Proposed Changes in Procedures for Insular Possessions Watch Program

DEPARTMENT OF COMMERCE

International Trade Administration

15 CFR Part 303

DEPARTMENT OF THE INTERIOR

Office of Territorial and International Affairs

[Docket No. 960508126-6126-01]

RIN 0625-AA46

Proposed Changes in Procedures for Insular Possessions Watch

Program

AGENCIES: Import Administration, International Trade Administration,

Department of Commerce; Office of Territorial and International

Affairs, Department of the Interior.

ACTION: Proposed rule and request for comments.

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SUMMARY: This action invites public comment on a proposal to amend the

ITA regulations, which govern duty-exemption allocations and duty-

refund entitlements for watch producers in the United States' insular

possessions (the Virgin Islands, Guam and American Samoa) and the

Northern Mariana Islands. The proposed amendments would modify

procedures for completion and use of the ``Permit to Enter Watches and

Watch Movements into the Customs Territory of the United States'' (Form

ITA-340); make the technical changes required by the passage of the

Uruguay Round Agreements Act in 1994; eliminate the mid-year report

(Form ITA-321P); change the percentage creditable towards the duty-

refund of wages for non-9\1/5\ watch and watch movement repairs and

raise one of the percentages in the formula for calculating the duty-

refund; revise the total quantity and respective territorial shares of

insular watches and watch movements which would be allowed to enter the

United States free of duty; remove reference to watches and watch

movements which are only ineligible for duty-free

[[Page 37846]]

treatment due to value-limit reasons from the percentage of non-9\1/5\

wages creditable toward the duty-refund; raise the maximum value of

components for watches; and make other necessary changes to consolidate

and simplify the regulations.

DATES: Comments must be received on or before August 21, 1996.

ADDRESSES: Address written comments to Faye Robinson, Program Manager,

Statutory Import Programs Staff, Room 4211, U.S. Department of

Commerce, Washington, D.C. 20230.

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

address as above.

SUPPLEMENTARY INFORMATION: 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 HTS 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 Northern Mariana Islands. After the Departments have

verified the data submitted on application Form ITA-334P, the

producers' duty-exemption allocations are calculated from the

territorial share in accordance with Section 303.14 of the regulations

and each producer is issued a duty-exemption license. Section 303.7

paragraph (b) of the regulations states the procedures for the issuance

of the ``Permit to Enter Watches and Watch Movements into the Customs

Territory of the United States'' (``permit'' or ``shipment permit''),

Form ITA-340, against the producers' duty-exemption licenses.

Currently, an authorized official of the territorial government issues

each shipment permit (completed from data supplied by the licensee) and

certifies that the permit is issued against a valid license and that

the remaining balance of the license, as shown on the permit, has been

verified. Under the proposed amendment, the licensed companies would be

given revised permits for completion and the licensee would have

responsibility for self-certifying that the permit is issued against a

valid license and that the remaining balance of the license, as shown

on the permit, is correct according to company records. The licensee

would also continue to certify that the watches and watch movements to

be entered under the permit have been assembled in the U.S. insular

possessions in compliance with the regulations of the Departments of

Commerce and the Interior and the U.S. Customs Service, and that they

meet all U.S. Customs Service requirements for duty-free entry under

additional U.S. note 5 of chapter 91 of the Harmonized Tariff Schedule

of the United States. A copy of the signed permit would then be taken

or sent via facsimile, no later than the day of shipment, to the

appropriate territorial government officials for recording and

verification. The completed and signed permit would be filed along with

the other Customs Service entry paperwork requirements unless the

importer or its representative transmits the data through the Automated

Broker Interface (``ABI'') system of the Customs Service. Entries made

by electronic transmission would not require the submission of a permit

(Form ITA-340) to Customs, but the permit information would have to be

maintained by the importer or its authorized agent for the period

prescribed by Customs' recordkeeping regulations, currently five years.

The changes in permit procedures are being proposed to eliminate

paperwork, namely, the submission of Form ITA-340 to Customs with ABI

entries. Also, the proposed new procedures would allow required permit

information to pass between the territorial government and the watch

producers via facsimile, which would eliminate the burden of travel to

and from the territorial office.

The permit currently consists of five self-carboned pages with one

copy to be presented to the U.S. Customs officer at the port of entry

and then forwarded to the Department of Commerce after entry number,

date of entry, and port of entry have been added by the Customs

officer; one copy to be retained by the licensee's broker or agent; one

copy to be retained by the licensee; one copy to be retained by the

territorial office; and one copy to be forwarded by the territorial

office to the Department of Commerce. Under the proposed amendment, the

revised permit would be a single page document which could be produced

by the licensee in an approved computerized format or any other medium

or format approved by the Department of Commerce. On entries made

through ABI, the licensee would not need to make any copies of the

original permit if the permit is sent via facsimile or other data

communications system to the territorial government officials and the

importer or its authorized agent (otherwise, two copies needed). For

non-electronic transmission entries filed with Customs officials at the

port, the original permit would continue to be a required part of the

paperwork submitted to Customs to receive duty-free treatment. Customs

would still forward the permit to the Department of Commerce after

filling in the entry number and date of entry. The licensee, as with

ABI entries, would need to make a copy of the permit for the

territorial government and the importer or its authorized agent's

records only if the permit is not sent via facsimile or other data

communication system. The territorial government officials would

continue to send a copy of each permit to the Department of Commerce.

The proposed revision of the permit would not only reduce the paperwork

associated with the permit, but would also eliminate the need for

Customs to mail a copy of the permit to the Department of Commerce for

all ABI entries.

Section 602 of Public Law 103-465 enacted on December 8, 1994

amended Public Law 97-446. The proposed rule would make the necessary

technical changes to reflect the new authority for the duty-refund

entitlements for the insular watch program. Changes would be made to

Authority, Sec. 303.1(a), Sec 303.2((a)(1) and Sec. 303.12(c)(2).

We also propose eliminating the mid-year report (Form ITA-321P).

Sec. 303.11 (Mid-year reporting requirement) of the regulations and

Sec. 303.2(b)(4) (Form ITA-321P) would be removed. A major purpose of

the mid-year report was to establish whether companies required more

duty-exemption allocation or wished to relinquish duty-exemption that

had been allocated. These purposes can be satisfied less formally and

without paperwork. Even if the reporting requirement and the associated

form are eliminated, companies could still request supplemental duty-

free allocations or voluntarily relinquish units in accordance with

Sec. 303.6(c) and (f). We also propose amending Sec. 303.6(f) in order

to clarify the procedures for requesting annual supplemental

allocations and relinquishing units.

We propose increasing the percentage of wages for the repair of

non-9\1/5\ watches and watch movements creditable towards the duty-

refund to a maximum of fifty percent of the firm's total creditable

wages by amending Sec. 303.2(a)(13) and Sec. 303.14(c)(3). The increase

is being proposed to permit producers to further diversify their

operations.

Currently, the percentage of wages paid for the repair of non-9\1/

5\ watches and watch movements and for the assembly of non-9\1/5\

watches and watch

[[Page 37847]]

movements (ineligible only due to value-limit reasons) which is

creditable towards the duty-refund is twenty-five percent of the firm's

other 9\1/5\ creditable wages. No duty-refunds have ever been issued on

the basis of wages paid for the production of watches and watch

movements because they exceeded regulatory value limits. Accordingly,

we propose eliminating this exclusion by amending Sec. 303.2(a)(13).

Pub. L. 97-446, as amended by Pub. L. 103-465, 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 Northern Mariana Islands. Regulations on the

establishment of these quantities and shares are contained in Sec.

303.3 and 303.4 of title 15, Code of Federal Regulations (15 CFR 303.3

and 303.4). The Departments propose to establish for calendar year 1997

a total quantity and respective territorial shares as shown in the

following table:

Virgin Islands.............................................. 3,100,000

Guam........................................................ 500,000

American Samoa.............................................. 500,000

Northern Mariana Islands.................................... 500,000

Compared to the total quantity established for 1994 (59 FR 8847;

February 24, 1994), this amount would be a decrease of 500,000 units.

The proposed Virgin Islands territorial share would be reduced by

500,000 and the shares for Guam, American Samoa and the Northern

Mariana Islands would not change. The amount we propose for the Virgin

Islands is more than sufficient for the anticipated needs of all the

existing producers.

We also propose raising the maximum value of components for duty-

free treatment of watches from $175 to $200 by amending Sec.

303.14(b)(3). This change would relax the limitation on the value of

imported components that may be used in the assembly of duty-free

insular watches. The proposed value levels would also help offset the

effects of the declining dollar and allow the producers wider options

in the kinds of watches they assemble.

The proposed changes include amending Sec. 303.14(c)(1)(iv), which

sets the incremental percentage for calculating that part of the duty-

refund for producers who have shipped between 600,000 and 750,000 units

free of duty into the United States. Currently the value of the duty-

refund is based on the producer's average creditable wages per unit

shipped free of duty into the United States multiplied by a factor of

90% for the first 300,000 units and declining percentages in additional

increments of 85%, 80% and 65% up to a maximum of 750,000 units. The

amendment would raise the 65% increment to 75%. In recent years most

producers have shipped fewer than 600,000 units. This change would add

a further incentive for producers to increase shipments which would

help raise territorial employment.

The following amendments are being proposed to simplify and

consolidate the regulations and to eliminate redundancy:

Remove the concluding text of Sec. 303.6(f) which would

require the publication of notices in the Federal Register to invite

new entrants and would amend Sec. 303.8(c)(2), which also related to

new entrant invitations (the regulations contain a standing invitation

to new entrants in Sec. 303.14);

Eliminate Section 303.10 (Limitations, requirements,

restriction and prohibitions) and would consolidate non-duplicative

language in Sec. 303.14(b);

Amend Sec. 303.12(b)(3) by changing registered mail to

registered, certified or express carrier mail;

Amend Sec. 303.12(c)(1) by changing the reference from

Sec. 303.2(b)(6) to Sec. 303.2(b)(5), due to other proposed changes

affecting the numbering of provisions;

Amend Sec. 303.14(b) by removing references to Sec. 303.10

and incorporating the non-duplicative language in Sec. 303.14(b);

Amend Sec. 303.14(c)(2) by replacing a reference to Sec.

303.10(c)(2) with the correct reference (Sec. 303.5(c)) and by removing

Sec. 303.14(c)(3) as redundant; and

Eliminate Sections 303.10 and 303.11.

The proposed rule does not contain policies with Federalism

implications sufficient to warrant preparation of a Federalism

assessment under Executive Order 12612.

Regulatory Flexibility Act

In accordance with the Regulatory Flexibility Act, 5 U.S.C. 601 et

seq., the Assistant General Counsel for Legislation and Regulation has

certified to the Chief Counsel, Small Business Administration, that the

proposed rule will not have a significant economic impact on a

substantial number of small entities. This is because the rulemaking is

primarily to consolidate and simplify the regulations, make technical

changes and reduce paperwork.

Paperwork Reduction Act

This rulemaking involves information collection activities subject

to the Paperwork Reduction Act of 1980, 44 U.S.C. 3501 et seq. which

are currently approved by the Office of Management and Budget under

control numbers 0625-0040 and 0625-0134. The proposed amendments reduce

the information burden on the public.

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.

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, 15 CFR Part 303 is proposed to be

amended as follows:

PART 303--[AMENDED]

1. The authority citation for 15 CFR Part 303 is revised to read as

follows:

Authority: Pub. L. 94-241, 90 Stat. 263 (48 U.S.C. 1681, note);

Pub. L. 97-446, 96 Stat. 2331 (19 U.S.C. 1202, note); Pub. L. 103-

465, 108 Stat. 4991.

303.1 [Amended]

2. Section 303.1(a) is amended by removing the period at the end of

the first sentence and adding ``, and amended by Pub. L. 103-465,

enacted December 8, 1994.''.

Sec. 303.2 [Amended]

3. Section 303.2(a)(1) is amended by removing the period at the end

of the sentence and adding ``, as amended by Pub. L. 103-465, enacted

December 8, 1994, 108 Stat. 4991.''.

4. In Sec. 303.2, paragraphs (a)(13) and (b)(3) are revised to read

as follows:

Sec. 303.2 Definitions and forms.

(a) * * *

(13) Creditable wages means all wages--up to the amount per person

shown in Sec. 303.14(a)(1)(i)--paid to permanent residents of the

territories employed in a firm's 9\1/5\ watch and watch movement

assembly operations, plus any wages paid for the repair of

[[Page 37848]]

non-9\1/5\ watches up to an amount equal to 50 percent of the firm's

total creditable wages. Excluded, however, are wages paid for special

services rendered to the firm by accountants, lawyers, or other

professional personnel and for the repair of non-9\1/5\ watches and

movements to the extent that such wages exceed the foregoing ratio.

Wages paid to persons engaged in both creditable and non-creditable

assembly and repair activities may be credited proportionately provided

the firm maintains production and payroll records adequate for the

Departments' verification of the creditable portion.

* * * * *

(b) * * *

(3) ITA-340 ``Permit to Enter Watches and Watch Movements into the

Customs Territory of the United States.'' This form may be obtained, by

producers holding a valid license, from the territorial government or

may be produced by the licensee in an approved computerized format or

any other medium or format approved by the Departments of Commerce and

the Interior. The completed form authorizes duty-free entry of a

specified amount of watches or watch movements at a specified U.S.

Customs port.

* * * * *

5. In Section 303.2, paragraph (b)(4) is removed and paragraphs

(b)(5) and (b)(6) are redesignated as paragraphs (b)(4) and (b)(5).

Sec. 303.6 [Amended]

6. Section 303.6(f) introductory text is amended at the beginning

of the second sentence by removing ``The'' and adding ``At the request

of a producer, the''; and in the middle of the fourth sentence by

removing ``invited'' and adding ``considered''.

7. In Sec. 303.6, the concluding text of paragraph (f) is removed.

8. Section 303.7 is amended by revising paragraph (b) to read as

follows:

Sec. 303.7 Issuance of licenses and shipment permits.

* * * * *

(b) Shipment Permit Requirements (ITA-340). (1) Producers may

obtain shipment permits from the territorial government officials

designated by the Governor. Permits may also be produced in any

computerized or other format or medium approved by the Departments. The

permit is for use against a producer's valid duty-exemption license and

a permit must be completed for every duty-free shipment.

(2) Each permit must specify the license and permit number, the

number of watches and watch movements included in the shipment, the

unused balance remaining on the producer's license, pertinent shipping

information and must have the certification statement signed by an

official of the licensee's company. A copy of the completed permit must

be sent electronically or taken to the designated territorial

government officials, no later than the day of shipment, for

confirmation that the producer's duty exemption license has not been

exceeded and that the permit is properly completed.

(3) The permit (form ITA-340) shall be filed with Customs along

with the other required entry documents to receive duty-free treatment

unless the importer or its representative clears the documentation

through Customs' automated broker interface. Entries made

electronically do not require the submission of a permit to Customs,

but the shipment data must be maintained as part of a producer's

recordkeeping responsibilities for the period prescribed by Customs'

recordkeeping regulations. U.S. Customs Service Import Specialists may

request the documentation as they deem appropriate to substantiate

claims for duty-free treatment, allowing a reasonable amount of time

for the importer to produce the permit.

Sec. 303.8 [Amended]

9. In Sec. 303.8, paragraph (c)(2) is revised to read as follows:

Sec. 303.8 Maintenance of duty-exemption entitlements.

* * * * *

(c) * * *

(2) Reallocate the allocation or part thereof to new entrant

applicants; or

* * * * *

Sec. 303.10 [Removed and Reserved]

10. Section 303.10 is removed and reserved.

Sec. 303.11 [Removed and Reserved]

11. Section 303.11 is removed and reserved.

Sec. 303.12 [Amended]

12. Section 303.12(b)(3) introductory text is amended by adding,

after the word ``registered'', the words ``, certified or express

carrier mail''.

13. Section 303.12(c)(1) is amended by removing from the first

sentence ``Sec. 303.2(b)(6)'' and adding ``Sec. 303.2(b)(5)''.

14. Section 303.12(c)(2) is amended at the end of the first

sentence by removing the period and adding ``, as amended by Pub. L.

103-465.''.

15. In Sec. 303.14, the heading of paragraph (b) and paragraphs

(b)(1) and (b)(3) are revised and paragraph (b)(4) is added to read as

follows:

Sec. 303.14 Allocation factors and miscellaneous provisions.

* * * * *

(b) Minimum assembly requirements and prohibition of preferential

supply relationship. (1) No insular watch movement or watch may be

entered free of duty into the customs territory of the United States

unless the producer used 30 or more discrete parts and components to

assemble a mechanical watch movement and 33 or more discrete parts and

components to assemble a mechanical watch.

* * * * *

(3) Watch movements and watches assembled from components with a

value of more than the $35 for watch movements and $200 for watches

shall not be eligible for duty-exemption upon entry into the U.S.

Customs territory. Value means the value of the merchandise plus all

charges and costs incurred up to the last point of shipment (i.e.,

prior to entry of the parts and components into the territory).

(4) No producer shall accept from any watch parts and components

supplier advantages and preferences which might result in a more

favorable competitive position for itself vis-a-vis other territorial

producers relying on the same supplier. Disputes under this paragraph

may be resolved under the appeals procedures contained in

Sec. 303.13(b).

* * * * *

16. Section 303.14(c)(1)(iv) is amended by removing ``65%'' and

adding ``75%''.

17. Section 303.14(c)(2) is amended by removing

``Sec. 303.10(c)(2)'' and adding ``Sec. 303.5(c)''.

18. Section 303.14(c)(3) is removed.

19. Section 303.14(e) is amended by removing ``3,600,000'' and

adding ``3,100,000'' in its place.

Paul L. Joffe,

Acting Assistant Secretary for Import Administration, International

Trade Administration, Department of Commerce.

Allen Stayman,

Director, Office of Insular Affairs, Department of the Interior.

[FR Doc. 96-18427 Filed 7-19-96; 8:45 am]

BILLING CODE 3510-DS-P and 4310-93-P