (BLS). The CPS collects data monthly on population,
demographic characteristics and income through a sample survey across
the nation, that is, the 50 states and the District of Columbia. The
CES program's monthly payroll survey is conducted by the BLS in
cooperation with State Workforce Agencies. The data collected include
employment, unemployment, hours and earnings estimates based on payroll
records of business establishments. At present, American Samoa and CNM1
are not included in either the CPS or CES survey because both
jurisdictions lacked address systems for collecting random samples.
In the case of the household survey, American Samoa and the CNMI do
not have household address files, which are a prerequisite for the data
collection. Mail is not delivered to these island residences as is the
case in the 50 United States. This is one of the primary barriers that
the Census Bureau cited in 2005 for not expanding the American
Community Survey to these territories. That said, the Census Bureau has
advised that it will establish address lists for the two territories in
the 2010 census. This should help to overcome at least some of these
barriers after 2010.
With respect to the monthly establishment survey, while Puerto Rico
and the U.S. Virgin Islands are included because they have unemployment
insurance programs that collect the records used as the CES sample
frame, American Samoa and the CNMI are not included because they do not
yet have U.S.-style unemployment insurance programs. As a result, there
is no current information on the labor markets in American Samoa and
the CNMI, except for the data the decennial census collects.
Another valuable source of data on population, demographic profiles
and income for the 50 states, the District of Columbia, and Puerto Rico
is the Bureau of the Census's American Community Survey (ACS) which
collects and reports data annually. ACS collects essentially the same
data that are collected on the decennial census's long form, i.e.
detailed profiles of individuals and households and their income and
housing characteristics. ACS publishes its data annually based on a
sample survey, but does not include the four United States territories
with which the Office of Insular Affairs (OIA) works. The same
technical barriers cited above in connection with the Current
Population Survey have also presented an impediment to implementation
of the ACS in these territories. This exclusion means there are no
current data on the population, demographic characteristics, income,
housing characteristics and other factors of the territories between
the decennial censuses.
These technical barriers have not allowed for the development of
household and establishment surveys following current standards and
established methodology of the BLS or the Census Bureau. As mentioned
above, we are hopeful that the establishment of an address system by
the Bureau of the Census will help overcome some of these barriers
beginning in 2010. However, fully addressing such barriers is further
complicated by the lack of statistical or field data collection
infrastructure or presence of U.S. statistical agencies in American
Samoa or CNMI and the substantial costs and technological challenges of
establishing such an infrastructure.
A critical source of information on the economy is the total value
of the nation's output measured by the gross domestic product (GDP)
data which the Department of Commerce's Bureau of Economic Analysis
(BEA) produces for the 50 states, the District of Columbia and the
nation as a whole. Again, American Samoa, the CNMI, Guam and the USVI
are not included. This exclusion means no one in the territories really
knows the total value of output (GDP) and how it changes over time. By
contrast, there are no countries adjacent to any of the U.S.
territories, regardless of the level of their economic advancement,
that do not generate their own GDP data.
Since the territories, particularly American Samoa and the CNMI,
which are the subject of your inquiry, are not included in any of the
major surveys the various Federal agencies conduct regularly between
the decennial censuses, OIA has provided technical assistance grants to
the territories and reimbursable agreements with the Bureau of the
Census to fill some of the information gaps. However, OIA's small
technical assistance budget program is intended to serve a wide range
of needs in the territories. At best, OIA can fill only some of the
most significant data gaps.
Question 2. Joint Questions for DOL and Interior (please develop a
joint reply): The DOL report on the impact of increased minimum wages
in American Samoa and the Commonwealth of the Northern Mariana Islands
states that the analysis was ``constrained by . . . the lack of timely
labor market data.'' Which periodically conducted surveys of the Bureau
of Labor Statistics and the Bureau of the Census, if conducted in the
territories, would provide the data needed to make reasonable
determinations regarding the territorial economies, including
sustainable minimum wage/employment levels?
What would be the cost of these surveys in the four territories
(USVI, Samoa, Guam and the CNMI?
What do you estimate additional data collections and analysis costs
would be if the law were changed to require a wage impact study for
Samoa and the Marianas every two years, and assuming the data from the
surveys listed in your answer to questions ``a'' were available?
Answer. The joint answer you requested has been provided by the
Department of Labor.
Question 3. Governor Tulafono has pointed out that the ability to
pay higher wages depends on economic development, but there is little
growth in Samoa because of the loss of the territorial tax credit
investment incentives. He has asked the Committee to support the
territorial economic activity tax credit proposed by Congressman
Faleomavaega, H. R. 1916. What steps is the Administration taking to
address the underlying need for investment incentives to replace those
that have been repealed or eroded, and do you believe H.R. 1916 is an
approach Congress should consider? If not, what alternatives do you
recommend?
Answer. Despite many challenges, American Samoa and the other
territories still have competitive advantages in certain areas. The OIA
has devoted significant effort to finding interested companies and
facilitating interaction between those companies and the territories'
relevant private sector and government representatives. We have
conducted extensive research through our Island Fellows Program, in
which M.B.A. students from prestigious institutions such as Wharton,
Harvard, Kellogg, Columbia, Georgetown, George Washington, and the
University of Hawaii have identified industries and companies that fit
well with the unique needs and competitive advantages of the
territories. The Secretaries of the Interior have hosted four
Conferences on Business Opportunities in the Islands (in Washington,
D.C., Los Angeles, Honolulu and Guam) at which interested companies
have met with potential local business partners and government
officials from American Samoa and the other territories. We have also
organized Business Opportunities Missions, including one to American
Samoa in May 2006. Persons responsible for financing of fiber optic
cable to American Samoa were introduced to the territory through the
business mission. Additionally, the OIA is establishing an internet
site that will facilitate communication between outside investors and
businesses in American Samoa and the other territories.
The most important result of our program, however, is the
realization by territorial leaders that there is no alternative to this
type of effort to strengthen the private sector, and that they need to
be leading it themselves.
The Department of the Interior is interested in promoting,
employment in American Samoa, and has previously supported efforts to
promote private sector development in the territories. H.R. 1916 would
expand and further extend the American Samoa economic development
credit for 10 years. The Administration has not taken a position on
H.R. 1916. However, the Administration is aware of the long history of
the tuna canneries, which have been beneficiaries of previous tax
credits, and the vital role the canneries play in American Samoa's
economic life, and looks forward to working with the Committee on this
issue in the future.
Appendix II
Additional Material Submitted for the Record
----------
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC, March 14, 2008.
Hon. Robert C. Byrd,
Chairman, Committee on Appropriations, Room 5-131 Capitol, Washington,
DC.
Hon. Thad Cochran,
Ranking Member, Committee on Appropriations, Room S-146A Capitol.
Dear Chairman and Ranking Member: We are writing to follow up on
our December 13, 2007, letter to you expressing our continuing concern
regarding the impact of the minimum wage increases mandated by Section
8103 of the 2007 Emergency Supplemental (P.L. 110-28) on American Samoa
and the Commonwealth of the Northern Mariana Islands (CNMI), and to
request your support for the attached amendment to the 2008
Supplemental Appropriations Act.
In our December letter, we detailed our concern that the policy of
automatic annual increases in the minimum wage as mandated by P.L. 110-
28 would not be flexible enough to account for the risks that such
increases pose to the economies of small, remote island communities. We
support increases in the minimum wage, but believe that in these cases
they must not be implemented on a fixed schedule, but on a flexible
schedule that is tied to expert analysis.
On February 28, 2008, the Committee on Energy and Natural Resources
held an oversight hearing on the impact of the new law which confirmed
that our concerns are well-founded. Testimony by the witness from the
U.S. Department of Labor, based on its January 2008 study: ``Impact of
Increased Minimum Wages on the Economies of American Samoa and the
Commonwealth of the Northern Mariana Islands,'' concluded, ``there
appears to he a genuine cause for concern that, at some point before
the escalation to $7.25 per hour in 2014, production (of the tuna
canneries) will be shifted to facilities outside U.S. jurisdiction.''
Because these canneries account for over 27 percent of all employment
in the territory, the existing policy poses a great risk to the
community. The report further noted that the new full minimum wage
level of $7.25 would cover nearly 80 percent of all workers and stated,
``By comparison, if the U.S. minimum wage were increased to the level
of the 75th percentile of hourly-paid U.S. workers, that the
adjusted wage rate would be $16.50 per hour.'' Clearly, such automatic
minimum wage increases within this short period of time are not
economically sustainable.
All of the other witnesses at the hearing voiced their concern with
the existing policy and urged consideration of amending the law. In
particular, the U.S. Department of the Interior witness concluded, ``In
light of the risks to the American Samoa and CNMI economies that are
identified in this statement and in the DOL report, the Administration
suggests that congress give strong consideration to amending P.L. 110-
28....''
Because the next automatic increase is scheduled to occur on May
25, 2008, time is of the essence and we ask that you include the
attached amendment in the 2008 Supplemental Appropriations Act. This
amendment to P.L. 110-28 would delay the minimum wage increases from
every year to every two years, and would make the increases contingent
on a determination by the Secretary of Labor that the increase will not
substantially curtail employment in, and the gross domestic product of,
American Samoa and the CNMI. The amendment further provides that the
Secretary will have the labor, economic, and population data needed to
make these determinations.
We hope that you share our concern regarding the impact of this
law, and recognize the need to act as swi ftly as possible to protect
American Samoa and the CNMI from a policy that is likely to cause
serious harm to these small, remote island communities.
Thank you in advance for your consideration. If you have any
questions regarding this request, please contact Allen Stayman at 4-
7865, or Marie Blanco at 4-3934.
Sincerely,
Daniel K. Inouye,
United States Senator,
Daniel Akaka,
United States Senator,
Jeff Bingaman,
United States Senator,
Eni F.H. Faleomavaega,
Member of Congress.
section--. transition to minimum wage in american samoa and
the northern mariana islands.
Title VIII of the U.S. Troop Readiness, Veterans' Care,
Katrina Recovery, and Iraq Accountability Appropriations Act,
2007 (P.L. 110-28) is amended--
(1) in section 8103(b)--
(A) in paragraph (1)(B), by--
(i) striking the words `each year'
and inserting the words `every two
years'', and
(ii) inserting before the semicolon
the following: ', if the Secretary of
Labor determines that the increase will
not substantially curtail employment
in, and the gross domestic product of,
the Commonwealth of the Northern
Mariana Islands.';
(B) in paragraph (2)(C), by--
(i) striking the words `1 year' and
inserting the words `two years',
(ii) striking the words `each year'
and inserting the words `every two
years'', and
(iii) inserting before the period the
following: `, if the Secretary of Labor
determines that the increase will not
substantially curtail employment in,
and the gross domestic product of,
American Samoa'; and
(2) by inserting at the end of section 8104 the
following new subsection:
`(c) For each biennial raise in the minimum
wage after fiscal year 2007, the Secretary of
Labor shall base the determinations referred to
in paragraphs (1)(B) and (2)(C) on--
(i) the following information:
(A) Quarterly labor market
data based on household
surveys, and establishment
surveys by the Department of
Labor,
(B) Gross domestic product
data collected by the Bureau of
Economic Analysis, Department
of Commerce, and
(C) Population estimates and
demographic profiles from the
American Community Survey by
the Bureau of Census,
Department of Commerce,
--such information shall be collected
by these respective agencies in
American Samoa and the Northern Mariana
Islands with the same frequency as in
the fifty States and the District of
Columbia; and
(ii) written comments of the
Governor, the Delegate, employers,
employees, and other interested parties
of the respective territory.
______
Statement of Wendy L. Doromal, Human Rights Advocate
Thank you for the opportunity to submit written testimony
concerning the impact of increasing the minimum wage in the U.S.
Commonwealth of the Northern Mariana Islands (CNMI). I cannot speak to
the impact of the minimum wage increase in American Samoa; however, I
recommend that the two insular areas be studied separately, as each has
unique economies, populations, and employment situations. I urge that
there be no changes made to delay any of the minimum wage increases for
the CNMI that were set by the legislation signed into law by President
Bush on May 25, 2007. The low minimum wage has perpetuated poverty, and
the two-tiered society in the CNMI.
I am writing on behalf of those who make up the majority of the
workers in the CNMI, the foreign contract workers. I have been an
advocate for the CNMI guest workers for 18 years. I visited the CNMI in
July 2007 and again in December 2007, and I interviewed hundreds of
guest workers. In the short span of five months, I witnessed a
noticeable deterioration in the quality of life of these minimum wage
earners. Prices of commodities and utilities have risen rapidly in the
CNMI\1\, but salaries are not even remotely keeping up with the
increases. A typical CNMI minimum wage worker, who earned $2.15 an hour
in the 1980's, makes only $3.55 today. That is a yearly increase of 7
cents per hour after 20 years of dedicated work.
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\1\ Saipan Tribune, February 15, 2008, Prices of commodities
continue rise, by Mark Rabago.
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The 2000 census revealed that the CNMI has a 46% poverty rate. It
is most likely much higher than that today. Furthermore, according to
statistics and recent news articles, of the 8,373 households in the
CNMI, 2,735 or 32.66% are on food stamps, with two-thirds of the
islands' children receiving federal assistance. Millions of dollars are
poured into the CNMI each year to support such poverty-related
programs. U.S. citizens make up 80% of the public sector workforce with
the higher paying salaries, while non-resident workers make up 80% or
more of the private sector workforce where the salaries are much lower
starting at the minimum wage of $3.55 an hour. In fact, the minimum
wage of $3.55 is not a living wage for the residents or the nonresident
workers. The poverty in the CNMI is to some extent government-imposed,
and can be reversed by taking appropriate actions such as the honoring
the law that was passed to incrementally raise the minimum wage in the
CNMI.
The impact of the financial struggle on the guest workers and the
minimum wage earners should not be minimized. Some guest workers have
told me that they can no longer afford to drive. Gasoline now costs
over $4.00 a gallon on Saipan, and even more on Rota and Tinian.\2\ One
would have to work more than an hour to be able to pay for a gallon of
gasoline. Guest workers have told me that they can no longer afford to
eat three meals a day; some cannot afford to eat more than one. One
woman wrote to tell me that guest workers with no money were going
door-to-door trying to sell what few possessions they had left in order
to buy food. A basic need, such as potable drinking water that is
generally free in the U.S. mainland, is another necessary expense in
Saipan where all drinking water must be purchased. One 9-ounce bottle
of water costs $1.00.
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\2\ Saipan Tribune, February 26, 2008, Shell hikes gasoline prices
again, by Ferdie de la Torre; Marianas Variety, February 25, 2008,
Saipan gas prices now $4.04, by Gemma Q. Casas.
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Many workers are sharing housing, and crowding into small rooms to
try to make ends meet. They cannot afford to rent a room, apartment, or
house by themselves. The price of electricity is 25.3 cents per kWh\3\,
causing many guest workers to ration electricity or to forgo it
completely. Others have had their power cut because they could not
afford to pay the high bills. The average cost of electricity in the 50
United States is 8.90 cents per kilowatt-hour.\4\ Clearly, the vast
majority of the population in the CNMI is suffering from circumstances
related to absurdly low wages.
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\3\ Saipan Tribune, February 4, 2008, Lawmakers torn between
helping CUC and easing public's burden, by Agnes E. Donato.
\4\ Department of Energy, Energy Information Administration,
Official Energy Statistics from the US government, http://
www.eia.doe.gov/fuelelectric.html.
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The poverty and inability to pay for basic needs has led to tragic
consequences. In January 2008, a family was left homeless by a house
fire. The fire was triggered by a candle that was used for light since
the electricity had been cut. A November 2007 fire also caused by a
candle burned another house to the ground.\5\ More recently a Filipino
man drowned in rough surf while fishing. According to friends, he was
fishing to provide food for his family.\6\
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\5\ Saipan Tribune, January 26, 2008, Candle triggers fire in CK,
by Agnes E. Donato.
\6\ Saipan Tribune, February 15, 2008, Fisherman drowns near COP
cliff line, by Agnes E. Donato.
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When the minimum wage went into effect in July 2007, many guest
workers' employers amended their labor contracts to have employees'
hours cut from 40 to 32 hours per week. Guest workers also reported
that their housing allowances and other benefits were taken away. As a
result, many workers are actually making less today than they were
before the minimum wage increase went into effect. This makes the
continuation of the incremental increases more crucial. The raise is
necessary for the workers to be able to get their financial standing
back to where it was before the first wage increase was taken from them
by employers who cut their hours and benefits.
The greed of many employers is also evidenced in the fact that over
$6.1 million in unpaid labor judgments and monetary damages issued by
the CNMI Department of Labor to the guest workers has been collected,
documented, and turned over to the Federal Ombudsman's Office.\7\ In
addition to not having enough money because the minimum wage is too
low, hundreds of guest workers are still waiting for back wages and
other monetary damages that range from $50.00 to over $48,0000.00.
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\7\ Marianas Variety, February 07, 2008, $6.1M owed to guest
workers, by Emmanuel T. Erediano.
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Many nonresident workers are parents of U.S. citizen children. On
their meager salaries these parents cannot afford to purchase enough
food, pay for medical care, buy clothes, or purchase school supplies
for these children. The health and well being of these children is at
risk. Guest workers report that they are using herbal or folk remedies
to treat themselves and their children because they cannot afford to
pay for a medical exam or for prescription medicines. Two guest workers
with diabetes told me they could not afford to purchase the medication
to control the disease. Clearly, the high incidence of poverty in the
CNMI poses a health risk to the lowest income earners, their children,
and to the general public.
The low minimum wage has contributed to the collapsed economy in
the CNMI. When the vast majority of a population lives below the
poverty level, they cannot afford to stimulate the economy with any
purchases other than essential purchases made in order to survive.
Additionally, as long as the minimum wage is four times less than a
living wage, there will continue to be an exodus of people from the
islands, and the economy will not improve. There is no incentive for a
CNMI resident to remain in the CNMI to earn $3.55 an hour when in the
mainland an accountant could earn $20.00 or more an hour, a
construction worker could earn $15.00 an hour, and a front desk clerk
could make $14.00 an hour. Even the lowest minimum wage paid in any
state in the mainland is still higher than what a private sector worker
would typically earn in the CNMI.
It is not just the commonwealth's indigenous residents who have
left or are that are planning to leave the CNMI to find jobs elsewhere.
A recent February 28, 2008, letter to the editor\8\ discusses the fact
that Commonwealth Health Care nurses are applying for employment in
Australia where the wages and benefits are better, and there is a
pathway to citizenship. An economy built on the backs of indentured
servants and low-income earners, intended to be profitable for select
business owners to the detriment of the majority of the population,
will not grow.
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\8\ Saipan Tribune, February 28, 2008, Exodus of nurses, by Canary
Miquel.
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Last week a study of the commonwealth's financial performance and
health was released. The study funded by the Department of Interior
showed that on a scale of 1 to 10, the CNMI earned a low 2.44 on
financial performance. The analysis conducted by Crawford and
Associates, CPA attributed the low marks to ``a decrease in net assets,
the deficit in unrestricted net assets, the central government's fund
balance deficit, pension plan funding woes, and cash flow problems.''
The report stated, ``The CNMI had been relying more and more
heavily on revenue it does not control, such as federal grants. In
FY2006, the CNMI had direct control over 68.4 percent of its revenues,
down from 77.5 percent and 76.7 in 2004 and 2005. ``For FY2006, local
taxpayers, including foreign workers, paid $153.6 million or $2,219 per
capita. Crawford said this indicates a relatively moderate tax burden,
compared with other U.S. insular areas. The financial ratio of taxes
per capita is about $7,500 in the U.S. Virgin Islands and about $300 in
the Marshall Islands.''\9\ If the CNMI government expects to raise the
financial ratio of taxes per capita, the minimum wage cannot remain
stagnant.
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\9\ Saipan Tribune, February 27, 2008, NMI scores a low 2.44 in
Performeter report: Analysis shows declining status of CNMI govt, by
Agnes E. Donato.
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Many of the CNMI fiscal and economic problems can be attributed to
waste, corruption, and reliance on industries like the garment industry
that exit when opportunities for exploitation and even cheaper foreign
labor become available in other countries. This government that is in a
dire financial situation, has spent $15,000 a month to pay for
lobbyists. Recent letters to the editor by businessman, Anthony
Pelligrino, also highlight government financial waste and corruption
totaling over $6,400,000.00.\10\
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\10\ Saipan Tribune, February 18, 2008, Robbed by our fellow
citizens Part I, by Anthony Pellegrino; Saipan Tribune, February 25,
2008, Robbed by our Fellow citizens part II, by Anthony Pellegrino.
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In January 2008, a U.S. Department of Labor report entitled, The
Impact of Increased Minimum Wages on the Economies of American Samoa
and the Commonwealth of the Northern Marianas Islands, was released.
Governor Fitial, and some business owners who support suspending the
minimum wage increases, praised the report. They are using it to boost
their claims that an increase in the minimum wage would harm the CNMI.
However, many credible people are challenging the validity of the
report, including CNMI Representative Tina Sablan\11\ and Senator Maria
T. Pangelinan.\12\
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\11\ Saipan Tribune, February 5, 2008, Sablan skeptical of Labor
wage hike impact report, by Agnes E. Donato.
\12\ Marianas Variety, February 28, 2008, Pangelinan asks US
Congress not to suspend NMI minimum wage hike, by Gemma Q. Casa.
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The report states that no statistics were collected monthly in the
CNMI (or in American Samoa), as is the practice in the states and other
territories. The report also stated that it was not feasible to conduct
field investigations in connection with the study. It reads:
The specified delivery date for the report was January 25,
2008. The period following the initial increase was too short
for significant observable effects to materialize. Adjustments
of employment arrangements and of patterns of living standards
typically do not occur instantaneously following a change in
economic parameter. Immediate changes may be too small in scale
to observe. In particular, a lack of significant observed
adverse employment effects in the months since the initial
increase is not indicative that such effects will not emerge in
the future--especially as subsequent increases are implemented
over time.
The report, by its own admission, should not be used as a valid
study to determine the effects of a minimum wage increase in the CNMI.
Those who support maintaining the current meager minimum wage are
government officials and business owners. Many want to continue to line
their pockets at the expense of the disenfranchised indentured servants
of the CNMI, the foreign contract workers. I am including e-mail
comments concerning the minimum wage made by several guest workers
concerning the minimum wage. I am also attaching several letters to the
editor that speak in favor of a minimum wage increase.
The current base salary of a U.S. Senator is $169,300 per year with
annual cost of living adjustments (COLA). The current minimum wage
earner in the CNMI makes between $5,907.20 working 32 hours weekly and
7,384.00 a year working 40 hours weekly. This is before federal taxes
are deducted. All of the members of this committee, who will ultimately
decide the quality of living for the poor and impoverished minimum wage
earners in the CNMI, earn more in two weeks than the foreign contract
workers earn in one year. In fact, every foreign contract worker works
many more days a year than any U.S. Senator. Please consider if you and
your families could possibly live on this salary when you decide the
fate of these poorly paid, desperate workers.
Raising the minimum wage is not just an economic issue; it is a
moral issue, and an issue of conscience. If we lived in a truly moral
and just world, governments would not have to legislate minimum wage,
employers would pay a fair living wage. We don't live in that world, so
it is your responsibility to make decisions that will be in the best
interest of all people who live and work on U.S. soil. I urge you to
adhere to the law that was passed last year, and follow the incremental
increases of the minimum wage as stated in that law.
comments from the minimum wage earners
On my opinion on how to help economy and business grow, they
should first increase salary of the people so that we can have
money to buy goods and so that small business can sell more
goods if people have enough money-the law of supply and demand,
how can business owners survive if there is no customer buying
goods . . .
Last week Fitial said he will testify on the delaying of the
wage increase, he said business will not able to survive, those
business he protect, but how about the people in this island,
will they survive this crisis?
I hope that someday he and his groups will wake-up and open
their hearts; maybe he does not know how hard it is to live and
feed your family with $3.55/hour, wherein gas is $3.94/gal. I
believe that even the locals will cry on this matter, with
lesser hour of work, they too may not able to survive, they
were just lucky most of them don't pay their house and thanks
to Federal food stamp support, for which a lot of my friends
have been blessed.
Fitial consult business but did he able to ask himself to
consult ordinary worker, local or not? You will always hear him
say business will die, not a single time did he ever mention
that people could die...I feel sad for these people.
GOD does watch everything. I believe that one day God will
give justice to everybody. I hope it's no late for these people
change a heart.
The incoming wage increase that Fitial's group are
complaining, but when the first batch of increase was done on
July 2007, a lot of people where never happy because most of
the employers lay-off some of their co-workers and deduct
number of hours of work just to off-set the increase that will
be given to employees, and that includes my employer. I never
stop praying that God will eventually heal and touched those
hearts that will make a way to ease all our pains. Sometimes I
see myself crying in the middle of the night thinking how some
other people live on this very hard times wherein gas,
utilities and commodities went up by 20-30%. We were blessed
and fortunate to have a job even though salary have been cut.
Survival, that would be a perfect term on this crisis, but I
really felt bad for those family with kids. When we had our
company meeting the other day, I asked my Employer to go out
and make a stand for all of us, but to no avail, he did not
made any reply, though they were so confused if federal take-
over, will make it harder for them to hire contract workers as
he was comparing to Guam. Who else would stand for all these
people that like these employers like mine are not absolutely
aware of what will happen to us after so many years of loyal
and best service we made to make them rich. Now I have fears.
Disposables that would be a comparable term for us, after we
were used in full...May The Lord Jesus and His LOVE pours upon
these people, who never know the meaning of being a contract
worker and I pray that GOD give justice to everybody.
It is also VERY TRUE that some, both locals & guest workers
are living without electricity. This is merely due, to the
fact, that the rate of power now is too high--no job, low
minimum wage. How can these people afford this necessity? Here
in CNMI, using electricity is almost like a luxury already. And
now that the next wage increase is scheduled on May 2008, the
Fitial administration is trying to block its implementation!
Trying to protect his friends investors, without care for all
the rest of the people, whether local or not!
______
Statement of Tina Sablan, Representative, 16th Commonwealth Legislature
Thank you for the opportunity to submit this testimony on the
impact of federally-mandated minimum wage increases on the Commonwealth
of the Northern Mariana Islands.
I am a member of the House of Representatives in the 16th
Commonwealth Legislature. I offer this testimony not only as an elected
representative, but also as a member of the generation that was born in
the Commonwealth in the 1980s and came of age in the 1990s. We have
watched the steady dwindling of economic opportunities in our islands
over the years with growing dismay. My generation yearns for change,
and one fundamental and critically needed change is a raise in the
minimum wage.
For years many of the Commonwealth's government and business
leaders have argued against wage hikes in the private sector, which
they have claimed would disastrously impact the local economy. But few
have acknowledged the disastrous impacts of keeping the minimum wage at
$3.05 for over a decade while the costs of fuel, utilities, and
groceries have soared; of deliberately and artificially depressing
wages in the private sector while government employment expanded and
government salaries rose; of relying excessively on labor-intensive
industries and low-wage foreign labor; of investing millions in the
education of my generation, without also seeking to create
opportunities for us to apply our skills and make a decent living in
the islands; and of losing hundreds, perhaps thousands, of young, well-
educated, middle-class professionals and their families as they pursue
and acquire professional fulfillment and financial self-sufficiency in
the mainland United States, Hawaii, and Guam.
I respectfully submit that all of these factors have impacted the
economic prospects of present and future generations of the
Commonwealth far more seriously than annual minimum wage increases of
50 cents for the next seven years ever could. I also believe that any
delay of minimum wage increases will ultimately mean a delay in long-
term economic recovery. I therefore support the minimum wage increases
mandated under Public Law 110-28, and believe they should continue as
scheduled until the Commonwealth reaches parity with the rest of the
United States.
Years of depressed wages have contributed directly to the economic
difficulties facing the Commonwealth today. Minimum wage increases
would help us begin to address those difficulties. Wage increases would
help low-wage workers keep pace with the rising cost of living, meet
basic needs without having to seek welfare assistance, and pump money
back into the local economy. Wage increases would also help correct the
glaring disparities between public and private sector wages, and
attract more citizens from the oversized public sector to the private
sector. The transition of citizens out of the local government and into
the private sector will be especially important in light of the layoffs
that the government is undertaking due to the current fiscal crisis.
Furthermore, wage increases would push the Commonwealth to wean
itself from its over-dependence on low-wage foreign labor and finally
invest more seriously in the development and well-being of its most
valuable resource: its people. More citizens seeking work in the
private sector would mean a larger and more stable labor pool for
businesses. Higher wages overall would mean that more middle-class
families and young, educated professionals and entrepreneurs might be
able to return to the islands and help diversify and strengthen the
Commonwealth's economy. Future investors would be attracted to the
Commonwealth, not for its low wages and access to inexpensive foreign
labor, but for its skilled and educated workforce, among other positive
attributes. Meanwhile, existing businesses would realize a more
productive workforce that has greater disposable income, and those
businesses that have relied on low wages no matter what jobs they
offered would lose their competitive advantage over businesses that
have opted to pay their employees livable wages.
It should be noted that the economic reform that would be spurred
by federally-mandated minimum wage increases would be incomplete
without also ensuring the well-being of both citizen and foreign
workers during the transition. Citizens moving out of the public sector
would benefit tremendously from unemployment and retraining assistance,
for example, as well as small business development aid. The long-term
foreign workers who have contributed to the local economy for years
would benefit from improved immigration status that would ease
restrictions on their ability to live and work in the Commonwealth. I
ask that the Committee consider providing the appropriate funding and
technical expertise to help facilitate the Commonwealth's transition to
a new economy that is free from the old dependence on low-wage labor.
Much has been said about the U.S. Department of Labor's January
2008 study on the impact of increased minimum wages on American Samoa
and the Commonwealth of the Northern Marianas. The study, by the
Department's own admission, was significantly hampered by time
constraints, an inability to conduct field investigations, and a
paucity of historical and contemporary labor market data. The
Department notes, for example, that the Bureau of Labor Statistics does
not collect any data describing labor market conditions in the
Commonwealth, and that the Commonwealth is not included in the U.S.
Census Bureau's American Community Survey, or in surveys that generate
data on industries, production, and household income and expenditures.
Moreover, the Commonwealth lacks macroeconomic data collection and
accounting systems technology that would be critical for the
formulation of any objective economic assessment, including assessments
of the impacts of wage increases in the Commonwealth.
The study was therefore inconclusive at best, yet it has
unfortunately been used as ammunition to oppose future wage hikes in
the Commonwealth. In particular, some have interpreted the study's
observation that ``the scheduled increase in the minimum wage to $7.25
(by 2015) will likely affect at least 75% of wage and salary workers in
the CNMI,'' and the comparison to the U.S. 75th percentile mark of
$16.50 for wage and salary workers, to mean that the mandated wage
increases for the Commonwealth would be extremely untenable for the
local economy. I respectfully submit that these figures simply
underscore the fact that the Commonwealth's workers are
disproportionately low-wage earners who would stand to benefit from
increased wages, and that the Commonwealth's economy is and has been
excessively dependent on low-wage labor.
I further disagree with two assertions made in the Department of
Labor study. The first is that the recent and scheduled minimum wage
increases are likely to worsen the Commonwealth's economic decline.
According to the study, ``the lack of significant observed adverse
employment effects in the months since the initial increase is not
indicative that such effects will not emerge in the future.'' Given the
limitations of the study and the lack of data, there is no way to
objectively arrive at these conclusions. Indeed, it could also be
argued that the lack of significant observed positive employment and
other economic effects does not mean that such effects will not emerge
in the future with continued wage increases.
The second assertion with which I disagree is that minimum wage
increases could lead to more citizens leaving the Commonwealth for U.S.
labor markets. Citizens are leaving now, and have been leaving for
years because of depressed wages, the rising cost of living, limited
opportunities in the private sector, and diminishing options in the
public sector. It does not follow that they would leave in even greater
numbers if wages are raised over the years. On the contrary, citizens
are likelier to stay and work in the Commonwealth if their wages keep
pace with the cost of living, and if they can realize meaningful
quality of life improvements associated with wage increases and other
economic reforms.
I respectfully submit that perhaps the most significant conclusion
drawn from the Department of Labor's study is that there is no
conclusion, and that no conclusion could be drawn because of the lack
of historical and current labor market data. I ask that the Committee
assist the Commonwealth in ensuring that we are included in federal
labor market surveys, and help us develop the tools and expertise
necessary to generate and analyze the data that would be necessary for
future economic studies. I further ask that any future studies of the
impacts of recent and future wage increases also consider the impacts
of not raising wages in the Commonwealth. And finally, rather than
postpone future wage increases in the Commonwealth for lack of data
about adverse effects, I request that we continue with the wage
increases as scheduled for lack of the same data.
Raising the minimum wage in the Commonwealth will obviously not
solve all the problems facing our people today, but it is a crucial
step in the right direction. The federally-mandated wage increases may
entail some adjustments at first, but these are adjustments that can be
made with enough resourcefulness, foresight, and resolve within our own
community, and certainly with some federal assistance, if granted. In
the long run, if raising the minimum wage can help bring about improved
wages for all, better working conditions, a more robust and diversified
private sector, expanded opportunities for citizens to live and work in
the Commonwealth, a reduced reliance on labor-intensive industries and
low-wage foreign labor, and parity between the public and private
sectors, then the initial adjustment period will be well worth it, and
future generations will realize a quality of life that is better than
what we have today.
Public Law 110-28 presents an opportunity for the Commonwealth to
begin to reinvent itself. I appeal to the members of the Committee to
support the continuation of the minimum wage increases as scheduled.
Thank you very much.
______
Statement of Hon. Maria Frica T. Pangelinan, Chairwoman, Senate
Committee on Fiscal Affairs, 16th Northern Marianas Legislature,
Commonwealth of the Northern Mariana Islands
I appreciate the opportunity to submit this written testimony to
your Committee. I am the Chairwoman of the Senate Committee on Fiscal
Affairs.
This testimony is offered as a voice for those who have not been
heard, those who are earning the minimum wage and cannot be present.
I support the current law as enacted, mandating incremental
increases in the minimum wage of the CNMI. I oppose any delay.
THE COMMONWEALTH HAS A TWO TIERED ECONOMY
The public sector is the largest employer, pays the highest wages
in the Commonwealth, and the vast majority of its employees are
citizens and permanent residents.
The private sector employs predominantly foreign guest workers in
non-managerial positions, and relies heavily on the minimum wage to set
pay scales. In fact, when benefits are factored in, the differences
between similar positions in the public and private sectors are often
extreme. This imbalance is one of the Commonwealth's most significant
barriers to a sound economy.
Because of the disparity between private and public sector wage
scales, there is little incentive for a citizen to seek employment in
the private sector.
Additionally, because private sector employers find it more
economical to hire a foreign guest worker, they have little incentive
to recruit from the available labor pool of local citizens and
permanent residents.
This has only served to perpetuate the Commonwealth's over-
utilitized reliance on inexpensive foreign labor.
As part of this testimony, I submit a study, completed May 30, 2007
by the Office of the Public Auditor of the Commonwealth of the Northern
Mariana Islands. This contains hard data about private sector jobs and
wages. Its findings have a bearing on the issue before you. Many of the
questions raised but not answered by the January 2008 report from the
U.S. Department of Labor, are illuminated here.
THE JANUARY 2008 REPORT FROM THE US DEPARTMENT OF LABOR DISCLAIMS ANY
CONCLUSIONS THAT MAY BE DRAWN FROM IT
I respectfully draw this Committee's attention to page 36: ``The
information vacuum continues to be an obstacle to an objective and
comprehensive assessment of the economy and its productive capacity.
The lack of such data are especially a barrier to assessing the current
and fixture impact of the recent and scheduled increases in the minimum
wage.''
This statement, among others of similar content present in the
report, bring into question the value of delaying the scheduled minimum
wage increases while waiting for a new study. In fact, as stated in the
report, by not delaying the increase, an incentive is created for the
Commonwealth government to put ``in place macroeconomic data collection
and accounting systems technology capable of generating information on
total output and its components on a monthly or quarterly basis.'' This
would provide the data that would lend credibility to any new study, as
borne out by the report's next sentence: ``As a result, there is not a
way to provide objective measures of productive capacity, capacity
utilization, employment, wages or unemployment rates.''
While I respect and appreciate the caliber of those interviewed and
those compiling the US Department of Labor's report, it is also
reasonable to point out that there is no interview of a person from the
Commonwealth who earns the current minimum wage of $3.55 per hour.
MINIMUM WAGE LEVELS IN THE COMMONWEALTH MUST INCREASE IN ORDER FOR OUR
CITIZENS TO BE ABLE TO REMAIN IN THE COMMONWEALTH
Historically and now even more, due to the loss of garment industry
revenues, our public sector employment is excessive and job
opportunities are shrinking. Citizens and permanent residents who are
losing their employment in the public sector must either find
employment in the private sector, or leve the Commonwealth for Guam or
the 50 states.
It is true that job opportunities in the Commonwealth's private
sector are dwindling as well. However, the majority of the jobs being
lost are in the garment industry. The majority of garment industry
employees are guest workers paid at the minimum wage. The unique nature
of employment in the garment industry will distort any statistical data
viewed from a Commonwealth-wide perspective.
Given that the garment industry will likely not exist in the
Commonwealth by the end of 2008, the balance of private sector jobs
will be in retail, tourism, and services. The employment opportunities
that remain in the private sector are needed for citizens and permanent
residents who are reaching adulthood, or leaving public sector
employment.
Recently the Commonwealth Legislature has addressed the need to
eliminate this extreme disparity between public and private sector
employment opportunities. They enacted a sweeping reform of the labor
laws, including provisions that have;
Greatly expanded services to citizens and permanent
residents seeking private sector employment.
Increased incentives for private sector employers to recruit
citizens and permanent residents.
Strengthened enforcement of the citizen preference clauses
of the labor law.
The issues of an excessively low minimum wage, over-employment in
the public sector, high local unemployment, and the foreign guest
worker program are all interrelated.
INCREMENTAL INCREASES IN THE MINIMUM WAGE IS ANOTHER CRITICAL FACTOR IN
NORMALIZING THE LABOR MARKET IN THE COMMONWEALTH
Until 2007, the minimum wage in the Commonwealth had not increased
in over 10 years, and during that decade, inflation and the runaway
prices of oil have chiseled away at the buying power of the wage
earner. Meanwhile, employers realized larger and larger savings in
personnel costs relative to the total cost of doing business.
Under a continued program of artificially depressed wages, our
current and future graduates who are not employed by the public sector
have few choices; economic exile in Guam and the 50 states, join the
U.S. military, reliance on family or social services, or sustaining
themselves with a combination of low wage jobs and subsistence living.
On a regular basis there are classified ads in our local papers
advertising for skilled jobs such as graphic artists, masons,
electricians, and accountants for $3.55 an hour. Nowhere else in the
United States could you find these skilled positions advertised for
such stunningly low wages. The US Department of Labor, Bureau of Labor
Statistics report for May of 2006 lists the Mean hourly wage rates for
these jobs as $27.90, $21.33, $22.41, and $29.17 per hour respectively.
My generation of post WWII parents have worked hard to pay for
university level education for ourselves and our children only to have
many feeling forced by economic concerns into life on the mainland.
There are already thousands of Commonwealth citizens with good work
experience and college degrees living in Guam and the 50 states. This
is a tragic loss of our most valuable resource; our future, and it will
continue as long as the minimum wage remains at such a low level.
THE COMMONWEALTH'S ECONOMY WILL RECOVER
Tourism and the garment industry have been the Commonwealth's
largest industries. Tourism, although currently depressed, is slowly
showing some signs of recovery. Asia, and most notably China, is
prospering, and the population base is so large that receiving even a
tiny percentage of their tourists will allow the Commonwealth to do
well.
Guam is preparing for the arrival of thousands of military
personnel and their families from Okinawa. The Commonwealth is well
placed to realize economic benefits, through tourism and military
activities.
Increasing the minimum wage raises in decreasing increments, the
wage levels above it. This is a fact proven by the historical data
gathered from increases in the minimum wage in the 50 states.
Until the Commonwealth has a statistically sound basis for
reporting economic data, study after study will serve no purpose except
the continued delay of the desperately needed reform of the labor
market in the Commonwealth for the good of its citizens and residents.
THE CITIZENS OF THE COMMONWEALTH CNMI NEED INCREMENTAL INCREASES IN THE
MINIMUM WAGE
I ask the good people of this Committee to consider that the wage
increase we are discussing is from $3.55 to $4.05 per hour. Neither,
after taxes, will buy a single gallon of gas.
The majority of our elected officials have, to date, been unable or
unwilling to address the issue of a realistic minimum wage level, even
during the economic boom of the 1990's. Despite the sincere efforts of
a few individuals, who were willing to stand up to political pressure
exerted by private sector employers, the minimum wage has remained
unchanged until the recent passage of the federal law under discussion
today. The people of the Commonwealth are now looking to the U.S.
Congress to hold to their course, not delay further increases, and
finally bring some equity to this situation.
As yet, per the US Department of Labor's report of January 2008,
there is no statistically sound economic data available from the
Commonwealth that justifies a delay of the currently mandated increases
in the minimum wage in the Commonwealth.