Reality Check In Pago Pago On Tuna Industryff

There are three givens when it comes to the economy of American Samoa. First, tuna canneries have dominated the economic life of the U.S. territory since the mid-1950s. Second, the likelihood that the canneries are headed toward extinction becomes greater with each passing year, as U.S. federal regulations change and international trade agreements make it more difficult for American Samoa to be competitive against low-wage nations in Southeast Asia and South America that also have established fish canning industries.

The third given is that despite years of clear warning that the end could come sooner than later, the closest thing to a broad-based plan to transition the territory’s economy is a now four-year-old report issued by the American Samoa Economic Advisory Commission. Should both canneries leave, the impact to American Samoa would be the economic equivalent of the 2004 tsunami that caused massive devastation in Southeast Asia, South Asia and the East Coast of Africa.

The American Samoa territorial government is looking at a number of economic options, but none discussed so far would match the dollar producing value of the canneries, and none would employ anywhere near as many workers. The U.S. Interior Department, which oversees American Samoa, also does not have a clear and viable post-cannery plan in place. Washington is focusing on trying to interest investors in the territory. An investors’ mission was scheduled to travel to Pago Pago in May.

The two tuna canneries overshadow all other economic activity in the territory, save for government employment. By the American Samoan government's own estimates, the export value in 2004 of the products produced by the two canneries (primarily canned tuna, but also byproducts such as fish meal and pet food) was $446 million. American Samoa has a gross domestic product of $500 million.

The canneries employ more than 5,000 workers, most from neighboring Samoa and others from Tonga. If they were to lose their jobs, problems related to sudden and massive unemployment would swamp the territory’s government. And the impact would be felt in Samoa and Tonga, with remittances from Pago Pago disappearing overnight. No one is sure how big the remittances are to either country. But think of it this way: the minimum wage in American Samoa for cannery workers averages US$3.60 an hour. That works out to T10.24 in Samoa, and P7.37 in Tonga. In both countries, wages at those rates are unheard of for workers with limited skills.



Territorial Governor Togiola Tulafono, who served on the American Samoa Economic Advisory Commission from 1999 to 2002, has been putting together a three-pronged development strategy that he hopes will “diversify our economy to reduce its dependency on our two canneries.” That strategy focuses on:

Enticing fishing-related activities to take over the canning plants, assuming StarKist Samoa and Chicken of the Sea-Samoa Packing (COS-Samoa Packing) leave American Samoa. These might include exporting chilled fresh fish or loins, but is predicated on developing expanded air freight services.

Beating the drum to interest foreign investors to look at the territory. Togiola was recently in New Zealand for a regional trade expo, and is heading to Hong Kong soon to talk up Pago Pago to Asian investors. What industries are likely magnets for new investors? No one seems to know at the moment.

Togiola is also pushing the development of a local workforce that can leverage technology to develop business opportunities. Among the possibilities are regional call centers, which would put American Samoa in direct competition with Fiji, a nation that has lower wages and sits on the all-important Southern Cross trans-Pacific fiber optic submarine cable.

Togiola has been focusing on the tech-play for some time. “I think this is our best bet. There isn’t anything else that can be so easily transformed into a replacement industry (for the canneries), and I know that we can transform this into another industry for American Samoa,” he says.

A Pacific Information and Communications Technology Academy (PICTA) has been set up at the American Samoa Community College. PICTA’s mission is to train high school and community college students, public and private employees to become professionals who are knowledgeable and skilled in information and communications technology networking, server configuration, network management and troubleshooting, and application systems design and development.

Togiola’s recent trip to New Zealand and upcoming mission to Hong Kong underscore his belief that American Samoa needs to look beyond traditional markets, such as the U.S. mainland or Hawaii, for economic opportunities. He says two reasons for interest by New Zealanders in American Samoa are a rising minimum wage at home and potentially easier entry into the United States market for products produced in American Samoa.

“Since the trip, we are now exploring the possibilities of having two New Zealand manufacturers moving their operations here to American Samoa,” Togiola says. “They are very interested in exporting to the U.S. market from here. But, in order to make that happen, we have a lot of our own homework to do such as compiling tariff information on a variety of products now being manufactured in New Zealand.”

Pictured here is StarKist Samoa’s cannery. If American Samoa’s two tuna canneries were to close, the result would devastate the territory’s economy.

One of the challenges facing Togiola is that the process of getting foreign investors interested in far-away American Samoa is both long-term and on-going. He also has to face the reality that a key component of the territory's competitive advantage for StarKist and Chicken of the Sea is a production tax credit in the U.S. Internal Revenue Service Code, and that credit has expired.

Section 936 was initially set to expire in the early 1990s, but was extended in 1995 with a 10-year sunset clause. A one-year extension was proposed last year and attached to the Budget Reconciliation Act, which passed the U.S. House of Representatives. That bill was forwarded to the U.S. Senate's Finance Committee where it languishes.

Reportedly, the Senate has drafted its own budget reconciliation bill, but without the Section 936 extension. Several alternative tax credits are currently being discussed but none have been formally submitted to Congress.

The outcome of this debate will likely determine whether the canneries remain or leave for more wage-friendly environs. That's a point that more business leaders in American Samoa are discussing openly. Says Vince Haleck, vice president of The Haleck Group, one of the territory's most aggressive investors: “The state of our economy is pretty good. But we do have to deal with a new reality if the canneries do shut down. We also have to recognize that outside forces will compel the canneries to leave if the situation here changes for them.”

And if there’s any doubt, the canneries themselves make it clear that they won’t stay if the financial incentives are not available. “Our position is simply that Section 936 is an important provision for us and American Samoa,” says Melissa Murphy-Brown, StarKist Seafoods’ Vice President of Public Relations, in a written statement to Pacific Magazine. StarKist Seafoods is the corporate parent of StarKist Samoa. “Thus, we’re pursuing its extension (continuation) for as far into the future as Congress will allow and we expect to be successful. More than 80 percent of American Samoa’s economy is dependent either directly or indirectly on the two canneries, StarKist Samoa and Chicken of the Sea-Samoa Packing, which together employ more than 5,150 people or 74 percent of the private sector workforce,” Murphy-Brown points out. “In American Samoa, the wage rate is $3.60 per hour-which is 15 times higher than what it is in Southeast Asian countries whose wage rates for cannery workers average less than $0.25 per hour. The Section 936 possession tax credit has permitted both canneries to remain and invest in American Samoa.”

American Samoa’s most prominent bankers point to the critical nature of resolving the federal tax credit issue soon, and in favor of the territory.

“We haven’t seen any new businesses brought in to diversify the local economy, and we encourage diversification as much as we can. The possible departure of the two canneries should concern everyone,” says David Buehler, Bank of Hawaii's Senior VP and District Manager-American Samoa. He says the bank has contacted Hawaii’s congressional delegation to ask for its help in extending Section 936. American Samoa has a non-voting delegate in the U.S. Congress.

At ANZ Amerika Samoa Bank, President and CEO Gary Ayre says, “The level of economic activity (outside of the canneries) has dropped considerably, now that Section 936 has expired. This time last year, there was a lot of activity and there also wasn't too much concern about 936 expiring. But now, we've noticed that many commercial projects have slowed down. Perhaps it may be due to the 936 expiration and what the canneries may do.”

The likely scenario if the canneries close is stark, and the potential impact beyond American Samoa could be significant. Earlier this year, Deputy Assistant Secretary of the Interior David Cohen, the Bush administration’s point main for U.S. insular affairs, told a U.S. Senate subcommittee: “The demise of the canning industry would leave American Samoa with no viable industry and no major employer other than the local government and the merchants that sell to it and its employees. At least in the short run, this would leave American Samoa almost wholly dependent on direct assistance from the federal government. It would likely result in an increase in federal assistance to the territory, as well as significant migration by U.S. national residents of the territory to Hawaii or other (U.S.) west coast states in search of work and benefits.”

While there are still many in American Samoa who cling desperately to the belief that the canneries will stay, the canneries are also making it clear that there are pressures beyond the federal production tax credit, pressures that could make American Samoa an unviable location for canneries even if the Section 936 is renewed.

COS Samoa Packing General Manager Herman Gebauer points out that the Bush administration’s current free-trade talks with Thailand presents a huge threat to the American Samoa canneries. On the agenda is a proposal to eliminate the 12.5 percent tariff now applicable to canned tuna imported from Thailand into the United States.

Supporting that proposal is a political entity called the US-Thailand Free Trade Agreement Business Coalition whose membership, according to its Web site, www.us-asean.org/us-thai-fta, includes Chicken of the Sea International, the corporate arm of COS-Samoa Packing. COS International is owned solely by Thai Union International, Inc., reportedly the largest canner in Asia and the second largest tuna canning company in the world.

“Certainly, we are interested in the free-trade negotiations that the Bush administration is having with Thailand and the impact it can have on the tuna industry in American Samoa, but we have no basis to determine the degree of that impact,” StarKist Seafoods’ Murphy-Brown says.

The last time there was a threat of this nature to American Samoa's canneries was about four years ago when the Andean Trade Preference Agreement came before the U.S. Congress. That agreement sought to, among other issues, lift tariffs on canned tuna from Bolivia, Columbia, Ecuador, Peru and Venezuela. Fortunately, for American Samoa's canneries, the tariffs remained.

Togiola says that during a trip to Washington, D.C. earlier this year, he brought up the U.S.-Thai free-trade talks during informal but separate meetings with U.S. Senator Daniel Inouye (D) of Hawaii and U.S. Representative Richard W. Pombo (R) of California, who also chairs the House Committee on Resources. During these talks, Togiola says he pointed out the damaging impact the tuna provision in those negotiations would have on American Samoa’s economy. He says he asked the two for their assistance in getting the tuna provision deleted from the treaty draft that is expected to come before the U.S. Congress for review and a vote in about 18 months. Togiola says both men agreed to look into this issue on behalf of American Samoa.

“No amount of production tax credits could ever protect (American Samoa) from the damaging effects if that 12.5 percent tariff is ever lifted,” the governor says. “At this time, we are working to keep tuna off that list. If we are successful, then we are fairly confident that the canneries would stay indefinitely in American Samoa.”

At a minimum, American Samoa would have dodged another bullet. The question is when will it stop focusing on dodging, and start implementing economic development plans that give the territory a chance to grow with or without the tuna canneries?

Source: Pacific Magazine