Office of Insular Affairs; Changes in the Insular Possessions Watch, Watch Movement and Jewelry Programs, 38828-38834 [05-13284]

Agencies

• DEPARTMENT OF COMMERCE
• International Trade Administration
• DEPARTMENT OF THE INTERIOR

[Federal Register Volume 70, Number 128 (Wednesday, July 6, 2005)]
[Proposed Rules]
[Pages 38828-38834]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-13284]


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DEPARTMENT OF COMMERCE

International Trade Administration

DEPARTMENT OF THE INTERIOR

15 CFR Part 303

[Docket No. 050613157-5157-01]
RIN 0625-AA68


Office of Insular Affairs; Changes in the Insular Possessions 
Watch, Watch Movement and Jewelry Programs

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 Islands). The proposed rule would amend the regulations by 
making technical changes required by passage of the Miscellaneous Trade 
and Technical Corrections Act of 2004; extending 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; providing a more comprehensive definition 
of ``unit;'' adjusting the amount of watch repairs that are eligible 
for the duty refund; providing compensation to insular watch producers 
if tariffs on watches and watch movements are reduced; and clarifying 
which wages are eligible for purposes of determining the duty refund 
and identifying which records are needed for the audit.

DATES: Written comments must be received on or before August 5, 2005.

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 Public Law 97-446 (96 Stat. 2331) (1983), 
as amended by Section 602 of Public Law 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 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 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.
    Public Law 106-36 (113 Stat. 127) (1999) authorizes the issuance of 
a duty-

[[Page 38829]]

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

    Section 1562 of Public Law 108-429 (2004) amended Public Law 97-
446, Public Law 103-465 and Public Law 106-36. The proposed rule would 
make the necessary technical changes to reflect the new authority for 
the insular watch and jewelry programs. Changes would be made to 
Authority, 15 CFR 303.1(a), 303.2(a)(1), 303.12(c)(2), 303.15(a), and 
303.16(a)(1).
    Pursuant to Public Law 108-429, we propose changing the definitions 
of ``creditable wages'' by amending 15 CFR 303.2(a)(13) and 15 CFR 
303.16(a)(9) to include the value of usual and customary health 
insurance, life insurance and pension benefits. We also propose 
changing the definition of creditable wages to include the difference 
between the duty rates for watches and watch movements that were in 
effect on January 1, 2001 and any new lower duty rates that takes place 
in the future. This provision in Public Law 108-429 would only be 
applicable if there were duty reductions on watches and watch 
movements. We further propose reapportioning the percentage of watch 
and watch movement repair wages that will be creditable towards the 
duty-refund. We propose raising the percentage of repairs that are 
eligible for benefits in response to a request we received which 
pointed out that repair work is very labor intensive and more time 
consuming than regular watch assembly. The producer requesting the 
change explained that there is a shortage of watchmakers in the United 
States and therefore companies are starting to send watches abroad to 
be repaired. The proposed change is intended to capture part of this 
market because there are currently experienced watchmakers in the U.S. 
Virgin Islands who are unemployed and looking for work. Increasing 
employment and providing meaningful work for permanent residents of the 
insular possessions is the cornerstone of the watch and jewelry 
programs.
    In an effort to further clarify which wages are eligible for the 
duty refund, we propose adding a new Section 303.2(a)(14); 
redesignating the current Sections 303.2(a)(14) through (a)(16) as 
Sections 303.2(a)(15) through (a)(17), respectively; adding a new 
Section 303.16(a)(10); and redesignating current Sections 303.16(a)(10) 
and 303.16(a)(11) as Sections 303.16(a)(11) and 303.16(a)(12), 
respectively, to further clarify which wages are not creditable. We 
also propose, as requested by a producer, to clarify the term ``year'' 
in current Sections 303.2(a)(16) and 303.16(a)(11) to clear up any 
possible confusion.
    We also propose amending Sections 303.2(b)(4), 303.2(b)(5), 
303.12(c)(1), 303.16(b)(2), 303.16(b)(3), and 303.19(c)(1). These 
sections currently allow the duty refund certificate holder a refund of 
duties on watches, watch movements and parts therefor, except discrete 
watch cases and any article containing a material which is the product 
of a country to which column 2 rates of duty apply. Pursuant to Public 
Law 108-429, we propose allowing the refund of duties on any articles 
that are imported into the customs territory of the United States duty 
paid by the certificate holder unless the articles contain a material 
to which column 2 rates of duty apply.
    Further, we propose amending Sections 303.20(b)(ii), (b)(iii) and 
(b)(iv) by raising the ceiling on the number of duty-free units of 
jewelry entering the United States each year that qualify for duty 
refund benefits under the program. Currently, a maximum of 750,000 
units of jewelry a year qualifies for duty refund benefits. The 
proposed change, pursuant to Public Law 108-429, would allow a maximum 
of 10,000,000 units a year to qualify for the duty refund benefit as 
long as the limit on available program funds is not exceeded and all 
the units are entered free of duty in accordance with the regulations.
    Another proposed change, pursuant to Public Law 108-429, would 
amend Section 303.20(a)(2) to allow new program jewelry producers up to 
an18 month exemption from meeting the substantial transformation 
requirements and the other provisions normally required for duty-free 
entry into the United States. Starting on the day the new producer 
commences jewelry manufacturing or jewelry assembly, the jewelry 
producer would have up to 18 months for any article of jewelry provided 
for in heading 7113, HTSUS, that is assembled in an insular possession, 
to be treated as a product of the insular possession. This proposed 
change is intended to allow a new producer adequate time to train 
employees in the skills necessary to meet the substantial 
transformation requirements.
    The proposed rule would also amend Section 303.16(a)(7) by 
expanding the definition of a ``unit'' of jewelry so that the term unit 
more accurately represents the way some heading 7113, HTSUS, jewelry is 
sold in the industry.
    The proposed rule would also amend Sections 303.5(b)(5) and 
303.17(b)(4) to clarify that all records pertaining to shipment 
documents and proof of residency, as required, must be maintained and 
made available for the verification of data. We also propose adding new 
Sections 303.5(b)(8) and 303.17(b)(9) which would require the 
collection and maintenance of information pertaining to health 
insurance, life insurance and pension benefits for each employee in 
order that the benefit information can be verified and the duty 
refunds, based on the verified data, be issued in accordance with 
Public Law 108-429. Further, in accordance with Public Law 108-429, we 
proposed adding a new Section 303.5(b)(9) in the event that the HTSUS 
tariffs on watches and watch movements are reduced. If such tariffs 
were reduced, we would need records pertaining to the annual value and 
quantities of the duty-free shipments of watches and watch movements 
into the United States by individual HTSUS tariff numbers along with 
information about components contained in the watches and watch 
movements. This information would be collected on an annual basis.

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

[[Page 38830]]

proposed rule, if promulgated as final, would not have a significant 
economic impact on a substantial number of small entities. There are 
currently four insular watch program companies and four insular program 
jewelry companies. All these companies would be considered small 
entities. The majority of proposed changes are being made to reflect 
the new statutory requirements contained in Public Law 108-429. The 
changes include extending the watch and jewelry programs to the year 
2015; extending the duty refund benefit to include the value of usual 
and customary health insurance, life insurance and pension benefits; 
raising the ceiling on the number of units of jewelry that qualifies 
for the duty refund benefit; allowing new insular jewelry producers to 
assemble jewelry and have the jewelry be 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 refund of duties on any articles that entered the customs 
territory of the United States with the duty having been paid by the 
certificate holder; providing a more comprehensive definition of 
``unit;'' adjusting the amount of watch repairs that are eligible for 
the duty refund; providing compensation to insular watch producers if 
tariffs on watches and watch movements are reduced; and clarifying 
which wages are eligible for the duty refund and which records must be 
kept for audit purposes. Adoption of this proposed rule would afford 
producers greater flexibility in dealing with market realities, thereby 
giving them the ability to take further advantage of opportunities that 
are suited to their particular needs without losing the duty refund 
benefit. Also, increasing the ceiling on the amount of jewelry units 
eligible for the duty refund will be beneficial to the program because 
it will allow findings companies (re: companies that produce jewelry 
and jewelry components such as earring backs, links, etc.) to take 
advantage of the program, thereby increasing employment. Findings 
companies normally produce millions of units a year and without this 
ceiling increase, findings companies would not consider moving to the 
insular possessions. The proposed changes would have an overall 
positive economic benefit to watch and jewelry producers by providing 
greater program benefits which will be a further incentive for new 
companies to locate in the insular possessions. In addition, the 
proposed changes are intended to make companies more competitive with 
the expectation that this will result in increased sales and 
employment.
    The proposed changes would require companies to provide information 
on their employees' health insurance, life insurance and pension 
benefits for the annual application (form ITA-334P) and have such 
information available for the annual audit. Also, if tariffs on watches 
and watch movements are reduced, then companies would have to provide 
annual aggregate information by individual HTSUS watch tariff numbers 
for the following components contained therein: The quantity and value 
of watch cases, the quantity of movements, the quantity and value of 
each type of strap, bracelet or band, and the quantity and value of 
batteries shipped free of duty into the United States. If discrete 
watch movements are shipped free of duty into the United States, then 
the companies would need to submit the annual aggregate quantity by 
individual HTSUS movement tariff numbers and the quantity and value of 
the batteries, if included in the movement. This information would 
normally be part of the each company's records. Consequently, a 
producer would merely need to provide the data on fringe benefits on 
the annual application and to retain the records for review during the 
audit. We estimate that the cost of supplying the documentation as 
needed would be no more than $40 a year. The reporting and 
recordkeeping requirements in this proposed rule would increase the 
total burden hours per company by approximately two hours a year to 
account for retrieval of the information for the audit and inclusion of 
the aggregate data on the annual application. Therefore, there would be 
little economic impact, because this information would be part of a 
company's normal recordkeeping.
    This proposed rule would not have a significant economic impact on 
a substantial number of small entities. Although the rule effects a 
significant number of small entities, it would only impose minimal 
economic impact. The rule would only increase reporting or record 
keeping requirements by approximately 2 hours per year per company. 
Further, the proposed changes will not duplicate, overlap or conflict 
with other laws or regulations. Finally, the proposed changes would 
result in an overall positive economic benefit to the watch and jewelry 
producers. Consequently, these proposed 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 is not required.
    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 require further paperwork to be collected due to the passage of 
Public Law 108-429 which extends the duty refund benefit to include the 
value of usual and customary health insurance, life insurance and 
pension benefits and provides compensation to insular watch producers 
if tariffs on watches and watch movements are reduced. The 
documentation for the health insurance, life insurance and pension 
benefits, would be required for the annual audit of information and 
would be needed to complete the annual application, form ITA-334P, 
which will be revised. Also, if tariffs on watches and watch movements 
were reduced, then companies would have to provide annual aggregate 
information by individual HTSUS watch tariff numbers for the following 
components contained therein, i.e., the quantity and value of watch 
cases, the quantity of movements, the quantity and value of each type 
of strap, bracelet or band, and the quantity and value of batteries 
shipped free of duty into the United States. If discrete watch 
movements are shipped free of duty into the United States, producers 
would have to provide the annual aggregate quantity of movements by 
individual HTSUS tariff numbers, and the value and quantity of the 
batteries, if included in the movement. This information would be 
required for the annual audit of information and would be needed to 
complete the annual application, form ITA-334P, if tariff on watches 
and watch movements were reduced. We estimate the burden to be no more 
than two hours a year to include the information on form ITA-334P and 
have it available for the audit. Collection activities are currently 
approved by the Office of Management and Budget under control numbers 
0625-0040. 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 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

[[Page 38831]]

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), or email David--
Rostker@omb.eop.gov.
    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 the 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 PROGRAMS

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

    2. The first sentence of Sec.  303.1(a) is amended by removing 
``and amended by Public Law 103-465, enacted 8 December 1994.'' and 
adding ``amended by Public Law 103-465, enacted 8 December 1994 and 
amended by Public Law 108-429 enacted 3 December 2004.'' in its place.
    3. Section 303.2 is amended as follows:
    A. Section 303.2(a)(1) is amended by removing ``.'' at the end of 
the sentence and adding ``, Public Law 108-429, enacted on 3 December 
2004, 118 Stat. 2582.'' in its place.
    B. Section 303.2(a)(13) is revised as set forth below.
    C. In Section 303.2, paragraphs (a)(14) through (a)(16) are 
redesignated as paragraphs (a)(15) through (a)(17), and a new paragraph 
(a)(14) is added as set forth below.
    D. Newly designated paragraph (a)(17) is amended by removing 
``(i.e., be physically present for at least 183 days per year)'' and 
adding ``(i.e., be physically present for at least 183 days within a 
continuous 365 day period)'' in its place.
    E. The heading and the first sentence of paragraph (b)(4) are 
revised as set forth below.
    F. The heading of paragraph (b)(5) is revised as set forth below.


Sec.  303.2  Definitions and forms.

    (a) * * *
    (13) Creditable wages, creditable fringe benefits and creditable 
duty differentials eligible for the duty refund benefit include, but 
are not limited to, the following:
    (i) Wages up to an amount equal to 65 percent of the contribution 
and benefit base for Social Security, as defined in the Social Security 
Act for the year in which wages were earned, paid to permanent 
residents of the insular possessions employed in a firm's 91/5 watch 
and watch movement program.
    (A) Wages paid for the repair of watches up to an amount equal to 
85 percent of the firm's total creditable wages.
    (B) Wages paid to watch and watch movement assembly workers 
involved in the complete assembly of watches and watch movements which 
have entered the United States duty-free and have complied with the 
laws and regulations governing the program.
    (C) Wages paid to watch and watch movement assembly workers 
involved in the complete assembly of watches, excluding the movement, 
only in situations where the desired movement can not be purchased 
unassembled and the producer has documentation establishing this.
    (D) Wages paid to those persons engaged in the day-to-day assembly 
operations on the premises of the company office, wages paid to 
administrative employees working on the premises of the company office, 
wages paid to security employees and wages paid to servicing and 
maintenance employees if these services are integral to the assembly 
and manufacturing operations and the employees are working on the 
premises of the company office.
    (E) Wages paid to persons engaged in both creditable and non-
creditable assembly and repair operations may be credited 
proportionally provided the firm maintains production, shipping and 
payroll records adequate for the Departments' verification of the 
creditable portion.
    (F) Wages paid to new permanent residents who have met the 
requirements of permanent residency in accordance with the Departments' 
regulations, along with meeting all other creditable wage requirements 
of the regulations, which must be documented and verified to the 
satisfaction of the Secretaries.
    (ii) The combined creditable amount of individual health and life 
insurance per year, for each full-time permanent resident employee who 
works on the premises of the company office and whose wages qualify as 
creditable, may not exceed 100 percent of the ``weighted average'' 
yearly federal employee health insurance, which is calculated from the 
individual health plans weighted by the number of individual contracts 
in each plan. The yearly amount is calculated by the Office of 
Personnel Management and includes the ``weighted average'' of all 
individual health insurance costs for federal employees throughout the 
United States. The maximum life insurance allowed within this combined 
amount is $50,000 for each employee.
    (A) The combined creditable amount of family health and life 
insurance per year, for each full-time permanent resident employee who 
works on the premises of the company office and whose wages qualify as 
creditable, may not exceed 120 percent of the ``weighted average'' 
yearly federal employee health insurance, which is calculated from the 
family health plans weighted by the number of family contracts in each 
plan. The yearly amount is calculated by the Office of Personnel 
Management and includes the ``weighted average'' of all family health 
insurance costs for federal employees throughout the United States. The 
maximum life insurance allowed within this combined amount is $50,000 
for each employee.
    (B) The creditable pension benefit, for each full-time permanent 
resident employee who works on the premises of the company office and 
whose wages qualify as creditable, is up to 3 percent of the employee's 
wages unless the employee's wages exceed the maximum annual creditable 
wage allowed under the program (see paragraph (a)(13)(i) of this 
section). An employee earning more than the maximum creditable wage 
allowed under the program will be eligible for only 3 percent of the 
maximum creditable wage.
    (iii) If tariffs on watches and watch movements are reduced, then 
companies would be required to provide the annual aggregate data by 
individual HTSUS watch tariff numbers for the following components 
contained therein: The quantity and value of watch cases, the quantity 
of movements, the quantity and value of each type of strap, bracelet or 
band, and the quantity and value of batteries shipped free of

[[Page 38832]]

duty into the United States. If discrete watch movements are shipped 
free of duty into the United States, then the annual aggregate quantity 
by individual HTSUS movement tariff numbers would also be required 
along with the value of each battery if it is contained within. These 
data would be used to calculate the annual duty rate before each HTSUS 
tariff reduction, and the annual duty rate after the HTSUS tariff 
reduction. The amount of the difference would be creditable toward the 
duty refund. The tariff information would only be collected and used in 
the calculation of the annual duty-refund certificate and would not be 
used in the calculation of the mid-year duty-refund.
    (14) Non-creditable wages and non-creditable fringe benefits. Wages 
ineligible for the duty refund benefit wages include, but are not 
limited to, the following:
    (i) Wages over 65 percent of the contribution and benefit base for 
Social Security, as defined in the Social Security Act for the year in 
which wages were earned paid to permanent residents of the territories 
employed in a firm's 91/5 watch and watch movement program.
    (A) Wages paid for the repair of watches in an amount over 85 
percent of the firm's total creditable wages.
    (B) Wages paid for the assembly of watches and watch movements 
which are shipped outside the customs territory of the United States; 
wages paid for the assembly of watches and watch movements that do not 
meet the regulatory assembly requirements; or wages paid for the 
assembly of watches or watch movements that contain HTSUS column 2 
components.
    (C) Wages paid for the complete assembly of watches, excluding the 
movement, when the desired movement can be purchased unassembled, if 
the producer does not have adequate documentation, demonstrating to the 
satisfaction of the Secretaries, that the movement could not be 
purchased unassembled whether or not it is entering the United States.
    (D) Wages paid to persons not engaged in the day-to-day assembly 
operations on the premises of the company office; wages paid to any 
outside consultants; wages paid outside the office personnel, including 
but not limited to, lawyers, gardeners, construction workers, and 
accountants; wages paid to employees not working on the premises of the 
company office; and wages paid to employees who do not qualify as 
permanent residents in accordance with the Departments' regulations.
    (E) Wages paid to persons engaged in both creditable and non-
creditable assembly and repair operations if the producer does not 
maintain production, shipping and payroll records adequate for the 
Departments' verification of the creditable portion.
    (ii) Any costs, for the year in which the wages were paid, of the 
combined creditable amount of individual health and life insurance for 
employees over 100 percent of the ``weighted average'' yearly 
individual health insurance costs for all federal employees. The cost 
of any life insurance over the $50,000 limit for each employee.
    (A) Any costs, for the year in which the wages were paid, of the 
combined creditable amount of family health and life insurance for 
employees over 120 percent of the ``weighted average'' yearly family 
health insurance costs for all federal employee. The cost of any life 
insurance over the $50,000 limit for each employee.
    (B) The cost of any pension benefit per employee over 3 percent of 
the employee's creditable wages unless the employee's wages exceed the 
maximum annual creditable annual maximum creditable wage allowed under 
the program (see paragraph (a)(13)(i) of this section). Employees 
earning over the maximum creditable wage allowed under the program 
would have a creditable annual pension benefit of up to 3 percent of 
the maximum creditable wage and wages over 3 percent of the maximum 
creditable wage would not be creditable.
* * * * *
    (b) * * *
    (4) ITA-360P ``Certificate of Entitlement to Secure the Refund of 
Duties on Articles that Entered the Customs Territory of The United 
State Duty Paid.'' This document authorizes an insular watch producer 
to request the refund of duties on imports of articles that entered the 
customs territory of the United States duty paid, up to the specified 
value of the certificate. * * *
    (5) ITA-361P ``Request for Refund of Duties on Articles that 
Entered the Customs Territory of the United States Duty Paid.'' * * *
* * * * *
    4. Section 303.5(b)(5) is revised to read as set forth below and 
paragraphs (b)(8) and (b)(9) are added to read as set forth below.


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

* * * * *
    (b) * * *
    (5) Customs, bank, payroll, production records, and all shipping 
records including the importer of record number and proof of residency, 
as requested;
* * * * *
    (8) All records pertaining to health insurance, life insurance and 
pension benefits for each employee; and
    (9) If HTSUS tariffs on watches and watch movements are reduced, 
records of the annual aggregate data by individual HTSUS watch tariff 
numbers for the following components contained therein would be 
required: The quantity and value of watch cases; the quantity of 
movements; the quantity and value of each type of strap, bracelet or 
band; and the quantity and value of batteries shipped free of duty into 
the United States. In addition, if applicable, records of the annual 
aggregate quantity of discrete watch movements shipped free of duty 
into the United States by HTSUS tariff number.
* * * * *
    5. Section 303.12 (c)(1) and (2) are revised to read as follows:


Sec.  303.12  Issuance and use of production incentive certificates.

* * * * *
    (c) The use and transfer of certificate of entitlements. (1) 
Insular producers issued a certificate may request a refund by 
executing Form ITA-361P (see Sec.  303.2(b)(5) and the instructions on 
the form). After authentication by the Department of Commerce, Form 
ITA-361P may be used to obtain duty refunds on articles that entered 
the customs territory of the United States duty paid except for any 
article containing a material which is the product of a country to 
which column 2 rates of duty apply. 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 Bureau of Customs and Border 
Protection, U.S. Department of Homeland Security, govern the refund of 
duties under Public Law 97-446, as amended by Public Law 103-465 and 
Public Law 108-429. If the Departments receive information from the 
Bureau of Customs and Border Protection that a producer has made

[[Page 38833]]

unauthorized use of any official form, they shall cancel the affected 
certificate.
* * * * *
    6. Section 303.15(a) is amended by removing ``.'' at the end of the 
sentence and adding ``, and Public Law 108-429, enacted on 3 December 
2004.'' in its place.
    7. Section 303.16 is amended as follows:
    A. Section 303.16(a)(1) is amended by removing ``.'' at the end of 
the last sentence and adding ``, and Public Law 108-429, enacted on 3 
December 2004.'' in its place.
    B. Section 303.16(a)(7) is revised to read as set forth below.
    C. Section 303.16(a)(9) is revised to read as set forth below.
    D. Paragraphs (a)(10) and (a)(11) are redesignated as paragraphs 
(a)(11) and (12), and a new paragraph (a)(10) is added as set forth 
below.
    E. Newly designated paragraph (a)(12) is amended by removing 
``(i.e., be physically present for at least 183 days per year)'' and 
adding ``(i.e., be physically present for at least 183 days within a 
continuous 365 day period year)'' in its place.
    F. Paragraph (b)(2) is revised to read as set forth below.
    G. The heading of paragraph (b)(3) is revised to read as set forth 
below.


Sec.  303.16  Definitions and forms.

    (a) * * *
    (7) Unit of Jewelry means a single article (e.g., ring, bracelet, 
necklace), pair (e.g, cufflinks), gram for links which are sold in 
grams and stocked in grams, and other subassemblies and components in 
the customary unit of measure they are stocked and sold within the 
industry.
* * * * *
    (9) Creditable wages and creditable fringe benefits eligible for 
the duty refund benefit include, but are not limited to, the following:
    (i) Wages up to an amount equal to 65 percent of the contribution 
and benefit base for Social Security, as defined in the Social Security 
Act for the year in which wages were earned, paid to permanent 
residents of the insular possessions employed in a firm's manufacture 
of HTSUS heading 7113 articles of jewelry which are a product of the 
insular possessions and have met the Bureau of Customs and Border 
Protection'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.
    (A) Wages paid to persons engaged in the day-to-day assembly 
operations at the company office, wages paid to administrative 
employees working on the premises of the company office, wages paid to 
security operations employees and wages paid to servicing and 
maintenance employees if these services are integral to the assembly 
and manufacturing operations and the employees are working on the 
premises of the company office.
    (B) Wages paid to permanent residents who are employees of a new 
company involved in the jewelry assembly and jewelry manufacturing of 
HTSUS heading 7113 jewelry for up to 18 months after such jewelry 
company commences jewelry manufacturing or jewelry assembly operations 
in the insular possessions.
    (C) Wages paid when a maximum of two producers work on a single 
piece of HTSUS heading 7113 jewelry which entered the United States 
free of duty under the program. Wages paid by the two producers will be 
credited proportionally provided both producers demonstrate to the 
satisfaction of the Secretaries that they worked on the same piece of 
jewelry, the jewelry received duty-free treatment into the customs 
territory of the United States, and the producers maintained production 
and payroll records sufficient for the Departments' verification of the 
creditable wage portion (see Sec.  303.17(b)).
    (D) Wages paid to persons engaged in both creditable and non-
creditable assembly and repair operations may be credited 
proportionally provided the firm maintains production, shipping and 
payroll records adequate for the Departments' verification of the 
creditable portion.
    (E) Wages paid to new permanent residents who have met the 
requirements of permanent residency in accordance with the Departments' 
regulations along with meeting all other creditable wage requirements 
of the regulations, which must be documented and verified to the 
satisfaction of the Secretaries.
    (ii) The combined creditable amount of individual health and life 
insurance per year, for each full-time permanent resident employee who 
works on the premises of the company office and whose wages qualify as 
creditable, may not exceed 100 percent of the ``weighted average'' 
yearly federal employee health insurance, which is calculated from the 
individual health plans weighted by the number of individual contracts 
in each plan. The yearly amount is calculated by the Office of 
Personnel Management and includes the ``weighted average'' of all 
individual health insurance costs for federal employees throughout the 
United States. The maximum life insurance allowed within this combined 
amount is $50,000 for each employee.
    (A) The combined creditable amount of family health and life 
insurance per year, for each full-time permanent resident employee who 
works on the premises of the company office and whose wages qualify as 
creditable, may not exceed 120 percent of the ``weighted average'' 
yearly federal employee health insurance, which is calculated from the 
family health plans weighted by the number of family contracts in each 
plan. The yearly amount is calculated by the Office of Personnel 
Management and includes the ``weighted average'' of all family health 
insurance costs for federal employees throughout the United States. The 
maximum life insurance allowed within this combined amount is $50,000 
dollars for each employee.
    (B) The creditable pension benefit, for each full-time permanent 
resident employee who works on the premises of the company office and 
whose wages qualify as creditable, is up to 3 percent of the employee's 
wages unless the employee's wages exceed the maximum annual creditable 
wage allowed under the program (see paragraph (a)(9)(i) of this 
section). An employee earning more than the maximum creditable wage 
allowed under the program will be eligible for only 3 percent of the 
maximum creditable wage.
    (10) Non-creditable wages and non-creditable fringe benefits. Wages 
ineligible for the duty refund benefit include, but are not limited to, 
the following:
    (i) Wages over 65 percent of the contribution and benefit base for 
Social Security, as defined in the Social Security Act for the year in 
which wages were earned, paid to permanent residents of the territories 
employed in a firm's 91/5 heading 7113, HTSUS, jewelry program.
    (A) Wages paid for the repair of jewelry in an amount over 50 
percent of the firm's total creditable wages.
    (B) Wages paid to employees who are involved in assembling HTSUS 
heading 7113 jewelry beyond 18 months after such jewelry company 
commences jewelry manufacturing or jewelry assembly operations in the 
insular possessions if the jewelry does not meet the Bureau of Customs 
and Border Protection's substantial transformation requirements and 
other criteria for duty-free enter into the United States.
    (C) Wages paid for the assembly and manufacturing of jewelry which 
is shipped to places outside the customs territory of the United 
States; wages paid for the assembly and manufacturing of jewelry that 
does not

[[Page 38834]]

meet the regulatory assembly requirements; or wages paid for the 
assembly and manufacture of jewelry that contain HTSUS column 2 
components.
    (D) Wages paid to those persons not engaged in the day-to-day 
assembly operations on the premises of the company office, wages paid 
to any outside consultants, wages paid to outside the office personnel, 
including but not limited to, lawyers, gardeners, construction workers 
and accountants; wages paid to employees not working on the premises of 
the company office and wages paid to employees who do not qualify as 
permanent residents in accordance with the Departments' regulations.
    (E) Wages paid to persons engaged in both creditable and non-
creditable assembly and repair operations if the producer does not 
maintain production, shipping and payroll records adequate for the 
Departments' verification of the creditable portion.
    (ii) Any costs, for the year in which the wages were paid, of the 
combined creditable amount of individual health and life insurance for 
employees over 100 percent of the ``weighted average'' yearly 
individual health insurance costs for all federal employees. The cost 
of any life insurance over the $50,000 limit for each employee.
    (A) Any costs, for the year in which the wages were paid, of the 
combined creditable amount of family health and life insurance for 
employees over 120 percent of the ``weighted average'' yearly family 
health insurance costs for all federal employee. The cost of any life 
insurance over the $50,000 limit for each employee.
    (B) The cost of any pension benefit per employee over 3 percent of 
the employee's creditable wages unless the employee's wages exceed the 
maximum annual creditable annual maximum creditable wage allowed under 
the program (see paragraph (a)(9)(i) of this section). Employees 
earning over the maximum creditable wage allowed under the program 
would have a creditable annual pension benefit of up to 3 percent of 
the maximum creditable wage and wages over 3 percent of the maximum 
creditable wage would not be creditable.
* * * * *
    (b) * * *
    (2) ITA-360P ``Certificate of Entitlement to Secure the Refund of 
Duties on Articles that Entered the Customs Territory of The United 
State Duty Paid.'' This document authorizes an insular jewelry producer 
to request the refund of duties on imports of articles that entered the 
customs territory of the United States duty paid, with certain 
exceptions, up to the specified value of the certificate. 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 Articles that 
Entered the Customs Territory of the United States Duty Paid.'' * * *
* * * * *
    8.-9. Section 303.17 is amended by revising paragraph (b)(6); by 
redesignating paragraphs (b)(7) and (b)(8) as paragraphs (b)(8) and 
(b)(9); and by adding a new paragraph (b)(7) to read as follows:


Sec.  303.17  Annual jewelry application.

* * * * *
    (b) * * *
    (6) Customs, bank, payroll, production records, and all shipping 
records including the importer of record number and proof of residency, 
as requested;
    (7) All records pertaining to health insurance, life insurance and 
pension benefits for each employee;
* * * * *
    10. Section 303.19(c)(1) is revised to read as follows:


Sec.  303.19  Issuance and use of production incentive certificates.

* * * * *
    (c) The use and transfer of certificate entitlements. (1) Insular 
producers issued a certificate may request a refund by executing Form 
ITA-361P (see Sec.  303.16 (b)(3)) and the instruction on the form). 
After authentication by the Department of Commerce, Form ITA-361P may 
be used to obtain duty refunds on article that entered the customs 
territory of the United States duty paid. Duties on an article which is 
the product of a country with respect to 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.
* * * * *
    10a. Section 303.20(a)(2) is revised to read as follows:


Sec.  303.20  Duty refund.

* * * * *
    (a) * * *
    (2) Eighteen month exemption. Any article of jewelry provided for 
in HTSUS heading 7113, assembled in the insular possessions by a new 
entrant jewelry manufacturer shall be treated as a product of the 
insular possessions if such article is entered into the customs 
territory of the United States no later than 18 months after such 
producer commences jewelry manufacturing or jewelry assembly operations 
in the insular possessions.
* * * * *
    11. Section 303.20 is further amended as follows:
    A. Paragraph (b)(1)(ii) is amended by removing ``450,000'' and 
adding ``3,533,334'' in its place.
    B. Paragraph (b)(1)(iii) is amended by removing ``600,000'' and 
adding ``6,766,667'' in its place.
    C. Paragraph (b)(1)(iv) is amended by removing ``750,000'' and 
adding ``10,000,000'' in its place.

Joseph A. Spetrini,
Acting Assistant Secretary for Import Administration, Department of 
Commerce.
Nikolao I. Pula,
Director for Insular Affairs, Department of the Interior.
[FR Doc. 05-13284 Filed 7-5-05; 8:45 am]
BILLING CODE 3510-DS-P; 4310-93-P