E8-19411. Changes in the Insular Possessions Watch, Watch Movement and Jewelry Programs 2008

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.

SUMMARY:

The Departments of Commerce and the Interior (the Departments) propose to amend their regulations governing watch duty-exemption allocations and 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 proposed rule would amend the regulations by updating the formula that is used to calculate the combined amount of individual and family health and life insurance per year that is creditable towards the duty refund benefit.

DATES:

Written comments must be received on or before September 22, 2008.

ADDRESSES:

Address written comments to Faye Robinson, Director, Statutory Import Programs Staff, Room 2104, U.S. Department of Commerce, 14th and Constitution Ave., NW., Washington, DC 20230.

FOR FURTHER INFORMATION CONTACT:

Faye Robinson, [phone], same address as above.

SUPPLEMENTARY INFORMATION:

The insular possessions watch industry provision in Sec. 110 of Public Law No. 97-446 (96 Stat. 2331) (1983), as amended by section 602 of Public Law No. 103-465 (108 Stat. 4991) (1994), and additional U.S. Note 5 to chapter 91 of the Harmonized Tariff Schedule of the United States (“HTSUS”), as amended by Public Law 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 that may be entered free of duty during each calendar year. The law also requires the Secretaries to establish the shares of this limited quantity that 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.

Public Law 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 that 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), that 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).

Section 1562 of Public Law 108-429 (2004), amended by Public Law 97-446, Public Law 103-465 and Public Law 106-36 authorizes the extension of the duty refund benefits to include the value of usual and customary health insurance, life insurance and pension benefits; raising the ceiling on the amount of jewelry that qualifies for the duty refund benefit; allowing new insular jewelry producers to assemble jewelry and have such jewelry treated as an article of the insular possessions for up to 18 months after the jewelry company commences assembly operations; allowing duty refund certificate holders to secure a duty refund on any articles that are imported into the customs territory of the United States by the certificate holder duty paid; and providing compensation to insular watch producers if tariffs on watches and watch movements are reduced.

Under the Department of Commerce's regulations, the combined creditable amount of individual health and life insurance per year may not exceed 100 percent of the “weighted average” yearly individual federal employee health insurance, and the combined creditable amount of family health and life insurance per year may not exceed 120 percent of the “weighted average” yearly family federal employee health insurance. The Department of Commerce's regulations combine the creditable amount of health and life insurance into one benefit calculation because most program companies purchase health and life insurance together in one plan or payment.

In March 2008, the Department of Commerce received a letter from the U.S. Virgin Islands Watch and Jewelry Manufacturers Association (V.I.M.A) requesting that we reexamine the methodology for determining the health benefit portion of the production incentive certificate (“PIC”). The V.I.M.A. stated that its members' health insurance costs have outpaced the current formula due to factors including the age of the staff and difficulty in getting local medical providers to accept the Virgin Islands card health plan. According to the V.I.M.A, the health insurance costs of two producers currently exceed the maximum allowable reimbursement, even though the health benefit plans remain unchanged.

During the Departments' audit in February 2008, Department officials discovered there had been substantial increases in combined health and life insurance costs for some program producers and that creditable limits had been exceeded for a few employees within two companies. One company exceeded the individual creditable limit and the other company exceeded the family creditable limit. In light of the upward trend in the costs of health and life insurance within the industry generally, as discussed above, we have reevaluated the creditable limits. Accordingly, we are proposing an increase in the formula for determining creditable health and life insurance benefits.

Proposed Amendments

We propose to amend § 303.2(a)(13)(ii), § 303.2(a)(13)(ii)(A), § 303.2(a)(14)(ii), § 303.2(a)(14)(ii)(A), § 303.16(a)(9)(ii), § 303.16(a)(9)(ii)(A), § 303.16(a)(10)(ii), and § 303.2(a)(10)(ii)(A) by increasing the percentage used to calculate the combined amount of individual and family health and life insurance per year that is creditable towards the duty refund benefit for watch and jewelry producers. Currently, the combined creditable amount of individual health and life insurance per year may not exceed 100 percent of the “weighted average” yearly individual federal employee health insurance, and the combined creditable amount of family health and life insurance per year may not exceed 120 percent of the “weighted average” yearly family federal employee health insurance. Under the proposed rule, the combined creditable amount of individual health and life insurance per year would not exceed 130 percent of the “weighted average” yearly individual federal employee health insurance, and the combined creditable amount of family health and life insurance per year would not exceed 150 percent of the “weighted average” yearly family federal employee health insurance.

Classification

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.

There are currently five companies participating in the insular watch and jewelry programs. The updating of the formula that is used to calculate the combined amount of individual and family health and life insurance per year that is creditable towards the duty refund benefit is being proposed to compensate for the increase in the cost of health insurance in the U.S. Virgin Islands, where all five of the watch and jewelry producers are located. Adoption of this rule would benefit producers by increasing the maximum amount of combined health and life insurance that would be eligible for the duty refund benefit. Under the proposed rule, the combined annual creditable amount of individual health and life insurance for calendar year 2008 would be increased by $1,571 and the combined annual creditable amount of family health and life insurance for calendar year 2008 would be increased by $3,567. There would be no adverse economic impact from this proposed change.

This proposed rule also would not change reporting or recordkeeping requirements. The changes in the regulations will also not duplicate, overlap or conflict with other laws or regulations. Consequently, the changes are not expected to meet 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 does not contain revised 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.

Not withstanding 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 PROGRAMS

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. 167; Pub. L. 108-429, 118 Stat. 2582.

§ 303.2

[Amended]

2. Section 303.2 is amended as follows:

A. Remove “100” from the first sentence in paragraph (a)(13)(ii) and add “130” in its place.

B. Remove “120” from the first sentence in paragraph (a)(13)(ii)(A) and add “150” in its place.

C. Remove “100” from the first sentence in paragraph (a)(14)(ii) and add “130” in its place.

D. Remove “120” from the first sentence in paragraph (a)(14)(ii)(A) and add “150” in its place.

§ 303.16

[Amended]

3. Section 303.16 is amended as follows:

A. Remove “100” from the first sentence in paragraph (a)(9)(ii) and add “130” in its place.

B. Remove “120” from the first sentence in paragraph (a)(9)(ii)(A) and add “150” in its place.

C. Remove “100” from the first sentence in paragraph (a)(10)(ii) and add “130” in its place.

D. Remove “120” from the first sentence in paragraph (a)(10)(ii)(A) and add “150” in its place.

Dated: August 13, 2008.

David Spooner,

Assistant Secretary for Import Administration, Department of Commerce.

Dated: August 15, 2008.

Nikolao Pula,

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