[Congressional Record Volume 148, Number 50 (Monday, April 29, 2002)]
[Senate]
[Pages S3507-S3509]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

                            By Mr. BINGAMAN:

  S. 2385. A bill entitled ``The Production Incentive Certificate 
Program Revision Act''; to the Committee on Finance.
  Mr. BINGAMAN. Mr. President, today I am introducing legislation to 
make several technical adjustments to the Production Incentive 
Certificate, PIC, program. The PIC program helps assure that the watch 
and jewelry industries in the U.S. insular possessions, particularly 
the U.S. Virgin Islands, USVI, will continue to provide critical 
sources of employment in the insular possessions. This legislation 
would improve the operation of the PIC program for both watch and 
jewelry manufacturers in the U.S. Virgin Islands and, over the longer 
term, would protect the PIC program and related duty incentives from 
the effects of any future reduction or elimination of watch tariffs.
  The watch industry is the largest light manufacturing industry in the 
USVI and remains one of the most important direct and indirect sources 
of private sector employment in the Territory. The insular watch 
production industry is also highly import-sensitive and faces continued 
threats from multinational watch producers, who have continued to move 
their watch production to lower wage countries.
  Congress and successive Administrations have recognized the 
importance of the watch industry to the USVI--and the import 
sensitivity of watches--through a series of significant enactments and 
decisions. The General Note 3(a) program, which Congress has 
incorporated in the Harmonized Tariff Schedule, grants duty-free 
treatment for qualifying insular possession watches and thereby 
provides a relative duty advantage vis-a-vis foreign watch producers. 
Through the PIC program, insular possession watch producers can obtain 
duty refunds based on creditable wages paid for watch production in the 
insular possessions. Additionally, in recognition of the relative 
advantage that duty-free treatment of watches provides to insular 
possession watch producers, Congress and successive Administrations 
have resisted efforts to eliminate watch duties on a worldwide basis.
  In 1999, Congress extended the General Note 3(a) program and PIC 
program benefits to jewelry produced in the insular possessions. In 
doing so, Congress sought to promote vital employment in the insular 
possessions by extending existing watch industry incentives to jewelry 
production--an industry which utilizes many of the same skills and 
facilities as watch production. In recent months, three mainland 
jewelry manufacturing companies have established operations in the USVI 
and are expected to file for PIC benefits in the near future.
  Recently, watch and jewelry producers in the Virgin Islands have 
consulted with the American Watch Association and U.S. watch firms that 
import substantial quantities of foreign

[[Page S3508]]

made watches regarding proposals to preserve and protect benefits for 
insular possession watches and jewelry, while also mitigating the 
impact of any future reduction of duties on imported watches. These 
discussions have resulted in the parties' unified support for the 
legislation that I am introducing today.
  The various technical adjustments set forth in this legislation would 
enhance the ability of insular watch and jewelry producers to utilize 
the PIC program while, at the same time, retaining overall PIC program 
unit and dollar value limits. Additionally, the legislation would 
establish a standby mechanism to mitigate the impact of any possible 
future reduction or elimination of watch duties on a worldwide basis 
through trade negotiations and congressional action. This mechanism--
which has broad support among the insular and domestic watch 
manufacturing and distribution sectors--would ensure that any future 
reduction in watch duties does not disturb the relative value of 
current duty incentives and PIC program benefits for the insular watch 
industry. Importantly, this standby mechanism would have no effect on 
current watch duties or PIC program limits.

  Under the PIC program, producers of watches and jewelry in the U.S. 
insular possessions are issued certificates by the Department of 
Commerce for specified percentages of the producer's verified 
creditable wages for production in the insular possessions. Based on 
these certificates, the producers are entitled to apply to the U.S. 
Customs Service for refunds on duties paid on watches. Certain 
technical provisions of the PIC program, however, impose unnecessary 
burdens on producers. These include unclear definitions, unduly complex 
PIC refund provisions and special issues relating to the extension of 
PIC benefits to jewelry. The legislation that I am introducing today 
includes technical adjustments to the PIC program to eliminate these 
burdens, while retaining overall PIC program limits on units and 
benefits.
  Currently, producers must assemble often voluminous import entry 
information and apply to U.S. Customs for wage-based refunds. If a 
producer has not paid sufficient import duties, the producer must sell 
the PIC certificate to another firm, which then applies for the duty 
refund. In either event, the PIC program assures that an insular 
producer is compensated for a specified percentage of its verified 
production wages, regardless of whether it has paid the corresponding 
amount of import duties. The bill would simplify this refund process by 
providing producers with the option of applying directly to the 
Treasury Department for the full amount of their verified PIC program 
certificates.
  For watches, the PIC program establishes a 750,000 unit limitation on 
the number of watches used to calculate an individual producer's PIC 
benefits. When the PIC program was extended to jewelry by Congress, 
this upper limit was also extended to each individual jewelry 
producer's qualifying jewelry production. While this limit may be 
appropriate for watches, which are technically sophisticated and 
relatively expensive, I am informed that it is likely to unduly limit 
jewelry production in the insular possessions, which relies on large 
quantities of relatively lower-priced units. My proposed legislation 
would address this issue by eliminating the 750,000 unit per producer 
limit for jewelry, while retaining the overall unit and dollar value 
limits for the PIC program as a whole.
  When Congress extended the PIC program to jewelry in 1999, it sought 
to encourage the phased establishment of new jewelry production in the 
insular possessions through a transition rule. Under this rule, jewelry 
items that are assembled, but not substantially transformed, in the 
insular possessions before August 9, 2001 would be eligible for PIC 
program and duty-free benefits. Although this new provision has helped 
attract new jewelry production to the USVI, I am informed that some 
potential producers are facing administrative, technical and business 
delays which may severely erode the benefits of the transition rule. 
The bill would address this issue by extending this transition rule for 
new insular jewelry producers for an additional 18 months.
  The bill would help to facilitate long term planning by existing 
insular producers and attract new producers to the insular possessions 
by extending the authorized term of the PIC program until 2015. The 
bill would also clarify current law by stating explicitly that verified 
wages include the amount of any fringe benefits.
  For many years, multinational companies that import substantial 
quantities of foreign-made watches into the United States have sought 
to reduce or eliminate U.S. watch duties, either through multiple 
petitions for duty-free treatment for watches from certain GSP-eligible 
countries or through worldwide elimination of watch duties in trade 
negotiations. Insular possession watch producers have repeatedly 
opposed these efforts on the ground that the elimination of duties on 
foreign watches would eliminate the relative benefit that insular 
possession producers receive through duty-free treatment under the 
General Note 3(a) program and, in turn, lead to the eventual demise of 
the insular watch industry. Successive Congresses and Administrations 
have agreed with these arguments and refused to erode the benefits that 
insular possession producers receive under General Note 3(a) and the 
PIC program.
  These continued battles over watch duties and the insular possession 
watch program have imposed significant resource burdens on Virgin 
Islands watch producers and the Government of the U.S. Virgin Islands, 
diverting resources and energy that could better be spent in enhancing 
growth and employment in the insular watch and jewelry industries. 
Virgin Islands watch producers, the AWA and representatives of U.S. 
firms that import foreign-made watches are seeking to address this 
longstanding issue by reconciling existing insular possession watch 
benefits with any worldwide reduction or elimination of watch duties. 
The legislation that I am introducing contains two mechanisms to help 
mitigate the impact of any future reduction or elimination of watch 
duties, while also preserving existing watch benefits.
  The bill would put in place a standby mechanism that would preserve 
the benefits of duty-free treatment under General Note 3(a) in the 
event that Congress and a future Administration were to agree to 
eliminate or reduce duties on watches. This mechanism would preserve 
the relative tariff advantage that insular producers currently enjoy 
over foreign-made watches by incorporating a ``hold harmless'' 
provision in the PIC program. Under this standby mechanism, if watch 
duties were reduced or eliminated in the future, PIC payments to 
insular producers would also include an amount that reflects the value 
to the insular producers of the current General Note 3(a) benefit. This 
mechanism would facilitate the eventual reduction or elimination of 
watch duties on a worldwide basis while helping to assure that any such 
duty reduction does not lead to the demise of the insular industry.
  Currently, payments under the PIC program are funded from watch 
duties. An alternative funding source would be required if watch duties 
were reduced or eliminated on a worldwide basis. The legislation that I 
am introducing provides that PIC benefits can be funded from jewelry 
duties or duties on other appropriate products.
  It is important to bear in mind that these two mechanisms would only 
be activated in the event that watch duties are, in fact, reduced or 
eliminated in the future--decisions that would require considerable 
deliberation and consultation by the President and Congress. By 
assuring the continuation of current benefits for insular producers, 
however, these mechanisms would greatly mitigate the impact of any 
eventual decision by Congress to reduce or eliminate watch duties.
  Congress has long recognized that the current watch industry 
incentives are critical to the health and survival of the watch 
industry in the U.S. Virgin Islands. By adopting this legislation, 
Congress can improve the operation of the PIC program for insular watch 
and jewelry producers and establish a mechanism to facilitate the 
eventual reduction or elimination of watch duties on a worldwide basis.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

[[Page S3509]]

                                S. 2385

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. AMENDMENTS TO UNITED STATES INSULAR POSSESSION 
                   PROGRAM.

       (a) Production Certificates.--Additional U.S. Note 5(h) to 
     chapter 91 of the Harmonized Tariff Schedule of the United 
     States is amended--
       (1) by amending subparagraphs (i) and (ii) to read as 
     follows:
       ``(i) In the case of each of calendar years 2002 through 
     2015, the Secretaries jointly, shall--
       ``(A) verify--
       ``(1) the wages paid in the preceding calendar year by each 
     producer (including the value of usual and customary fringe 
     benefits)--
       ``(I) to permanent residents of the insular possessions; 
     and
       ``(II) to workers providing training in the insular 
     possessions in the production or manufacture of watch 
     movements and watches or engaging in such other activities in 
     the insular possessions relating to such production or 
     manufacture as are approved by the Secretaries; and
       ``(2) the total quantity and value of watches produced in 
     the insular possessions by that producer and imported into 
     the customs territory of the United States; and
       ``(B) issue to each producer (not later than 60 days after 
     the end of the preceding calendar year) a certificate for the 
     applicable amount.
       ``(ii) For purposes of subparagraph (i), except as provided 
     in subparagraphs (iii) and (iv), the term `applicable amount' 
     means an amount equal to the sum of--
       ``(A) 90 percent of the producer's creditable wages 
     (including the value of any usual and customary fringe 
     benefits) on the assembly during the preceding calendar year 
     of the first 300,000 units; plus
       ``(B) the applicable graduated declining percentage 
     (determined each year by the Secretaries) of the producer's 
     creditable wages (including the value of any usual and 
     customary fringe benefits) on the assembly during the 
     preceding calendar year of units in excess of 300,000 but not 
     in excess of 750,000; plus
       ``(C) the difference between the duties that would have 
     been due on the producer's watches (excluding digital 
     watches) imported into the customs territory of the United 
     States during the preceding calendar year if the watches had 
     been subject to duty at the rates set forth in column 1 under 
     this chapter that were in effect on January 1, 2001, and the 
     duties that would have been due on the watches if the watches 
     had been subject to duty at the rates set forth in column 1 
     under this chapter that were in effect for such preceding 
     calendar year.''; and
       (2) by amending subparagraph (v) to read as follows:
       ``(v)(A) Any certificate issued under subparagraph (i) 
     shall entitle the certificate holder to secure a refund of 
     duties equal to the face value of the certificate on watches, 
     watch movements, and articles of jewelry provided for in 
     heading 7113 that are imported into the customs territory of 
     the United States by the certificate holder. Such refunds 
     shall be made under regulations issued by the Treasury 
     Department. Not more than 5 percent of such refunds may be 
     retained as a reimbursement to the Customs Service for the 
     administrative costs of making the refunds. If the Secretary 
     of the Treasury determines that there is an insufficient 
     level of duties from watch and watch-related tariffs, the 
     Secretary may authorize refunds of duties collected on 
     jewelry under chapter 71 or any other duties that the 
     Secretary determines are appropriate.
       ``(B) At the election of the certificate holder and upon 
     making the certification described in this clause, the 
     Secretary of the Treasury shall pay directly to the 
     certificate holder the face value of the certificate, less 
     the value of--
       ``(1) any duty refund previously claimed by the holder 
     under the certificate, and
       ``(2) a discount of not more than 2 percent of the face 
     value of the certificate,
     as determined by the Secretary of the Treasury.
       ``(C) Direct payments under clause (B) shall be made under 
     regulations issued by the Secretary of the Treasury. Such 
     regulations shall assure that a certificate holder is 
     required to provide only the minimum documentation necessary 
     to support an application for direct payment. A certificate 
     holder shall not be eligible for direct payment under clause 
     (B) unless the certificate holder certifies to the 
     Secretaries that the funds received will be reinvested or 
     utilized to support and continue employment in the Virgin 
     Islands.
       ``(D) The Secretary of the Treasury is authorized to make 
     the payments provided for in clause (B) from duties collected 
     on watches, watch movements, and parts therefor. If such 
     duties are insufficient, the Secretary of the Treasury is 
     authorized to make the payments from duties collected on 
     jewelry under chapter 71 or any other duties that the 
     Secretary determines are appropriate.''.
       (b) Jewelry.--Additional U.S. Note 3 to chapter 71 of the 
     Harmonized Tariff Schedule of the United States is amended--
       (1) by redesignating paragraphs (b), (c), (d), and (e) as 
     paragraphs (c), (d), (e), and (f), respectively;
       (2) by inserting after paragraph (a) the following new 
     paragraph:
       ``(b) The 750,000 unit limitation in additional U.S. Note 
     5(h)(ii)(B) to chapter 91 shall not apply to articles of 
     jewelry subject to this note.''; and
       (3) by striking paragraph (f), as so redesignated, and 
     inserting the following:
       ``(f) Notwithstanding any other provision of law, any 
     article of jewelry provided for in heading 7113 that is 
     assembled in the Virgin Islands, Guam, or American Samoa by a 
     jewelry manufacturer or jewelry assembler that commenced 
     jewelry manufacturing or jewelry assembly operations in the 
     Virgin Islands, Guam, or American Samoa after August 9, 2001, 
     shall be treated as a product of the Virgin Islands, Guam, or 
     American Samoa for purposes of this note and General Note 
     3(a)(iv) of this Schedule if such article is entered no later 
     than 18 months after such jewelry manufacturer or jewelry 
     assembler commenced jewelry manufacturing or jewelry assembly 
     operations in the Virgin Islands, Guam, or American Samoa.''.

     SEC. 2. EFFECTIVE DATE.

       The amendments made by this Act shall apply with respect to 
     goods imported into the customs territory of the United 
     States on or after January 1, 2002.
                                 ______