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entitled 'Commonwealth Of The Northern Mariana Islands: Managing 
Potential Economic Impact of Applying U.S. Immigration Law Requires 
Coordinated Federal Decisions and Additional Data' which was released 
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Report to Congressional Committees: 

United States Government Accountability Office: 
GAO: 

August 2008: 

Commonwealth Of The Northern Mariana Islands: 

Managing Potential Economic Impact of Applying U.S. Immigration Law 
Requires Coordinated Federal Decisions and Additional Data: 

GAO-08-791: 

GAO Highlights: 

Highlights of GAO-08-791, a report to congressional committees. 

Why GAO Did This Study: 

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. 

What GAO Found: 

Labor market. 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. 

Tourism. 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. 

Foreign investment. 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. 

What GAO Recommends: 

GAO recommends that the Secretary of Homeland Security lead other 
relevant federal agencies in identifying an interagency process to 
jointly implement the legislation and that the Secretaries of Homeland 
Security and Labor jointly develop strategies to obtain critical data 
on the CNMI labor market and foreign investment. DHS agreed with the 
findings and recommendations, Interior agreed with the findings, and 
Labor had no comments. In response to the CNMI government’s concerns 
about the methodology and analysis, GAO clarified the report as 
appropriate. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-791]. For more 
information, contact David Gootnick at (202) 512-3149 or 
gootnickd@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

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: 

Recent Legislation's Possible Impact on CNMI Tourism Depends Largely on 
Federal Agency Decisions: 

Recent Legislation's Impact on CNMI Foreign Investment Depends, in 
Part, on Federal Decisions, but Lack of Data Hinders Assessment of 
Likely Impact: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: U.S. Nonimmigrant Classes of Admission: 

Appendix III: Information on the CNMI Economy: 

Appendix IV: U.S. and CNMI Fees for Foreign Workers, Tourists, and 
Foreign Investors: 

Appendix V: Applicability of Other Legislation Provisions to CNMI 
Foreign Workers: 

Appendix VI: Construction of Gross Domestic Product Simulations: 

Appendix VII: Dependents of Temporary Non-U.S. Citizens in the CNMI: 

Appendix VIII: Country Participation in Current Waiver Programs in the 
United States, the CNMI, and Guam: 

Appendix IX: CNMI Immigration and Labor Expenditures: 

Appendix X: Comments from the Department of Homeland Security: 

Appendix XI: Comments from the Department of the Interior and GAO's 
Evaluation: 

Appendix XII: Comments from the Commonwealth of the Northern Mariana 
Islands Government and GAO's Evaluation: 

Appendix XIII: GAO Contacts and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: Key Federal Implementation Decisions Related to CNMI Foreign 
Workers: 

Table 2: Percentage of CNMI Foreign Workers Earning No More Than 
Current Minimum Wage of $4.05 per Hour: 

Table 3: Key Federal Implementation Decision Related to CNMI Tourism: 

Table 4: Comparison of Current CNMI Visitor Entry Permit Program with 
U.S. Visitor Visa Program, for Nonwaiver Program Visitors: 

Table 5: Recent Legislation's Likely Impact on Tourists from Japan, 
South Korea, China, and Russia: 

Table 6: Key Federal Implementation Decisions Related to CNMI Foreign 
Investors: 

Table 7: The CNMI's Fiscal Condition: 

Table 8: Mean Number of Children in Household by Immigration Status of 
Head of Household, 2005: 

Table 9: CNMI Division of Immigration Expenditures for Fiscal Year 
2007: 

Table 10: CNMI Department of Labor Expenditures for Fiscal Year 2007: 

Table 11: Federal Expenditures on CNMI Division of Immigration and CNMI 
Department of Labor Activities for Fiscal Year 2007: 

Figures: 

Figure 1: CNMI Garment Exports to the United States, 1995 to 2007: 

Figure 2: Number of Visitor Arrivals to the CNMI, 1990 to 2007: 

Figure 3: Industry Breakdown of CNMI Workforce by Immigration Status, 
2005: 

Figure 4: Citizenship of CNMI Workers: 

Figure 5: Recent Federal Immigration Legislation's Provisions for 
Foreign Workers, Tourists, and Foreign Investors in the CNMI: 

Figure 6: Illustrations of Alternative DHS Decisions Regarding Annual 
Reduction in CNMI-Only Work Permits for Foreign Workers: 

Figure 7: Illustrations of Potential DHS and DOL Decisions' Joint 
Effects on Access to CNMI-Only Work Permits for Foreign Workers: 

Figure 8: Examples of Scenarios Illustrating U.S. Agency Decisions' 
Potential Joint Impact on Access to CNMI-Only Work Permits for Foreign 
Workers and CNMI Gross Domestic Product: 

Figure 9: Percentage of CNMI Foreign Workers Who Will Be Affected by 
Minimum Wage Increases, by Industry: 

Figure 10: CNMI Visitors' Countries of Origin, Fiscal Year 2007: 

Figure 11: Reported CNMI Visitor Arrivals by Country, 1996 through 
2007: 

Figure 12: Percentage and Number of Children in Each CNMI Household by 
Immigration Status of Head of Household, 2005: 

Figure 13: Immigration Status of Children in the CNMI, 2005: 

Abbreviations: 

BMS: CNMI Border Management System: 

CNMI: Commonwealth of the Northern Mariana Islands: 

DHS: U.S. Department of Homeland Security: 

DOI: U.S. Department of the Interior: 

DOL: U.S. Department of Labor: 

GDP: gross domestic product: 

HIES: CNMI Household, Income, and Expenditures Survey: 

INA: U.S. Immigration and Nationality Act: 

LIIDS: CNMI Labor and Immigration Identification and Documentation 
System: 

MVA: Marianas Visitors Authority: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

August 4, 2008: 

The Honorable Jeff Bingaman: 
Chairman: 
The Honorable Pete V. Domenici: 
Ranking Member: 
Committee on Energy and Natural Resources: 
United States Senate: 

The Honorable Nick J. Rahall II: 
Chairman: 
The Honorable Don Young: 
Ranking Member: 
Committee on Natural Resources: 
House of Representatives: 

The Honorable Donna M. Christensen: 
Chairwoman: 
The Honorable Luis G. Fortuno: 
Ranking Member: 
Subcommittee on Insular Affairs: 
Committee on Natural Resources: 
House of Representatives: 

The United States recently enacted legislation applying U.S. 
immigration law to the Commonwealth of the Northern Mariana Islands 
(CNMI),[Footnote 1] 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[Footnote 2] 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[Footnote 3] that ends in 2014. The recent legislation 
also amends U.S. immigration law[Footnote 4] to add the CNMI to an 
existing visa waiver program for Guam visitors.[Footnote 5] 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.[Footnote 6] 
Some federal decisions require consultation with the CNMI 
Governor.[Footnote 7] 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.[Footnote 8] 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)[Footnote 9] 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); 
[Footnote 10] the 2005 Household, Income, and Expenditures Survey 
(HIES);[Footnote 11] 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)[Footnote 12] and the Border Management System (BMS)[Footnote 13] 
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. 

Results in Brief: 

Labor market. Decisions that DHS and DOL will 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. DHS decisions that will 
affect employers' access to foreign workers include the number of 
permits to allocate each year, to be reduced to zero by the end of the 
CNMI-only permit program; the distribution of the permits; their terms 
and conditions; and the permit fees. DOL's decision regarding whether 
and when to extend the CNMI-only permit program past 2014 will likewise 
affect the availability of foreign workers. Moreover, interaction of 
the rate and timing with which DHS reduces the available number of 
permits and the timing of any DOL extensions of the program will 
significantly impact the permits' availability. For example, if DHS 
reduces the annual allocation of permits by the same number each year 
and DOL extends the program frequently, the availability of permits 
will decline less rapidly than if DOL extends the program less 
frequently or not at all. However, federal agencies have not yet 
identified an interagency process to coordinate such decisions. In 
addition, because key federal sources of labor market data do not cover 
the CNMI, the agencies may have difficulty in obtaining the data needed 
to make decisions that minimize any adverse impact on the CNMI. 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 economy, as illustrated by 
our simulations of a range of possible effects of agency decisions on 
CNMI GDP. However, federal agencies may make more modest reductions in 
CNMI-only permits, 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[Footnote 14] to replace foreign workers, factors such as the 
limited number of available CNMI residents may impede these efforts' 
effectiveness. 

Tourism. Any impact of the recent legislation on the CNMI's tourism 
sector will depend largely on DHS regulations specifying which 
countries will be included in the joint CNMI-Guam visa waiver program. 
The legislation's impact will be minimal for tourists from countries 
included in the joint visa waiver program; however, for tourists from 
countries not included in the joint program, the costs and time 
associated with obtaining visitor visas will likely increase, possibly 
influencing tourists to choose destinations other than the CNMI and 
negatively affecting CNMI tourism. Currently most CNMI tourists are 
from Japan and South Korea, both of which will probably be included in 
the joint visa waiver program because they currently are included in 
the Guam visa waiver program. China[Footnote 15] and Russia--the 
markets most likely to be affected by the legislation because they 
currently are not included in the Guam visa waiver program---account 
for about 10 percent and less than 1 percent of CNMI tourist arrivals, 
respectively, but are nevertheless considered important markets. If 
China and Russia are not included in the joint visa waiver program, 
tourists from these countries will face increased visa fees, more time- 
consuming procedures, and uncertainties related to possible visa 
refusal. According to CNMI tourism industry representatives, this will 
reduce the CNMI's attractiveness relative to other Asia and Pacific 
destinations. The likely impact on the CNMI of sharing the joint 
program with Guam is unclear. 

Foreign investment. The impact of the legislation on CNMI foreign 
investment will depend, in part, on key DHS decisions regarding foreign 
investor entry permits; however, lack of data makes it difficult to 
assess the likely impact of these decisions and may hamper federal 
decisions. In implementing the legislation, DHS will decide which CNMI 
foreign investor permit holders will receive "grandfathered" status as 
U.S. nonimmigrant treaty investors during the transition period. In 
particular, DHS will determine whether the status applies only to 
investors holding one of three types of CNMI foreign investor entry 
permits, the perpetual foreign investor entry permit, or extend this 
status to investors holding another type, the long-term business entry 
permit. DHS also will determine how long the grandfathered status will 
be valid. However, critical data on foreign investment in the CNMI-- 
such as data on overall foreign investment in the CNMI--are not 
available, making it difficult to estimate the likely impact of the 
legislation and limiting DHS's ability to make informed decisions 
regarding the grandfathered status. Data provided by the CNMI 
Department of Commerce show that long-term business entry permits 
accounted for 90 percent of all long-term business and perpetual 
foreign investor entry permits active and valid in July 2008. This 
suggests that DHS's decision on whether to apply grandfathered status 
to investors with these permits will partly determine the impact of the 
legislation. 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. 

We are recommending 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 they will 
use to coordinate their decisions--and consult with the CNMI government 
as required--in jointly implementing the legislation. We also are 
recommending that the Secretaries of Homeland Security and Labor 
jointly develop strategies for obtaining critical data on the CNMI 
labor market and on CNMI foreign investment. 

We provided a draft of this report to officials in DHS, DOI, 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. It 
commented that the GDP simulation methodology we used in the report is 
inadequate and that the report's assessment of future demand for 
foreign workers in the CNMI is faulty and ignores recent evidence of 
economic recovery. By focusing on one of several scenarios developed 
for illustrative purposes rather than the full range of scenarios 
included in our report, the CNMI government comments also inaccurately 
stated that the report predicts a substantial decline in the CNMI 
economy as a result of the legislation. We believe our methodology is a 
sound approach for analyzing the potential impact of federal 
implementation decisions on the CNMI economy. In response to these 
comments, however, we revised the body of the report to better clarify 
that the 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--without predicting 
future GDP. The CNMI government also expressed concern that the 
report's discussion of possible consequences to the CNMI economy could 
itself harm the CNMI. However, we believe that reporting the key 
decisions facing federal agencies and illustrating a range of potential 
impacts that those decisions could have on the CNMI economy is 
essential to effective implementation of the legislation that has now 
been enacted. Fully informed and coordinated federal agencies will be 
best capable of making decisions that minimize any potential adverse 
consequences for the CNMI economy. The actual extent of the 
legislation's impact on the CNMI economy will depend on the key federal 
decisions to be made related to foreign workers, tourists, and foreign 
investors identified in this report, as well as other factors in the 
economy. 

Background: 

Political History of the CNMI: 

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.[Footnote 16] 
Later, the Northern Mariana Islands sought self-government and 
permanent ties to the United States.[Footnote 17] 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.[Footnote 18] 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.[Footnote 19] The 
Covenant initially made many federal laws applicable to the CNMI, 
including laws that provide federal services and financial assistance 
programs.[Footnote 20] 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[Footnote 21] 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. 

The CNMI's Economy: 

Changing Economic Conditions in the CNMI: 

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. 
[Footnote 22] (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. 

Figure 1: CNMI Garment Exports to the United States, 1995 to 2007: 

[See PDF for image] 

This figure is a vertical bar graph depicting the following data: 
	
Year: 1995; 
Garment Exports: $425,870. 

Year: 1996; 
Garment Exports: $554,707. 

Year: 1997; 
Garment Exports: $797,619. 

Year: 1998; 
Garment Exports: $1,078,202. 

Year: 1999; 
Garment Exports: $1,046,660. 

Year: 2000; 
Garment Exports: $1,024,990. 

Year: 2001; 
Garment Exports: $946,597. 

Year: 2002; 
Garment Exports: $815,311. 

Year: 2003; 
Garment Exports: $817,151. 

Year: 2004; 
Garment Exports: $807,122. 

Year: 2005; 
Garment Exports: $676,916. 

Year: 2006; 
Garment Exports: $494,724. 

Year: 2007; 
Garment Exports: $316,603. 

Source: GAO analysis of U.D. Department of Commerce data. 

Note: Dollar amounts shown are not adjusted for inflation. 

[End of figure] 

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). 

Figure 2: Number of Visitor Arrivals to the CNMI, 1990 to 2007: 

[See PDF for image] 

This figure is a vertical bar graph depicting the following data: 

Year: 1990; 
Visitor Arrivals: 435,455. 

Year: 1991; 
Visitor Arrivals: 429,746. 

Year: 1992; 
Visitor Arrivals: 505,295. 

Year: 1993; 
Visitor Arrivals: 545,803. 

Year: 1994; 
Visitor Arrivals: 596,033. 

Year: 1995; 
Visitor Arrivals: 676,161. 

Year: 1996; 
Visitor Arrivals: 736,117. 

Year: 1997; 
Visitor Arrivals: 694,888. 

Year: 1998; 
Visitor Arrivals: 490,165. 

Year: 1999; 
Visitor Arrivals: 501,788. 

Year: 2000; 
Visitor Arrivals: 528,608. 

Year: 2001; 
Visitor Arrivals: 444,284. 

Year: 2002; 
Visitor Arrivals: 475,547. 

Year: 2003; 
Visitor Arrivals: 459,458. 

Year: 2004; 
Visitor Arrivals: 535,873. 

Year: 2005; 
Visitor Arrivals: 506,846. 

Year: 2006; 
Visitor Arrivals: 435,494. 

Year: 2007; 
Visitor Arrivals: 389,354. 

Source: Marianas Visitors Authority data. 

[End of figure] 

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.[Footnote 23] 

* The median household income in the CNMI fell from $22,898 in 2000 to 
$17,138 in 2004,[Footnote 24] and the per capita income in the CNMI 
decreased from $9,151 in 2000 to $6,178 in 2004.[Footnote 25] 

* 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.[Footnote 26] 

CNMI Reliance on Foreign Workers: 

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.[Footnote 27] 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). 

Figure 3: Industry Breakdown of CNMI Workforce by Immigration Status, 
2005: 

[See PDF for image] 

This figure contains two pie-charts depicting the following data: 

Labor Force of Temporary Workers, by Industry: 
Manufacturing: 48%; 
Hotel/food: 16%; 
Construction: 6%; 
Retail: 5%; 
Social services: 2%; 
Unemployed: 2%; 
Public administration: 0%; 
Other: 23%. 
Total: 22,155. 

Labor Force of U.S. Citizen and Permanent Residents, by Industry: 
Public Administration: 21%; 
Unemployed: 18%; 
Social services: 10%; 
Retail: 8%; 
Hotel/food: 8%; 
Manufacturing: 6%; 
Construction: 3%; 
Other: 26%; 
Total: 14,631. 

Source: GAO analysis of 2005 CNMI Household, Income, and Expenditures 
Survey (HIES). 

Note: "Other" represents workers in agriculture, forestry, fishing, and 
mining; wholesale trade; transport, communications, and utilities; 
information; finance, insurance, real estate, and rental businesses; 
science; management, administrative, and waste management; arts, 
entertainment, and recreation services; and other services. "Social 
services" includes educational, health, and social services. 

[End of figure] 

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. 

Figure 4: Citizenship of CNMI Workers: 

[See PDF for image] 

This figure is a stacked vertical bar graph depicting the following 
data: 

Citizenship of CNMI Workers: 

Year: 1980; 
U.S. citizen: 3,795 (62%); 
Not a U.S. citizen: 2,307. 

Year: 1990; 
U.S. citizen: 6,685 (25%); 
Not a U.S. citizen: 19,896. 

Year: 1995; 
U.S. citizen: 10,020 (27%); 
Not a U.S. citizen: 27,520. 

Year: 2000; 
U.S. citizen: 9,705 (22%); 
Not a U.S. citizen: 34,765. 

Year: 2005; 
U.S. citizen: 10,330 (27%); 
Not a U.S. citizen: 28,203. 

Source: GAO analysis of U.S. Census Bureau data for 1980, 1990, and 
2000; 1995 CNMI Census of Population and Housing; and the 2005 CNMI 
Household, Income, and Expenditures Survey (HIES). 

Note: Noncitizens include temporary workers and permanent residents. 
The data do not allow us to distinguish between these groups for all of 
the years shown. 

[End of figure] 

Minimum Wage in the CNMI: 

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.[Footnote 28] According to the law, the CNMI 
minimum wage was to increase to $4.05 per hour as of May 26, 2007. 

CNMI and U.S. Immigration Law: 

Current CNMI Immigration Law: 

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.[Footnote 29] 

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.[Footnote 30] The CNMI also offers a retiree foreign 
investor entry permit requiring a minimum investment in residential 
property by an applicant 55 years or older. 

Current U.S. Immigration Law: 

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).[Footnote 
31] 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.[Footnote 32] 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.[Footnote 33] 
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.[Footnote 34] 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.[Footnote 35] 

Recent Legislation Applying U.S. Immigration Law to the CNMI: 

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.[Footnote 36] 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.[Footnote 37] 
Figure 5 shows the legislation's key provisions related to foreign 
workers, tourists, and foreign investors.[Footnote 38] 

Figure 5: Recent Federal Immigration Legislation's Provisions for 
Foreign Workers, Tourists, and Foreign Investors in the CNMI: 

[See PDF for image] 

This figure is an illustration of Recent Federal Immigration 
Legislation's Provisions For Foreign Workers, Tourists, And Foreign 
Investors In The CNMI, as follows: 

Enactment of legislation: May 8, 2008; 
1 year, plus possible 180-day delay, June 1, 2009, up to November 4, 
2009, transition period start date; 
End of initial transition period: 2014. 

Foreign workers: 
* CNMI-only work permit program: 
Begins with transition period start date and ends December 31, 2014, 
under P.L 110-229, enacted May 8, 2008. May be extended indefinitely 
for up to 5 years at a time by the U.S. Secretary of Labor. 
* Exemptions from certain visa caps for nonimmigrant workers: 
Begins with transition period start date and ends December 31, 2014, 
under P.L 110-229, enacted May 8, 2008. 
* Option to apply for nonimmigrant worker visas generally available 
under U.S. law: 
Begins with transition period start date and continues permanently. 
* Option to apply for employment-based permanent immigration status 
generally available under U.S. law: 
Begins with transition period start date and continues permanently. 

Tourists: 
* Joint CNMI-Guam visa waiver program: 
Begins with transition period start date and continues permanently. 

* Option to apply for U.S. visitor visas for business or pleasure 
generally available under U.S. law: 
Begins with transition period start date and continues permanently. 

Foreign investors: 
* Option for current CNMI foreign investors to convert to U.S. CNMI-
only nonimmigrant treaty investors: 
Begins with transition period start date and ends December 31, 2014, 
under P.L 110-229, enacted May 8, 2008. 
* Option to apply for nonimmigrant treaty investor status generally 
available under U.S. law: 
Begins with transition period start date and continues permanently. 
* Option to apply for U.S. immigrant foreign investor status generally 
available under U.S. law: 
Begins with transition period start date and continues permanently. 

Source: GAO analysis of P.L. 110-229 and current U.S. immigration law. 

[End of figure] 

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.[Footnote 39] 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.[Footnote 40] 

Following are descriptions of the recent legislation's key provisions 
related to foreign workers, tourists, and foreign investors.[Footnote 
41] 

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.[Footnote 42] 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.[Footnote 43] 

* 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.[Footnote 44] 

* 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;[Footnote 45] 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. 

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: 

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. 

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: 

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).[Footnote 46] 
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. 

Table 1: Key Federal Implementation Decisions Related to CNMI Foreign 
Workers: 

Secretary of Homeland Security: 

Key federal implementation decisions: 
* Determine the number of permits to provide under the CNMI-only work 
permit program; 
* Determine the way the permits are distributed; 
* Determine the terms and conditions for the permits; 
Legislative requirements and authorizations: 
* Reduce annual allocation of CNMI-only permits to zero by the end of 
the transition period or any extensions of CNMI-only permit program; * 
Attempt to promote the maximum use of U.S. citizens and, if needed, 
lawful permanent residents and citizens of the Freely Associated 
States, and to prevent adverse effects on the wages and working 
conditions of those workers. 

Key federal implementation decisions: 
* Determine fees to charge employers and workers for CNMI-only work 
permits; 
Legislative requirements and authorizations: 
* Set fees for the permits so as to recover the full cost of providing 
services, including administrative costs; 
* Charge employers an annual supplemental fee of $150 per permit to 
fund CNMI vocational education. 

Secretary of Labor: 

Key federal implementation decisions: 
* Decide whether and when to extend the CNMI-only permit program past 
2014 (indefinitely, for up to 5 years at a time); 
Legislative requirements and authorizations: 
* Base decision on the labor needs of legitimate businesses in the 
CNMI; 
* May consider (1) workforce studies on the need for foreign workers, 
(2) the unemployment rate of U.S. citizen workers in the CNMI, and (3) 
the number of unemployed foreign workers in the CNMI, as well as other 
information related to foreign worker trends; 
* Consult with DHS, DOI, Department of Defense, and the Governor of the 
CNMI. 

Source: GAO analysis of P.L. 110-229, Consolidated Natural Resources 
Act of 2008, May 8, 2008. 

Note: 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. 

[End of table] 

Key DHS Decisions: 

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.[Footnote 47] 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.[Footnote 48] 

* 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,[Footnote 49] 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. 

Figure 6: Illustrations of Alternative DHS Decisions Regarding Annual 
Reduction in CNMI-Only Work Permits for Foreign Workers: 

[See PDF for image] 

This figure contains three line graphs depicting the following data: 

Linear: Reduces the permits at a constant rate to zero: 

Date: December 2007; 
Number of foreign workers: 19,823. 

Date: December 2008; 
Number of foreign workers: 19,823. 

Date: December 2009; 
Number of foreign workers: 17,456. 

Date: December 2010; 
Number of foreign workers: 13,905. 

Date: December 2011; 
Number of foreign workers: 10,355. 

Date: December 2012; 
Number of foreign workers: 6,804. 

Date: December 2013; 
Number of foreign workers: 3254. 

Date: December 2014; 
Number of foreign workers: 1. 

[End of graph] 

Increasing rate: Increases the rate of reduction over the period to 
zero: 

Date: December 2007; 
Number of foreign workers: 19,823. 

Date: December 2008; 
Number of foreign workers: 19,823. 

Date: December 2009; 
Number of foreign workers: 19,606. 

Date: December 2010; 
Number of foreign workers: 18,229. 

Date: December 2011; 
Number of foreign workers: 15,579. 

Date: December 2012; 
Number of foreign workers: 11,658. 

Date: December 2013; 
Number of foreign workers: 6,465. 

Date: December 2014; 
Number of foreign workers: 1. 

[End of graph] 

Last Month: Slight decline until sharp drop in last month to zero: 

Date: December 2007; 
Number of foreign workers: 19,823. 

Date: December 2008; 
Number of foreign workers: 19,823. 

Date: December 2009; 
Number of foreign workers: 19,685. 

Date: December 2010; 
Number of foreign workers: 19,450. 

Date: December 2011; 
Number of foreign workers: 19,218. 

Date: December 2012; 
Number of foreign workers: 18,988. 

Date: December 2013; 
Number of foreign workers: 18,761. 

Date: December 2014; 
Number of foreign workers: 1. 

[End of graph] 

Source: GAO analysis of CNMI Labor and Immigration Identification and 
Documentation System (LIIDS) data. 

Notes: Figures show numbers of CNMI-only work permits for foreign 
workers after the beginning of the transition period, assuming that the 
transition period begins in June 1, 2009, and that the number of 
available CNMI-only work permits never increases. Our analysis does not 
address the duration of the permits' validity, which DHS will 
determine. 

For the number of foreign workers before and at the beginning of the 
transition period, we relied on CNMI LIIDS data showing 19,823 706K 
foreign worker permits active as of December 31, 2007; commenting on a 
draft of this report, the CNMI government stated that the number of 
706K permits as of June 30, 2008, was 18,942. 

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. 

[End of figure] 

* 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.[Footnote 50] 

* 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.[Footnote 51] 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.[Footnote 52] 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.[Footnote 
53] 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. 

Key DOL Decision: 

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[Footnote 54] 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.[Footnote 55] 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.[Footnote 56] 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. 

Interaction of Agency Decisions Could Significantly Affect Access to 
Foreign Workers, but No Process Exists for Coordinating Agency 
Decisions under the Legislation: 

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. 

Figure 7: Illustrations of Potential DHS and DOL Decisions' Joint 
Effects on Access to CNMI-Only Work Permits for Foreign Workers: 

[See PDF for image] 

This figure is a series of nine line graphs depicting the following 
data: 

Department of Homeland Security decisions about the rate of reduction 
of CNMI-only permits: 

Linear: Department of Labor decisions about whether and when to extend 
CNMI-only permit program, every 2 years: 

Date: December 2007; 
Foreign workers: 19,823. 

Date: December 2014; 
Foreign workers: 6,337. 

Date: December 2021; 
Foreign workers: 1263. 

Date: December 2028; 
Foreign workers: 164. 

[End of graph] 

Increasing rate: Department of Labor decisions about whether and when 
to extend CNMI-only permit program, every 2 years: 

Date: December 2007; 
Foreign workers: 19,823. 

Date: December 2014; 
Foreign workers: 13,851. 

Date: December 2021; 
Foreign workers: 7,881. 

Date: December 2028; 
Foreign workers: 4,087. 

[End of graph] 

Last month: Department of Labor decisions about whether and when to 
extend CNMI-only permit program, every 2 years: 

Date: December 2007; 
Foreign workers: 19,823. 

Date: December 2014; 
Foreign workers: 18,537. 

Date: December 2021; 
Foreign workers: 17,043. 

Date: December 2028; 
Foreign workers: 15,670. 

[End of graph] 

Linear: Department of Labor decisions about whether and when to extend 
CNMI-only permit program, every 4.5 years: 

Date: December 2007; 
Foreign workers: 19,823. 

Date: December 2014; 
Foreign workers: 3,100. 

Date: December 2021; 
Foreign workers: 155. 

Date: December 2028; 
Foreign workers: 3. 

[End of graph] 

Increasing rate: Department of Labor decisions about whether and when 
to extend CNMI-only permit program, every 4.5 years: 

Date: December 2007; 
Foreign workers: 19,823. 

Date: December 2014; 
Foreign workers: 6,685. 

Date: December 2021; 
Foreign workers: 953. 

Date: December 2028; 
Foreign workers: 45. 

Last month: Department of Labor decisions about whether and when to 
extend CNMI-only permit program, every 4.5 years: 

Date: December 2007; 
Foreign workers: 19,823. 

Date: December 2014; 
Foreign workers: 18,538. 

Date: December 2021; 
Foreign workers: 17,044. 

Date: December 2028; 
Foreign workers: 15,670. 

Linear: Department of Labor decisions about whether and when to extend 
CNMI-only permit program, no extension: 

Date: December 2007; 
Foreign workers: 19,823. 

Date: December 2014; 
Foreign workers: 1. 

Date: December 2021; 
Foreign workers: 1. 

Date: December 2028; 
Foreign workers: 1. 

[End of graph] 

Increasing rate: Department of Labor decisions about whether and when 
to extend CNMI-only permit program, no extension: 

Date: December 2007; 
Foreign workers: 19,823. 

Date: December 2014; 
Foreign workers: 1. 

Date: December 2021; 
Foreign workers: 1. 

Date: December 2028; 
Foreign workers: 1. 

Last month: Department of Labor decisions about whether and when to 
extend CNMI-only permit program, no extension: 

Date: December 2007; 
Foreign workers: 19,823. 

Date: December 2014; 
Foreign workers: 1. 

Date: December 2021; 
Foreign workers: 1. 

Date: December 2028; 
Foreign workers: 1. 

[End of graph] 

Source: GAO analysis of P.L. 110-229 and CNMI Labor and Immigration 
Identification and Documentation System (LIIDS) data. 

Notes: The thin lines represent DOL's decision to extend the CNMI-only 
permit program every 2 years, the heavy gray lines represent DOL's 
decision to extend the program every 4.5 years, and the heavy black 
lines represent DOL's decision not to extend the program. 

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 19,823 706K 
foreign worker permits active as of December 31, 2007; commenting on a 
draft of this report, the CNMI government stated that the number of 
706K permits as of June 30, 2008, was 18,942. 

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 2028 to show the year in which CNMI-only 
work permits approach zero for the majority of the joint decisions. 

[End of figure] 

* 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.[Footnote 57] However, the 
agencies have not yet identified the interagency process that they will 
use.[Footnote 58] 

Rate of Decline in Availability of CNMI-Only Permits for Foreign 
Workers Will Partly Determine Impact on CNMI Economy: 

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.[Footnote 59] 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).[Footnote 60] 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. 

Figure 8: Examples of Scenarios Illustrating U.S. Agency Decisions' 
Potential Joint Impact on Access to CNMI-Only Work Permits for Foreign 
Workers and CNMI Gross Domestic Product: 

[See PDF for image] 

This figure is a series of six line graphs depicting the following 
data: 

Department of Homeland Security decisions about the rate of reduction 
of CNMI-only permits: 

Department of Labor decision to extend CNMI-only permit program every 
two years, Scenario 1: 

Date: December 2007; 
Foreign workers: 19,823; 
GDP index, bounds of the maximum value: 100; 
GDP index, 25th to 75th percentile of results: 100; 
GDP index, bounds of the minimum value: 100. 

Date: December 2014; 
Foreign workers: 6,337; 
GDP index, bounds of the maximum value: 72.7-80.7; 
GDP index, 25th to 75th percentile of results: 64.8-72.7; 
GDP index, bounds of the minimum value: 55.7-64.8. 

Date: December 2021; 
Foreign workers: 1,263; 
GDP index, bounds of the maximum value: 52.1-72.6; 
GDP index, 25th to 75th percentile of results: 36.7-52.1; 
GDP index, bounds of the minimum value: 20.7-36.7. 

[End of graph] 

Department of Labor decision to extend CNMI-only permit program every 
two years, Scenario 2: 

Date: December 2007; 
Foreign workers: 19,823
GDP index, bounds of the maximum value: 100; 
GDP index, 25th to 75th percentile of results: 100; 
GDP index, bounds of the minimum value: 100. 

Date: December 2014; 
Foreign workers: 13,857; 
GDP index, bounds of the maximum value: 90.8-94.3; 
GDP index, 25th to 75th percentile of results: 87.8-90.8; 
GDP index, bounds of the minimum value: 83,6-87.8. 

Date: December 2021; 
Foreign workers: 7,881; 
GDP index, bounds of the maximum value: 78.2-84.6; 
GDP index, 25th to 75th percentile of results: 71.7-78.2; 
GDP index, bounds of the minimum value: 64.3-71.7. 

[End of graph] 

Department of Labor decision to extend CNMI-only permit program every 
two years, Scenario 3: 

Date: December 2007; 
Foreign workers: 19,823; 
GDP index, bounds of the maximum value: 100; 
GDP index, 25th to 75th percentile of results: 100; 
GDP index, bounds of the minimum value: 100. 

Date: December 2014; 
Foreign workers: 18,537; 
GDP index, bounds of the maximum value: 98.1-98.9; 
GDP index, 25th to 75th percentile of results: 97.5-98.1; 
GDP index, bounds of the minimum value: 96.4-97.5. 

Date: December 2021; 
Foreign workers: 17,043; 
GDP index, bounds of the maximum value: 95.9-97.6; 
GDP index, 25th to 75th percentile of results: 94.5-95.9; 
GDP index, bounds of the minimum value: 92.1-94.5. 

[End of graph] 

Source: GAO analysis of P.L. 110-229 and CNMI Labor and Immigration 
Identification and Documentation System (LIIDS) data. 

Notes: This analysis is based on some of the possible joint effects of 
DHS and DOL decisions illustrated in figures 7 (A), (D), and (G). 
Because this analysis does not allow for other changes in the CNMI over 
the coming years, it should not be considered as predictive of future 
GDP. 

In the graphs on the left-hand side of each scenario, the lines 
represent reduction in the numbers of CNMI-only work permits for 
foreign workers. The graphs on the right-hand side of each scenario 
represent 10,000 simulations of the CNMI GDP (indexed to be 100 in 
2007) under various assumptions. The darker area represents the middle 
50 percent of results, specifically the 25th to 75th percentile, while 
the lighter area represents the bounds of the minimum and maximum 
value. 

This analysis assumes that technology, capital, and the total number of 
employed CNMI residents remain constant. In addition, this analysis 
treats all foreign workers as being employed in full-time positions. 
Further, this analysis does not reflect potential changes in demand for 
foreign workers absent the legislation. Finally, this analysis does not 
account for the role of foreign workers under programs other than the 
CNMI-only permit program. See appendix VI for more details. 

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. 

Because of the nature of the functional form used, we could not use it 
to evaluate the portion of those scenarios in which the number of CNMI- 
only work permits is equal to zero. 

[End of figure] 

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[Footnote 61]-
-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.[Footnote 62] 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. 

Other Factors May Reduce Demand for Foreign Workers, Lessening the 
Impact of the Legislation: 

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. 

Declines in Garment Industry and Challenges to Tourism May Lessen 
Demand for Foreign Workers: 

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.[Footnote 63] 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.[Footnote 64] 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.[Footnote 65] 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. 

Scheduled Increases in the Minimum Wage Will Further Reduce Demand for 
Foreign Workers, but Extent of Likely Impact Is Not Known: 

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.[Footnote 66] 

Table 2: Percentage of CNMI Foreign Workers Earning No More Than 
Current Minimum Wage of $4.05 per Hour: 

Industry: Total; 
83.2%. 

Industry: Private household; 
99.5%. 

Industry: Garment; 
97.9%. 

Industry: Construction; 
82.5%. 

Industry: Services; 
77.4%. 

Industry: Hotel; 
66.9%. 

Source: GAO analysis of CNMI Labor and Immigration Identification and 
Documentation System (LIIDS) data. 

Note: LIIDS data are from December 31, 2007. The total line includes 
some LIIDS categories not depicted, such as banking and restaurant 
workers. 

[End of table] 

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. 

Figure 9: Percentage of CNMI Foreign Workers Who Will Be Affected by 
Minimum Wage Increases, by Industry: 

[See PDF for image] 

This figure is a multiple line graph depicting the following data: 

Total: 
Construction: 
Garment: 
Hotel: 
Household: 
Services: 

Year and minimum wage amount: 2007 ($3.55); 
Total: 77%; 
Construction: 74%; 
Garment: 97%; 
Hotel: 52%; 
Household: 99%; 
Services: 69%. 

Year and minimum wage amount: 2008 ($4.05); 
Total: 83%; 
Construction: 82%; 
Garment: 98%; 
Hotel: 67%; 
Household: 99%; 
Services: 77%. 

Year and minimum wage amount: 2009 ($4.55); 
Total: 86%; 
Construction: 86%; 
Garment: 98%; 
Hotel: 76%; 
Household: 99%; 
Services: 81%. 

Year and minimum wage amount: 2010 ($5.05); 
Total: 89%; 
Construction: 89%; 
Garment: 99%; 
Hotel: 80%; 
Household: 99%; 
Services: 85%. 

Year and minimum wage amount: 2011 ($5.55); 
Total: 90%; 
Construction: 91%; 
Garment: 99%; 
Hotel: 83%; 
Household: 99%; 
Services: 86%. 

Year and minimum wage amount: 2012 ($6.50); 
Total: 92%; 
Construction: 93%; 
Garment: 99%; 
Hotel: 86%; 
Household: 99%; 
Services: 86%. 

Year and minimum wage amount: 2013 ($6.55); 
Total: 92%; 
Construction: 95%; 
Garment: 99%; 
Hotel: 88%; 
Household: 99%; 
Services: 89%. 

Year and minimum wage amount: 2014 ($7.05); 
Total: 94%; 
Construction: 96%; 
Garment: 99%; 
Hotel: 89%; 
Household: 99%; 
Services: 92%. 

Year and minimum wage amount: 2015 ($7.25); 
Total: 94%; 
Construction: 96%; 
Garment: 99%; 
Hotel: 90%; 
Household: 99%; 
Services: 92%. 

Source: GAO analysis of Labor and Immigration Identification and 
Documentation System (LIIDS) data. 

Note: The figure shows the percentage of current CNMI foreign workers 
who will be affected because their wages are at or below the minimum 
wage. Total line includes some LIIDS categories not depicted, such as 
banking and restaurant workers. Data are from December 2007. We did not 
verify that the minimum wage would apply to all of the workers included 
in the figure. 

[End of figure] 

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.[Footnote 67] 

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.[Footnote 68] 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.[Footnote 69] 

Recent Legislation and CNMI Government Have Goals of Preparing Resident 
Workers to Replace Foreign Workers, but Several Factors May Impede 
These Efforts: 

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,[Footnote 70] 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.[Footnote 71] 

The most recent LIIDS data from December 2007 suggest that about 20,000 
foreign workers currently live in the CNMI.[Footnote 72] 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.[Footnote 73] 

* 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. 

Recent Legislation's Possible Impact on CNMI Tourism Depends Largely on 
Federal Agency Decisions: 

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. 

DHS Will Determine Countries to Be Included in the Joint CNMI-Guam Visa 
Waiver Program: 

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.[Footnote 74] 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.[Footnote 75] 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.[Footnote 76] 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.[Footnote 77] 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.) 

Table 3: Key Federal Implementation Decision Related to CNMI Tourism: 

Secretary of Homeland Security: 

Key federal implementation decision: 
* Determine countries to include in the CNMI-Guam visa waiver program, 
in consultation with the Department of State, DOI, and the Governors of 
the CNMI and Guam; 
Legislative requirements and authorizations: 
* Shall include any country from which the CNMI has received a 
significant economic benefit from the number of visitors for pleasure 
for the prior year, unless the country's inclusion would pose a 
security threat; 
* Governors of the CNMI and Guam may petition to have countries added. 

Source: GAO analysis of P.L. 110-229, Consolidated Natural Resources 
Act of 2008, May 8, 2008. 

Note: The legislation does not clearly define what constitutes a 
"significant economic benefit." 

[End of table] 

Legislation Likely Impacts a Small but Important Portion of CNMI 
Tourism Market: 

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.[Footnote 78] 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.[Footnote 79] 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. 
[Footnote 80] 

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.[Footnote 81] 

Figure 10: CNMI Visitors' Countries of Origin, Fiscal Year 2007: 

[See PDF for image] 

This figure is a pie-chart depicting the following data: 

CNMI Visitors' Countries of Origin: 
Japan: 215,196 (55%); 
Korea: 98,403 (25%); 
China: 41,024 (10%); 
Guam: 19,410 (5%); 
United States: 8,546 (2%); 
Philippines: 5,882 (1%); 
Russia: 3,043 (1%); 
Other: 3,856 (1%). 

Source: GAO analysis of Marianas Visitors Authority (MVA) data. 

Note: MVA began including Hong Kong tourist arrivals in data on China 
as of October 2006. In this figure, "other" includes arrivals from 
Taiwan (454 arrivals in 2007). The total number of visitors for fiscal 
year 2007 was 395,360. 

[End of figure] 

New Visa Requirements for Nonwaiver Visitors Will Likely Increase Cost, 
Time, and Uncertainty, Possibly Affecting CNMI Tourism: 

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. 

Table 4: Comparison of Current CNMI Visitor Entry Permit Program with 
U.S. Visitor Visa Program, for Nonwaiver Program Visitors: 

Cost: 
CNMI visitor entry permit: No fee or $100 fee if request is submitted 7 
days or less from intended date of arrival; 
U.S. visitor visas: $131, as well as visa issuance fees varying by 
country. 

Interview requirements: 
CNMI visitor entry permit: None; 
U.S. visitor visas: In-person interview at embassies or consulates. 

Interview wait time[A]: 
CNMI visitor entry permit: No interview required; 
U.S. visitor visas: Depending on the post: 
* China: 6 to 44 days; 
* South Korea: 8 days; 
* Russia: 6 to 17 days; (as of May 13, 2008, for visitor visas). 

Processing time: 
CNMI visitor entry permit: 7 days or less, according to the CNMI 
government; 
U.S. visitor visas: Depending on the post: 
* China: 2 to 3 days; 
* South Korea: 3 days; 
* Russia: 2 to 6 days; (as of May 13, 2008, for nonimmigrant visas 
overall). 

Visitor entry permit/visa refusal rate[B]: 
CNMI visitor entry permit: The CNMI government does not track data on 
entry permit refusal rates; 
U.S. visitor visas: 
* China: 24.5%; 
* South Korea: 3.6%; 
* Russia: 15.3%; (fiscal year 2006). 

Sponsorship and bonding requirements: 
CNMI visitor entry permit: 
* Cash bond in an amount not to exceed $1,500, returnable upon proof of 
the alien's timely departure; or; 
* proof that the alien, or the party sponsoring the alien, is currently 
employed in a position that pays more than $20,000 per year; or; 
* proof that the alien's sponsor has maintained a balance of $3,000 in 
a CNMI bank account for at least 3 months prior to the visitor's 
expected arrival date; 
U.S. visitor visas: None. 

Sources: CNMI and U.S. Department of State data. 

Note: CNMI entry permit for visitors is 703A. U.S. visas for temporary 
visitors are B-1 for business, B-2 for pleasure, or B1-B2 for combined 
business and pleasure. 

[A] Interview wait time is reported by the U.S. Department of State. We 
previously found that the data are not sufficiently reliable to 
determine the number of posts with 30 or more days of wait time. We 
report the data above to illustrate the ranges of possible wait times. 

[B] The U.S. Visa Waiver Program visa refusal rate is based on the 
number of visitor (B) visa applications for short-term business or 
pleasure submitted, worldwide, by nationals of each country. 

[End of table] 

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. 
[Footnote 82] 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.[Footnote 83] 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.[Footnote 84] See table 5 for a summary of the likely impact on 
tourists from Japan, South Korea, China, and Russia. 

Table 5: Recent Legislation's Likely Impact on Tourists from Japan, 
South Korea, China, and Russia: 

Japan: 
Current CNMI status: Visitor entry permit waiver; comity permit for 
visitors 55 years and older; 
Current U.S. status: Visa waiver; 
Importance of market to CNMI tourism: Largest market for CNMI tourism 
(55%); 
Likely impact from legislation: Minimal impact. New screening 
requirements to be implemented for U.S. Visa Waiver Program may pose 
some additional obstacles. 

South Korea: 
Current CNMI status: No visitor entry permit waiver; comity permit for 
visitors 55 years and older; 
Current U.S. status: No waiver under the U.S. Visa Waiver Program, but 
included in the Guam visa waiver program; 
Importance of market to CNMI tourism: Second largest market for CNMI 
tourism (25%); 
Likely impact from legislation: Minimal and slightly positive impact if 
granted visa waiver, as is likely. Minimal impact for visitors 55 years 
and older. New screening requirements to be implemented for U.S. Visa 
Waiver Program may pose some additional obstacles. 

China: 
Current CNMI status: No visitor entry permit waiver; visitor entry 
permit required; 
Current U.S. status: No visa waiver; visitor visa required; 
Importance of market to CNMI tourism: Comprises about 10% of the 
current market, but has been growing. The CNMI is on China's approved 
destination list; 
Likely impact from legislation: If China is not included in the CNMI-
Guam visa waiver program, the U.S. visa application process will likely 
add time, cost, and uncertainty for tourists from China; Currently, the 
CNMI targets a few Chinese cities. For tourists from cities with U.S. 
embassies or consulates, visa application requires little travel time, 
but the wait time for in-person interviews can be over 30 days; The 
visa fee ($131) is a significant portion (16% to 19%) of the cost of 
packaged tours from China; Visitor visa refusal rate is 24.5%. 

Russia: 
Current CNMI status: No visitor entry permit waiver; visitor entry 
permit required; 
Current U.S. status: No visa waiver; visitor visa required; 
Importance of market to CNMI tourism: Comprises 1 percent of the CNMI 
tourist arrivals, and considered potentially lucrative market because 
Russian tourists stay longer and spend more; 
Likely impact from legislation: If Russia is not included in the CNMI- 
Guam visa waiver program, the U.S. visa application process will likely 
add time and uncertainty for tourists from Russia; 
* Some Russian tourists may need to travel long distances to U.S. 
embassies or consulates; 
* The visa fee ($131) may be insignificant portion of the Russian 
tourists' expenditure in the CNMI. According to CNMI tourism sector 
representatives, Russian tourists usually stay longer and spend more 
than tourists from Japan, South Korea, or China; 
* Visa refusal rate is 15.3%. 

Source: GAO analysis of P.L. 110-229, U.S. and CNMI immigration laws 
and procedures, Marianas Visitors Authority (MVA) data, and U.S. 
Department of State data. 

Note: Other countries and regions not in the CNMI's waiver program or 
in the U.S. Visa Waiver Program but included in the Guam visa waiver 
program are Indonesia, Malaysia, Nauru, Papua New Guinea, Solomon 
Islands, Taiwan, Vanuatu, and Western Samoa. Tourists from these 
regions may have increased access to the CNMI under the recent 
legislation if they are included in the joint CNMI-Guam visa waiver 
program. The CNMI government said in its comments on a draft of this 
report that the addition of these countries was unlikely to make a 
significant contribution to CNMI tourism. The CNMI government also said 
that it believed the addition of Indonesia and Malaysia constituted 
potential increased security risks to the CNMI. 

[End of table] 

Effect on CNMI of Sharing Joint Visa Waiver Program with Guam Is 
Unclear: 

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.[Footnote 85] 
For example, the joint program will facilitate travel between Guam and 
the CNMI, and bundled tours of both islands may appeal to some 
tourists. 

Recent Legislation's Impact on CNMI Foreign Investment Depends, in 
Part, on Federal Decisions, but Lack of Data Hinders Assessment of 
Likely Impact: 

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. 

DHS Decisions Will Affect Foreign Investors' Access to the CNMI: 

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.[Footnote 86] 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.[Footnote 87] 

Table 6: Key Federal Implementation Decisions Related to CNMI Foreign 
Investors: 

Secretary of Homeland Security: 

Key federal implementation decisions: 
* Determine which current CNMI foreign investors will be 
"grandfathered" as U.S. E-2 treaty investors when the transition period 
begins; 
Legislative requirements and authorizations: 
* May provide grandfathered status to those who were admitted to the 
CNMI in long-term investor status under CNMI immigration laws before 
the transition program start date, who maintain the investment(s) that 
formed the basis for such status, and who meet other requirements. 

Key federal implementation decisions: 
* Decide the validity period for the grandfathered treaty investor 
status; 
* Legislative requirements and authorizations: [Empty]. 

Source: GAO analysis of P.L. 110-229, Consolidated Natural Resources 
Act of 2008, May 8, 2008. 

[End of table] 

Lack of Key Data on Foreign Investment in the CNMI Hinders Assessment 
of Legislation's Likely Impact and May Hamper Agency Decisions: 

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.[Footnote 88] 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.[Footnote 89] 

* 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.[Footnote 90] 

* 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.[Footnote 91] In addition, foreign investors may 
invest without entering the CNMI. 

Available Data Suggest That DHS's Application of Grandfathered Status 
Will Partly Determine Extent of Legislation's Impact on Foreign 
Investment: 

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.[Footnote 92] 
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.[Footnote 93] 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. 

Legislation's Impact on CNMI Foreign Investment Could Affect Labor 
Market and Tourism: 

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. 
[Footnote 94] Likewise, reductions in tourism could cause businesses to 
close, reducing demand for foreign workers. 

Conclusions: 

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. 

Recommendations for Executive Action: 

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. 

Agency Comments and Our Evaluation: 

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[Footnote 95] 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.[Footnote 96] 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 alternat