[Congressional Record (Bound Edition), Volume 147 (2001), Part 2]
[Extensions of Remarks]
[Pages 1885-1886]
[From the U.S. Government Publishing Office, www.gpo.gov]



      INTRODUCTION OF LEGISLATION ON REVISIONS TO THE PIC PROGRAM

                                 ______
                                 

                       HON. DONNA M. CHRISTENSEN

                           of virgin islands

                    in the house of representatives

                       Tuesday, February 13, 2001

  Mrs. CHRISTENSEN. Mr. Speaker, today I introduce a bill which would 
make a series of technical and/or noncontroversial adjustments to the 
Production Incentive Certificate (``PIC'') program for watch and 
jewelry produced in the U.S. insular possessions. In the near term, 
this legislation would improve the operation of the PIC program for 
both watch and jewelry manufacturers in the U.S. Virgin Islands--
producers that provide a critical source of employment for the 
Territory. Over the longer term, this legislation 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. Since enactment of this important 
change, four mainland jewelry manufacturing companies have established 
operations in the USVI and are participating in the PIC program.
  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 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, a producer receives a single PIC certificate of 
entitlement for each calendar year, which is issued by March 1 of the 
following year. This certificate serves as the basis for the producer's 
application for duty refunds to U.S. Customs, a process which can take 
as long as six months. As a result, there can be delays of as long as 
18 months between the time a producer incurs a creditable wage payment 
and the time the producer receives the related duty refund. The 
proposed legislation would reduce these unnecessary delays by providing 
for the issuance of PIC certificates of entitlement on a quarterly 
basis.
  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 by Congress to jewelry, 
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 which 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 the transition rule for 
jewelry 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.

[[Page 1886]]

  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 
which 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 against 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 at some 
future point 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 which 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.

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