02-31892. 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, [phone].

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. 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 § 303.2(a) by adding paragraph (a)(16) and Subpart B § 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:

§ 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.

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

§ 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.

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Faryar Shirzad,

Assistant Secretary for Import Administration, Department of Commerce.

David B. Cohen,

Deputy Assistant Secretary for Insular Affairs, Department of the Interior.