CLA-02 RR:CR:SM 563070 AL
Category: Classification
Mr. Carl R. Soller
Hodgson Russ LLP
Carnegie Hall Tower
152 West 57th Street
35th Floor
New York, New York 10019
RE: Applicability of partial duty exemption under 9802.00.80, HTSUS to watches; 19 CFR 10.14; Chapter 91, Additional U.S. Note 4, HTSUS
Dear Mr. Soller:
This is in response to your ruling request dated July 2, 2004 and a subsequent submission dated October 4, 2004, concerning the applicability of subheading 9802.00.80, Harmonized Tariff Schedule of the United States (“HTSUS”), to wristwatches.
FACTS:
According to your request, the finished wristwatches would be comprised of “a battery-operated quartz analog movement with no jewels, in a gold or PNP plated case, with a leather or non precious metal band.” Your client intends to manufacture the quartz analog watch movements in the United States, and export them abroad to be incorporated into wristwatches. An assembly chart of the quartz analog watch movement was provided. Twenty-five parts are shown on the assembly chart including the bridge and plate. The wristwatches will then be imported into the United States.
ISSUE:
Whether the wristwatches will qualify for the partial duty exemption available under 9802.00.80, HTSUS, when returned to the United States.
LAW and ANALYSIS:
Subheading 9802.00.80, HTSUS, provides a partial duty exemption for: [a]rticles assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape, or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process, such as cleaning, lubricating and painting.
All three requirements of subheading 9802.00.80, HTSUS, must be satisfied before a component may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full cost or value of the imported assembled article, less the cost or value of the U.S. components assembled therein, upon compliance with the documentary requirements of section 10.24, Customs Regulations (19 CFR 10.24).
For a component to be eligible for subheading 9802.00.80, HTSUS, treatment, it must first be a “product of” the U.S. According to section 10.12(e), Customs Regulations (19 CFR 10.12(e)), a “product of the United States” is an article manufactured within the Customs territory of the U.S. and may consist wholly of U.S. components or materials, of U.S. and foreign components or materials, or wholly of foreign components or materials. If the article consists wholly or partially of foreign components or materials, the manufacturing process must be such that the foreign components or materials have been substantially transformed into a new and different article, or have been merged into a new and different article.
A substantial transformation occurs when, as a result of manufacturing processes, a new and different article emerges, having a distinctive name, character or use, which is different from that originally possessed by the article or material before being subjected to the manufacturing process. See Texas Instruments, Inc. v. United States, 69 CCPA 152, 681 F.2d 778 (1982).
You cite Headquarters Ruling Letter (“HRL”) 555275 dated May 2, 1989, which involved, among other things, the assembly of a quartz analog watch movement, that consisted of 49 parts, involved 99 operations and took 16.5 minutes to complete. Here, you provided us an assembly chart of a watch movement, stating in your October 4, 2004 letter that the chart reflects the detailed procedure of the manufacturing process that would take place in the United States. Twenty-five parts are assembled together including the bridge and plate. According to Chapter 91, U.S. Note 3, HTSUS, “watch movements” are “. . . devices regulated by a balance wheel and hairspring, quartz crystal or any other system capable of determining intervals of time, with a display or a system to which a mechanical display can be incorporated.” As in HRL 555275, we find that the manufacture of the watch movements in the U.S. constitutes a substantial transformation. The separate component parts lose their separate identity and the chart indicates that the assembly in the U.S. will include the wheels, plate, electronic circuit and coil. Therefore, the movements will be considered a product of the U.S. and reflect the necessary components needed to create a “system capable of determining intervals of time.” While you have not provided details on the incorporation of the movement into a watch case, assuming that the foreign assembly operations satisfy all the requirements of subheading 9802.00.80, HTSUS, the U.S. watch movements will be entitled to a duty allowance under subheading 9802.00.80, HTSUS.
Secondly, you inquire about the country of origin of the watches. U.S. Customs and Border Protection (“CBP”) has consistently held that the country of origin of a watch or clock is the country of manufacture of the watch or clock movement. The addition of the hands, dial, case, or watchband add definition to the time piece but do not change the character or use of the watch or clock movement which is the "guts" of the watch or clock.
Chapter 91, Additional U.S. Note 4 of the HTSUS (19 U.S.C. 1202) requires that any watch movement, or case provided for in the subpart, whether imported separately or attached to any article provided for in the subpart, shall not be permitted to be entered unless conspicuously and indelibly marked by cutting, die-sinking, engraving, stamping, or mold-marking (either indented or raised), as specified in the provisions of this note. This marking is mandatory. CBP has no authority for granting exceptions to the special marking requirements for watches.
Section (a) of Additional U.S. Note 4 requires that watch movements shall be marked on one or more of the bridges or top plates to show the manufacturer or purchaser; and, in words, the number of jewels, if any servicing a mechanical purpose as frictional bearings. Section (c) of Additional U.S. Note 4 requires that watch cases shall be marked on the inside or outside of the back cover to show the name of the country of manufacture, and the name of the manufacturer or purchaser. The country of manufacture in these requirements refers to where the movements and cases are manufactured rather than where the watch was made. The special marking must be accomplished by one of the methods specified in the Additional U.S. Note 4 of the HTSUS.
HOLDING:
Based on the submitted information, allowances in duty may be made under subheading 9802.00.80, HTSUS, for the cost or value of the quartz analog watch movements incorporated and assembled into wristwatches on their return to the U.S., provided the watch movements are of U.S. origin and the documentary requirements of 19 CFR 10.24 are satisfied.
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs and Border Protection officer handling the transaction.
Sincerely,
Myles B. Harmon, Director
Commercial Rulings Division