[Federal Register Volume 66, Number 127 (Monday, July 2, 2001)]
[Rules and Regulations]
[Pages 34810-34813]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-16599]


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DEPARTMENT OF COMMERCE

International Trade Administration

DEPARTMENT OF THE INTERIOR

Office of Insular Affairs

15 CFR Part 303

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


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: Final rule.

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SUMMARY: The Departments amend 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 rule amends 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. Also, 
the regulations were amended by making minor editorial changes within 
the definition of new firm for watches. Finally, we amend the duty 
refund process by dividing the amount of the annual duty refund 
certificate into two installments. These amendments make grammatical 
changes, clarify a portion of the regulations, update methods of 
documentation and help producers receive benefits in a more timely 
fashion.

DATES: July 2, 2001.

FOR FURTHER INFORMATION CONTACT: Faye Robinson, (202) 482-3526.

SUPPLEMENTARY INFORMATION: We published proposed regulatory revisions 
on May 23, 2001 (66 FR 28404) and invited comments. We received two 
letters with comments. Both letters pertained to the clarification of 
the definition of creditable wages. Both pointed out that the watch and 
jewelry factories have machinery that require plumbers, electricians 
and machine and maintenance people and that these people are integral 
to their assembly and manufacturing processes. It was also pointed out 
that security personnel were essential to the operations of some 
factories. We agree that wages paid to employees who maintain equipment 
essential to the assembly and manufacturing operations at the factories 
should be creditable towards the duty refund even if the employees 
include plumbers or electricians. We also agree wages paid to security 
staff should be creditable towards the duty refund and decided that 
specific language regarding security activities should be included in 
the regulations. In the proposed language we were trying to convey that 
wages paid for the construction of a building, an addition to an 
existing building or office construction within the shell of a building 
is beyond the scope of the program and the wages for those workers are 
not creditable. We thank the commenters for their input and we have 
revised the language to more clearly articulate which wages are 
creditable.
    The insular possessions watch industry provision in Sec. 110 of 
Pub. L. No. 97-446 (96 Stat. 2331) (1983), as amended by Sec. 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).

[[Page 34811]]

    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.

Amendments

    We amend Subpart A Sec. 303.2(a)(5), see 65 FR 8049 (Feb. 17, 
2000), by making grammatical changes.
    We also amend 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 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 includes wages paid for outside consultants or other 
professional personnel or those persons not involved in the day to day 
assembly operations or servicing and maintenance of equipment and 
fixtures necessary for the assembly or manufacturing operations or 
administrative work and security activities 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 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 include specific 
language to address this situation. The 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.
    The rule adds 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 amend 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 amend 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 will 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 will be issued after the required 
company data are received and the calculations for each company are 
completed. We require 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 provides duty refund 
benefits to producers in a more timely fashion.
    Under the Administrative Procedure Act, 5 U.S.C. 553(d)(1), the 
effective date of this rule need not be delayed for 30 days because 
this rule relieves a restriction by allowing each producer to receive a 
duty refund certificate in two installments instead of one.

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 rule will not have a 
significant economic impact on a substantial number of small entities. 
This rulemaking will 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 will 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 rule is intended to have 
a positive effect on the insular economies by helping the producers 
improve their cash flows. Finally, the rulemaking includes 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) will prepare a written certification for 
the Departments' auditors that the shipments received duty-free 
treatment into the United States. The 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.

[[Page 34812]]

    Paperwork Reduction Act. This 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. This collection has been approved by OMB. Changing the duty 
refund certificate from an annual to a biannual basis requires 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 bases requires 
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, will also need to be 
issued to each producer per 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 biannual duty refund, we anticipate that most producers 
will 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 rulemaking will 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 will 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 will 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. 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 rule.
    Executive Order 12866. It has been determined that this 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 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 servicing and maintenance of equipment and 
fixtures necessary for the assembly or manufacturing operations or 
administrative work and security activities 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.

[[Page 34813]]

    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 
servicing and maintenance of equipment and fixtures necessary for the 
assembly or manufacturing operations or the administrative work and 
security activities 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 month 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.
* * * * *

Richard W. Moreland,
Acting Assistant Secretary for Import Administration, Department of 
Commerce.
Nikolao Pula,
Acting Director, Office of Insular Affairs, Department of the Interior.
[FR Doc. 01-16599 Filed 6-29-01; 8:45 am]
BILLING CODE 3510-DS-P; 4310-93-P