Commonwealth of the Northern Mariana Islands: Managing Potential Economic Impact of Applying U.S. Immigration Law Requires Coordinated Federal Decisions and Additional Data
Published: 2008-08-04T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The United States enacted legislation in May 2008 applying federal immigration law to the Commonwealth of the Northern Mariana Islands (CNMI) subject to a transition period. The CNMI is subject to most U.S. laws but has administered its own immigration system, including admitting foreign workers, tourists, and foreign investors. The Secretary of Homeland Security, in consultation with the Secretaries of the Interior, Labor, and State, and the Attorney General, has the responsibility to establish a transition program. GAO was asked to review how the legislation's implementation may affect the CNMI economy, in particular the CNMI's (1) labor market, including foreign workers; (2) tourism sector; and (3) foreign investment. This report is based on GAO's March 2008 report (GAO-08-466) and analysis of data on the CNMI's labor market, tourism sector, and foreign investment.
section_title: What GAO Found
paragraphs: The potential impact on the CNMI's labor market of the recent legislation applying U.S. immigration law will largely depend on decisions that the U.S. Departments of Homeland Security (DHS) and Labor (DOL) make in implementing a required permit program for foreign workers. The interaction of DHS and DOL decisions about, respectively, the number of permits to allocate annually and whether and when to extend the permit program past 2014 will significantly affect employers' access to foreign workers. However, federal agencies have not yet identified an interagency process to coordinate such decisions. Further, the agencies may have difficulty obtaining relevant data on the CNMI labor market. Given foreign workers' prominence in key CNMI industries, any substantial and rapid decline in permits for foreign workers would have a negative effect on the CNMI economy. However, federal agencies may reduce permits more modestly, resulting in minimal effects on the economy. At the same time, continuing declines in the garment industry, challenges to the tourism industry, and the scheduled increases in the minimum wage may reduce demand for foreign workers, lessening any potential adverse impact of the legislation on the economy. Although the legislation and the CNMI government have stated goals of preparing CNMI residents to replace foreign workers, factors such as the limited number of available CNMI residents may impede these efforts' effectiveness. Any impact of the recent legislation on the CNMI's tourism sector will depend largely on federal regulations specifying the countries to be included in a joint CNMI-Guam visa waiver program required by the legislation. For countries likely to be included in this program, such as Japan and South Korea, the impact is likely to be minimal. For countries that may not be part of the joint visa waiver program, possibly including China and Russia, applying for a visa from U.S. embassies or consulates will likely be more costly and more time-consuming than obtaining a visitor entry permit under CNMI immigration law. To the extent that any increase in the cost and time required to obtain a visa discourages tourists from visiting the CNMI, the legislation could negatively affect CNMI tourism. The recent legislation's impact on CNMI foreign investment will depend in part on DHS decisions regarding the application of U.S. nonimmigrant treaty investor status--"grandfathering"--for investors with CNMI foreign investor entry permits. However, lack of data on foreign investment in the CNMI makes it difficult to assess the likely impact of these decisions and may hamper DHS's ability to make informed decisions. Because long-term business entry permits account for a large proportion of CNMI foreign investor entry permits, more CNMI foreign investors will be grandfathered if DHS applies the status to these permit holders. Any impact on foreign investment in the CNMI will likely affect the labor market and tourism sector, and any impact on the labor market or tourism sector may also affect foreign investment.

section_title: Letter
paragraphs: The United States recently enacted legislation applying U.S. immigration  law to the Commonwealth of the Northern Mariana Islands (CNMI),  ending decades of the CNMI’s control over its own immigration system.  The CNMI is subject to most U.S. laws, and the United States has complete  responsibility and authority for CNMI defense and foreign affairs.  However, since 1978, the CNMI has administered its own immigration  system under the terms of its 1976 Covenant with the United States. The  CNMI has applied this flexibility to admit substantial numbers of foreign  workers from China, the Philippines, and other countries through a permit  program for non-U.S. citizens (noncitizens) entering the CNMI. In 2005,  these workers represented a majority of the CNMI labor force and  outnumbered U.S. citizens in most industries, including the garment  manufacturing and tourism sectors, which have been central to the CNMI’s  economy. The CNMI has also admitted tourists under its own entry permit  and entry permit waiver programs and has provided various types of  admission to foreign investors. The CNMI faces serious economic  challenges, including a decline in the garment industry and fluctuation in  the tourism industry.
The recent legislation amends the U.S.-CNMI Covenant to establish federal  control of CNMI immigration on June 1, 2009, with several CNMI-specific  provisions affecting foreign workers and investors during a transition  period that ends in 2014. The recent legislation also amends U.S.  immigration law to add the CNMI to an existing visa waiver program for  Guam visitors. The legislation’s stated intent is to ensure effective border  control procedures and protect national and homeland security while  minimizing the potential adverse economic and fiscal effects of phasing  out the CNMI’s own foreign worker permit program and maximizing the  CNMI’s potential for economic and business growth. During the transition  period, the Secretary of Homeland Security, in consultation with the  Secretaries of the Interior, Labor, and State, and the Attorney General, has  the responsibility to establish, administer, and enforce a transition  program to regulate immigration in the CNMI. Some federal decisions  require consultation with the CNMI Governor. In addition, the legislation  requires the CNMI government to provide the Secretary of Homeland  Security all immigration records or other information that the Secretary  deems necessary to assist its implementation. The transition program  includes a program providing foreign workers temporary permits to work  in the CNMI (CNMI-only work permits); the number of these permits must  be reduced to zero by the end of the transition period or the end of any  extensions of the permit program. Federal agency decisions will include,  among others, the Department of Homeland Security’s determination of  the numbers of CNMI-only work permits to issue annually and of the  countries to include in a joint CNMI-Guam visa waiver program for visitors  and the Secretary of Labor’s determination of whether and when to extend  the CNMI-only work permit program for up to 5 years at a time past 2014.
We were asked to examine factors that will affect the impact of the recent  legislation’s implementation on the CNMI economy, in particular the  CNMI’s (1) labor market, including foreign workers; (2) tourism sector;  and (3) foreign investment. This report is based on our March 2008 review  of the then pending legislation, which was signed into law on May 8, 2008.  In addition, in response to your requests, this report provides information  on dependents of temporary non-U.S. citizens in the CNMI (see app. VII)  and on CNMI labor and immigration expenditures (see app. IX).
In preparing this report, we reviewed relevant CNMI immigration and  labor laws; current U.S. immigration law, including the U.S. Immigration  and Nationality Act (INA) and related regulations; and the recent  legislation applying U.S. immigration law to the CNMI, including earlier  versions of the legislation. We did not review the extent to which CNMI or  U.S. laws were properly enforced or implemented. We interviewed  officials from the U.S. Departments of Homeland Security (DHS), the  Interior (DOI), and Labor (DOL). In addition, we interviewed CNMI  government officials in the CNMI and in Washington, D.C., as well as  representatives of the CNMI private sector and foreign workers. We  analyzed available CNMI administrative and survey data, primarily from  2002 through 2007, related to the CNMI’s labor market, tourism sector, and  foreign investment. In particular, we analyzed CNMI data on the numbers  and wages of workers from the Labor and Immigration Identification and  Documentation System (LIIDS); the 2005 Household, Income, and  Expenditures Survey (HIES); and the CNMI Department of Finance’s tax  returns to compare the foreign worker labor force with that of resident  workers. We analyzed tourism data from the Marianas Visitors Authority  (MVA) and the Border Management System (BMS) to study trends in  tourist arrivals, demographic information such as tourists’ countries of  origin, and the cost of tour packages from certain countries. In addition,  we analyzed foreign investment entry permit data from the CNMI  Department of Commerce. To examine the possible range of effects from  differing rates of reductions in foreign workers on the CNMI economy  under the legislation, we simulated the effect on CNMI gross domestic  product (GDP) under a number of scenarios. We did not receive some data  requested from the CNMI government, including data from LIIDS on  foreign investors and on other permit holders apart from one category of  foreign workers. Moreover, some relevant data are not collected by either  the CNMI or the federal government. While the data provided by the CNMI  government had some limitations, and we did not receive all data  requested, we determined that the available data were adequate and  sufficiently reliable for the purposes of our review. In addition, to describe  CNMI economic and political conditions, we consulted data from several  U.S. government sources. The scope of our study does not include foreign  workers whose documentation is not current or valid or those working in  any underground economy. In addition, we did not review federal  agencies’ expected costs or operational needs in implementing the  legislation. We conducted this performance audit from June 2007 to  August 2008 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives. See appendix I for further  details of our methodology.
subsections: section_title: Background
subsections: section_title: Political History of the CNMI
paragraphs: The Northern Mariana Islands are a group of 14 islands in the western  Pacific Ocean, lying just north of Guam, 5,500 miles from the U.S.  mainland. After World War II, the U.S. Congress approved the Trusteeship  Agreement that made the United States responsible to the United Nations  for the administration of the islands. Later, the Northern Mariana Islands  sought self-government and permanent ties to the United States. In 1976,  after almost 30 years as a trust territory, the District of the Mariana Islands  entered into a Covenant with the United States establishing the island  territory’s status as a self-governing commonwealth in political union with  the United States. The Covenant grants the CNMI the right of self- governance over internal affairs and grants the United States complete  responsibility and authority for matters relating to foreign affairs and  defense affecting the CNMI. The Covenant initially made many federal  laws applicable to the CNMI, including laws that provide federal services  and financial assistance programs. The Covenant preserved the CNMI’s  exemption from certain federal laws that had previously been inapplicable  to the Trust Territory of the Pacific Islands, including federal immigration  laws with certain limited exceptions and certain federal minimum wage  provisions. However, under the terms of the Covenant, the federal  government has the right to apply federal law in these exempted areas   without the consent of the CNMI government, and it enacted the recent  federal immigration legislation under this authority.
section_title: The CNMI’s Economy
subsections: section_title: Changing Economic Conditions in the CNMI
paragraphs: Between 1980 and 1995, the CNMI’s employment grew by about 12.7  percent annually, largely because of its rapidly expanding garment and  tourist sectors. Both the garment and tourist industries contributed  directly to the economy by generating employment and bringing revenue  from outside the CNMI via exports. In 1995, these two industries  accounted for about 80 percent of all employment. In addition, a 1999  study found that garment manufacturing and tourism accounted for about  85 percent of CNMI’s total economic activity and 96 percent of its  exports. (See app. III for more detailed information regarding the CNMI’s  economy). However, several recent developments in international trade  have caused the CNMI’s garment industry to decline dramatically. In  January 2005, in accordance with World Trade Organization agreements,  the United States eliminated quotas on textile and apparel imports from  other textile-producing countries, exposing CNMI’s apparel industry to  greater competition. Subsequently, the value of CNMI textile exports to  the United States dropped from $1.1 billion in 1998 to $317 million in 2007  (see fig. 1), and the number of licensed CNMI apparel manufacturers  decreased rapidly, from 34 firms in 1999 to 6 firms as of July 2008.
In addition, the CNMI economy has been negatively affected by recent  external events’ impact on the tourism industry. For example, tourism in  the CNMI experienced a sharp decline in the late 1990s as a result of the  Asian financial crisis. In 2003, according to CNMI officials, tourism slowed  for several months in reaction to the SARS epidemic, which originated in  Asia, and the war in Iraq. Total visitor arrivals to the CNMI dropped from a  peak of 736,117 in 1996 to 389,354 in 2007, a decline of nearly 47 percent  (see fig. 2).
The declines of the garment and tourism industries have taken a toll on the  overall economy.
The overall fiscal condition of the CNMI’s government steadily  weakened— government net assets of $40.6 million at the end of 2001 fell  to a negative $38 million balance by the end of 2005.
The median household income in the CNMI fell from $22,898 in 2000 to  $17,138 in 2004, and the per capita income in the CNMI decreased from  $9,151 in 2000 to $6,178 in 2004.
The unemployment rate in the CNMI rose from 3.8 percent in 2000 to 8.3  percent in 2005.
The percentage of people below the poverty level in the CNMI rose from  46 percent in 1999 to 53.5 percent in 2004.
Furthermore, the CNMI continues to have lower income and higher  unemployment and poverty rates than the mainland United States.
In 2004, median household income was 61 percent lower in the CNMI than  in the United States ($17,138 versus $44,389) and per capita income was 74  percent lower in the CNMI than in the United States ($6,178 versus  $23,848).
In 2005, the unemployment rate in the CNMI was 8.3 percent versus 5.1  percent in the United States.
In 2004, 53.5 percent of people in the CNMI were below the poverty level  compared with 12.7 percent in the United States.
Another factor affecting changing economic conditions in the CNMI is the  Department of Defense’s plan to move 8,000 U.S. Marines and their  estimated 9,000 military dependents from Okinawa to nearby Guam over  the next several years, possibly bringing new business and tourism  opportunities for the CNMI. The Department of Defense also plans to  move other Navy, Air Force, and Army units to Guam as part of a major  realignment. The total military buildup on Guam is estimated to cost over  $13 billion and increase Guam’s current population by an estimated 25,000  active duty military personnel and dependents.
section_title: CNMI Reliance on Foreign Workers
paragraphs: The CNMI has used its authority over its own immigration policy to bring  in foreign workers under temporary renewable work permits and to allow  the entry of foreign business owners and their families. Largely because of  the influx of these foreign workers and entrepreneurs, the population of  the CNMI grew rapidly, increasing from about 16,800 in 1980 to 69,200 in  2000. In 2005, the population of the CNMI was 65,914, including 33,150 (50  percent) U.S. citizens, 7,847 (12 percent) permanent non-U.S. citizens, and  24,917 (38 percent) temporary non-U.S. citizens. As the garment and  tourist industries in the CNMI expanded over this same period, the CNMI  economy became dependent on foreign labor. For example, in 1995, two- thirds of the working population were temporary residents, including  about 93 percent of workers in the garment industry and slightly over 72  percent in the tourism industry. In contrast, in the same year, U.S. citizens  and permanent residents held about 96 percent of jobs in the public sector.  As a result, the CNMI economy developed a two-tiered wage structure,  with U.S. citizens and permanent residents earning 3.5 times more than  temporary residents in 1995. In 2005, according to a household survey of  the CNMI, 46 percent of temporary residents in the labor force worked in  manufacturing, compared with 6 percent of U.S. citizens and permanent  residents, and less than 0.5 percent of temporary CNMI residents worked  in public administration, compared with 21 percent of U.S. citizens and  permanent residents (see fig. 3).
The number and proportion of noncitizens in the CNMI labor force has  decreased in recent years (see fig. 4). Noncitizen workers in the CNMI are  predominantly Chinese or Filipino.
Until 2007, the CNMI’s workforce was subject to a minimum wage set by  the CNMI government. At the beginning of 2007, the CNMI’s minimum  wage was $3.05 per hour, substantially lower than the U.S. federal  minimum wage of $5.15 per hour but higher than wages for comparable  positions in China, the Philippines, Vietnam, and other Asian countries. In  2007, Congress enacted a law applying the U.S. minimum wage to the  CNMI, gradually increasing the CNMI minimum wage until it meets federal  minimum wage requirements. According to the law, the CNMI minimum  wage was to increase to $4.05 per hour as of May 26, 2007.
section_title: CNMI and U.S. Immigration Law
subsections: section_title: Current CNMI Immigration Law
paragraphs: Until passage of the recent U.S. legislation, the CNMI retained legislative  authority over most aspects of immigration, regulating entry to the CNMI  through a permit system. CNMI immigration law includes the following  provisions for foreign workers, tourists, and foreign investors. CNMI  immigration law is in effect until the start of the transition period under  the federal legislation; however, federal restrictions on the total number of  foreign workers in the CNMI apply immediately.
Foreign workers. CNMI immigration and labor rules provide for, among  other things, a worker entry permit for noncitizens entering the CNMI.  CNMI employers do not currently have the option to petition for  permanent immigrant status of workers under CNMI law. The recent  federal legislation prohibits the CNMI government from allowing an  increase in the total number of foreign workers in the CNMI between the  legislation’s enactment and the effective date of the transition period.
Tourists. According to the CNMI government, tourists from certain  countries may enter the CNMI as part of its entry permit waiver program.  The program allows eligible participants to enter for tourism or business  for up to 90 days without a visitor entry permit. Noncitizens who are  ineligible for a waiver, including citizens of China, Russia, and Korea, may  apply for a visitor entry permit, which is valid for a single entry for up to  30 days.
Foreign investors. The CNMI offers a perpetual foreign investor entry  permit, valid for an indefinite period of time, to individuals who maintain  certain levels of investment in the CNMI, among other requirements. In  addition, the CNMI offers long-term business entry permits (valid for 2  years at a time) with specified investment requirements. The CNMI also  offers a retiree foreign investor entry permit requiring a minimum  investment in residential property by an applicant 55 years or older.
section_title: Current U.S. Immigration Law
paragraphs: Under U.S. immigration law, noncitizens may apply for entry into the  United States as nonimmigrants or as immigrants intending to reside  permanently. The nonimmigrant categories for temporary admission  include workers who meet certain requirements, visitors for business or  pleasure, and treaty investors, among others. The immigrant categories  include permanent immigrant investor visas, as well as various  employment-based categories for admission to the United States as lawful  permanent residents permitted to work in the United States.
Foreign workers. U.S. immigration law includes several types of visas for  nonimmigrant workers and their families (H visas and certain other visas)  and sets caps for two types of H visas (H visa caps). In particular, there  are limits on the number of H nonimmigrant work visas that can be issued  in each fiscal year. In addition to nonimmigrant visas, federal law provides  for permanent employer-sponsored immigrant visas for individuals  seeking to reside permanently in the United States. (For additional  information on these and other visas available to workers, see app. V.)
Tourists. Under federal law, visitors may come to the United States for  business on a B-1 visa, for pleasure on a B-2 visa, or for business or  pleasure on a combined B-1–B-2 visa. Visitors with B visas are normally  admitted for a minimum of 6 months and a maximum of 1 year. Citizens of  the 27 countries included in the U.S. Visa Waiver Program may stay for up  to 90 days for business or pleasure in the United States without obtaining a  nonimmigrant visa. In addition, federal law allows nationals of nine  additional countries to visit Guam in B status for up to 15 days without  obtaining a visa under the Guam Visa Waiver Program.
Foreign investors. The INA allows foreign investors to enter the United  States as nonimmigrants under treaty investor status with an E-2 visa.
Currently, federal law allows E admission for up to a 2-year period of  initial stay and allows the investor to apply for renewal. Treaty investors  must invest a substantial amount of capital in a bona fide enterprise in the  United States, must be seeking entry solely to develop and direct the  enterprise, and must intend to depart the United States when their treaty  investor status ends. Treaty investors must be nationals of a country with  which the United States has a treaty of friendship, commerce, or  navigation and must be entering the United States pursuant to the  provisions of the treaty. The INA also allows foreign investors to seek  permanent immigrant visas (EB-5) for employment-creation purposes.
section_title: Recent Legislation Applying U.S. Immigration Law to the CNMI
paragraphs: The recent legislation applies provisions of federal immigration law to the  CNMI 1 year after enactment subject to a transition period that begins on  June 1, 2009, and ends on December 31, 2014, with a transitional provision  for foreign workers that may be extended beyond 2014. The Secretary of  Homeland Security has sole discretion to delay the start of the transition  period for up to 180 days, in consultation with other federal agencies and  the CNMI Governor. The stated intent of the recent legislation is to  ensure that effective border control procedures are implemented and  observed and that national security and homeland security issues are  properly addressed. The recent legislation also states that, to the greatest  extent possible, potential adverse economic and fiscal effects of phasing  out the CNMI’s foreign worker program should be minimized in order to  maximize the CNMI’s potential for future economic growth. In March 2008,  we described the key provisions of this legislation. Figure 5 shows the  legislation’s key provisions related to foreign workers, tourists, and  foreign investors.
During the transition period, the Secretary of Homeland Security, in  consultation with the Secretaries of the Interior, Labor, and State, and the  Attorney General, has the responsibility to establish, administer, and  enforce a transition program to regulate immigration in the CNMI.  Implementation decisions by DHS will determine the extent to which  CNMI local laws and authority will be affected. Each agency must issue  regulations and implement agreements with the other agencies to identify  and assign their respective duties for timely implementation of the  transition program. The agreements must address procedures to ensure  that CNMI employers have access to adequate labor and that tourists,  students, retirees, and other visitors have access to the CNMI without  unnecessary obstacles.
Following are descriptions of the recent legislation’s key provisions  related to foreign workers, tourists, and foreign investors.
Foreign workers. The recent legislation allows federal agencies to  preserve access to foreign workers in the CNMI during the transition  period and any extensions of the CNMI-only permit program, but limits  access to foreign workers afterward to those generally available under  U.S. immigration law. Key provisions regarding foreign workers in the  CNMI include the following:    During the transition period and any extensions of the CNMI-only permit  program, employers of workers not otherwise eligible for admission under  federal law can apply for temporary CNMI-only nonimmigrant work  permits. During this period, the Secretary of Homeland Security has the  authority to determine the number, terms, and conditions of these permits,  which must be reduced to zero by the end of the transition period and any  extensions of the CNMI-only work permit program. This program may be  extended indefinitely by the U.S. Secretary of Labor for up to 5 years at a  time.
During the initial transition period, employers in the CNMI and Guam can  petition for foreign workers under the federal nonimmigrant H visa  process, without limitation by the established numerical caps, for two  types of H visas. This exemption from the visa caps expires when the  transition period ends in 2014.
During and after the transition period, CNMI employers can petition for  nonimmigrant worker visas generally available under U.S. law. However,  after the transition period ends, no nonimmigrant visas will be available  for workers in continuous, rather than temporary, low-skill positions (see  app. V).
During and after the transition period, CNMI employers can also petition  for employment-based permanent immigration status for workers under  the same procedures as other U.S. employers.
Fees for the CNMI-only work permit will be determined by DHS  regulations and are not currently available. The current fees for other U.S.  worker permits range higher than the CNMI’s current permit fees for  foreign workers (see app. IV).
Tourists. The recent legislation establishes a joint visa waiver program by  adding the CNMI to an existing Guam visa waiver program. Under the joint  visa waiver program, visitors from designated countries who travel for  business or pleasure to the CNMI are exempt from the standard federal  visa documentation requirements.
The Secretary of Homeland Security will determine which countries are  included in the CNMI-Guam visa waiver program.
Citizens of countries that do not qualify for entry under the joint CNMI and  Guam visa waiver program or other U.S. visa waiver programs may apply  for U.S. visitor visas valid for entry to any part of the United States, which  generally require in-person applications and higher fees than the CNMI  currently assesses (see app. IV).
Foreign investors. The recent legislation eliminates the CNMI’s  perpetual foreign investor, retiree investor, and long-term business entry  permit programs; instead, it allows these and other business travelers to  apply to visit the CNMI under a visitor visa or other categories in federal  immigration law. The following provisions also apply:    Current CNMI foreign investors who meet certain requirements can  convert from a CNMI investor to a federal nonimmigrant treaty investor  during the transition period. DHS will determine to whom this  “grandfathered” status applies and how long it is valid.
New foreign investors can apply for U.S. nonimmigrant treaty investor  status.
New foreign investors also can petition for U.S. permanent immigration  status that is currently unavailable in the CNMI.
section_title: Recent Legislation’s Potential Impact on CNMI Labor Market and Economy Will Depend Largely on Federal Decisions, but U.S. Agencies Lack Needed Data and Coordination Process
paragraphs: Decisions that DHS and DOL make in implementing the CNMI-only work  permit program will largely determine the legislation’s potential impact on  the availability of foreign workers and, as a result, on the CNMI labor  market and economy. In particular, the interaction of DHS and DOL  decisions about, respectively, the number of permits to allocate annually  and whether and when to extend the permit program will significantly  affect employers’ access to foreign workers. However, federal agencies  may have difficulty in obtaining data on the CNMI labor market on which  to base their decisions. Further, the agencies have not yet identified an  interagency process to coordinate such decisions. Given foreign workers’  prominence in key CNMI industries, any substantial and rapid decline in  the availability of CNMI-only work permits for foreign workers would have  a negative effect on the CNMI economy. However, federal agencies may  make more modest reductions in CNMI-only permits, resulting in minimal  impact on the economy. At the same time, continuing declines in the  garment industry, challenges to the tourism industry, and the scheduled  increases in the minimum wage may reduce demand for foreign workers,  lessening any potential adverse impact of the legislation on the economy.  Although the legislation and the CNMI government have stated goals of  preparing CNMI residents to replace foreign workers, factors such as the  limited number of available CNMI residents may impede these efforts’  effectiveness.
subsections: section_title: Key U.S. Agency Decisions for CNMI-Only Permit Program Will Affect Employers’ Access to Foreign Workers, but Data for Some Decisions May Be Difficult to Obtain
paragraphs: In implementing the CNMI-only work permit program mandated by the  legislation, DHS and DOL will make five key decisions that will affect  employers’ access to foreign workers (see table 1). However, CNMI- specific labor market data, which the agencies will need to consider to  minimize any adverse economic impact of their decisions, may be difficult  to obtain.
DHS decisions that will affect employers’ access to foreign workers  include the number of permits to allocate each year, the distribution of the  permits, the terms and conditions of the permit program, and the fee for  the permit. To minimize any adverse effects of its decisions, DHS may  consider information on the CNMI labor market. However, DHS may have  difficulty in obtaining relevant data—such as data on the wages,  occupations, and employment status of CNMI residents and foreign  workers—because the federal sources generally used to generate such  data for the United States, including the Current Population Survey and  the Current Employment Statistics program, do not cover the CNMI.
Number of permits. Under the legislation, DHS will determine the rate at  which it decreases the yearly allocation of CNMI-only work permits for  foreign workers, provided that zero permits are valid or available at the  end of the transition period. As shown in the examples of alternative DHS  approaches in figure 6, based on December 2007 LIIDS data, the number  of CNMI-only work permits available in each year of the initial transition  period depends on DHS’s strategy for reducing CNMI-only permits to zero.  For example, if DHS uses a linear strategy of reducing the permits to zero,  the number of permits would decline by about half by the midpoint of the  initial transition period. In contrast, DHS can apply strategies that reduce  the number of permits modestly or even minimally by the midpoint of the  initial transition period.
Distribution of permits. DHS decisions regarding the CNMI-only work  permits’ distribution will also affect employers’ access to workers,  particularly if the demand for the permits exceeds the supply. Following  are four examples of distribution methods available to DHS: 1.  DHS could decide to distribute the permits through a lottery. Currently  DHS distributes some visas, including H-1B visas, by random  assignment for valid applications submitted during set periods of time.  2.  DHS might decide to distribute the permits among certain industries  based on some measure of those industries’ importance to the CNMI  economy. However, because of the CNMI’s changing economic  environment, DHS may have difficulty in projecting some industries’  likely long-term importance. In addition, if DHS decides to distribute  permits based on industry data current at the time, permits might then  be unavailable to businesses in any industries that subsequently  developed.  3.  DHS could distribute the permits in a way similar to the current CNMI  system, which distributes foreign worker permits through a  combination of permits reserved for priority businesses and a lottery.  4.  DHS could use a market-based approach of permit trading,  predetermining the number of permits to be allocated annually but  allowing employers to trade permits depending on their need for  foreign workers.
Terms and conditions of the permit program. The terms and  conditions that DHS sets for the CNMI-only work permit program will  affect employers’ access to foreign workers. For example, any  requirements regarding workers’ skill levels or qualifications could limit  the pool of available workers. A DHS decision to retain or end the current  CNMI requirement that employers hire a certain percentage of local  residents would also affect employers’ access to foreign workers. In  addition, if DHS chooses not to make employers responsible for foreign  workers’ medical costs, as current CNMI law requires, foreign workers will  become relatively more affordable. In addition, decisions regarding the  length of time that permits are valid could affect the ability of employers  to effectively use them.
Permit fee. The fee that DHS sets for the CNMI-only work permit may  affect employers’ access to foreign workers. Although the legislation  requires that DHS charge employers an annual supplemental fee of $150  per permit to fund CNMI vocational education, it is not yet known how the  total permit fee will compare with the annual $250 fee that employers  currently pay for CNMI foreign worker permits. However, if DHS sets a  higher fee for the CNMI-only permit than the current CNMI foreign worker  permit fee, this would increase employers’ costs and reduce employers’  ability or incentive to hire foreign workers instead of resident workers.
subsections: section_title: Key DOL Decision
paragraphs: DOL’s decision whether to extend the CNMI-only work permit program,  based on the unemployment rates of foreign workers and U.S. citizens, as  well as other CNMI-specific data, will affect the availability of foreign  workers. However, like DHS, DOL may encounter difficulty in obtaining  up-to-date information about the CNMI labor market because the federal  sources generally used to generate these data do not cover the CNMI.
Extension of the permit program. A decision by the Secretary of Labor  to extend the CNMI-only work permit program past 2014 would maintain  access to the permits for up to 5 years at a time. According to the  legislation, the Secretary could issue the extension as early as desired  within the transition period and up to 180 days before the end of the  transition period or any extensions of the CNMI-only permit program.  DOL’s decision is to be based on the needs of legitimate businesses in the  CNMI, as well as, among other information, the unemployment rate of U.S.  citizen workers in the CNMI and the number of unemployed foreign  workers in the CNMI. Alternately, the Secretary may decide not to extend  the program, thus ending access to the CNMI-only work permit after  2014. Representatives of the Hotel Association of the Northern Mariana  Islands and the Saipan Chamber of Commerce said they preferred that any  extension of the CNMI-only work permit program be announced as early  as possible in the transition period or any extension of the CNMI-only  permit program to provide businesses the maximum time for planning.
Additionally, while other nonimmigrant and immigrant visas generally  available under U.S. law would continue to be available, we previously  reported that after the end of the transition period and after any  extensions of the CNMI-only work permit program, the legislation limits  CNMI employers’ access to foreign workers, particularly low-skill workers  in continuous, nontemporary jobs. Although the legislation contains  provisions other than the CNMI-only work permit program that will affect  foreign workers—including exemptions from H visa caps for  nonimmigrant workers, the option to apply for nonimmigrant worker visas  generally available under U.S. law, and the option to apply for  employment-based permanent immigration status generally available  under U.S. law—these provisions will likely affect a relatively small  number of CNMI foreign workers (see app. V). As a result, our following  analysis focuses on foreign workers with CNMI-only work permits.
section_title: Interaction of Agency Decisions Could Significantly Affect Access to Foreign Workers, but No Process Exists for Coordinating Agency Decisions under the Legislation
paragraphs: The interaction of DHS and DOL decisions regarding the CNMI-only work  permit program could have a significant impact on employers’ access to  permits for foreign workers. However, the agencies have not yet identified  a process for coordinating these decisions.
The rate and timing with which DHS lowers the available number of  permits and the timing of any DOL extensions of the program will jointly  determine the permits’ availability. To illustrate a range of possible rates of  reduction, figure 7 shows nine examples of alternate interactions of DHS  and DOL decisions.
A.
B.
C.
D.
E.
F.
G.
H.
I.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Figures show numbers of CNMI-only work permits, based on the assumptions that the transition  period begins on June 1, 2009, and the number of permits never increases. Our analysis does not  address the length of the permits’ validity.
For the number of foreign workers before and at the beginning of the transition period, we relied on  CNMI LIIDS data showing 19, 706K foreign worker permits active as of December 1, 2007;  commenting on a draft of this report, the CNMI government stated that the number of 706K permits  as of June 0, 200, was 1,942.
In this analysis, foreign workers shown after the beginning of the transition period on June 1, 2009,  are those with CNMI-only work permits; this analysis does not include any foreign workers allowed to  remain in the CNMI without a CNMI-only work permit. The legislation specifies that foreign workers  legally present in the CNMI as of the transition program effective date, but who do not obtain U.S.  immigration status, may continue residing and working in the CNMI for a limited time—2 years after  the effective date of the transition program or when the CNMI-issued permit expires, whichever is  earlier.
Although DOL may extend the program for 5 years or less at a time, our analysis assumes a 5-year  duration for any extensions occurring after the transition period. Our analysis also assumes that if the  program is extended after the end of the initial transition period, the timing for frequency of extensions  will begin in January 2015.
The figures extend through 202 to show the year in which CNMI-only work permits approach zero  for the majority of the joint decisions.
As shown in figure 7(A) and 7(B), if DHS lowers the annual allocation of  CNMI-only permits by the same number each year (a linear decline) and  DOL extends the program every 2 years, the number of permits will  decline less rapidly than if DOL extends the program every 4.5 years.
Alternatively, as figure 7(G) shows, if DHS decides not to substantially  decrease the number of CNMI-only permits until the last month of the 5- year period and DOL extends the program every 2 years, the number of  permits will never rapidly decline, and by 2028 will not have substantially  declined.
In contrast, as shown in figure 7(I), if DHS decides not to substantially  decrease the number of CNMI-only permits until the last month and DOL  does not extend the program, the number of CNMI-only permits will fall to  zero in 2014.
The legislation requires DHS and DOL to coordinate their implementation  of the legislation, including the CNMI-only work permit program, with one  another and with other relevant agencies. However, the agencies have  not yet identified the interagency process that they will use.
section_title: Rate of Decline in Availability of CNMI-Only Permits for Foreign Workers Will Partly Determine Impact on CNMI Economy
paragraphs: The rate at which the availability of CNMI-only work permits for foreign  workers declines as a result of DHS’s and DOL’s joint decisions will partly  determine the legislation’s impact on the CNMI labor market and therefore  on the CNMI’s economy. Because of foreign workers’ prominence in the  CNMI labor market, any substantial and rapid reduction in the numbers of  CNMI-only permits for foreign workers would have a negative effect on  the size of the CNMI economy. However, federal agencies may make more  modest reductions in CNMI-only permits, resulting in minimal effects on  the economy. Projecting the economic impact of a reduction in foreign  workers is complicated by the dependence of some CNMI resident  workers’ productivity on the presence of foreign workers. For example,  the employment of CNMI residents as tour guides may depend on the  employment of foreign workers as hotel staff. Because some CNMI  resident workers’ employment depends on foreign workers, the overall  effect of the removal of foreign workers is difficult to project.
To illustrate a range of possible impacts on the CNMI economy given  varying rates of reduction in the number of CNMI-only work permits for  foreign workers, we generated simulations, estimating the impact on the  CNMI’s economy by an index representing total GDP. Figure 8 presents a  subset of the results of these simulations—these are based on the  scenarios shown in figure 7 (A), (D), and (G). Because these simulations  do not allow for other changes in the CNMI over the coming years, they  should not be considered as predictive of future GDP. Rather, these  simulations are intended to illustrate a range of potential impacts on the  CNMI’s GDP that could result from some of the joint U.S. agency decisions  depicted in figure 7.
As the scenarios in figure 8 show, a greater decline in permits for foreign  workers leads to a larger drop in GDP, as well as a greater range of  possible effects across the simulations.
Scenario 1 shows that a steep decline in CNMI-only permits for foreign  workers, from about 20,000 to about 1,000 by 2021—caused by a linear  reduction in the number of CNMI-only work permits and a renewal of the  permit program every 2 years—would lower the CNMI’s GDP to a range of  about 21 percent to 73 percent of its current value by 2021.
Scenario 2 shows that a less precipitous decline in CNMI-only permits for  foreign workers, from about 20,000 to about 8,000 by 2021—caused by an  increasing reduction in the number of CNMI-only work permits and a  renewal of the permit program every 2 years (before the years with the  steepest decline in foreign workers)—would lower the CNMI’s GDP to a  range of about 64 percent to 85 percent of its current value by 2021.
Scenario 3 shows that a much smaller decline in CNMI-only permits for  foreign workers, from about 20,000 to about 17,000 by 2021—caused by a  rapid reduction in the number of CNMI-only permits in the last month of  the program and a renewal of the permit program every 2 years (before the  month when the greatest reduction in permits occurs)—would lower the  CNMI’s GDP to a range of about 98 percent to no less than about 92  percent of its current value by 2021.
Figure 8 illustrates the simulated impact on GDP related to one possible  DOL decision—renewing the CNMI-only permit program every 2 years— interacting with possible DHS decisions, as depicted in figure 7 (A), (D),  and (G). Applying the GDP simulation methodology to the other scenarios  in figure 7 would yield more rapid declines in GDP, corresponding to the  more rapid declines in CNMI-only work permits for foreign workers  related to DOL decisions not to extend the CNMI-only permit program or  to extend it every 4.5 years.
Ideally, the effect of the decline in the number of foreign workers on the  CNMI GDP would be compared to a baseline of what would have  happened to the CNMI economy without the legislation. However, because  of a lack of data on the total production of the CNMI economy, we were  unable to provide a numerical projection of future GDP. For example, the  most recent estimate of CNMI GDP available was for 2002 and presented a  range of almost $250 million, with a midpoint of $875 million. Although  we are unable to present a numerical prediction, the following sections— which discuss a number of emerging factors affecting the CNMI economy  that may decrease demand in the CNMI for foreign workers—provide a  context for the GDP analysis.
section_title: Other Factors May Reduce Demand for Foreign Workers, Lessening the Impact of the Legislation
paragraphs: Although U.S. agencies’ implementation of the legislation may reduce the  availability of foreign workers, continuing declines in the garment industry  and challenges to the tourism industry may lower demand for these  workers. Increases in the CNMI’s minimum wage may also lower demand  for foreign workers, although the likely extent of this impact cannot be  determined. Efforts to replace foreign workers with CNMI residents could,  if successful, further mitigate any effects of the legislation’s provisions  reducing the number of CNMI-only work permits; however, factors such as  the limited number of available CNMI residents may impede these efforts’  effectiveness.
subsections: section_title: Declines in Garment Industry and Challenges to Tourism May Lessen Demand for Foreign Workers
paragraphs: Continuing challenges to industries that employ foreign workers may  reduce future demand for foreign workers from their current numbers,  lessening the impact of any agency decisions to reduce the number of  foreign workers in implementing the legislation and allowing some  reductions without adverse effect.
The number of foreign workers in the CNMI has fallen in recent years  prior to the legislation’s passage, owing in part to declines in the garment  industry and challenges in the tourism industry. From 2000 to 2005, the  number of noncitizen workers, many of whom are foreign workers,  dropped from about 35,000 in 2000 to about 28,000 in 2005. Moreover,  based on CNMI BMS data, more foreign workers have left the CNMI than  have entered each year since 2005, indicating that their numbers have  continued to fall. Declines in the garment industry and challenges to the  tourism industry account for some of these reductions in foreign workers.  Since the elimination of textile quotas, exports from the garment industry  have fallen. The tourism sector also has faced challenges as visitor arrivals  have declined from historic levels. Any further declines in these sectors  would likely result in reduced demand for foreign workers, allowing for  some future reductions in access to foreign workers without adverse  effect from the legislation. However, in commenting on a draft of this  report, the CNMI government stated that the MVA predicted that the  number of visitors to the CNMI will increase in the coming years.  Additionally, to the extent that the military buildup in Guam creates  opportunities for CNMI employers, it may increase demand for foreign  workers.
Other factors may reduce demand for foreign workers indirectly. For  example, reductions in the demand for workers in the garment and  tourism sectors impact demand for workers, including other foreign  workers, in other sectors in the economy. In addition, declines in the  economy and household incomes may reduce demand for foreign workers  in domestic positions, such as those in gardening and housekeeping,  currently common in the CNMI. Finally, if the federal immigration  legislation affects the tourism industry or the CNMI’s ability to attract  foreign investors, it may also affect demand for foreign workers.
section_title: Scheduled Increases in the Minimum Wage Will Further Reduce Demand for Foreign Workers, but Extent of Likely Impact Is Not Known
paragraphs: The recent and continuing scheduled increases in the CNMI’s minimum  wage are likely to further reduce the demand for foreign workers. The  wage increases will affect foreign workers disproportionately; however,  the magnitude of the wage increases’ impact on these workers cannot be  determined.
Based on the most recent LIIDS data, most jobs held by foreign workers  pay $4.05 per hour—the CNMI minimum wage as of May 2008—or less.  Table 2 presents, by industry, the percentage of foreign workers whose  recent contracts show wages of no more than this amount.
The scheduled minimum wage increases will affect the wages of almost all  foreign workers in the CNMI and will continue to affect more workers as  the wage increases each year. As figure 9 shows, based on December 2007  LIIDS data, almost 95 percent of foreign workers in the CNMI do not earn  more than the $7.25 minimum wage scheduled for 2015.
The minimum wage increase will likely affect U.S. citizen workers to a  lesser degree. For example, those working in public administration— almost 33 percent of employed U.S. citizens in the CNMI based on the 2005  CNMI HIES—earn, on average, more than the current minimum wage of  $4.05 in the CNMI. Our analysis of HIES survey data shows that the  average wage for CNMI resident workers in 2004 was $8.60, whereas the  average wage for temporary non-U.S. citizens was $4.40.
According to current economic research, the minimum wage increases  will decrease the number of foreign workers demanded by CNMI  employers. The minimum wage increases may also have indirect effects  resulting in firm closures, further reducing the demand for foreign  workers.
It is difficult to estimate the extent to which the minimum wage increases  might decrease the number of foreign workers demanded by employers in  the CNMI. However, the large number of CNMI foreign workers now  earning no more than the current minimum wage makes it likely that the  scheduled wage increases will have a negative effect on the number of  foreign workers employed.
section_title: Recent Legislation and CNMI Government Have Goals of Preparing Resident Workers to Replace Foreign Workers, but Several Factors May Impede These Efforts
paragraphs: The CNMI has begun efforts to prepare CNMI residents to replace foreign  workers. If successful, these efforts could lessen any impact the legislation  may have regarding access to foreign workers. In 2007, the Jobs Study  Committee reporting to the CNMI Office of the Public Auditor found that  some desirable jobs held by foreign workers could be filled by CNMI  residents, and the CNMI has taken steps to help residents obtain these  jobs. For example, the CNMI Workforce Investment Agency is developing  a Web site to allow job seekers to quickly find potential openings. In  addition, the Strategic Workforce Action Team, comprising government  officials and local educators, has proposed to coordinate curricula and  employment opportunities. Moreover, CNMI law has required CNMI  employers to hire 20 percent of their employees from local residents; this  percentage increased to 30 percent on January 1, 2008, under the new  CNMI labor and immigration law.
In addition, the recent federal legislation requires the U.S. government to  provide funding for vocational education, as well as technical assistance to  the CNMI. For example, the $150 fee charged to employers obtaining a  CNMI-only work permit is to be used to fund ongoing vocational education  curricula and program development by CNMI educational entities.  Moreover, the legislation requires the Secretary of the Interior to provide  technical assistance to the CNMI to promote economic growth; to assist  employers in recruiting, training, and hiring U.S. citizens and, if necessary,  lawful permanent residents in the CNMI; and to develop CNMI job skills as  needed.
The most recent LIIDS data from December 2007 suggest that about 20,000  foreign workers currently live in the CNMI. Although it is too early to  assess the CNMI’s efforts to replace foreign workers with CNMI residents,  several factors may impede these efforts’ effectiveness.
According to the CNMI Office of the Public Auditor, only an estimated 400  high school and college graduates seek full-time employment in the CNMI  each year.
Moreover, according to CNMI government representatives, some CNMI  residents are leaving the CNMI for opportunities in the United States. In  addition, the attractiveness of Guam may increase if the military buildup  leads to additional jobs.
The number of nonworking residents who might accept a job is less than  the total number of foreign workers. Specifically, there are approximately  2,600 unemployed U.S. citizens and permanent residents in the CNMI.
Some foreign workers possess skills that are currently rare among  residents, such as language skills. Additionally, some foreign workers’  ability to perform professional jobs may make it difficult to replace these  workers with CNMI residents.
According to representatives of the CNMI Chamber of Commerce and the  Hotel Association of the Northern Mariana Islands, hiring CNMI residents  is also difficult because some are reluctant to perform tasks currently  completed by foreign workers.
section_title: Recent Legislation’s Possible Impact on CNMI Tourism Depends Largely on Federal Agency Decisions
paragraphs: Any impact of the legislation on the CNMI’s tourism sector will depend  largely on federal regulations specifying the countries to be included in the  joint CNMI-Guam visa waiver program. For countries likely to be included  in the joint visa waiver program because they currently are included in the  Guam visa waiver program, such as Japan and South Korea, the impact is  likely to be minimal. For countries that may not be part of the joint visa  waiver program because they currently are not included in the Guam visa  waiver program, possibly including China and Russia, applying for a visa  from U.S. embassies or consulates will likely be more costly and more  time-consuming than obtaining a visitor entry permit under CNMI  immigration law. To the extent that tourists facing increased costs and  time in obtaining a visa may choose destinations other than the CNMI, the  legislation could have a negative impact on CNMI tourism. The likely  impact on the CNMI of sharing the joint program with Guam is unclear.
subsections: section_title: DHS Will Determine Countries to Be Included in the Joint CNMI-Guam Visa Waiver Program
paragraphs: Changes in tourists’ access to the CNMI will depend on DHS’s decisions, in  consultation with the Department of State, DOI, and the Governors of the  CNMI and Guam, regarding the countries to be included in the CNMI- Guam visa waiver program. One stated intent of the recent legislation is to  expand tourism and economic development in the CNMI, including aiding  prospective tourists in gaining access to the CNMI’s tourist attractions,  such as memorials, beaches, parks, and dive sites. The legislation  establishes a joint visa waiver program by adding the CNMI to an existing  Guam visa waiver program. The joint program exempts tourism and  business visitors from certain countries who are traveling to the CNMI and  Guam for up to 45 days from the standard U.S. visa documentation  requirements. As shown in table 3, the legislation states that the CNMI- Guam visa waiver country list shall include any country from which the  CNMI has received a significant economic benefit from the number of  visitors for pleasure for the year prior to the enactment of the legislation,  unless DHS determines that a country’s inclusion on the list would  represent a threat to the welfare, safety, or security of the United States or  its territories, and considering other factors. However, the legislation  does not clearly define what constitutes a “significant economic benefit.”  The Senate Committee on Energy and Natural Resources and the House  Committee on Natural Resources encouraged DHS to consider benefits  measured in terms of hotel occupancy, length of stay, and expenditures.  Tourists who do not qualify for entry under the CNMI-Guam program may  apply for U.S. visitor visas for business or pleasure, which require in- person applications and higher fees than the CNMI currently assesses.  (See app. VIII for the countries currently included in the U.S., CNMI, and  Guam waiver programs.)
section_title: Legislation Likely Impacts a Small but Important Portion of CNMI Tourism Market
paragraphs: The application of federal immigration law may affect a small portion of  the CNMI’s tourism market. Currently, approximately 80 percent of the  tourists visiting the CNMI come from Japan (55 percent) and South Korea  (25 percent), as shown in figure 10. Because Japan is included in the  current U.S. and Guam visa waiver programs and will likely be included in  the CNMI-Guam visa waiver program, the legislation is likely to have  minimal impact on Japanese tourists visiting the CNMI. However, new  screening requirements to be implemented for countries included in the  U.S. Visa Waiver Program may pose some additional obstacles. South  Korea is currently included in the Guam visa waiver program but is not  included in the CNMI and U.S. waiver programs; however, the United  States is considering extending visa waiver status to South Korea. If  South Korea is included in the CNMI-Guam visa waiver program, which is  likely given its current status, the legislation may have a slightly positive  impact by removing the current CNMI entry permit requirement for South  Korean tourists.
A key DHS decision will be whether to include China and Russia in the  joint visa waiver program, adding them to the existing Guam visa waiver  program. Tourists from China and Russia account for a smaller proportion  of the overall CNMI tourist arrivals—approximately 10 percent and less  than 1 percent of CNMI tourist arrivals, respectively. However, according  to representatives of the CNMI tourism sector, China and Russia are  considered important markets because of their recent and potential future  growth. For example, the Chinese market has grown by a factor greater  than 15 in a decade, from 2,487 visitors in fiscal year 1997 to 41,024 visitors  in fiscal year 2007. Furthermore, although small in number, the Russian  market is becoming increasingly important because visitors from Russia  tend to stay longer and spend more in the CNMI than do tourists from  other countries. According to MVA data, Russian tourists stay an average  of 9 nights, whereas tourists from Japan, South Korea, and China stay an  average of 3 to 4 nights. In addition, according to CNMI tourism sector  representatives, Russian tourists also tend to spend more on luxury  items.
section_title: New Visa Requirements for Nonwaiver Visitors Will Likely Increase Cost, Time, and Uncertainty, Possibly Affecting CNMI Tourism
paragraphs: For tourists from countries not included in the CNMI-Guam visa waiver  program, the legislation will likely increase the costs and time associated  with obtaining visitor visas. Table 4 compares the costs, requirements, and  time related to obtaining a CNMI visitor entry permit with those related to  obtaining a U.S. visitor visa.
Implementation of the U.S. visa process for the CNMI is likely to add costs,  inconvenience, and uncertainties for tourists. For example, if China is not  included in the joint visa waiver program, visa fees could add close to 20  percent to tour package costs for Chinese tourists. In-person visa  interviews will impose additional inconvenience and cost. However, most  tourists from China will not likely have to travel great distances to apply  for visas because the CNMI currently markets only to tourists in Chinese  cities with U.S. embassies or consulates. CNMI tourist industry  representatives also expressed concerns that some Russian tourists may  need to travel long distances to U.S. embassies or consulates to apply for  visas. While Russian tourists can apply for visas from U.S. consulates in  the region, such as the U.S. consulate in Vladivostok in Far Eastern Russia,  and do not need to travel to Moscow, others may need to travel long  distances. In addition, the new visa requirements will add uncertainty to  the application process. According to Department of State data, 24.5  percent of visitor visa applicants from China and 15.3 percent from Russia  are refused entry after paying application fees and attending interviews.
To the extent that tourists facing increased costs and time in obtaining a  visa may choose destinations other than the CNMI, the legislation could  have a negative effect on CNMI tourism. A CNMI tourism sector  representative expressed concerns that added costs and inconvenience  would deter tourists from visiting the CNMI and would make the CNMI  less competitive with other Asian and Pacific destinations. Currently,  because Guam requires U.S. visas and the CNMI does not, the CNMI has a  competitive advantage over Guam in attracting Chinese tourists and has  far more Chinese tourists than Guam. See table 5 for a summary of the  likely impact on tourists from Japan, South Korea, China, and Russia.
section_title: Effect on CNMI of Sharing Joint Visa Waiver Program with Guam Is Unclear
paragraphs: The CNMI may lose some competitive advantage to Guam for countries  that are not currently on the Guam visa waiver list, such as China and  Russia, given that the current absence of U.S. visitor visa requirements for  the CNMI makes it easier for tourists from these countries to visit the  CNMI than to visit Guam. However, the CNMI also may benefit from the  joint visa waiver program with Guam. For example, the joint program will  facilitate travel between Guam and the CNMI, and bundled tours of both  islands may appeal to some tourists.
section_title: Recent Legislation’s Impact on CNMI Foreign Investment Depends, in Part, on Federal Decisions, but Lack of Data Hinders Assessment of Likely Impact
paragraphs: The impact of the recent legislation on CNMI foreign investment will  depend, in part, on DHS decisions regarding foreign investor entry  permits. However, lack of data, such as data on overall foreign investment  in the CNMI, makes it difficult to assess the likely impact of these  decisions and may hamper DHS’s ability to make informed decisions. July  2008 data show that long-term business entry permits accounted for 90  percent of all active and valid long-term business and perpetual foreign  investor entry permits. As a result, DHS’s decision whether to extend the  grandfathered treaty investor status to these permit holders will determine  the numbers and types of investors likely to be affected. Moreover, any  impact on foreign investment in the CNMI will likely affect the labor  market and tourism sector, and any impact on the labor market and  tourism sector may also affect foreign investment.
subsections: section_title: DHS Decisions Will Affect Foreign Investors’ Access to the CNMI
paragraphs: In implementing the legislation, DHS will make two key decisions that will  affect foreign investors’ access to the CNMI. (See table 6.) First, DHS will  determine which current CNMI foreign investors will receive the  grandfathered CNMI-only U.S. treaty investor status during the transition  period. In particular, DHS will determine whether the grandfathered status  applies only to investors holding the CNMI perpetual foreign investor  entry permit or also to investors holding the CNMI long-term business  entry permit. Second, DHS will determine the validity period of the  grandfathered treaty investor status and decide whether to extend it past  the initial transition period. Although the status can be awarded only  during the transition period, the recent legislation imposes no limit on the  grandfathered status’ length of validity. If and when the grandfathered  status expires, and for new CNMI foreign investors, DHS will adjudicate  applications under the regular treaty investor status and under the other  immigrant or nonimmigrant categories generally available under U.S.  immigration law.
section_title: Lack of Key Data on Foreign Investment in the CNMI Hinders Assessment of Legislation’s Likely Impact and May Hamper Agency Decisions
paragraphs: A lack of key data makes it difficult to assess the likely impact of the  recent legislation’s implementation on foreign investment in the CNMI and  may limit DHS’s ability to make informed implementation decisions.  Because the legislation may not affect all foreign investment in the CNMI,  estimating the legislation’s impact requires data showing (1) current  overall levels of foreign investment, (2) the amount of investment  associated with each type of CNMI foreign investor entry permit, and (3)  the extent to which investors’ decisions are affected by access to entry  permits. However, these data are currently unavailable.
Overall foreign investment. Neither the CNMI government nor the  federal government has information on the overall level of foreign  investment in the CNMI. As a result, baseline information needed to assess  the likely impact of key agency decisions on foreign investment is  lacking.
Investment associated with foreign investor entry permits. The  CNMI government lacks readily accessible and compiled data on the sizes  and types of permit holders’ investments, which DHS needs to determine  the relative importance of each type of entry permit and the likely impact  of possible implementation decisions.
Impact of access to entry permits. Data showing the extent to which  foreign investors’ decisions are currently affected by their access to  particular entry permits are not available. Although access to the CNMI  through foreign investor entry permits may be a key factor for some  investors, others may choose to invest regardless of their ability to obtain  an entry permit. For example, some foreign investors may enter the CNMI  under its permit waiver program or obtain regular-term business entry  permits. In addition, foreign investors may invest without entering the  CNMI.
section_title: Available Data Suggest That DHS’s Application of Grandfathered Status Will Partly Determine Extent of Legislation’s Impact on Foreign Investment
paragraphs: DHS’s decision about the foreign investor entry permit holders to be  grandfathered will partly determine the extent of the legislation’s impact  on foreign investment in the CNMI. According to available data, if DHS  restricts the grandfathering of foreign investors to perpetual foreign  investor entry permit holders, a small number of investors will qualify for  grandfathering under the new legislation. However, if DHS extends the  grandfathering provision to long-term business entry permit holders, many  more investors will qualify.
According to data from the CNMI Department of Commerce provided in  the CNMI government’s comments on a draft of this report, long-term  business entry permits accounted for 90 percent (506 of 562) of all long- term business and perpetual foreign investor entry permits active and valid  in July 2008. The data show that 94 percent (448 of 478) of the businesses  associated with these permits were for long-term business entry permits.  In addition 56 perpetual foreign investor entry permits, associated with 30  businesses, were active and valid in July 2008.
According to the CNMI government, approximately 18 percent of these  long-term business and perpetual foreign investor permit holders were  from countries that are not listed as a treaty nation with the United States.  Depending upon the decisions of DHS, unless these permit holders are  grandfathered under the legislation they would not qualify to obtain a  nonimmigrant treaty investor visa.
section_title: Legislation’s Impact on CNMI Foreign Investment Could Affect Labor Market and Tourism
paragraphs: Any impact that the legislation’s implementation has on foreign investment  may also affect the labor market and tourism. For example, if DHS’s  decision about the grandfathering of foreign investor entry permits leads  to a reduction in foreign investment, causing businesses to close, demand  for foreign workers could fall. Also, available services could diminish,  lessening the CNMI’s attractiveness to tourists.
Likewise, any impact on the labor market or tourism sector will likely  affect investment, including foreign investment, in the CNMI. For example,  if DHS and DOL decisions about the CNMI-only work permit decrease  employers’ access to foreign workers, investors may have less incentive to  open or operate businesses in the CNMI. In addition, some foreign  investors may be reluctant to commit to long-term business plans when  future access to foreign workers is uncertain. Similarly, if excluding any  countries from the CNMI-Guam visa waiver program causes tourism from  those countries to drop, reduced demand for tourism-related products and  services in the CNMI could lessen investors’ incentive to operate  businesses that provide such products and services.
Moreover, any reduction in access to foreign workers may negatively  affect tourism and vice versa. For example, reduced access to foreign  workers to perform tourism-related tasks, such as hotel housekeeping,  could negatively affect tourism if CNMI residents were unwilling to take  such jobs, according to CNMI tourism sector representatives. Likewise,  reductions in tourism could cause businesses to close, reducing demand  for foreign workers.
section_title: Conclusions
paragraphs: The recent legislation applying U.S. immigration law to the CNMI provides  federal agencies some flexibility in preserving the CNMI’s access to  foreign workers, tourists, and foreign investors during the transition to the  federal system. However, while the legislation states that it intends to  minimize potential adverse economic and fiscal effects on the CNMI and  to maximize its potential for future economic growth, the actual impact of  the legislation on the CNMI’s labor market, tourism, and foreign  investment will depend on decisions made by federal agencies in  implementing the legislation. For example, federal decisions about how  many foreign workers to admit under the CNMI-only work permit program  and whether and when to extend the program will be important in  determining the extent of the legislation’s impact on the CNMI labor  market and economy. In addition, the impact of the legislation on any one  of the sectors—labor market, tourism, and foreign investment—depends,  in part, on changes in the other sectors. For example, changes in access to  foreign workers could affect the viability of the tourism sector, which in  turn could affect foreign investment.
Given the serious challenges already facing the CNMI economy, it is  critical that federal agencies implement the legislation in ways that  minimize potential adverse effects to the CNMI economy and maximize  the CNMI’s potential for economic and business growth, following the  legislation’s stated intent. Because the interaction of key federal decisions  involving different departments will have a significant impact on the CNMI  economy, coordination of these decisions is critical and necessitates an  established interagency process, which currently does not exist. In  addition, developing strategies for obtaining critical data that are currently  unavailable on the CNMI labor market and foreign investment is essential  to federal agencies’ ability to make appropriate and effective decisions in  implementing the legislation and fulfilling its goals.
section_title: Recommendations for Executive Action
paragraphs: Because of the importance of key implementation decisions by different  federal agencies and the interaction of those decisions, we recommend  that the Secretary of Homeland Security lead other relevant federal  agencies, including the Departments of the Interior, Labor, and State, in  identifying the interagency process that will be used to collaborate with  one another—and consult with the CNMI government, as required—to  jointly implement the legislation.
Because current data gaps limit federal agencies’ ability to make key  implementation decisions to best meet the goals of the legislation, we  recommend that the Secretary of Homeland Security and the Secretary of  Labor take the following two actions:    develop a strategy for obtaining critical data on the CNMI labor market  that are not currently available on an ongoing basis, such as data on the  wages, occupations, and employment status of CNMI residents and foreign  workers; and    develop a strategy for obtaining critical data on CNMI foreign investment,  such as overall levels of foreign investment and the investment amounts  associated with various types of foreign investor entry permits.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to officials in DHS, DOI, and DOL and in  the CNMI government for review and comment. We received written  comments on the draft report from DHS and DOI and from the CNMI  government, which are reprinted in appendixes X, XI, and XII,  respectively. We also received technical comments from DHS and DOI and  from the CNMI government. We incorporated their comments as  appropriate. DOL had no comments. In addition, we provided a draft to the  Department of State for technical review, and State had no comments.  DHS agreed with our findings and recommendations, and DOI generally  agreed with our findings. The CNMI government raised concerns or issues  about some aspects of our report methodology and analysis.
DHS agreed with our findings and recommendations in its written  comments. DHS agreed with the intent of our recommendation on  interagency collaboration subject to the authority of the Secretary of the  Interior regarding the Interagency Group on Insular Areas pursuant to  Executive Order 13299 of May 8, 2003. While the Interagency Group on  Insular Areas is one coordinating process available, we believe that DHS  should lead other relevant agencies in identifying the most effective and  sustainable process possible for coordinating implementation decisions.  DHS provided new information noting that department officials, in  collaboration with DOI officials, already have taken steps toward meeting  the recommendation’s intent by sending an interagency delegation to the  CNMI to consult with government officials and the private sector on  implementing the law and addressing the related economic impact. DHS  also agreed with the intent of our recommendation on developing  strategies for obtaining critical data on the CNMI labor market and foreign  investment and said that it planned to collaborate with DOL on these  matters.
DOI generally agreed with our findings in its written comments, saying  that the report presents a realistic picture of the uncertainties faced by  both the federal and CNMI governments and provides a good summary of  the mandates of the law. DOI noted that it had already begun discussions  with DHS, DOL, and the Departments of Justice and State to assist with  development of the CNMI’s transition program. In addition, it noted that  coordination among federal agencies must also consider the duties and  responsibilities of the CNMI’s local government agencies. DOI identified  two technical areas of the report in which it believed clarification was  necessary. First, it questioned the report’s finding that the CNMI’s  exemptions from H visa caps under the legislation would not apply past  the end of the transition period in 2014 and said it had concluded that the  transition period end does not apply to the cap exemptions. The  department said it would request that DHS coordinate with other federal  agencies and obtain a final legal determination. Our interpretation of the  law in this report is consistent with our March 2008 report and consistent  with the interpretation of the law by officials of DHS, the agency  responsible for implementing and administering the provisions of the  transition period under the legislation. In addition, we note that the  subsequent report of the Senate Committee on Energy and Natural  Resources on H.R. 3079 states that the Committee intends that the H  exemptions for the CNMI and Guam be extended along with any extension  of the 5-year transition period. However, we are constrained in our  analysis to the language in the bill as is, unless amended. Second, DOI  commented that our current report should note that the law mandates that  the CNMI produce and provide required information to DHS and DOL. We  revised the report to indicate that the legislation requires the CNMI  government to provide the Secretary of Homeland Security all immigration  records or other information that the Secretary deems necessary to assist  its implementation; however, the relevant provision does not specifically  mention DOL.
The CNMI government raised several concerns or issues about aspects of  our report methodology and analysis, which we have summarized in four  areas. First, the CNMI government commented that the GDP simulation  methodology used in the report is inadequate. It also contended that the  report’s assessment of future demand for foreign workers in the CNMI is  faulty and ignores recent evidence of economic recovery. We disagree. We  believe our methodology is a sound approach for analyzing and illustrating  the potential impact of federal implementation decisions on the CNMI  economy. We explained our GDP simulation methodology in appendix VI  of the draft report. We further explain our methodological choices,  assumptions, and limitations in our response to the CNMI government’s  letter (see app. XII). However, in response to the CNMI government’s  comments, we clarified the report to further describe our methodology  and analysis. We also incorporated updated data provided by the CNMI  government in the report as appropriate. Second, the CNMI government  stated that this report should not be published in its present form because  its discussion of possible consequences to the CNMI economy could itself  harm the CNMI. We believe it is essential to report the key decisions facing  federal agencies and to illustrate a range of potential impacts those  decisions could have on the CNMI economy. Fully informed and  coordinated federal agencies will be best capable of making decisions that  minimize any potential adverse consequences for the CNMI economy.  Third, the CNMI government inaccurately stated that the report predicts a  substantial decline in the CNMI economy as a result of the legislation,  misstating our message that the impact of the legislation on the CNMI  economy will depend on various federal decisions. Our report’s GDP  simulations illustrate a range of possible outcomes of federal decisions  regarding the CNMI-only work permit program, ranging from minimal to  substantial impact on the economy. The actual extent of the legislation’s  impact on the CNMI economy will depend on the key federal decisions  related to foreign workers, tourists, and foreign investors identified in our  report, as well as other factors in the economy. In addition, our report  clearly states that the GDP simulations should not be considered  predictive of future GDP. Fourth, the CNMI government provided  alternative data to that in the draft report related to foreign investor entry  permits, and we have incorporated the new data in the report. Appendix  XII provides our more detailed evaluation of the CNMI government’s  letter.
We are sending copies of this report to interested congressional  committees. We also will provide copies of this report to the U.S.  Secretaries of Homeland Security, the Interior, Labor, and State, and to the  Governor of the CNMI. We will make copies available to others on request.  In addition, the report will be available at no charge on the GAO Web site  at http://www.gao.gov.
If you or your staffs have questions about this report, please contact me at  (202) 512-3149 or gootnickd@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made key contributions to this report are  listed in appendix XIII.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report examines the factors that will affect the impact of recent  legislation applying U.S. immigration law to the Commonwealth of the  Northern Mariana Islands (CNMI) on the CNMI economy, in particular the  CNMI’s (1) labor market, including foreign workers; (2) tourism sector;  and (3) foreign investment.
In preparing this report, we relied on our March 2008 review of relevant  immigration and labor laws of the CNMI, current U.S. immigration law,  and the recent legislation. For that report and the current report, to  examine U.S. immigration law, we reviewed the U.S. Immigration and  Nationality Act (INA) and related regulations. To examine the relationship  between the CNMI and the United States, we reviewed the CNMI-U.S.  Covenant and the law applying U.S. minimum wage to the CNMI. We did  not review the extent to which CNMI or U.S. laws were properly enforced  or implemented. We also reviewed the recent legislation, including H.R.  3079, passed by the House of Representatives, and S. 2739, passed by the  House and Senate and signed into law as P.L. 110-229. In addition, we  reviewed the House Committee on Natural Resources Report for H.R.  3079 and the Senate Committee on Energy and Natural Resources Report  for H.R. 3079. We interviewed officials from the U.S. Departments of  Homeland Security (DHS), the Interior (DOI), and Labor (DOL). We also  reviewed analyses of the legislation and related studies by GAO, the  Congressional Budget Office, and the Congressional Research Service.
We conducted a site visit in the CNMI in September 2007 and interviewed  officials in the CNMI Office of the Governor, CNMI Department of  Immigration, CNMI Department of Labor, Marianas Visitors Authority  (MVA), CNMI Department of Commerce, CNMI Department of Finance,  CNMI Workforce Investment Agency, CNMI Public School System, and  other CNMI agencies. We conducted additional interviews with CNMI  officials in Washington, D.C. We also interviewed representatives of the  CNMI private sector and foreign workers.
Additionally, to describe the CNMI’s political and economic conditions, we  consulted data from U.S. government sources, such as the Department of  Commerce and the Census Bureau.
Labor market. For information on the current numbers and wages of  foreign workers, we mainly relied on data from the Labor and Immigration  Identification and Documentation System (LIIDS) on foreign workers  with 706K permits, provided by the CNMI government. We used the LIIDS  data to determine the number of foreign workers directly affected by the  minimum wage increases. However, we did not assess the overall impact  of the minimum wage increases on the CNMI economy, including the  impact on the living standards in the CNMI, as our scope was limited to  the possible effects of the minimum wage increases on the demand for  foreign workers. When possible, we determined that average values from  this data set were consistent with other sources, such as the 2005 CNMI  Household, Income, and Expenditures Survey (HIES). However, although  we used the most recent data available from the LIIDS system, from  December 31, 2007, the CNMI government informed us that some of the  data may not be current owing to administrative backlogs; therefore, these  data do not reflect the extent to which current wages comply with recent  changes in the minimum wage laws in particular cases. In addition, we did  not receive some data requested from the CNMI government, including  data from LIIDS on permit holders apart from 706K foreign workers, such  as workers with temporary work authorization (706P) and holders of the  CNMI government employee entry permit (706B). As a result, our analysis  covers 706K foreign workers, which represent the large majority of CNMI  foreign workers according to data on entries to the CNMI contained in the  Border Management System (BMS). For other information on the foreign  worker population, and for comparison with CNMI residents and other  workers, we mainly relied on the most recent household survey conducted  in CNMI, the 2005 CNMI HIES. We identified foreign workers in the HIES  survey by those who identified their status as “not a U.S. citizen,  temporary resident.” However, in addition to foreign workers, survey  respondents who identified themselves as temporary non-U.S. citizens may  include other groups, such as holders of CNMI foreign investor permits.  To determine the reliability of the survey data, we obtained written  responses to questions regarding the survey methods. To compare wages  earned by U.S. citizens and noncitizens in the CNMI, we used tax return  data provided by the CNMI Department of Finance. Because a limitation of  this data source was that we could not distinguish between noncitizens  who were permanent and temporary residents, we did not use it to obtain  information about temporary residents. In general, we determined that  available data on CNMI foreign workers were adequate and sufficiently  reliable for the purposes of our review. = FWF - (t+1)*  FWF, where t is the number of periods since the beginning of the reduction  (beginning with zero), FWF is the number of CNMI-only permits at the beginning of the  period, and months is the number of months in the period until permits should be equal to  zero.  In the case of the first period (May 31, 2009, to December 31, 2014), there were 67  months; in the case of the other periods, there were 60 months (5 years).  Using this  function, higher values of b cause the decline to be larger at the end of the period.  When b  is equal to 1, the function is linear.  The “last month” function had an exponential decline of  .1 percent per month, with the remaining decline occurring in the last month of the period.
CNMI-only permit program for up to 5 years at a time, we modeled  illustrative extensions at 2 years, 4.5 years, and never. Based on the  intersection of DHS and DOL decisions, the date at which the permits  would have to be zero could change, resulting in a new rate of reductions  in permits available. This analysis assumed that the number of permits  would not increase, and it did not incorporate the possible effect of an  increase of fees on the number of permits sought by employers.
To examine the possible range of effects from a reduction in foreign  workers, we calculated the effect on GDP under a range of assumptions  (see app. VI). Specifically, we varied the assumptions regarding the ability  of CNMI resident workers to substitute for foreign workers and the effect  of a reduction in labor on total production.
Tourism. To assess the importance of each tourist market and the trends  in tourist arrivals, we analyzed visitor arrival data from 1997 through 2007  from the MVA. MVA data are generated from scanned customs forms and  do not identify visitors by CNMI entry permit type (including the 703A  tourist entry permit). We determined that MVA data were sufficiently  reliable for our purposes. We did not receive sufficient BMS data from the  CNMI government on visitors to allow us to analyze the size of each tourist  market and related trends. We interviewed MVA representatives, who  explained to us the process they use to collect the data. We also compared  the aggregate visitor numbers to the ones from BMS, and the two are  generally consistent. MVA also provided us with information on the cost of  tour packages from Japan, Korea, and the People’s Republic of China. In  addition, we reviewed visa interview wait times reported by the U.S.  Department of State. We previously found that these data are not  sufficiently reliable to determine the number of posts with 30 or more days  of wait time. However, we report these data to illustrate the ranges of  possible wait times.
Foreign investment. We analyzed foreign investor entry permit data  from the CNMI Department of Commerce. The department provided data  tables on foreign investor and business entry permits issued, based on  administrative information maintained by department staff. Although the  data were limited to entry permits issued, did not give any information on  the value of investment other than category of permit issued, and did not  reflect whether entry permit holders were present in the CNMI, we  determined that they were sufficiently reliable for the purposes of our  review. We did not receive some data requested from the CNMI  government, including data from LIIDS on foreign investors. This  information would have included the current numbers of foreign investors  holding each type of entry permit and would have allowed us to compare  numbers of entry permit holders with CNMI Department of Commerce  data. Without LIIDS data on foreign investors, we were unable to verify  whether the holders of foreign investor entry permits issued were present  in the CNMI, nor did we know the total number of holders of perpetual  foreign investor permits. However, in its comments on a draft of this  report, the CNMI government said that our analysis of data on permits  issued conflicted with CNMI Department of Commerce data. The CNMI  government provided the number of active and valid long-term business  and perpetual foreign investor entry permits, as well as the numbers of  businesses associated with these permits, as of July 8, 2008, based on the  CNMI Department of Commerce’s manual review of its files. These data  were not previously provided to us. The new data do not include  information on issued entry permits and do not include complete  information on country of origin and other characteristics. The  information provided on the numbers of long-term business and perpetual  foreign investor entry permit holders is generally consistent with the data  on permits issued; therefore, we have replaced the information in the draft  report with the new data provided. In addition, some data on CNMI foreign  investment, including overall levels of foreign investment, are not  collected by either the CNMI or the federal government.
In general, to establish the reliability of the data that we used for reporting  trends and statistics for the CNMI labor market, tourism, and foreign  investment, we systematically obtained information about the way in  which data were collected and tabulated. When possible, we checked for  consistency across data sources. While the data provided by the CNMI  government had some limitations, and we did not receive all data  requested, we determined that the available data were adequate and  sufficiently reliable for the purposes of our review.
The scope of our study does not include foreign workers whose  documentation is not current or valid or those working in any  underground economy. In addition, we did not review federal agencies’  expected costs or operational needs in implementing the legislation.
We conducted this performance audit from June 2007 to August 2008 in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives.
section_title: Appendix II: U.S. Nonimmigrant Classes of Admission
paragraphs: Aliens in continuous and immediate transit through the United States   Aliens in transit to the United Nations Headquarters District   Foreign government officials, attendants, servants, and personal employees,  and spouses and children in transit   Visa Waiver Program—temporary visitors for business to Guam   Visa Waiver Program—temporary visitors for business   Visa Waiver Program—temporary visitors for business to Guam   Visa Waiver Program—temporary visitors for business   Visa Waiver Program—temporary visitors for pleasure to Guam   Visa Waiver Program—temporary visitors for pleasure   Temporary workers with “specialty occupation”
section_title: Appendix III: Information on the CNMI Economy
subsections: section_title: The CNMI Economy
paragraphs: During the 1990s the economy of the CNMI relied largely on the garment  and tourist sectors for most of its employment, exports, and production.  The CNMI’s unique trading relationship with the United States during this  time period, its appeal as a tourist destination, and its proximity to tourists  and inexpensive foreign labor from Asia helped the CNMI build a  prosperous economy based on its garment and tourist sectors.  Specifically, as long as certain conditions were met, garments  manufactured in the CNMI could be sold to buyers in the United States  without incurring import tariffs, and there were no quotas on imports of  garments to the United States from the CNMI. In addition, these garments  could bear labels identifying them as having been made in the United  States. These features gave garment manufacturers in the CNMI greater  access to the U.S. market and, therefore, an advantage over garment  manufacturers from neighboring countries. In addition, the CNMI’s local  authority over immigration and the minimum wage, as well as other  factors, meant that CNMI industry had access to a large supply of  inexpensive foreign labor.
Fueled by a rapidly growing tourism and garment industry, the CNMI had  one of the fastest growing economies in the world since 1978 and had an  employment growth rate of 12.7 percent annually between 1980 and 1995,  which was eight times that of the U.S growth rate over that period. The  number of visitors to the CNMI rose from 100,000 in 1980 to almost  700,000 in 1995. Both the garment and tourist industries contributed  directly to the economy by generating employment and bringing revenue  from outside the CNMI via exports. In 1995, these two industries  accounted for about 80 percent of all employment. In addition, a 1999  study found that garment manufacturing and tourism accounted for about  85 percent of CNMI’s total economic activity and 96 percent of its exports.  In 1999, the garment industry directly employed about 16,000 workers,  including 13,500 foreign workers and 2,500 local residents. The tourist  industry directly employed about 9,600 workers in 1995, including 6,900  foreign workers and 2,700 local residents.
However, several recent developments in international trade have caused  the CNMI’s garment industry to decline dramatically. In January 2005, in  accordance with World Trade Organization agreements, the United States  eliminated quotas on textile and apparel imports from other textile- producing countries, leaving CNMI’s apparel industry to operate under  stiffer competition, especially from low-wage countries such as China.  With its trade advantage lessened, the CNMI’s garment industry has  shrunk. The value of CNMI textile exports to the United States decreased  from $1.1 billion in 1998 to $317 million in 2007. As a result, the number of  employees working in the garment industry has fallen from 21,000 garment  workers in 2001 to 14,000 in 2006. According to CNMI government  officials, the number of garment workers has fallen to 1,751 as of July  2008. In addition, there were 34 licensed CNMI apparel manufacturers in  1999; however, as of July 2008, only 6 firms remained in operation.
In addition to the garment industry, the CNMI economy depends heavily  on the tourism industry, which has also been negatively affected in recent  years by various external events. For example, due to the CNMI’s  proximity to Asia, Asian economic trends have a direct impact on the  CNMI’s economy. For example, tourism in the CNMI experienced a sharp  decline in the late 1990s due to the Asian financial crisis and due to the  cancellation of Korean Air service to the CNMI following an airplane crash  on Guam in August 1997 (see fig. 11). In addition, the tourism industry in  the CNMI faltered again with the September 11, 2001, terrorist attacks on  the United States. In 2003, according to CNMI officials, tourism slowed in  reaction to the SARS epidemic, which originated in Asia, and the war in  Iraq. Tourism in the CNMI is also subject to changes in airline practices.  For example, Japan Airlines withdrew its direct flights between Tokyo and  Saipan in October 2005, raising concerns because roughly 30 percent of all  tourists and 40 percent of Japanese tourists arrive in the CNMI on Japan  Airlines’ flights, according to CNMI and DOI officials. A mitigating factor is  Northwest Airlines’ new daily nonstop flights between Osaka and Saipan,  which are expected to replace about 40 percent of the seats lost from  Japan Airlines’ action. In addition, according to press reports, Northwest  Airlines recently announced that it will double its direct flights between  Saipan and Tokyo starting in July 2008, which is expected to bring an  additional 60,000 Japanese tourists to the CNMI. Furthermore, the CNMI  government noted in its comments on a draft of this report that Asiana  Airlines has also recently increased service capacity to the CNMI.
Total visitor arrivals to the CNMI dropped from a peak of 736,117 in 1996  to 389,345 in 2007, a decline of nearly 47 percent (see fig. 11). The number  of visitors from Japan—which accounts for the highest percentage of  visitors—decreased 23 percent from 2005 to 2006 and 26 percent from  2006 to 2007. At the same time, the CNMI has experienced an influx of  Chinese tourists in recent years, with the potential to re-energize the  industry. The Chinese share of the CNMI’s visitors increased significantly  from 0.4 percent in 1997 to 10 percent in 2007. CNMI officials are  optimistic that the number of Chinese visitors will continue to increase in  the future, especially on the island of Tinian, which already has gambling  and hotel facilities owned and operated by Chinese interests from Hong  Kong.
According to business groups, the CNMI retains certain advantages in  attracting foreign investment compared with nearby competitors, as well  as the United States. The CNMI’s relationship with the United States  provides the CNMI with political stability and the protections afforded to  businesses under the U.S. federal court system. In addition, the CNMI’s tax  structure has enabled the CNMI to maintain low individual and corporate  income tax rates. For example, residents of the CNMI pay no federal  income tax on income derived from sources in the CNMI. In addition,  corporations organized in the CNMI are generally treated as foreign  corporations for U.S. tax purposes and do not pay federal tax on income  earned in the CNMI, but they are generally subject to federal tax on any  income earned in the United States. Finally, the tropical climate and  natural beauty of the CNMI, as well as its close proximity to major Asian  markets, also create unique investment opportunities, particularly for  tourism. However, the CNMI government has identified addressing  infrastructure challenges as key to attracting new foreign investment.  These challenges include unstable electrical, water, and sewage services,  which make it more difficult to attract new investors.
At the same time that the CNMI economy has declined owing to the  collapse of the garment industry and reductions in tourism, the CNMI has  made efforts to attract future foreign investors. The CNMI has announced  successful efforts to attract large foreign investors such as Kumho- Asiana—investing in the LaoLao Golf Resort Development project—and  the Marianas Resort Development Co.—developing a Tinian casino and  hotel. According to press reports, in early May 2008, Kumho-Asiana  executives and local CNMI officials held the groundbreaking ceremony for  the resort. The $68.8 million LaoLao Golf Resort Development project is  the largest construction project on the island since 1997. In addition, the  CNMI government also has considered policy changes to help attract new  investors. For example, the government has explored revising strict land  lease laws that limit private leases to 55 years and ownership restrictions  that limit ownership of land to persons of Northern Marianas descent. The  CNMI also has tried to attract retirees from Asia.
section_title: The CNMI’s Fiscal Condition
paragraphs: The overall fiscal condition of the CNMI’s government steadily weakened  from fiscal year 2001 through fiscal year 2007. Fees collected by the  government from the garment industry have declined from $36 million in  2001 to $13 million in 2007. As a result of this deterioration of the garment  industry and other downward economic trends, as shown in table 7, the  CNMI’s governmental funds balance has declined, dropping from a  reported positive $17.2 million at the end of fiscal year 2001 to a negative  $153.2 million at the end of fiscal year 2007.
section_title: Appendix IV: U.S. and CNMI Fees for Foreign Workers, Tourists, and Foreign Investors
subsections: section_title: Specialty workers (H-1B): $320 to $2,320 for petition (range includes supplemental fees of $750 or $1,500 and fraud prevention fee of $500 required for some petitions); associated visa typically valid for up to 3 years
section_title: Appendix V: Applicability of Other Legislation Provisions to CNMI Foreign Workers
paragraphs: In addition to the CNMI-only work permits, the recent legislation contains  other provisions that will affect foreign workers, including exemptions  from H visa caps for nonimmigrant workers, the option to apply for  nonimmigrant worker visas generally available under U.S. law, and the  option to apply for employment-based permanent immigration status  generally available under U.S. law. However, these provisions will likely  affect a relatively small number of CNMI foreign workers.
subsections: section_title: Background
paragraphs: U.S. immigration law includes several types of visas for nonimmigrant  workers and their families and sets caps for two of these types of visas. In  particular, the H-1 category includes highly skilled workers coming to the  United States temporarily to perform in specialty occupations. H-1B visa  holders may be admitted for an initial period of 3 years that can be  renewed for a total of 6 years, and they can work in employment of varied  duration, depending on the terms of the visa. The H-2 category includes H- 2A visas for foreign workers providing temporary or seasonal agricultural  labor services, as well as H-2B visas for other temporary workers who can  perform short-term service or labor in a job for which unemployed U.S.  workers cannot be found. Both H-1B and H-2B visas are capped—only  65,000 H-1B visa holders and 66,000 H-2B first-time visa holders may be  issued visas in each fiscal year.
Other nonimmigrant visas available for foreign workers include, among  others, L visas for intracompany transfers; O visas for individuals of  extraordinary ability or achievement; P visas for artists, athletes, and  entertainers; and R visas for religious workers. In addition to  nonimmigrant visas, the INA contains permanent employer-sponsored  immigrant visas for individuals seeking to reside permanently in the  United States.
section_title: Exemptions from H Nonimmigrant Worker Visa Caps
paragraphs: Although access to foreign workers in the CNMI will be available through  exemptions from the usual caps on H nonimmigrant worker visas during  the initial transition period, in addition to the CNMI-only work permit  program, few CNMI foreign workers are likely to meet the requirements  for these visas. During the initial transition period, DHS will review and  adjudicate applications for H nonimmigrant work visas, uncapped under  the legislation. The exemption from the caps is an advantage to the CNMI,  as the demand for the H-1B and H-2B visas has exceeded the capped  supply in recent years. For example, in 2008 DHS received approximately  160,000 petitions for the 65,000 H-1B visas available. After the initial  transition period ends in 2014, the H caps will apply.
However, few foreign workers currently in the CNMI are likely to qualify  for the uncapped H nonimmigrant visas due to education and skill  requirements and to restrictions regarding the type of jobs to which H  visas apply. First, few foreign workers in the CNMI are likely to qualify for  the H-1B visa. H1-B visas are designed to give U.S. employers the  opportunity to hire foreign professionals if a U.S. citizen or resident is not  available. Based on a 2005 household survey of CNMI residents, about 20  percent of foreign workers have a college degree or higher, which is  generally required for the H-1B. However, the H1-B visa may be applicable  to workers who hold positions that are difficult to fill with CNMI residents.  For example, some workers holding professional positions, such as  accountants, may meet the H-1B requirement.
Nor are current CNMI foreign workers likely to qualify for H-2B visas  despite the exemptions on these visa caps. H-2B visas are available for  temporary workers who can perform short-term service or labor in a job  for which unemployed U.S. workers cannot be found. H-2B visa holders  may be admitted for an initial period of 1 year. No nonimmigrant visa  categories are currently available for workers performing continuous,  rather than temporary, work who do not meet the high-skill requirements  of the H-1B visas. However, based on the 2005 CNMI HIES survey, about  70 percent of noncitizens employed in the CNMI entered in 2002 or earlier,  indicating that many were employed on a nontemporary basis.
H-2A visas are not capped and would be available for foreign workers  providing temporary or seasonal agricultural labor both during and after  the initial transition period. However, based on the most recent LIIDS  estimate, there were only 555 foreign workers engaged in private farming,  about 3 percent of total foreign workers with 706K visas.
In addition, the exemptions from the H visa caps no longer apply after the  initial transition period ending in 2014. Foreign workers applying for H  nonimmigrant status are then subject to the numerical limitations set out  in federal law, and as noted above, demand for the H-1B and H-2B visas  has exceeded the capped supply in recent years.
Moreover, current H visa fees range higher than the current CNMI fees for  foreign workers, making them less desirable to employers. The current  CNMI worker fee is $250 per year; existing U.S. fees for H visa petitions  range from $107 to $773 per year (also see app. IV). The legislation  neither requires nor prohibits DHS from establishing different fees for the  uncapped CNMI and Guam H visas than for H visas in general, so it is not  clear what the uncapped H visa fees will be. As with higher CNMI-only  fees, increases in the cost of hiring foreign workers would translate into  increased labor costs and reduced incentives for employers to use the H- visa program. For example, a fee difference of $500 per year would be  equivalent to a wage increase of approximately $0.25 per hour. However,  H visas may be more desirable to foreign workers because, unlike other  nonimmigrant categories, H-1B and H-1C visa holders may seek to become  lawful permanent residents of the United States at the end of the  authorized nonimmigrant stay.
section_title: Nonimmigrant Worker Visas Generally Available under U.S. Law
paragraphs: In addition to H nonimmigrant worker visas, all INA nonimmigrant  categories would be available to qualified foreign workers attempting to  enter the CNMI during and after the transition period and after any  extensions of the CNMI-only permit program. Some workers can apply for  L visas for intracompany transfers, but these visas are available only to  managers and executives, workers with specialized skills, and their  spouses and children. Also, L visa holders must have spent at least 1  continuous year abroad with a qualifying organization prior to entering the  United States. Other nonimmigrant visas available for foreign workers are  for specialized work— such as O visas for individuals of extraordinary  ability or achievement; P visas for artists, athletes, and entertainers; and R  visas for religious workers—and thus, are not likely to apply to substantial  numbers of CNMI workers.
section_title: Employment-Based Permanent Immigration Status Generally Available under U.S. Law
paragraphs: When federal immigration law becomes applicable to the CNMI on the  transition program effective date, CNMI employers will be able to petition  to bring workers to the CNMI as employment-based permanent  immigrants under the same procedures as other U.S. employers. Each  fiscal year, about 140,000 employment-based immigrant visas are available  for workers to enter the United States on a permanent basis. Up to 28.6  percent of these visas may be available for skilled nontemporary and  nonseasonal workers, for professionals with baccalaureate degrees, and  for qualified workers capable of performing unskilled nontemporary and  nonseasonal labor for which qualified workers are not available in the  United States. For the unskilled laborers, up to 10,000 visas may be issued  each fiscal year to qualified immigrants after DOL certifies that qualified  workers are not available in the United States. The limited number of visas  available for nontemporary and nonseasonal workers suggests few CNMI  workers will be able to obtain them.
section_title: Appendix VI: Construction of Gross Domestic Product Simulations
paragraphs: The effect on the CNMI economy of a reduction in the availability of  needed foreign workers is uncertain. Generally, the size of the effect is  expected to be based on the degree to which any reduction in overall  needed labor causes production to decrease and on the effect of a  reduction in foreign workers on the productivity of resident workers.
In order to illustrate a range of possible effects on production from a  specific reduction of foreign workers, we generated simulations of  production in the CNMI economy, measured as gross domestic product  (GDP), under a range of assumptions regarding the effect of a reduction of  labor on production and the ability of the CNMI resident workforce to  substitute for the foreign workers in production. Because we were unable  to obtain a recent estimate of the CNMI’s GDP, the simulations were  conducted using 2007 as a base year, with an index value of 100.
As noted in the above report section on the labor market, existing trends  within the CNMI may affect the demand for foreign workers within the  coming years. Therefore, because these simulations did not control for  such potential changes in the CNMI over the next 12 years, they should not  be considered predictive of future GDP. Rather, they are an attempt to  illustrate a range of effects of the reduction in needed foreign workers,  leaving all other factors constant.
subsections: section_title: Model
subsections: section_title: Production Function
paragraphs: This analysis relies on the application of a combination of the commonly  used Cobb-Douglas production and Constant Elasticity of Substitution  functions to the CNMI economy.(1)                             Y = AKα(εFW−ρ+(1-ε)RW−ρ)−(1−α)/ρ where Y is output, K is capital, A is a constant, FW is the foreign  workforce, and RW is the resident workforce.  Using this function, total  labor is not simply the sum of resident and foreign labor, but the weighted  and exponential sum of ((εFW−ρ+(1-ε)RW−ρ)−1/ρ).  Because this model  raises the number of workers to a negative power, we could not use it to  examine the case in which the number of foreign workers is equal to zero.   The parameters that control both the substitutability and the factor shares  of resident and foreign labor are ρ and ε. In addition, the elasticity of  output with respect to “total labor” is given by (1−α).
In the particular case in which ρ = -1 and ε = .5, foreign and resident  workers are perfect substitutes and can be exchanged on a one-to-one  basis.  In this case, the production function approaches the Cobb-Douglass  function, although with a different constant:  (1a)
Y = AKαL(1−α) where L = (FW+RW).  However, by increasing the ρ parameter and  allowing the ε parameter to change we can decrease the one-to-one  substitutability of foreign and resident workers.
section_title: Method
paragraphs: To apply the equation (1), we created scenarios varying the elasticity of  output with respect to total labor (1-α) and the substitution parameters  ρ and δ.  Specifically, we allowed both these parameters to change  according to pre-determined probability distributions, which were  generated through a review of economic literature and existing CNMI data.   The rate of departure of foreign workers was chosen by assumption, to  account for the various options of federal agencies.  Then, with initial  conditions of the foreign and resident workforce, we simulated the  changes in the GDP of the CNMI based on the departures of foreign  workers.  We generated 10,000 random scenarios.  The model was run to  simulate scenarios through December 2021.
subsections: section_title: Initial Conditions
paragraphs: Any analysis of this type must specify the initial values from which the  trajectory stems. Because an exact estimate of GDP was not available we  chose an arbitrary GDP “base” of 100.
The initial foreign worker population was chosen to be 19,823 (based on  the most recent LIIDS estimate from December 2007). Unfortunately, a  similar estimate was not available for the resident worker population.  However, based on the household survey done in 2005, resident  employment was approximately 60 percent of the foreign worker  population. If that ratio applied today, there would be approximately  11,500 employed residents, which we chose as the initial condition.
section_title: Rate of Exit of Foreign Workers from the CNMI
paragraphs: The number of CNMI foreign worker permits that will be available in the  future is currently unknown and is dependent on many different decisions.  The Secretary of Labor will have the ability to extend the CNMI-only work  permit program indefinitely. The Secretary of Homeland Security will have  the ability to restrict the number of permits.
Because of this uncertainty, we used three illustrative possible scenarios,  beginning in June 2009, in order to present a range of possible reductions:  1.  Linear decline with renewal every 2 years. Assumes that the rate  of decline in the number of permits chosen by DHS is linear, and that  the Secretary of Labor extends the CNMI-only permit program every 2  years.  2.  Accelerating decline with renewal every 2 years. Assumes that  the rate of decline in the number of permits chosen by DHS  accelerates, and that the Secretary of Labor extends the CNMI-only  permit program every 2 years.  3.  Last month with renewal every 2 years. Assumes that the rate of  decline in the number of permits is very slight, with a steep decline in  the last month, and that the Secretary of Labor extends the CNMI-only  permit program every 2 years.
section_title: Distribution of Elasticity of Output with Respect to Labor
paragraphs: The economics of growth literature includes varying values of elasticity of  output with respect to labor. In an analysis of the growth rates of East  Asian nations, Alwyn Young refers to the “standard” assumption of about  two-thirds. In a recent paper by Louis Kuijs of the World Bank and Tao  Wang of the International Monetary Fund, the authors use an elasticity of  .5 in a model explaining China’s economic growth over the past 25 years.  Robert Hall assumes an elasticity of .7 for the United States.
Based on this range, we assumed that the elasticity could be anywhere  from .5 to .75, with a peak of probability at .625, and the simulations  assumed a triangular distribution over that range.
section_title: Substitutability of Foreign and Resident Labor Forces
paragraphs: The greater the degree to which CNMI resident workers are substitutes for  foreign workers in production, the less the effect of any restriction. While  some simulations of the U. S. labor market assume perfect substitutability  between immigrant and nonimmigrant labor, this is unlikely in the case of  the CNMI. Given that the CNMI economy supports greater numbers of  foreign workers than resident workers, the difference in the relative wages  can be used to determine the elasticity of substitution. Foreign worker  wages that are only slightly less than resident wages would indicate a high  degree of substitutability in the CNMI market. However, in the CNMI, the  average wages of foreign workers and resident workers are very different;  data from the 2005 CNMI HIES—the most recent available—suggest that  the average foreign worker had a wage of $4.40 in 2004, while the average  resident had a wage of $8.60. By itself, this would suggest substantial  nonsubstitutability in production, with an elasticity of .72 at the 2005 levels  of foreign and resident workers (and a ρ equal to .39).
However, the substitutability of the foreign and resident workers may also  be a product of regulation. For example, under recent CNMI labor law,  firms were required to maintain staffs of 20 percent resident workers; this  requirement was increased to 30 percent as of January 2008. Moreover,  many jobs, such as some in government, are closed to foreign workers.  Some of the regulations regarding the labor market may not have  analogues in federal immigration law. This might suggest that under the  recent legislation there will be more substitutability between foreign and  resident labor than the current levels of wages and number of workers  indicates.
We assumed that the foreign and resident labor force had some degree of  substitutability but were not perfectly substitutable. Specifically, we  allowed the substitution parameter, ρ, to take any value from .5 to -1 with  equal probability, a uniform probability over that range. Similarly, the  factor share, ε, was allowed to range from .35 to .65 with a uniform  distribution.
section_title: Appendix VII: Dependents of Temporary Non- U.S. Citizens in the CNMI
paragraphs: In order to estimate the extent to which CNMI foreign workers support  dependent children, including U.S. citizens, we analyzed data on  temporary non-U.S. citizens HIES does not provide data on the individual citizenship  of children according to the citizenship status of their parents, but it  provides information on the citizenship status of all children in the CNMI,  as well as the citizenship status of the heads of households in which CNMI  children reside. According to the 2005 survey, the total population of the  CNMI is about 66,000, with over 40 percent, about 28,000 people, living in  households headed by a temporary non-U.S. citizen. Households headed  by a temporary non-U.S. citizen on average have a total of 3.19 people  living in the households, including 1.28 children per household, compared  to an average of 1.97 children for all CNMI households (see table 8).
The 2005 HIES data include respondents who identified their status as “not a U.S. citizen,  temporary resident.” In addition to foreign workers, survey respondents who identified  themselves as temporary non-U.S. citizens may include other groups, such as holders of  CNMI foreign investor permits. of these children are living in a household headed by a temporary non-U.S.  citizen. Thus, one quarter of all children in the CNMI under the age of 18  are living in a household headed by a temporary non-U.S. citizen (see fig.  12).
In addition, 92 percent of children living in the CNMI are U.S. citizens (see  fig. 13). Therefore, there are between 3,217 and 4,728 children who are  U.S. citizens living in households headed by a temporary non-U.S. citizen,  or between 68 and 100 percent of all children living in households headed  by a temporary non-U.S. citizen are themselves U.S. citizens.
section_title: Appendix VIII: Country Participation in Current Waiver Programs in the United States, the CNMI, and Guam
subsections: section_title: U.S. Visa Waiver Program
paragraphs: CNMI entry permit   waiver programNo (limited for shipping)
No (police clearance)
CNMI entry permit   waiver program countries,  including the Republic of Korea, seeking admission into the U.S. Visa Waiver Program. The other  countries were Bulgaria, Cyprus, Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Malta,  Poland, Romania, and Slovakia. In August 2007, Congress passed legislation that provides DHS with  the authority to admit countries with refusal rates for business and tourism visas between  and 10  percent under the Visa Waiver Program if the countries meet certain conditions and if DHS  implements certain security measures. The Republic of Korea’s refusal rate in fiscal year 2007 was  4.4 percent. See GAO, Process for Admitting Additional Countries into the Visa Waiver Program,  GAO-06-5R (Washington, D.C.: July 2, 2006) and GAO, Visa Waiver Program: Limitations with  the Department of Homeland Security’s Plan to Verify Departure of Foreign Nationals, GAO-0-45T  (Washington, D.C.: Feb. 2, 200). While Canada is not included in the U.S. Visa Waiver Program,  nationals of Canada may also, in most circumstances, qualify for visa-free travel to the United States,  including Guam.  , 2004, includes the Republic of Korea, Hong  Kong, and Canada in the CNMI’s permit waiver program, but CNMI officials said that this order was  no longer in effect. The officials said that the CNMI currently waives permit requirements only for  visitors from countries included in the U.S. Visa Waiver Program. They could not identify any  document specifically revoking the 2004 order, and an official said the CNMI planned to issue  clarification to the policy in the near future.
Indicates countries for which visa waiver participation for tourism or business differs among the  United States, the CNMI, and Guam. Under U.S. visa waivers, visitors may enter for up to 90 days.  Under CNMI entry permit waivers, the length of admission is also up to 90 days. Under Guam visa  waivers, visitors may enter for up to 15 days, except that citizens from countries eligible for the U.S.  Visa Waiver Program may enter for 90 days. This table does not include the Freely Associated  States—the Federated States of Micronesia, Republic of the Marshall Islands, and Republic of  Palau—whose citizens are permitted to work in the CNMI and elsewhere in the United States under  the Compacts of Free Association.
section_title: Appendix IX: CNMI Immigration and Labor Expenditures
paragraphs: In order to provide information relevant to federal agencies assuming  responsibility for immigration functions in the CNMI, we requested  information from the CNMI government on its own expenditures on  immigration-related activities for fiscal year 2007. The CNMI government  reported that its Division of Immigration in the Office of the Attorney  General had total expenditures of $2,379,529 for fiscal year 2007 (see table  9).
The CNMI government also reported that the CNMI Department of Labor  had expenditures of $2,246,953 in fiscal year 2007 (see table 10).
In addition, CNMI officials provided us with the federal expenditures on  CNMI Division of Immigration and CNMI Department of Labor activities  related to immigration, which totaled $412,519 for fiscal year 2007 (see  table 11).
section_title: Appendix X: Comments from the Department of Homeland Security
section_title: Appendix XI: Comments from the Department of the Interior and GAO’s Evaluation
paragraphs: The following are GAO’s comments on DOI’s letter dated July 11, 2008.
In addition to generally agreeing with our findings, DOI identified two  technical areas of the report in which it believed clarification was  necessary.
subsections: section_title: GAO Evaluation
paragraphs: on H visas is contained in subsection 6(b), the exemption could not be  extended beyond 2014 without further legislation. In addition, we note  that the subsequent report of the Senate Committee on Energy and  Natural Resources on H.R. 3079 states that the Committee intends that  the H exemptions for the CNMI and Guam be extended along with any  extension of the 5-year transition period. However, we are constrained  in our analysis to the language in the bill as is, unless amended.  2.  DOI said it was important for the report to note that the law mandates  that the CNMI produce and provide the required information to the  Departments of Homeland Security and Labor. We have revised the  report to clarify that the legislation requires the CNMI government to  provide the Secretary of Homeland Security all immigration records or  other information that the Secretary deems necessary to assist its  implementation; however, the relevant provision does not specifically  mention DOL.
section_title: Appendix XII: Comments from the Commonwealth of the Northern Mariana Islands Government and GAO’s Evaluation
paragraphs: The following are GAO’s comments on the CNMI government’s letter dated  July 9, 2008.
subsections: section_title: GAO Evaluation
paragraphs: the CNMI economy. The CNMI government raised several specific  concerns:    The CNMI government expressed concern that the report does not  demonstrate how the CNMI economy would be affected in terms of  production, employment, wages and salaries, personal income,  population, labor force, and other factors. As the report notes, although  we could have attempted to estimate other aspects of the effect of the  reduction of foreign workers on the CNMI economy, such as the  average earnings of CNMI residents, we selected total GDP, a measure  of both production and national income, to measure the effect of  reductions in foreign workers on the overall economy—and the basis  of CNMI government tax revenue—rather than on any particular group.
The CNMI government stated that the report provides no baseline  against which impacts might be evaluated and does not take into  account factors in the rest of the economy. However, the report  accounts for factors including industry changes and minimum wage  increases in the section following the GDP simulations.
The CNMI government stated that the analysis is based on a simple  model with no empirical underpinnings. We disagree. The simulation is  based on the number of foreign workers relative to the number of  CNMI resident workers, according to the 2005 Household, Income, and  Expenditures Survey (HIES)—an empirical underpinning. As noted in  the report, the production function we use in the GDP simulations has  been used prominently in published, peer-reviewed economic studies  to model contributions of different groups of workers in an economy.
The CNMI government stated that the report did not demonstrate how  the impact of the legislation would affect the likelihood or length of  CNMI economic recovery. We agree. The scope of this report is limited  to the factors that will affect the impact of the legislation’s  implementation on the CNMI economy, and the likelihood or length of  CNMI economic recovery is beyond the scope of our review.
The CNMI government comments also inaccurately stated that the  report predicts a substantial decline in the CNMI economy as a result  of the legislation. As noted above, these scenarios are illustrative of a  range of possible outcomes depending on the interaction of DHS and  DOL decisions and do not predict or estimate the likelihood of each  scenario. objected to the term “temporary” to describe foreign workers in the  CNMI. Our use of the term “lawful permanent resident” is consistent  with U.S. law, and we have not revised it. In addition, we used these  terms in our March 2008 report, and the CNMI government expressed  no concerns in its review of the report. While we generally use the  term “foreign worker,” we are constrained by the terms used by cited  data sources. For example, the CNMI’s 2005 HIES includes data on  respondents who identified their status as “not a U.S. citizen,  temporary resident.” We have clarified the terms where possible.  19. The CNMI government objected to the term “undocumented foreign  workers,” saying that the CNMI has documentation on all of its foreign  workers but has foreign workers whose documentation is not current  (see letter page 11). We have revised the term to “foreign workers  whose documentation is not current or valid.”  20. In its technical comments, the CNMI government suggested we add  information to the report regarding the immediate relatives of foreign  workers, tourists, and foreign investors in the CNMI. We requested  information from the CNMI Office of the Governor on immediate  relatives from the Labor and Immigration Identification and  Documentation System (LIIDS) beginning in October 2007 but did not  receive it. In addition, appendix VII includes information on  dependents of temporary non-U.S. citizens in the CNMI based on 2005  HIES data.  21. In its technical comments, the CNMI government disagreed with  several graphics based on data on issued foreign investor entry  permits, previously provided by the CNMI Department of Commerce.  The CNMI government provided alternative data that we have  incorporated in the report. These include the number of active and  valid long-term business and perpetual foreign investor entry permits,  as well as the numbers of businesses associated with these permits, as  of July 8, 2008, based on the CNMI Department of Commerce’s manual  review of its files. However, the new data do not include information  on issued entry permits and do not include complete information on  permit holders’ countries of origin and other characteristics. As a  result, we removed several graphics and related discussion that were  included in the draft report. The CNMI government also said that the  2002 U.S. Economic Census, which the letter refers to as the 2002  CNMI Economic Census, provided a source of foreign investment data.  While the 2002 Census includes information on CNMI businesses by  owner citizenship status, we are not able to use the data in this report  because they are incomplete.
section_title: Appendix XIII: GAO Contacts and Staff Acknowledgments
paragraphs: David Gootnick, (202) 512-3149 or gootnickd@gao.gov.  Tom McCool, (202) 512-2642 or mccoolt@gao.gov.
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, Emil Friberg, Assistant Director,  Mark Speight, Assistant General Counsel, Marissa Jones, Ashley Alley,  Diana Blumenfeld, Benjamin Bolitzer, Ming Chen, Reid Lowe, and Eddie  Uyekawa made key contributions to this report. Technical assistance was  provided by Shirley Brothwell, Michael Hoffman, Michael Kendix,  Rhiannon Patterson, Diahanna Post, Berel Spivack, and Seyda Wentworth.
section_title: Related GAO Products
paragraphs: Defense Infrastructure: Planning Efforts for the Proposed Military  Buildup on Guam Are in Their Initial Stages, with Many Challenges Yet  to Be Addressed. GAO-08-722T. Washington, D.C.: May 1, 2008.
Commonwealth of the Northern Mariana Islands: Pending Legislation  Would Apply U.S. Immigration Law to the CNMI with a Transition  Period. GAO-08-466. Washington, D.C.: March 28, 2008.
Visa Waiver Program: Limitations with Department of Homeland  Security’s Plan to Verify Departure of Foreign Nationals. GAO-08-458T.  Washington, D.C.: February 28, 2008.
Defense Infrastructure: Overseas Master Plans Are Improving, but DOD  Needs to Provide Congress Additional Information about the Military  Buildup on Guam. GAO-07-1015. Washington, D.C.: September 12, 2007.
Commonwealth of the Northern Mariana Islands: Serious Economic,  Fiscal, and Accountability Challenges. GAO-07-746T. Washington, D.C.:  April 19, 2007.
Commonwealth of the Northern Mariana Islands: Serious Economic,  Fiscal, and Accountability Challenges. GAO-07-436T. Washington, D.C.:  February 8, 2007.
U.S. Insular Areas: Economic, Fiscal, and Financial Accountability  Challenges. GAO-07-119. Washington, D.C.: December 12, 2006.
Process for Admitting Additional Countries into the Visa Waiver  Program. GAO-06-835R. Washington, D.C.: July 28, 2006.
U.S. Insular Areas: Multiple Factors Affect Federal Health Care Funding.  GAO-06-75. Washington, D.C.: October 14, 2005.
Immigrant Investors: Small Number of Participants Attributed to  Pending Regulations and Other Factors. GAO-05-256. Washington, D.C.:  April 1, 2005.
Compact of Free Association: Negotiations Should Address Aid  Effectiveness and Accountability and Migrants’ Impact on U.S. Areas.  GAO-02-270T. Washington, D.C.: December 6, 2001.
Foreign Relations: Migration From Micronesian Nations Has Had  Significant Impact on Guam, Hawaii, and the Commonwealth of the  Northern Mariana Islands. GAO-02-40. Washington, D.C.: October 5, 2001.
Northern Mariana Islands: Procedures for Processing Aliens and  Merchandise. GAO/GGD-00-97. Washington, D.C.: May 26, 2000.
Northern Mariana Islands: Garment and Tourist Industries Play a  Dominant Role in the Commonwealth’s Economy.  GAO/RCED/GGD-00-79. Washington, D.C.: February 14, 2000.