[Federal Register Volume 66, Number 100 (Wednesday, May 23, 2001)]
[Proposed Rules]
[Pages 28404-28407]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-12861]


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DEPARTMENT OF COMMERCE

International Trade Administration

DEPARTMENT OF THE INTERIOR

15 CFR Part 303

[Docket No. 991228350-1118-02]
RIN: 0625-AA57


Office of Insular Affairs; Proposed Changes in the Insular 
Possessions Watch, Watch Movement and Jewelry Program

AGENCIES: Import Administration, International Trade Administration, 
Department of Commerce; Office of Insular Affairs, Department of the 
Interior.

ACTION: Notice of proposed rulemaking and request for comments.

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SUMMARY: The Departments propose amending their regulations governing 
watch duty-exemption allocations and the watch and jewelry duty-refund 
benefits for producers in the United States insular possessions (the 
U.S. Virgin Islands, Guam, American Samoa and the Commonwealth of the 
Northern Mariana Islands). The proposed rule would amend ITA 
regulations by further clarifying the range of documents that may be 
needed for verification of duty-free shipments of jewelry into the 
United States and by clarifying which wages qualify as creditable and 
which do not for purposes of calculating the duty-refund for watches 
and jewelry. We also propose amending the regulations by making minor 
editorial changes within the definition of new firm for watches. 
Finally, we propose amending the duty refund process by dividing the 
amount of the annual duty refund certificate into two installments. 
These amendments are being proposed to make grammatical changes, 
clarify a portion of the regulations, update methods of documentation 
and help producers receive benefits in a more timely fashion.

DATES: Written comments must be received on or before June 22, 2001.

ADDRESSES: Address written comments to Faye Robinson, Acting Director, 
Statutory Import Programs Staff, Room 4211, U.S. Department of 
Commerce, Washington, DC 20230.

FOR FURTHER INFORMATION CONTACT: Faye Robinson, (202) 482-3526, same 
address as above.

SUPPLEMENTARY INFORMATION: The insular possessions watch industry 
provision in section 110 of Pub. L. No. 97-446 (96 Stat. 2331) (1983), 
as amended by section 602 of Pub. L. No. 103-465 (108 Stat. 4991) 
(1994); additional U.S. Note 5 to chapter 91 of the Harmonized Tariff 
Schedule of the United States (``HTSUS''), as amended by Pub. L. 94-241 
(90 Stat. 263) (1976) requires the Secretary of Commerce and the 
Secretary of the Interior, acting jointly, to establish a limit on the 
quantity of watches and watch movements which may be entered free of 
duty during each calendar year. The law also requires the Secretaries 
to establish the shares of this limited quantity which may be entered 
from the Virgin Islands, Guam, American Samoa and the Commonwealth of 
the Northern Mariana Islands (``CNMI''). After the Departments have 
verified the data submitted on the annual application (Form ITA-334P), 
the producers' duty-exemption allocations are calculated from the 
territorial share in accordance with 15 CFR 303.14 and each producer is 
issued a duty-exemption license. The law further requires the 
Secretaries to issue duty-refund certificates to each territorial watch 
and watch movement producer based on the company's duty-free shipments 
and creditable wages paid during the previous calendar year.
    Pub. L. 106-36 (113 Stat. 127) (1999) authorizes the issuance of a 
duty-refund certificate to each territorial jewelry producer for any 
article of jewelry provided for in heading 7113 of the HTSUS which is 
the product of any such territory. The value of the certificate is 
based on creditable wages paid and duty-free units shipped into the 
United States during the previous calendar year. Although the law 
specifically mentions the U.S. Virgin Islands, Guam and American Samoa, 
the issuance of the duty-refund certificate would also apply to the 
CNMI due to the Covenant to Establish a Commonwealth of the Northern 
Mariana Islands in Political Union with the United States of America 
(Pub. L. 94-241), which states that goods from the CNMI are entitled to 
the same tariff treatment as imports from Guam. See also 19 CFR 7.2(a). 
The law provides that during the first two years, beginning August 9, 
1999, jewelry that is assembled in the territories shall be treated as 
a product of such territories. Thereafter, in order to be considered a 
product of such territories, the jewelry must meet the U.S. Customs 
Service substantial transformation requirements (the jewelry must 
become a new and different article of commerce as a result of 
production or manufacture performed in the territory). To receive duty-
free treatment, the jewelry must also satisfy the requirements of 
General Note 3(a)(iv) of the HTSUS and applicable Customs Regulations 
(19 CFR 7.3).
    The law specifies, in addition, that watch producer benefits shall 
not be diminished as a consequence of extending duty-refund benefits to 
jewelry manufacturers. In the event that the aggregate amount of the 
calculated duty refunds for both watches and jewelry exceeds the total 
amount available under Pub. L. 97-446, as amended by Pub. L. 103-465, 
the watch producers shall receive their calculated amounts; the jewelry 
producers would then receive amounts proportionately reduced from the 
remainder. See Pub. L. 106-36.

Proposed Amendments

    We propose amending Subpart A Sec. 303.2(a)(5), see 65 FR 8049 
(Feb. 17, 2000), by making grammatical changes.
    We also propose amending Subpart A Sec. 303.2(a)(13) and Subpart B 
Sec. 303.16(a)(9) to explain further what is meant by special services 
under the definition of wages excluded from being

[[Page 28405]]

creditable towards the duty-refund in response to requests for 
additional clarification of this language. The new language on wages 
not creditable towards the duty refund would include wages paid to any 
outside consultant or those persons not involved in the day to day 
assembly operations or administrative work directly related to the 
operation of the company. Examples of wages that would not be 
creditable toward the duty refund would be wages paid to gardeners, 
construction workers, electricians, plumbers or outside lawyers and 
accountants. A producer also wanted to know if two producers worked on 
the same single piece of jewelry, would each producer's wages for their 
portion of the work be creditable towards each producer's duty refund. 
The jewelry producer explained that the casting of precious metal is a 
highly technical process which is very capital intensive and expensive 
to set up. The producer explained that it would be very helpful if some 
companies could subcontract such work to a producer who was willing to 
make the capital investment. The producer also pointed out that having 
a local caster available would be an added inducement to other jewelry 
companies to locate in the insular possessions. We agree that given 
this unique two-step manufacturing process in the production of 
jewelry, that this request has merit. Therefore, we propose including 
specific language to address this situation. The proposed regulatory 
language would allow two separate jewelry producers to have their 
portion of the wages credited toward their own duty refund for work on 
a single piece of jewelry which had entered the U.S. free of duty under 
the program if the companies demonstrate that they worked on the same 
piece of jewelry, the jewelry received duty-free treatment into the 
U.S., the companies maintained production and payroll records for 
dutiable as well as duty-free jewelry shipments into the U.S. or other 
destinations so that creditable as well as non-creditable wages may be 
determined, and the records are sufficient for the Departments' 
verification of the creditable wages and duty-free units shipped into 
the United States.
    We further propose adding alternative documents which may be needed 
or used during the verification of the amount of duty-free jewelry 
which entered the United States under the insular program. New shipping 
methods and the fact that jewelry, unlike watches, does not require a 
permit (Form ITA-340P), necessitate new ways to document duty-free 
entry into the United States. Therefore, we propose amending Subpart B 
Sec. 303.17(b)(4) to include methods of verification such as requiring 
the consignee (receiver of goods in the U.S.) to certify that shipments 
which are otherwise unsupported by Customs entry documents or a 
certificate of origin did, in fact, receive duty-free treatment. These 
alternative reporting requirements are necessary in order to provide 
the Departments' auditors with sufficient documentation to verify duty-
free shipments.
    Finally, we propose amending Subpart A, Sec. 303.2(b)(1) and 
Sec. 303.12(a), and Subpart B, Sec. 303.16(b)(1) and Sec. 303.19(a)(1) 
by providing for the issuance of an interim duty refund certificate 
which would authorize a producer to receive a portion of the total 
amount of the annual duty refund certificate. The interim amount would 
be based on reported duty-free shipments and creditable wages paid 
during the first six months of the same calendar year in which the 
wages were paid. The interim duty refund certificate would be issued 
after the required company data were received and the calculations for 
each company are completed. We propose requiring the receipt of each 
producer's data by the end of July if the producer wishes to receive an 
interim duty refund certificate. The interim duty refund certificate 
will be issued by the end of August to all producers who have provided 
the Departments with the data necessary to calculate the duty refund by 
the end of July. The verification process and the calculation for the 
annual duty refund certificate will remain the same. However, that 
portion of the duty refund that has already been issued via the interim 
duty free certificate to each producer will be deducted from each 
producer's annual total duty refund amount. This amendment is being 
proposed to provide duty refund benefits to producers in a more timely 
fashion.

Administrative Law Requirements

Regulatory Flexibility Act

    In accordance with the Regulatory Flexibility Act, 5 U.S.C. 601 et 
seq., the Chief Counsel for Regulation at the Department of Commerce 
has certified to the Chief Counsel for Advocacy, Small Business 
Administration, that the proposed rule, if promulgated as final, will 
not have a significant economic impact on a substantial number of small 
entities. This rulemaking would make minor editorial changes and 
clarify current language regarding creditable wages neither of which 
will impose any cost or have any other adverse economic effect on the 
producers. The rulemaking would also divide the total annual amount of 
the duty refund certificate into two installments, thereby allowing 
producers to receive benefits in a more timely fashion. Although the 
total amount of a duty refund certificate will not change, the proposed 
rule is intended to have a positive effect on the insular economies by 
helping the producers improve their cash flows. Finally, the proposed 
rulemaking would include an alternative method of verification of duty-
free shipments of jewelry into the United States for those entries that 
did not receive Customs entry documents or a certificate of origin for 
each shipment. If producers want credit for these duty-free shipments, 
once a year the consignee (receiver of the jewelry shipped into the 
United States) or producer (if the producer knows that the shipment 
received duty-free entry into the United States) would prepare a 
written certification for the Departments' auditors that the shipments 
received duty-free treatment into the United States. Proposing such a 
certification is expected to have little, if any, economic impact on a 
company that did not receive Customs entry documentation. We estimate 
the certification statement, if used, would create a burden of about 
ten minutes to complete at a cost of approximately $20 annually.

Paperwork Reduction Act

    This proposed rulemaking involves new collection-of-information 
requirements subject to review and approval by the Office of Management 
and Budget (OMB) under the Paperwork Reduction Act of 1995, which have 
been submitted to OMB for approval. Changing the duty refund 
certificate from an annual to a biannual basis will require the use of 
three of the current forms, modified to accommodate the change. The 
public reporting burden for these collection-of-information 
requirements includes the time for reviewing instructions, searching 
existing data bases, gathering and maintaining the data needed, and 
completing and reviewing the collection of information. The issuance of 
payments under the duty refund certificate on a biannual basis will 
require the collection of data through the use of a modified version of 
the annual application, Form ITA-334P. We estimate this will involve a 
burden of about one hour per producer. One more certificate of 
entitlement to a duty refund, Form ITA-360P, would also need to be 
issued to each producer per

[[Page 28406]]

year. This form is completed by the Department of Commerce and imposes 
no burden hours on the producers. Form ITA-361P, the request for refund 
of duties, is currently used once or twice a year per producer and 
takes about 10 minutes to complete. Because of the proposed biannual 
duty refund, we anticipate that most producers would only complete the 
form between two to three times a year in order to receive such refunds 
in a more timely manner. We expect Form ITA-361P will only increase the 
burden by about 10 minutes per producer. Finally, the proposed 
rulemaking would include an alternative method of verification of the 
duty-free shipments of jewelry into the United States for those entries 
that did not receive Customs entry documents or the country of origin 
certificates for each shipment. This alternative would be in the form 
of a written certification by the consignee or, if he or she knows, by 
the producer, that the shipments received duty-free treatment. Because 
the jewelry portion of the program is new, it is difficult at this time 
to determine whether this alternative certification will be needed by 
the new companies or whether they will be able to produce standard 
Customs entry documents or certificates of origin. The certification by 
the consignee or producer would be in the form of an annual statement 
prepared for the auditor. We estimate that it will take about ten 
minutes to complete at a cost of approximately $20. Collection 
activities are currently approved by the Office of Management and 
Budget under control numbers 0625-0040 and 0625-0134. Public comment is 
sought regarding: Whether the proposed collection-of-information 
requirements are necessary for the proper performance of the functions 
of the agency, including whether the information will have practical 
utility; the accuracy of the burden estimate; ways to enhance the 
quality, utility, and clarity of the information to be collected; and 
ways to minimize the burden of the collection of information, including 
the use of automated collection techniques or other forms of 
information technology. Send comments regarding any of these burden 
estimates or any other aspect of the collection-of-information to U.S. 
Department of Commerce, ITA Information Officer, Washington, DC 20230 
and Office of Information and Regulations Officer, Office of Management 
and Budget, Washington, DC 20503 (Att: OMB Desk Officer).
    Notwithstanding any other provision of the law, no person is 
required to respond to, nor shall any person be subject to a penalty 
for failure to comply with a collection of information unless it 
displays a currently valid OMB Control Number.

Plain English

    The President has directed Federal agencies to use plain language 
in their communications with the public, including regulations. To 
comply with this directive, we seek public comment on any ambiguity or 
unnecessary complexity arising from the language used in this proposed 
rule.

Executive Order 12866

    It has been determined that the proposed rulemaking is not 
significant for purposes of Executive Order 12866.

List of Subjects in 15 CFR Part 303

    Administrative practice and procedure, American Samoa, Customs 
duties and inspection, Guam, Imports, Marketing quotas, Northern 
Mariana Islands, Reporting and recordkeeping requirements, Virgin 
Islands, Watches and jewelry.
    For reasons set forth above, The Departments propose to amend 15 
CFR part 303 as follows:

PART 303--WATCHES, WATCH MOVEMENTS AND JEWELRY PROGRAM

    1. The authority citation for 15 CFR part 303 continues to read as 
follows:

    Authority: Pub. L. 97-446, 96 Stat. 2331 (19 U.S.C. 1202, note); 
Pub. L. 103-465, 108 Stat. 4991; Pub. L. 94-241, 90 Stat. 263 (48 
U.S.C. 1681, note); Pub. L. 106-36, 113 Stat.127,167.

    2. Section 303.2 is amended as follows:
    A. The first sentence of Sec. 303.2(a)(5) is amended by removing 
``which may not be'' and adding in its place ``not''.
    B. The second sentence of Sec. 303.2(a)(13) is revised as set forth 
below.
    C. The last sentence of Sec. 303.2(b)(1) is amended by adding ``and 
by producers who wish to receive the duty refund in installments on a 
biannual basis'' at the end of the sentence.


Sec. 303.2  Definitions and forms.

    (a) * * *
    (13) * * * Excluded, however, are wages paid to any outside 
consultants or other professional personnel, such as lawyers and 
accountants, or to those persons not involved in the day-to-day 
assembly operations or administrative work directly related to the 
operations of the company, such as gardeners or construction workers, 
and for the repair of non-91/5 watches and movements to the extent that 
such wages exceed the foregoing percentage. * * *
* * * * *
    3. Section 303.12(a)(1) is revised to read as follows:


Sec. 303.12  Issuance and use of production incentive certificates.

    (a) Issuance of certificates. (1) The total annual amount of the 
Certificate of Entitlement, Form ITA-360, may be divided and issued on 
a biannual basis. The first portion of the total annual certificate 
amount will be based on reported duty-free shipments and creditable 
wages paid during the first six months of the calendar year, using the 
formula in Sec. 303.14(c). The Departments require the receipt of the 
data by July 31 for each producer who wishes to receive an interim duty 
refund certificate. The interim duty refund certificate will be issued 
on or before August 31 of the same calendar year in which the wages 
were earned unless the Departments have unresolved questions. The 
process of determining the total annual amount of the duty refund will 
remain the same. The completed annual application (Form ITA-334P) shall 
be received by the Departments on or before January 31 and the annual 
verification of data and the calculation of each producer's total 
annual duty refund, based on the verified data, will continue to take 
place in February. Once the calculations for each producer's duty 
refund has been completed, the portion of the duty refund that has 
already been issued to each producer will be deducted from the total 
amount of each producer's annual duty refund amount. The duty refund 
certificate will continue to be issued by March 1 unless the 
Departments have unresolved questions.
* * * * *
    4. Section 303.16 is amended as follows:
    A. The second sentence of Sec. 303.16(a)(9) is removed and three 
sentences are added in its place as set forth below.
    B. The last sentence of Sec. 303.16(b)(1) is amended by adding 
``and, with special instructions for its completion, by producers who 
wish to receive the total annual amount of the duty refund in 
installments on a biannual basis'' at the end of the sentence.


Sec. 303.16  Definitions and forms.

    (a) * * *
    (9) * * * Excluded, however, are wages paid for outside consultants 
or other professional personnel, such as lawyers and accountants, or 
those persons not involved in the day-to-day assembly operations or the

[[Page 28407]]

administrative work directly related to the operations of the company, 
such as gardeners or construction workers, plus any wages paid for the 
assembly of dutiable jewelry or for the repair of dutiable jewelry to 
the extent that such wages exceed the percentage set forth above. No 
more than two insular producers may have their wages credited for their 
portion of the wages paid for work on a single piece of jewelry which 
entered the U.S. free of duty under the program. Wages paid by the two 
producers will be credited proportionally provided both producers 
demonstrate to the satisfaction of the Secretaries that they worked on 
the same piece of jewelry, the jewelry received duty-free treatment 
into the U.S., and the producers maintained production and payroll 
records sufficient for the Departments' verification of the creditable 
wage portion (see Sec. 303.17(b)). * * *
* * * * *


Sec. 303.17  [Amended]

    5. Section 303.17(b)(4) is amended by adding ``, or the certificate 
of origin for the shipment, or, if a company did not receive such 
documents from Customs, a certification from the consignee that the 
jewelry shipment received duty-free treatment, or a certification from 
the producer, if the producer can attest that the jewelry shipment 
received duty-free treatment'' at the end of the paragraph.
    6. Section 303.19(a)(1) is revised to read as follows:


Sec. 303.19  Issuance and use of production incentive certificates.

    (a) Issuance of certificates. (1) The total annual amount of the 
Certificate of Entitlement, Form ITA-360, may be divided and issued on 
a biannual basis. The first portion of the total annual certificate 
amount will be based on reported duty-free shipments and creditable 
wages paid during the first six months of the calendar year, using the 
formula in Sec. 303.20(b). The Departments require the receipt of the 
data by July 31 for each producer who wishes to receive an interim duty 
refund certificate. The interim duty refund certificate will be issued 
on or before August 31 of the same year in which the wages were earned 
unless the Departments have unresolved questions. The process of 
determining the total annual amount of the duty refund will remain the 
same. The completed annual application (Form ITA-334P) shall be 
received by the Departments on or before January 31 and the annual 
verification of data and calculation of each producer's total annual 
duty refund, based on the verified data, will continue to take place in 
February. Once the calculations for each producer's duty refund has 
been completed, the portion of the duty refund that has already been 
issued to each producer will be deducted from the total amount of each 
producer's annual duty refund amount. The duty refund certificate will 
continue to be issued by March 1 unless the Departments have unresolved 
questions.
* * * * *

Faryar Shirzad,
Assistant Secretary for Import Administration, Department of Commerce.
Nikolao Pula,
Acting Director, Office of Insular Affairs, Department of the Interior.
[FR Doc. 01-12861 Filed 5-22-01; 8:45 am]
BILLING CODE 3510-DS-P