OT:RR:CTF:ER
H200995 CSO
Ms. Andrea Artero
Mr. Brett Garlock
Sandler & Travis Trade Advisory Services, Inc.
36555 Corporate Drive, Suite 400
Farmington Hills, Michigan 48331
Re: Unused Merchandise Drawback: Ruling Request for Commercial Interchangeability of Invicta Watch Company of America’s watches.
Dear Ms. Artero and Mr. Garlock:
This is in response to your request, dated January 16, 2012, on behalf of Invicta Watch Company of America (Invicta) for a ruling on the commercial interchangeability of imported watches and substituted watches. We apologize for the delay in our response. Our decision follows.
FACTS:
Invicta is an importer and exporter of watches for men, women and children. Invicta alleges that the imported merchandise and the substituted merchandise use the same six-digit classification number, 9102.11 of the Harmonized Tariff Schedule of the United States (HTSUS). Invicta also states that there are thousands of style numbers that are imported and exported and that due to the nature of the commodity, new style numbers are generated every year. However, Invicta maintains that watches will always be substituted based on the exact same style number, description and vendor. Invicta provided style number 6759 as an example of how the import part numbers for the imported watch will be matched to the substituted watch’s part numbers. Invicta provided a style number list with description of the items and the correlating HTSUS number. Invicta states that an updated style number list can be provided upon request, however it also stated that due to the nature of the watch industry, new style numbers are created seasonally. Therefore, the same style numbers do not necessarily continue and the style numbers will change as the industry changes.
In support of finding the watches commercially interchangeable, Invicta provided the following documentation: import and export invoices; packing lists of the merchandise to be substituted; and purchase orders from the claimant to the foreign supplier and from the foreign purchaser to the claimant. Invicta asserts that there are four HTSUS numbers for each watch that is imported. The entry summary CBP Form 7501 for the example shows the breakdown of the watch parts as follows:
9102.11.2510, Watch, Bat Pow Mech Disp, OT
9102.11.2520, Watch Case, Bat Pow, Other
9102.11.2530, Watch Strap, Band or Brace
9102.11.2540, Watch Battery, Bat Pow, Oth
According to Invicta, these HTSUS numbers represent the watch mechanism, watch battery, watch case and watch strap, all of which are assembled in one piece prior to importation into the United States. Invicta also states that there are no government or industry standards for the watches. Finally, Invicta’s foreign suppliers consolidate all of the watches on the invoice and use an average price for invoicing purposes. Although the vendor invoices have an average price, each watch has its own individual value. Invicta alleges that the import price is based on tremendous volume of watches because Invicta is the importer, distributor, supplier and wholesaler. Invicta also states that mark-ups on watches can be as high as 150% based on the type of watch. Invicta uses the individual value of each watch for its drawback claims.
Invicta provided invoices for the export of the watches that show style number 6759 and the commercial invoice shows Schedule B number 9102.11.0000 listed for each style of watch. For style number 6759 the price difference between the export and the import is 96%.
Invicta also provided a physical sample of two watches representing an import and export for style number 6310. Style number 6310 is the Invicta Means Ocean Hawk with a gun metal dial. Invicta also provided accompanying import documentation that includes the entry summary, a purchase order, and an invoice. Invicta did not provide export documents for style number 6310. The entry summary CBP Form 7501 for style number 6310 shows the breakdown of the watch parts as follows:
9102.11.2510, Watch, Bat Pow Mech Disp, OT
9102.11.2520, Watch Case, Bat Pow, Other
9102.11.2530, Watch Strap, Band or Brace
9102.11.2540, Watch Battery, Bat Pow, Oth
Upon visual inspection of the sample watches for style number 6310, the import and export watches were identical.
LAW AND ANALYSIS:
Section 1313(j)(2) of the Tariff Act of 1930, as amended (19 U.S.C. § 1313(j)(2)), provides that drawback may be claimed on imported duty-paid merchandise that is substituted for commercially interchangeable and unused imported merchandise if certain requirements are satisfied. Specifically, the substituted or unused merchandise must be exported or destroyed within three years from the date of importation of the imported merchandise. Prior to the exportation or destruction, the substituted or unused merchandise must not have been used in the United States and must have been in the possession of the drawback claimant. The party claiming drawback must be either, the importer of the imported merchandise or must have received from the party that imported and paid owed duties on the imported merchandise, a certificate of delivery transferring to that party, the imported merchandise, commercially interchangeable merchandise or any combination thereof.
The U.S. Customs and Border Protection (CBP) regulation, 19 C.F.R. § 191.32(c), concerning substitution drawback, provides as follows:
In determining commercial interchangeability, Customs shall evaluate the critical properties of the substituted merchandise and in that evaluation factors to be considered include, but are not limited to, Governmental and recognized industrial standards, part numbers, tariff classification and value.
The best evidence of whether the above quoted criteria are used in a particular transaction are the claimant’s transaction documents. See, e.g., HQ H048135 (March 25, 2009). Underlying purchase and sales contracts, purchase invoices, purchase orders and inventory records show whether a claimant has followed a particular recognized industry standard, or a governmental standard, or any combination of the two, and whether a claimant uses part numbers to buy, sell, and inventory the merchandise at issue. Id. The purchase and sales documents also provide the best evidence with which to compare relative values. Id.
In Texport Oil Co. v. United States, 185 F.3d 1291, 1295 (Fed. Cir. 1999), the U.S. Court of Appeals for the Federal Circuit (“CAFC”) defined commercially interchangeable, stating the following:
We are convinced that Congress intended “commercially interchangeable” to be an objective, market-based consideration of the primary purpose of the goods in question. Therefore, “commercially interchangeable” must be determined objectively from the perspective of a hypothetical reasonable competitor; if a reasonable competitor would accept either the imported or the exported good for its primary purpose, then the goods are “commercially interchangeable” according to 19 U.S.C. § 1313(j)(2).
Thus, in accordance with Texport, commercial interchangeability is determined using an “objective standard -- analyzed from the perspective of a hypothetical reasonable competitor.” Id. That is, if a reasonable hypothetical competitor or buyer would accept the imported and substituted merchandise at the specified price for the primary purpose intended, the goods will be considered commercially interchangeable.
Government and Recognized Industry Standards
Governmental and recognized industry standards assist in the determination of commercial interchangeability in that they establish markers by which the product is commoditized and measured against like products for use in the same manner, regardless of manufacturer. Generally, products that meet the same industry accepted standard may be used to produce the same products or used for the same purposes. See, e.g., HQ H090065 (March 23, 2010); and HQ H074002 (December 2, 2009). Invicta states that there are no government or recognized industry standards applicable to the Invicta watches. We also confirmed this with a U.S. Customs and Border Protection National Import Specialist. Hence, we are not evaluating this factor for a commercial interchangeability determination.
Part or Style Numbers
In evaluating the critical properties of the merchandise, CBP also considers the part numbers of the merchandise. If the same part numbers or product identifiers are used in catalogues, and in the import and export documents, it would support a finding of commercial interchangeability. See, e.g., HQ H074002 (Dec. 2, 2009). Invicta states that there are thousands of style numbers that are imported and exported and that due to the nature of the commodity, new style numbers are generated seasonally. Invicta maintains that watches will always be substituted based on the exact same style number, description and purchaser and will substitute style number for style number. Invicta provided style number 6759 and 6310 as an example of how the import style numbers will be matched to the substituted style numbers. In the inventory records showing withdrawal from inventory for export, Invicta provided a detailed description of style number 6759 stating as follows: “Invicta Ocean Reef-CHRONO-G10 – All ROSE Gold – Rose GOLD Dial.” This indicates that the style is Ocean Reef and the color is rose gold and is a dial watch with chronograph technology. Even though Invicta indicates that the style numbers change seasonally, 6759 is unique and will always be associated with “Invicta Ocean Reef-CHRONO-G10 – All ROSE Gold – Rose GOLD Dial.”
In previous rulings we found that matching style number for style number generally supports a finding of commercial interchangeability but not when there are also different sizes or colors that change. See HQ 228219 (Nov. 27, 2001) (holding that merchandise that is bought, sold and inventoried by reference to its style number and the style number identifies the merchandise with respect to the same manufacturing specifications is commercially interchangeable) and HQ 229161 (March 20, 2002) (holding that shoes were not commercially interchangeable in part because even though the shoes had the same style numbers, the size of the shoes would vary). Here, the watches are substituted style number for style number and there is no variation in size or other feature such as color or material. Hence, because the watches are substituted style number for style number and the imported and substituted watches are identical as demonstrated by our review of the sample provided for style number 6310, we find that the style number is supportive of a commercial interchangeability determination.
Tariff Classification
Another factor CBP considers when determining commercial interchangeability is whether the imported and exported goods are classified under the same subheading of the HTSUS. See, e.g., HQ H074002 (December 2, 2009). There are four HTSUS numbers for each watch that is imported. The four HTSUS numbers divide a watch into four parts with each part having a different HTSUS number. The entry summary CBP Form 7501 for style number 6759 and 6310 shows the breakdown as follows:
9102.11.2510, Watch, Pat Pow Mech Disp, OT
9102.11.2520, Watch Case, Bat Pow, Other
9102.11.2530, Watch Strap, Band or Brace
9102.11.2540, Watch Battery, Bat Pow, Oth
These HTSUS numbers represent the watch mechanism, watch battery, watch case and watch strap, all of which are assembled in one piece and come as one watch at importation into the United States. For both samples 6759 and 6310, HTSUS 9102.11.25 covers “wrist watches electrically operated whether or not incorporating a stop watch facility with mechanical display only [non LCD or digital] having only no jewel or only one . . . with strap band or bracelet with textile or base metal whether or not gold or silver plated . . . other [not having a gold or silver plated case].” Invicta’s broker stated that no manufacturing is done on any of the watch pieces, rather entry procedures and the HTSUS require that each of the four component parts be broken down for entry purposes. The ninth and tenth digits of the four HTSUS numbers represent the statistical breakouts for the watch components and duty rates.
Upon export, however, the four HTSUS numbers representing the four pieces of the watch are not used, rather the sample commercial invoice for sample 6759 shows the Schedule B classification number as 9102.11.0000. Schedule B, Statistical Classification of Domestic and Foreign Commodities Exported from the United States, is a list of approximately 8,000 commodity classifications and are used for classifying exports from the United States. Schedule B, 9102.11.0000 is described as 9102 “[w]rist watches, pocket watches and other watches, including stop watches, other than those of heading 9101: . . .Wrist watches, electrically operated, whether or not incorporating a stop watch facility: . . . With mechanical display only.” We confirmed with the CBP National Import Specialist that the four HTSUS numbers and their descriptions match the Schedule B number. The correlation of the numbers supports a finding of commercial interchangeability and thus, we find that the tariff classification criterion is satisfied.
Relative Value
CBP also considers the relative value of the imported merchandise to the substituted merchandise because goods that are commercially interchangeable generally have similar values. See HQ 228519 (June 5, 2002) (holding no commercial interchangeability when no explanation was provided to show why “[e]xport invoices indicate that similar tapes were all sold at costs proportionately higher than at the imported costs.”). CBP has also held, however, that if other critical properties have been satisfied, or there is an explanation for the material difference in value, then a variance in price may not necessarily preclude a finding of commercial interchangeability. See, e.g., HQ 228580 (August 20, 2002) (holding that a value difference of 27% attributed to processing and manufacturing costs did not preclude a finding of commercial interchangeability when the critical properties criterion had been met).
Invicta’s foreign suppliers consolidate all of the watches on the invoice and use an average price for invoicing purposes. Although the vendor’s invoices for sample 6759 have an average price, each watch has its own individual value. Invicta uses the individual value for its drawback claims. Invicta states that the individual import price is set based on the tremendous volume of watches and that Invicta is the importer, distributor, supplier and wholesaler yet it did not provide any evidentiary support or documents supporting this claim. For the sample invoices that were provided for sample 6759, the price difference between the export and the import is 96%. Invicta did not provide any specific market fluctuations to support the price difference however Invicta states that markups on watches can be as high as 150% based on the type of watch purchased. This difference is much greater than other price differences where we found in favor of commercial interchangeability. See, e.g., HQ H071657 (July 28, 2010) (stating that because the applicant provided reasons for the value fluctuations and CBP had accepted value differences greater than 25% in the past, the difference in value did not preclude a finding of commercial interchangeability); HQ 230898 (June 24, 2005) (stating that although the imported and exported merchandise differed in price by 16%, commercial interchangeability may exist when sufficient evidence is provided to support the material difference in value); and, HQ 227473 (March 3, 1998) (determining that a 65% price difference does not preclude a finding of commercial interchangeability after evidence is provided showing a market reason for the price difference). Although the mark-up of this magnitude may be common for watches, Invicta failed to provide any evidentiary support. Therefore, we conclude that this criterion is not satisfied.
HOLDING:
We find that because the tariff classification numbers support a finding of commercial interchangeability and that the watches with the same style number are identical, these will be commercially interchangeable. Further, we note that the watches will be substituted style number for style number, with no other variables that will change such as size or color.
Please note that 19 C.F.R. § 177.9(b)(1) provides that "[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based."
Sincerely,
Carrie Owens, Chief
Entry Process and Duty Refunds Branch