Extend Production Incentive Benefits to Jewelry Manufacturers in the U.S. Insular Possessions

DEPARTMENT OF COMMERCE

International Trade Administration

DEPARTMENT OF THE INTERIOR

Office of Insular Affairs

15 CFR Part 303

[Docket No. 990813222-9222-01]

RIN 0625-AA55

Extend Production Incentive Benefits to Jewelry Manufacturers in

the U.S. Insular Possessions

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 to amend their regulations governing

duty-exemption allocations and duty-refund benefits for watch producers

in the United States insular possessions (the U.S. Virgin Islands,

Guam, American Samoa and the Commonwealth of the Northern Mariana

Islands) due to the enactment of Pub. L. 106-36. This law amends

additional U.S. notes to chapter 71 of the Harmonized Tariff Schedule

of the United States (``HTSUS'') to provide a duty-refund benefit for

any article of jewelry within heading 7113 which is the product of the

Virgin Islands, Guam, American Samoa or the Northern Mariana Islands in

accordance with the new provisions of the note in chapter 71 and

additional U.S. note 5 to chapter 91. The proposed rule would amend the

regulations by changing Title 15 CFR part 303 to include jewelry,

creating a Subpart A for the current insular watch and watch movement

regulations and a Subpart B for the new regulations pertaining to

jewelry duty-refund benefits authorized by Pub. L. 106-36.

DATES: Written comments must be received on or before September 27,

1999.

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

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 Sec. 110 of Pub. L. 97-446 (96 Stat. 2331) (1983), as

amended by Sec. 602 of Pub. L. 103-465 (108 Stat. 4991) (1994);

additional U.S. Note 5 to chapter 91 of the 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 Section 303.14

of the regulations (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 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 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 (45 days after the date of enactment),

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

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U.S. Custom 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.

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 will not affect the five watch companies

currently participating in the insular possessions watch program

because Pub. L. 106-36 does not allow watch producers' benefits to be

reduced as a consequence of extending benefits to jewelry

manufacturers. We expect up to five jewelry companies to set up

production facilities in the insular possessions in response to the

extension to them of existing incentives by Pub. L. 106-36. However, as

with watch producers, the duty refund benefit per company does not

apply to shipments exceeding 750,000 units of jewelry into the United

States per year. The last Census of Manufacturers statistics (1992)

indicate that there are 2,180 precious jewelry manufacturers located in

the U.S. employing 32,300 employees. Because the insular jewelry

industry would represent such a small percentage of the existing U.S.

industry and because there is a limit on the benefit extended to

insular jewelry producers, the proposed regulations will not have a

significant adverse impact on any small business entities. We expect a

positive impact in the form of new jobs in the small U.S. insular

economies.

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. The extension of the insular watch

program to include the jewelry benefit will require the use of three of

the current forms, modified to accommodate jewelry. The public

reporting burden for these collection-of-information requirements

include the time for reviewing instructions, searching existing data

sources, gathering and maintaining the data needed, and completing and

reviewing the collection of information. Form ITA-334P, the annual

application, would be completed once a year by each jewelry producer

and requires one burden hour. Form ITA-360P, the certificate of refund,

would also be used once a year and is completed by the Department of

Commerce and imposes no burden hours. Form ITA-361P, the request for

refund of duties, would normally used once or twice a year per jewelry

producer and takes about 10 minutes to complete. 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 shall 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 (see Address above) 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.

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 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 is revised 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. Amend the heading for part 303 to read as set forth above.

Subpart A--Watches and Watch Movements

3. Designate Secs. 303.1 through 303.14 as subpart A and add a

subpart heading as set forth above.

4. Add subpart B to read as follows:

Subpart B--Jewelry

Sec.

303.15 Purpose.

303.16 Definitions and forms.

303.17 Annual jewelry application.

303.18 Sale and transfer of business.

303.19 Issuance and use of production incentive certificate.

303.20 Duty refund.

303.21 Appeals.

Subpart B--Jewelry

Sec. 303.15 Purpose.

(a) This subpart implements the responsibilities of the Secretaries

of Commerce and the Interior (``the Secretaries'') under Pub. L. 106-

36, enacted 25 June 1999 which substantially amended Pub. L. 97-446,

enacted 12 January 1983, amended by Pub. L. 89-805, enacted 10 November

1966, amended by Pub. L. 94-88, enacted 8 August 1975, amended by Pub.

L. 94-241, enacted 24 March 1976, and amended by Pub. L. 103-465,

enacted 8 December 1994.

(b) The amended law provides for the issuance of certificates to

insular jewelry producers who have met the requirements of the laws and

regulations, entitling the holder (or any transferee) to obtain refunds

of duties on watches and watch movements and parts (except discrete

watch cases) imported into the customs territory of

[[Page 46874]]

the United States. The amounts of these certificates may not exceed

specified percentages of the producers' verified creditable wages in

the insular possessions (90% of wages paid for the production of the

first 300,000 duty-free units and declining percentages, established by

the Secretaries, of wages paid for incremental production up to 750,000

units by each producer) nor an aggregate annual amount for all

certificates exceeding $5,000,000 adjusted for growth by the ratio of

the previous year's gross national product to the gross national

product in 1982. However, the law specifies that watch producer

benefits are not to be diminished as a consequence of extending the

duty refund to jewelry manufacturers. In the event that the amount of

the calculated duty refunds for watches and jewelry exceeds the total

aggregate annual amount that is available, the watch producers shall

receive their calculated amounts and the jewelry producers would

receive amounts proportionately reduced from the remainder. Refund

requests are governed by regulations issued by the Department of the

Treasury (See 19 CFR 7.4).

(c) Section 2401(a) of Pub. L. 106-36 and additional U.S. note 5 to

chapter 91 of the HTSUS authorize the Secretaries to issue regulations

necessary to carry out their duties. The Secretaries may cancel or

restrict the certificate of any insular manufacturer found violating

the regulations.

Sec. 303.16 Definitions and forms.

(a) Definitions. For purposes of this subpart, unless the context

indicates otherwise:

(1) Act means Pub. L. 97-446, enacted 12 January 1983 (19 U.S.C.

1202), 96 Stat. 2329, as amended by Pub. L. 103-465, enacted on 8

December 1994, 108 Stat. 4991 and, as amended by Pub. L. 106-36,

enacted on 25 June 1999.

(2) Secretaries means the Secretary of Commerce and the Secretary

of Interior or their delegates, acting jointly.

(3) Director means the Director of the Statutory Import Programs

Staff, International Trade Administration, U.S. Department of Commerce.

(4) Sale or transfer of a business means the sale or transfer of

control, whether temporary or permanent, over a firm which is eligible

for a jewelry program duty-refund to any other firm, corporation,

partnership, person or other legal entity by any means whatsoever,

including, but not limited to, merger and transfer of stock, assets or

voting trusts.

(5) New firm means a jewelry producer who has requested in writing

to the Secretaries permission to participate in the program, has agreed

to abide by the laws and regulations of the program and has been

accepted by the Secretaries as a viable company that will make an

economic contribution to the territory. Also, the new firm must be an

entity which is completely separate from and not associated with, by

way of ownership or control, any other potential jewelry duty-refund

recipient (and only one watch duty-refund recipient) in any territory.

(6) Jewelry producer means a company, located in one of the insular

territories (see paragraph (a)(8) of this section), that produces

jewelry provided for in heading 7113, HTSUS, which meets all the U.S.

Customs Service requirements for duty-free entry set forth in General

Note 3(a)(iv), HTSUS, and 19 CFR 7.3, and has maintained its

eligibility for duty refund benefits by complying with these

regulations.

(7) Unit of jewelry means a single article, pair (example:

earrings, cufflinks), subassembly or component which is contained in

HTSUS heading 7113.

(8) Territories, territorial and insular possessions refers to the

insular possessions of the United States (i.e., the U.S. Virgin

Islands, Guam, American Samoa and the Northern Mariana Islands).

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

of $38,650--paid to permanent residents of the territories employed in

the firm's manufacture of HTSUS heading 7113 articles of jewelry which

are a product of the insular possessions and have met the U.S. Customs

Service's criteria for duty-free entry into the United States, plus any

wages paid for the repair of non-insular HTSUS heading 7113 jewelry 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 plus any

wages paid for the assembly of dutiable jewelry or the repair of

dutiable jewelry to the extent that such wages exceed the percentage

set forth above. Wages paid to persons engaged in production of jewelry

that has entered the U.S. both duty-free and duty-paid may be credited

proportionately provided the firm maintains production and payroll

records adequate for the Departments' verification of the creditable

wages portion.

(10) Dutiable jewelry includes jewelry which does not meet the

requirements for duty-free entry under General Note 3(a)(iv), HTSUS,

and 19 CFR 7.3 , contains any material which is the product of any

country with respect to which Column 2 rates of duty apply or is

ineligible for duty-free treatment pursuant to other laws or

regulations.

(b) Forms--(1) ITA--334P. ``Annual Application for License to Enter

Watches and Watch Movements into the Customs Territory of the United

States.'' The Director shall issue instructions for jewelry

manufacturers on the completion of the relevant portions of the form.

The form must be completed annually by all jewelry producers desiring

to receive a duty refund.

(2) ITA--360P. ``Certificate of Entitlement to Secure the Refund of

Duties on Watches and Watch Movements.'' This document authorizes a

territorial jewelry producer to request the refund of duties on imports

of watches, watch movements and parts therefor, with certain

exceptions, up to a specified value. Certificates may be used to obtain

duty refunds only when presented with a properly executed Form ITA-

361P.

(3) ITA--361P. ``Request for Refund of Duties on Watches and Watch

Movements.'' This form must be completed to obtain the refund of duties

authorized by the Director through Form ITA-360P. After authentication

by the Department of Commerce, it may be used for the refund of duties

on items which were entered into the customs territory of the United

States during a specified time period. Copies of the appropriate

Customs entries must be provided with this form to establish a basis

for issuing the claimed amounts. The forms may also be used to transfer

all or part of the producer's entitlement to another party (see

Sec. 303.19(c)).

(The information collection requirements in paragraph (b)(1) were

approved by the Office of Management and Budget under control number

0625-0040. The information collection requirements in paragraphs (b)

(2) and (3) were approved under control number 0625-0134.)

Sec. 303. 17 Annual jewelry application

(a) Form ITA-334P shall be furnished to producers by January 1 and

must be completed and returned to the Director no later than January 31

of each calendar year.

(b) All data supplied are subject to verification by the

Secretaries and no duty refund shall be made to producers until the

Secretaries are satisfied that the data are accurate. To verify the

data, representatives of the Secretaries shall have access to relevant

company records including, but not limited to:

(1) Work sheets used to answer all questions on the application

form, as specified by the instructions;

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(2) Original records from which such data are derived;

(3) Records pertaining to ownership and control of the company;

(4) Records pertaining to all duty-free and dutiable shipments of

HTSUS 7113 jewelry, including Customs entry documents;

(5) Records pertaining to corporate income taxes, gross receipts

taxes and excise taxes paid by each producer in the territories;

(6) Customs, bank, payroll, and production records;

(7) Records on purchases of components and sales of jewelry,

including proof of payment; and

(8) Any other records in the possession of the parent or affiliated

companies outside the territory pertaining to any aspect of the

producer's jewelry operations.

(c) Data verification shall be performed in the territories, unless

other arrangements satisfactory to the Departments are made in advance,

by the Secretaries' representatives by the end of February of each

calendar year. In the event a company cannot substantiate the data in

its application, the Secretaries shall determine which data will be

used.

(d) Records subject to the requirements of paragraph (b), of this

section, shall be retained for a period of two years following their

creation.

Sec. 303.18 Sale or transfer of business.

(a) The sale or transfer of a business together with its duty

refund entitlement shall be permitted with prior written notification

to the Departments. Such notification shall be accompanied by

certifications and representations, as appropriate, that:

(1) The transferee is neither directly nor indirectly affiliated

with any other territorial duty refund jewelry recipient in any

territory;

(2) The transferee will not modify the jewelry operations in a

manner that will significantly diminish its economic contributions to

the territory.

(b) At the request of the Departments, the transferee shall permit

representatives of the Departments to inspect whatever records are

necessary to establish to their satisfaction that the certifications

and representations contained in paragraph (a) of this section have

been or are being met.

(c) Any transferee who is either unwilling or unable to make the

certifications and representations specified in paragraph (a) of this

section shall secure the Departments' approval in advance of the sale

or transfer of the business. The request for approval shall specify

which of the certifications specified in paragraph (a) of this section

the firm is unable or unwilling to make, and give reasons why such fact

should not constitute a basis for the Departments' disapproval of the

sale or transfer.

Sec. 303.19 Issuance and use of production incentive certificates.

(a) Issuance of certificates. (1) Certificates of Entitlement, Form

ITA-360, shall be issued before March 1 of each year.

(2) Certificates shall not be issued to more than one jewelry

company in the territories owned or controlled by the same corporate

entity.

(b) Security and handling of certificates. (1) Certificate holders

are responsible for the security of the certificates. The certificates

shall be kept at the territorial address of the producer or at another

location having the advance approval of the Departments.

(2) All refund requests made pursuant to the certificates shall be

entered on the reverse side of the certificate.

(3) Certificates shall be returned by registered, certified or

express carrier mail to the Department of Commerce when:

(i) A refund is requested which exhausts the entitlement on the

face of the certificate,

(ii) The certificate expires, or

(iii) The Departments request their return with good cause.

(4) Certificate entitlements may be transferred according to the

procedures described in paragraph (c) of this section.

(c) The use and transfer of certificate entitlements. (1) Insular

producers issued a certificate may request a refund by executing a Form

ITA-361P (see Sec. 303.16(b)(3)) and the instructions on the form).

After authentication by the Department of Commerce, Form ITA-361P may

be used to obtain duty refunds on watch movements, watches, and parts

therefor. Duties on watch cases not containing a movement and on

articles containing any material which is the product of a country with

respect to which Column 2 rates of duty apply may not be refunded.

Articles for which duty refunds are claimed must have entered the

customs territory of the United States during the two-year period prior

to the issue date of the certificate or during the one-year period the

certificate remains valid. Copies of the appropriate Customs entries

must be provided with the refund request in order to establish a basis

for issuing the claimed amounts. Certification regarding drawback

claims and liquidated refunds relating to the presented entries is

required from the claimant on the form.

(2) Regulations issued by the U.S. Customs Service, U.S. Department

of the Treasury, govern the refund of duties under 19 CFR 7.4. If the

Departments receive information from the Customs Service that a

producer has made unauthorized use of any official form, they may

cancel the affected certificate.

(3) The territorial producer may transfer a portion of all of its

certificate entitlement to another party by entering in block C of Form

ITA-361P the name and address of the party.

(4) After a Form ITA-361P transferring a certificate entitlement to

a party other than the certificate holder has been authenticated by the

Department of Commerce, the form may be exchanged for any consideration

satisfactory to the two parties. In all cases, authenticated forms

shall be transmitted to the certificate holder or its authorized

custodian for disposition (see paragraph (b) of this section).

(5) All disputes concerning the use of an authenticated Form ITA-

361P shall be referred to the Departments for resolution. Any party

named on an authenticated Form ITA-361P shall be considered an

``interested party'' within the meaning of Sec. 303.21 of this part.

Sec. 303.20 Duty refund.

(a) Territorial jewelry producers are entitled to duty refund

certificates only for jewelry that they produce which is provided for

in heading 7113, HTSUS, is a product of a territory and otherwise meets

the requirements for duty-free entry under General Note 3 (a)(iv),

HTSUS, and 19 CFR 7.3.

(1) An article of jewelry is considered to be a product of a

territory if:

(i) The article is wholly the growth or product of the territory;

or

(ii) The article became a new and different article of commerce as

a result of production or manufacture performed in the territories.

(2) Two-year exception. Any article of jewelry provided for in

heading 7113, HTSUS, entered or withdrawn from warehouse for

consumption during the two-year period beginning August 9, 1999, that

is assembled in a territory shall be considered a product of the

insular possessions. At the expiration of the two-year period, only

jewelry which satisfies either of the criteria set forth in paragraph

(a)(1) of this section shall be considered a product of an insular

possession.

(b) Calculation of the value of production incentive certificates.

(1) The value of each producer's certificate shall equal the producer's

average creditable wages per unit shipped free

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of duty into the United States multiplied by the sum of:

(i) The number of units shipped up to 300,000 units times a factor

of 90%; plus

(ii) Incremental units shipped up to 450,000 units times a factor

of 85%; plus

(iii) Incremental units shipped up to 600,000 times a factor of

80%; plus

(iv) Incremental shipments up to 750,000 units times a factor of

75%.

(2) The Departments may make adjustments for these data in the

manner set forth in Sec. 303.17(c).

Sec. 303.21 Appeals.

(a) Any official decision or action relating to the issuance or use

of production incentive certificates may be appealed to the Secretaries

by any interested party. Such appeals must be received within 30 days

of the date on which the decision was made or the action taken in

accordance with the procedures set forth in paragraph (b) of this

section. Interested parties may petition for the issuance of a rule, or

amendment or repeal of a rule issued by the Secretaries. Interested

parties may also petition for relief from the application of any rule

on the basis of hardship or extraordinary circumstances resulting in

the inability of the petitioner to comply with the rule.

(b) Petitions shall bear the name and post office address of the

petitioner and the name and address of the principal attorney or

authorized representative (if any) for the party concerned. They shall

be addressed to the Secretaries and filed in one original and two

copies with the U.S. Department of Commerce, Import Administration,

International Trade Administration, Washington, DC 20230, Attention:

Statutory Import Programs Staff. Petitions shall contain the following:

(1) A reference to the decision, action or rule which is the

subject of the petition;

(2) A short statement of the interest of the petitioner;

(3) A statement of the facts as seen by the petitioner;

(4) The petitioner's argument as to the points of law, policy or

fact. In cases where policy error is contended, the alleged error

together with the policy the submitting party advocates as the correct

one should be described in full;

(5) A conclusion specifying the action that the petitioner believes

the Secretaries should take.

(c) The Secretaries may at their discretion schedule a hearing and

invite the participation of other interested parties.

(d) The Secretaries shall communicate their decision, which shall

be final, to the petitioner by registered, certified or express mail.

Robert LaRussa,

Assistant Secretary for Import Administration, Department of Commerce.

Ferdinand Aranza,

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

[FR Doc. 99-22201 Filed 8-26-99; 8:45 am]

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