MAR-2-05 RR:CR:SM 563287 EAC
Mr. Gregory S. McCue
Steptoe & Johnson LLP
1330 Connecticut Avenue, NW
Washington, DC 20036-1795
RE: Applicability of subheading 9802.00.80, HTSUS, to wristwatches; watch movements; country of origin marking requirements; U.S. Additional Note 4, Chapter 91, HTSUS
Dear Mr. McCue:
This is in response to your letter, dated May 20, 2005, requesting a ruling on behalf of your client pertaining to the applicability of subheading 9802.00.80, Harmonized Tariff Schedule of the United States (“HTSUS”), to certain wristwatches and to the country of origin marking requirements for such wristwatches. We have additionally considered the information provided in your supplemental submission of June 27, 2005.
FACTS:
You state that the facts presently under consideration are only slightly different from those considered in Headquarters Ruling Letter (“HRL”) 563070 dated November 16, 2004. For example, the assembly operations performed in this case may involve a different number of parts than were considered in HRL 563070.
We are informed that the present transaction will involve the importation of parts for a watch movement, assembly of those parts in the United States into battery-operated quartz analog movements with no jewels, and exportation of the movements abroad for incorporation into finished wristwatches. The individual parts would be manufactured in various Asian nations. An assembly chart of a quartz analog movement was provided. Twenty-five parts are shown on the assembly chart including the bridge, plate, wheels, electronic circuit, coil, pinions, stem and screws. In order to include a day or date function, some movements will be even more
complicated than the design in Attachment B. Those more complex movements will include all the parts shown on the assembly chart and up to 20 additional parts, depending on the particular style and whether the movement includes day or date functions or both. Depending on the specific style, the battery may or may not be added to the movement in the United States.
The movements will be assembled into complete watches abroad by enclosing the movements in cases and attaching wristbands. The finished watches will be imported into the United States. The cases or bands used for the finished wristwatches will likely not be of U.S. origin and will likely vary in their construction and may include alloy, brass, stainless steel, plastic, titanium and other materials.
ISSUES:
Whether the wristwatches qualify for the partial duty exemption available under 9802.00.80, HTSUS, when returned to the United States.
How must the finished wristwatches be marked when imported into the United States?
LAW AND ANALYSIS:
Subheading 9802.00.80, HTSUS
Subheading 9802.00.80, HTSUS, provides a partial duty exemption for:
articles 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).
A component must be a “product of” the United States in order to be eligible for preferential treatment under subheading 9802.00.80, HTSUS. Section 10.12(e), Customs Regulations (19 CFR 10.12(e)), provides that a “product of the United States” is an article manufactured within the Customs territory of the United States and may consist wholly of U.S.-origin components or materials, of U.S.- and foreign-origin components or materials, or wholly of foreign-origin components or materials. If the articles consists wholly or partially of foreign-origin components or materials, the manufacturing process must be such that the foreign-origin 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 processing. See, Texas Instruments, Inc v. United States, 69 CCPA 152, 681 F.2d 778 (1982).
In HRL 563070, U.S. Customs and Border Protection (“CBP”) considered facts similar to those in the instant case. In that case, CBP recognized that U.S. Note 3, Chapter 91, HTSUS, provides that (for purposes of Chapter 91, HTSUS) the expression “watch movements” refers to “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.” CBP ultimately determined that the manufacture of watch movements in the United States constituted a substantial transformation because the individual component parts lost their separate identity, the assembly occurring in the United States included the wheels, plate, electronic circuit and coil, and the movements reflected the necessary components required to create a “system capable of determining intervals of time.” Therefore, the U.S.-origin watch movements were entitled to a duty allowance under subheading 9802.00.80, HTSUS, provided the foreign assembly operations satisfied all requirements of the subheading. See also, HRL 555275 dated May 2, 1989 (the manufacture of certain watch movements constituted a substantial transformation).
As applied, we find that the manufacture of the watch movements in the United States in the present case constitutes a substantial transformation. The separate component parts lose their separate identity and the chart indicates that the assembly in the United States will include the wheels, plate, electronic circuit and coil. Therefore, the movements will be considered a product of the United States and reflect the necessary components needed to create a “system capable of determining intervals of time.” As products of the United States, the assembled watch movements would be entitled to a duty allowance under subheading 9802.00.80, HTSUS, provided the additional requirements of that subheading are satisfied.
Country of Origin Marking
As noted in HRL 563070, 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 timepiece but do not change the character or use of the watch or clock movement which is the “guts” of the watch or clock. As noted, supra, the assembled watch movements in this case are considered to be products of the United States. Therefore, as products of the United States, the finished movements and assembled watches would be exempt from the country of origin marking requirements of 19 U.S.C. §1304. However, please be advised that whether an article may be marked “Made in the U.S.A.” (or with other similar words) is an issue under the authority of the Federal Trade Commission (“FTC”). We suggest you contact the FTC, Division of Enforcement, 6th and Pennsylvania Avenue, NW, Washington, DC 20508, on the propriety of markings indicating that articles are made in the United States.
Also, please be advised that U.S. Additional Note 4, Chapter 91, HTSUS, requires that any watch movement, and 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 the note. This marking is mandatory and CBP has no authority to grant exceptions to the special marking requirements for watches.
Section (a) of Additional U.S. Note 4, Chapter 91, HTSUS, mandates that watch movements shall be marked on one or more of the bridges or top plates to show: the name of the country of manufacture; the name of the manufacturer or purchaser; and in words, the number of jewels, if any, serving a mechanical purpose as frictional bearings. Section (c) of Additional U.S. Note 4, Chapter 91, HTSUS, mandates that watch cases shall be marked on the most visible part of the front or back plate to show the name of the country of manufacture and the name of the manufacturer or purchaser. The country of manufacture in these provisions refers to where the movements and cases are manufactured as opposed to the location where the watch was made. The special marking must be accomplished by one of the methods specified in Additional U.S. Note 4, Chapter 91, HTSUS.
You additionally inquire as to whether the movements in this case could be marked with “United States”, “USA”, “Movt Assembled in USA”, or “Assembled in USA”. We have been advised that the proposed markings would not be visible from the outside of the assembled watch. As such, it is our opinion that the four proposed markings would satisfy the special marking requirements for watches under Additional U.S. Note 4, Chapter 91, HTSUS, and not be misinterpreted as the labeling of the finished watch.
HOLDING:
Based upon the facts of this case, we find that the imported components used to assemble watch movements in the United States are substantially transformed into a product of the United States during assembly. Therefore, provided the documentary requirements of 19 CFR 10.24 are satisfied, duty allowances may be made under subheading 9802.00.80, HTSUS, for the cost or value of such movements that are incorporated into wristwatches abroad and returned to the United States. We additionally find that the assembled wristwatches that are imported into the United States are exempt from the country of origin marking requirements of
19 U.S.C. §1304. However, the finished wristwatches remain subject to the special marking requirements for watches under U.S. Additional Note 4, Chapter 91, HTSUS. Marking the movements with “United States”, “USA”, “Movt Assembled in USA”, or “Assembled in USA” would satisfy these special marking requirements.
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 CBP officer handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch