[Senate Hearing 110-388]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 110-388
 
       IMPACT OF INCREASED MINIMUM WAGE OF AMERICAN SAMOA & CNMI

=======================================================================

                                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


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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

                              ----------                              

                               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

                              ----------                              


                      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.
---------------------------------------------------------------------------
    * See Appendix II.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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.]
---------------------------------------------------------------------------
    * Figures 1-4 have been retained in committee files.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \2\ Portions of this part have been summarized from American 
Samoa's Comprehensive Economic Development Strategy, 2005.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
                             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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \6\ US House of Representatives, Committee on House Ways and Means, 
108th Congress. Section 12, Social Welfare Programs in the Territories, 
Green Book, 2004.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \7\ Answers.com: http://www.answers.com/topic/lowest-income-
counties-in-the-united-states. US Census of Population 2000.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \9\ Michael E. Porter with, Christian H.M. Ketels, Kaia Miller, and 
Richard T. Bryden ``Competitiveness in Rural U.S. Regions'' (page 3).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \10\ Kevin Kelly. Paul Romer: The Economics of Ideas (http://
www.versaggi.net/ecommerce/articles/romereconideas.htm).
---------------------------------------------------------------------------
    ``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.
---------------------------------------------------------------------------
    \11\ Joseph Cortright ``New Growth Theory, Technology and Learning: 
A Practitioners Guide'' Reviews of Economic Development Literature and 
Practive No. 4, 2001.
---------------------------------------------------------------------------
    ``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\
---------------------------------------------------------------------------
    \12\ Ibid. pp.4.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \14\ In addition to the formal interviews, scores of informal 
conversations were conducted with other business people, workers, 
residents, government employees, retirees, etc.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \15\ In August 2007, StarKist announced it was proceeding with a 
scaled down pouch project, which would require 150 workers.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
            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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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'').
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
    \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.).
---------------------------------------------------------------------------
    \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
---------------------------------------------------------------------------
              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.
---------------------------------------------------------------------------
    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:
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \28\ Infrastructure refers to not only capital improvements, but 
also human capital and social infrastructure, which are all essential 
components of a business environment.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \31\ US Government Accountability Office. Issues Affecting US 
Territorial and Insular Policy. NSIAD-85-44. Washington DC: February 7, 
1985.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \33\ US Government Accountability Office. US Insular Areas: 
Economic, Fiscal, and Financial Accountability Challenges. GAO-07-119. 
Washington DC: December 12. 2006.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \1\ American Samoa Department of Commerce, Statistical Yearbook 
2006, p. 135.
    \2\ Information provided by American Samoa Department of Commerce.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \1\ Saipan Tribune, February 15, 2008, Prices of commodities 
continue rise, by Mark Rabago.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \7\ Marianas Variety, February 07, 2008, $6.1M owed to guest 
workers, by Emmanuel T. Erediano.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \8\ Saipan Tribune, February 28, 2008, Exodus of nurses, by Canary 
Miquel.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.

                                    

      
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