MAR-05 RR:TC:SM 560471 BLS
Port Director
3150 Tchulahoma Road
Memphis, Tenn. 38118
RE: Country of origin marking of watch bands; modification of prior rulings
Dear Sir:
This is in reference to a letter dated May 20, 1997, and subsequent correspondence, on behalf of Belair Quartz, Inc. (“Belair Quartz”) and Belair Time Corporation (“Belair Time”), concerning the country of origin marking of certain watch bands assembled with their watches in the U.S. Virgin islands (“USVI”). A sample watch with its watchband has been submitted.
FACTS:
The following information has been furnished by counsel for Belair Quartz and Belair Time:
Belair Quartz, a Virgin Islands company, imports into the USVI watch bands primarily from the Far East, with limited supplies from Switzerland, Austria, Germany, France and Italy. Belair also imports the unassembled component parts of its movements from Switzerland. These movement parts are then fully assembled into finished watch movements in Belair Quartz’s St. Croix plant. Dials, hands, crowns, tubes, pushers, crystals, backs, links, buckles, pins, hands, discs, cases and other parts are also imported from the U.S., Switzerland, Germany, Hong Kong, France, Taiwan, the People’s Republic of China, Japan and other countries throughout the world. Belair Quartz assembles the finished watch movements with these other parts and the watch bands to produce finished watches in its USVI plant.
Belair Quartz ships the finished watches, with their bands, to Belair Time in New Jersey. Belair Time conducts final processing of the watches, packages them for sale, and distributes them to various U.S. and foreign destinations, including Japan, the United Kingdom. Taiwan, Australia, New Zealand, Canada, and locations in the Caribbean, and Central and South America.
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Belair Time designs the watches manufactured by Belair Quartz as integrated units, and each watch band is specifically designed to fit only one particular watch case,
and each case, in turn, is designed specifically to fit one band. Belair provides technical drawings to the suppliers that produce its watch cases and bands, and requires that the case and band manufacturers coordinate their engineering to allow for maximum integration of the band with the case. Pre-production technical samples are produced and exchanged between the case and band factories, as well as Belair’s technical department, and modifications are made as required.
After arrival in the USVI from the various source countries, the watch bands undergo extensive processing and testing before they are attached to watch heads. Such operations include milling, finishing, testing, and adjusting. We note that the bands are attached to the watch heads with the use of four spring pins (two on each side of the watch). In order to accommodate band processing, a building addition was erected in 1987 having a total cost of $50,772.90, which included the cost of architectural drawings, permits, construction, furniture, and shelving for storage. 1997 costs for machinery used in band processing is estimated to be $87,800. Labor cost is estimated to be $69,300.00.
ISSUE:
What are the country of origin marking requirements for the completed watches assembled in the USVI with watch bands from the Far East, Switzerland, and other countries?
LAW AND ANALYSIS:
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. §1304), provides that unless excepted, every article of foreign origin imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to the ultimate purchaser in the U.S. the English name of the country of origin of the article. Congressional intent in enacting 19 U.S.C. §1304 was "that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to
buy or refuse to buy them, if such marking should influence his will." United States v. Friedlaender & Co., 27 C.C.P.A. 297 at 302; C.A.D. 104 (1940).
Materials imported into an insular possession, as in this case, become a product or
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manufacture of that possession only if they are substantially transformed there into a
new and different article of commerce. A substantial transformation occurs when an
article emerges from a process with a new name, character, or use different from that possessed by the article prior to processing. See Texas Instruments, Inc., v. United
States, 69 C.C.P.A. 152, 681 F.2d 778 (1982). In determining whether the combining of parts or materials constitutes a substantial transformation, the issue is the extent of operations performed and whether the parts lose their identity and become an integral part of the new article. See Belcrest Linens v. United States, 741 F.2d 1368 (Fed. Cir. 1984).
Customs’ long-standing position has been that the origin of a watch (excluding the strap, band or bracelet) is the country of assembly of the watch movement. Although the addition of the hands, dial, case or watchband may add definition to the timepiece, it does not substantially change the character or use of the watch movement, which is the essence of the watch. See Headquarters Ruling Letter (HRL) 735197, dated January 4, 1994. In the instant case, the country of origin of the watches is the USVI, as it is stated that the unassembled movement components are assembled in the USVI to form a complete movement. See Headquarters Ruling Letter (HRL) 731546 dated October 27, 1978.
Customs has also ruled in numerous cases that the country of origin of a watch strap must be separately marked when its country of origin is different from the country of origin of the watch. See, e.g., HRLs 733533 dated August 3, 1990 and 734565 dated October 16, 1992. In these cases, Customs has reasoned that the attachment of the watch strap to the watch does not effect a substantial transformation of the watch strap and that after attachment, the strap maintains its separate identity.
Therefore, under Customs present policy, the watch would be considered a product of the USVI and the band a product of Switzerland or other country in which it was produced, unless a determination is made that the band undergoes a substantial transformation as a result of the processing in the USVI.
Belair argues that Customs position regarding origin of the watch bands as set forth in these cases is not applicable to the situation at hand; that the subject watch bands are produced specifically for the watches to which they will be assembled; that they are a single integrated article and that the bands lose their individual identity as a result of assembly with the watches, resulting in a substantial transformation of these components. As the watches in this case are considered to be a product of the USVI, and as such are not considered to be of foreign origin, Belair contends that the assembled watch bands should be similarly treated for origin purposes since they are
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an integral part of the watch. Belair notes that if the assembly operations took place in a NAFTA country, the watch bands would change classification under the NAFTA Marking Rules and be considered a product of that country. While the NAFTA Marking Rules do not apply to products from the USVI, Belair argues that such rules should be consulted for Customs position as to whether the watch band undergoes a substantial transformation.
We have reconsidered our position in HRL’s 733533, 734565 and other cases cited below, and we now are of the opinion that the assembly in the USVI of a watch strap, band or bracelet (“watch strap”) to a watch made in the USVI results in a substantial transformation of the watch strap, and bracelet in the USVI.
In HRL 559558 dated December 14, 1995, Customs determined that imported rubber tires underwent a change in name, character and use in the U.S. and thus were substantially transformed as a result of an assembly operation performed to make wheel assemblies for complete or partially assembled garbage receptacles. We found in that case that after the operation the tire had a new name, "wheel assembly,” recognizable as having a different use from that of the rubber tire. The character of the imported tire also changed as a result of being assembled to the U.S. origin wheel hubs. Prior to assembly it was a rubber tire, but after assembly in the U.S. with U.S.-made components it became an essential component of a wheel assembly part of a garbage receptacle. See also HRL 954158 dated March 29, 1994, where we relied on Belcrest Linens and found that electronic components used to make a pulse transformer lost their identity and become an integral part of the new article. In that case, we pointed out that the ultimate use and essential character of the pulse transformers was determined by the operations in the country of assembly. Thus, the components did not serve any function until assembled into the pulse transformer.
In the instant case, we note that as a separate component, the watch band does not serve the function for which it was intended, but when assembled with the watch, the two components operate as a wristwatch. If this assembly takes place in the country in which the watch was produced, the production of the finished wristwatch cannot be stated to have resulted from a “simple assembly.” See, e.g., 19 C.F.R. §10.195(a)(2). Moreover, it cannot be disputed that the essential character of the wristwatch is imparted by the watch. See Uniroyal, Inc., v. United States, 3 C.I.T. 220 (1982).
Additional U.S. Note 2, Chapter 91, Harmonized Tariff Schedule of the United States (HTSUS), provides that watch straps, bands and bracelets entered with wrist watches, whether or not attached, are classified with the watch in heading 9101 or 9102. Otherwise, watch straps, bands and bracelets are classified separately in
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heading 9113. While a change in a tariff classification is not in itself dispositive of whether the processing has resulted in a substantial transformation, it is supportive of a substantial transformation when the component undergoing the change in classification does not impart the essential character to the finished good.
After review of these authorities and the facts in this case, Customs is now of the opinion that when attached in a country to a watch produced in that same country,
watch straps lose their identity and become an integral part of the finished watch. See Belcrest Linens, supra. Customs believes that under these circumstances the watch straps undergo a substantial transformation, as a result of a change in name, use and character. Therefore, in the instant case, the watch bands assembled with their watches do not have to be marked as they are considered to be a product of the USVI, a U.S. insular possession . See 19 C.F.R. §134.32(l).
HOLDING:
Watch bands undergo a substantial transformation as a result of being assembled with their watches in the country in which the watches are produced. Accordingly, as the country of origin of the imported watches is the USVI, a U.S. insular possession, the watches along with their bands are excepted from the marking requirements. See 19 C.F.R. §134.32(l).
The following rulings are modified to the extent Customs has stated or held, based on the applicable facts, that watch straps assembled with their watches in the country in which the watches are produced must be marked with their country of origin, if different than the country of origin of the watch. HRL 733533 dated August 3, 1990; HRL 734565 dated October 16, 1992; HRL 735297 dated January 26, 1994; HRL 735197 dated January 4, 1994; HRL 558657 dated August 16, 1994; and HRL 560202 dated December 20, 1996.
Sincerely,
John Durant, Director
Commercial Rulings Division