[Federal Register Volume 68, Number 148 (Friday, August 1, 2003)]
[Proposed Rules]
[Pages 45177-45180]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-19272]


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DEPARTMENT OF COMMERCE

International Trade Administration

DEPARTMENT OF THE INTERIOR

Office of Insular Affairs

15 CFR Part 303

[Docket No. 030707164-3164-01]
RIN 0625-AA63


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 of Commerce and the Interior (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

[[Page 45178]]

Islands). The proposed rule would amend existing regulations, due to 
changes in the industry, by updating the watch assembly requirements 
for purposes of the duty refund. We also propose amending the 
regulations to reflect the new designations that were created with the 
addition of the Department of Homeland Security.

DATES: Written comments must be received on or before September 2, 
2003.

ADDRESSES: Address written comments to Faye Robinson, Acting Director, 
Statutory Import Programs Staff, FCB, Suite 4100W, U.S. Department of 
Commerce, 14th and Constitution Ave., NW., 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. 97-446 (96 Stat. 2331) (1983), as 
amended by section 602 of Pub. L. 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 (``the Secretaries''), 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).

Proposed Amendments

    We propose amending the definitions for Creditable wages and Non-
91/5 watches and watch movements, subpart A Sec.  303.2(a)(13) and (14) 
respectively, to allow wages to be creditable towards the duty refund 
for watches containing preassembled movements provided (1) that the 
producer is unable to purchase the movements unassembled and (2) that 
it completes in the insular possession all other assembly operations 
required to make the movement into a watch (see discussion, below).
    The watch and jewelry program was designed to spur local employment 
by giving producers benefits based upon creditable wages paid to 
permanent residents of the insular possessions. For purposes of 
determining whether wages are creditable, the Departments' current 
regulations require producers to purchase unassembled movements so that 
the movement assembly process will take place in the insular 
possessions. However, it has come to the Departments' attention that 
due to recent changes in the watch industry, it has become increasingly 
difficult, if not impossible, for producers to purchase the desired 
movements in an unassembled condition. Adoption of our proposed rule 
will afford producers greater flexibility in dealing with such market 
realities. Thus, the effect of the proposed revision will be to give 
producers the ability to continue to choose those movements best suited 
to their particular needs without losing the duty refund benefit, 
thereby allowing producers to continue to provide meaningful and 
substantial work for permanent residents in the insular possessions. 
Notwithstanding the proposed revision to the regulations, assembly 
operations required to be performed in the insular possession for 
purposes of the duty refund would still include casing, assembling the 
dial on the movement, adding the battery to the movement, setting the 
hands, cutting the stem and assembling the crown, attaching the clasps, 
buckles and bands and performing all quality control operations. Our 
proposal would not affect the watch assembly requirements of the Bureau 
of Customs and Border Protection (formerly the U.S. Customs Service). 
If those requirements are not satisfied, the producer must pay 
applicable duties.
    In order for wages to be considered creditable for watch assembly 
operations which incorporate preassembled movements, we also propose 
amending subpart A Sec.  303.5(b)(6) to require producers who 
completely assemble watches in the insular possessions, with the 
exception of the movement, to maintain documentation that demonstrates 
that the preassembled movement the insular producer purchased could not 
have been purchased in an unassembled condition. This documentation 
must be available, along with other relevant company records, for 
review during the annual audit and verification of the data from the 
Annual Application ( Form ITA-334P). Producers would still be required 
to meet the Bureau of Customs and Border Protection and the 
Departments' assembly requirements for purposes of the duty exemption.
    Pursuant to section 403 of the Homeland Security Act of 2002 (Pub. 
L. 107-296) (2002), the U.S. Customs Service was transferred from the 
Department of the Treasury to the Department of Homeland Security 
(``DHS''). Under the DHS'' Reorganization Plan (Nov. 25, 2002), this 
transfer became effective as of March 1, 2003. The former Customs 
Service has now been redesignated as the Bureau of Customs and Border 
Protection. As a result of this reorganization, we propose amending 15 
CFR Part 303 by replacing ``U.S. Customs Service'' throughout the 
regulations with its new designation, ``Bureau of Customs and Border 
Protection''. We also propose replacing ``Department of the Treasury'' 
wherever it occurs in the regulations with ``Department of Homeland 
Security'' which is now the appropriate designation for purposes of the 
insular watch and jewelry program.

Administrative Law Requirements

    Regulatory Flexibility Act. In accordance with the Regulatory

[[Page 45179]]

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. There are currently three watch 
companies in the insular program. This rulemaking would update the 
watch assembly requirements for purposes of the duty refund. The change 
is being proposed due to the increasing difficulty in purchasing 
unassembled movements. Adoption of this rule would afford an overall 
positive economic benefit to watch producers by providing greater 
flexibility in their selection of movements which may lead to increased 
sales and employment. Although the proposed rule requires a producer 
who uses preassembled or partially assembled movements to have 
available, for the annual audit, documentation that the supplier would 
not sell the movement unassembled, such documentation would almost 
certainly be part of the normal ordering process. Consequently, the 
producer would merely be saving such documentation from the supplier 
stating that it does not sell the desired movement unassembled. The 
cost of saving the documentation would be, at most, probably $5 a year 
for no more than the fifteen minutes a year spent on filing the 
information. Therefore, there would be little or no economic impact, 
particularly in light of the fact that it would only be required when 
preassembled or partially assembled movements were purchased.
    This proposed rule would not have significant economic impact on a 
substantial number of small entities because the rule would only 
increase reporting or record keeping requirements by fifteen minutes a 
year per company at most if the producer chose to purchase preassembled 
or partially assembled movements and would not increase reporting or 
record keeping at all if the producer purchased only unassembled 
movements. These changes will also not duplicate, overlap or conflict 
with other laws or regulations. Consequently, these changes in the 
regulations are not expected to meet of the RFA criteria of having a 
``significant'' economic effect on a ``substantial number'' of small 
entities, as stated in 5 U.S.C. 603 et seq. Therefore, a regulatory 
flexibility analysis was not prepared.
    Paperwork Reduction Act. This proposed rulemaking contains revised 
collection of information requirements that have been submitted to the 
Office of Management and Budget (OMB) for review and approval. The rule 
would allow watch producers the flexibility to use preassembled 
movements in situations where the desired movement could not be 
purchased unassembled and still receive the duty refund benefit. 
However, if producers purchase preassembled movements they would be 
required to save the documentation from the supplier that demonstrates 
that the preassembled movement could not have been purchased 
unassembled. The documentation would be required to be available for 
the annual audit of information contained on form ITA-334P. We would 
estimate the burden to be, at most, fifteen minutes a year to file the 
piece of paper provided by the supplier. There would be no burden for 
the producers who continued to use unassembled movements. 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 
requirement 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 
the 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 the burden estimate or 
any other aspect of the collection of information to U.S. Department of 
Commerce, ITA Information Officer, Washington, DC 20230 and the 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.
    E.O. 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 record keeping 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 reads 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.167.

    2. Title 15 CFR Part 303 is amended by:
    a. Removing ``U.S. Customs Service'' or ``Customs Service'' 
wherever it appears and adding ``Bureau of Customs and Border 
Protection'' in its place; and
    b. Removing ``Department of the Treasury'' wherever it appears and 
adding ``Department of Homeland Security'' in its place.
    3. Section 303.2 is amended by revising the first sentence of 
paragraph (a)(13) and revising paragraph (a)(14) to read as follows:


Sec.  303.2  Definitions and forms.

    (a) * * *
    (13) Creditable wages means all wages, up to an amount equal to 65% 
of the contribution and benefit base for Social Security as defined in 
the Social Security Act for the year in which the wages were earned, 
paid to permanent residents of the territories employed in a firm's 91/
5 watch and watch movement assembly operations, plus wages paid for the 
repair of non-91/5 watches up to an amount equal to 50% of the firm's 
total creditable wages, and for wages paid for the complete assembly of 
watches in the insular possession, with the exception of the movement, 
only in situations where the desired movement cannot be purchased in an 
unassembled condition. * * *
    (14) Non-91/5 watches and watch movements include, but are not 
limited to, watches and movements which are liquidated as dutiable by 
the Bureau of Customs and Border Protection but do not include, for 
purposes of the duty refund, watches that are completely assembled in 
the insular possessions, with the exception of a desired movement if 
the movement can not be purchased in an unassembled condition; contains 
any material which is the product of any country with respect to which 
Column 2 rates of duty apply; are ineligible for duty-free treatment 
pursuant to law or regulation; or are units the assembly of which the 
Departments have determined not to involve substantial and meaningful

[[Page 45180]]

work in the territories (as elsewhere defined in these regulations).
* * * * *
    4. Section 303.5(b)(6) is revised to read as follows:


Sec.  303.5  Application for annual allocation of duty-exemptions.

* * * * *
    (b) * * *
    (6) Records on purchases of components, including documentation on 
the purchase of any preassembled movements, which demonstrate that such 
movements could not have been purchased from the vendor in an 
unassembled condition, and records on the sales of insular watches and 
movements, including proof of payment; and
* * * * *

Joseph A. Spetrini,
Acting Assistant Secretary for Grant Aldonas, Under Secretary, 
Department of Commerce.
David B. Cohen,
Deputy Assistant Secretary for Insular Affairs, Department of the 
Interior.
[FR Doc. 03-19272; Filed 7-31-03; 8:45 am]
BILLING CODE 3510-DS-P; 4310-93-P