[Federal Register Volume 67, Number 243 (Wednesday, December 18, 2002)]
[Rules and Regulations]
[Pages 77407-77409]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-31892]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF COMMERCE

International Trade Administration

DEPARTMENT OF THE INTERIOR

Office of Insular Affairs

15 CFR Part 303

[Docket No. 991228350-2301-04]
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.

-----------------------------------------------------------------------

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 clarifying the 
meaning of ``permanent resident,'' which is a term used in Public Law 
97-446 and the current regulations.

EFFECTIVE DATE: January 17, 2003

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

SUPPLEMENTARY INFORMATION: We published proposed regulatory revisions 
on August 29, 2002 (67 FR 55375). We received a letter from one 
commenter. The commenter stated that a definition for ``permanent 
resident'' is probably unnecessary but that, if there must be a 
definition, it should afford greater flexibility, particularly with 
respect to the 183 day per year residency requirement.
    The commenter also pointed out that management employees at program 
companies who are responsible for administrative, sales and marketing 
activities are frequently required to travel outside the insular 
possessions and, therefore, may not be able to meet the 183 day 
residency requirement even though they permanently reside in the 
insular possessions. The Departments find this argument unpersuasive. 
It has been the Departments' experience in administering the program 
over the years that most program companies have related companies based 
in the United States which handle almost all of their sales and 
marketing functions. Indeed, we are aware that most managers in the 
insular possessions do not go to the United States even once a year. 
When they do come to the United States, we understand that few, if any, 
spend more than two weeks a year away from the insular possessions 
because of their primary responsibility to oversee day-to-day 
manufacturing operations, do related paperwork and make shipments. We 
are also aware that people who handle sales and marketing of the 
watches and jewelry have appropriately been from related companies 
located in the United States, because that is where the sales activity 
takes place.
    The commenter also stated that the 183 day residency requirement 
could result in denial of program benefits if an employee moved 
permanently to the insular possessions with less than six months left 
in the calendar year; if the employee has been a lifelong resident and 
leaves or retires or dies prior to July; or if the employee quits or is 
fired and moves away from the insular possession after less than six 
months in the insular possession. Although the commenter's hypothetical 
scenarios could occur, we believe they reflect rare and exceptional 
circumstances. It is our opinion that rules having general 
applicability are most firmly grounded in, and should reflect an 
awareness of, the usual and unexceptional, not the exceptional. Were 
such hypothetical exceptions to occur, watch and jewelry companies may 
avail themselves of the Departments' appeal procedures which are 
provided for in 19 CFR 303.13 and 303.21. These appeal procedures are 
specifically designed to accommodate such unusual circumstances. As in 
the past, we will continue to give due consideration to any such 
appeals for relief in an expeditious manner in order to avoid 
inequitable outcomes.
    In summary, we would like to point out that the vast majority of 
employees in the insular possessions watch and jewelry program have 
only one residence and work in the insular possessions for over 183 
days a year.

[[Page 77408]]

This rule merely clarifies the eligibility requirements for the few who 
have one residence in the insular possessions and one or more 
residences outside the insular possessions. The regulation is nothing 
more than a codification of the Departments' longstanding practice. The 
codification is necessary because of several recent inquiries and 
challenges regarding the Departments' practice in administering the 
``permanent resident'' requirement. The six months (183 day) residency 
requirement has been a matter of administrative practice since the 
beginning of the program in 1967 and was more formally included in the 
Annual Application (Form ITA-334P) in 1982. This regulation is intended 
to clarify the term ``permanent resident'' in order to make the 
Departments'' practice more predictable and less open to ambiguous 
interpretation.
    Accordingly, we are adopting the proposed new definition in final 
form. 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). 
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).

Amendments

    We amend Subpart A Sec.  303.2(a) by adding paragraph (a)(16) and 
Subpart B Sec.  303.16(a) by adding paragraph (a)(11) to provide a 
definition for ``permanent resident'' in order to clarify the meaning 
of the term solely for purposes of the insular possessions watch and 
jewelry program. The program was designed to spur local employment by 
giving producers benefits based on creditable wages paid to local 
people who were permanently domiciled in the insular possessions. 
Therefore, the Annual Application (Form ITA-334P) has always required 
each applicant to state the wages paid to employees who did not reside 
and work in the territory for at least six months during the calendar 
year so that the wages paid to non-residents could be deducted from the 
total wages before the creditable wages benefits were calculated. The 
program was not designed to give benefits based on creditable wages 
paid to program owners, shareholders or employees who are not domiciled 
in the insular possessions. The definition continues to provide 
producers with benefits based on creditable wages including the 
creditable wages paid to program workers who meet the permanent 
resident criteria which require a person with one or more residences 
outside the insular possessions to maintain his or her domicile in the 
insular possessions, to reside (i.e., be physically present for at 
least 183 days per year) and work in the territory at a program 
company, and to maintain his or her principal office for day-to-day 
work in the insular possessions. It is the responsibility of the party 
to provide documentation for the 183 day claim, if it is requested by 
the Departments. There will continue to be no benefits based on wages 
paid to persons who do not meet these permanent resident criteria.

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. 
The factual basis for this certification was published with the 
proposed rule. No comments were received regarding the economic impact 
of this final rule. As a result, no final regulatory flexibility 
analysis was prepared.
    Paperwork Reduction Act. This rulemaking does not involve 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. Collection activities are currently approved by 
the Office of Management and Budget under control numbers 0625-0040 and 
0625-0134.
    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.
    E.O. 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 by adding paragraph (a)(16) as follows:

[[Page 77409]]

Sec.  303.2  Definitions and forms.

    (a) * * *
    (16) Permanent resident means a person with one residence which is 
in the insular possessions or a person with one or more residences 
outside the insular possessions who meets criteria that include 
maintaining his or her domicile in the insular possessions, residing 
(i.e., be physically present for at least 183 days per year) and 
working in the territory at a program company, and maintaining his or 
her primary office for day-to-day work in the insular possessions.
* * * * *

    3. Section 303.16 is amended by adding paragraph (a)(11) as 
follows:


Sec.  303.16  Definitions and forms.

    (a) * * *
    (11) Permanent resident means a person with one residence which is 
in the insular possessions or a person with one or more residences 
outside the insular possessions who meets criteria that include 
maintaining his or her domicile in the insular possessions, residing 
(i.e., be physically present for at least 183 days per year) and 
working in the territory at a program company, and maintaining his or 
her primary office for day-to-day work in the insular possessions.
* * * * *

 Faryar Shirzad,
Assistant Secretary for Import Administration, Department of Commerce.
David B. Cohen,
Deputy Assistant Secretary for Insular Affairs, Department of the 
Interior.
[FR Doc. 02-31892 Filed 12-17-02; 8:45 am]
BILLING CODE 3510-DS-P; 4310-93-P