OT:RR:CTF:VS H288749 RMC
Center Director
Consumer Products and Mass Merchandising
Center of Excellence and Expertise
U.S. Customs & Border Protection
157 Tradeport Drive
Atlanta, GA 30354
ATTN: Linda Golf and Ann Purdy
Re: Internal Advice Request; Subheadings 9802.00.40 and 9802.00.50, HTSUS; Watches
Dear Center Director:
This is in response to your correspondence, dated July 27, 2017, forwarding a request for internal advice filed by Tiffany & Co.
FACTS:
This request for internal advice arises out of Tiffany & Co.’s procedures for reimporting watches that have been sent abroad temporarily for repairs. Tiffany & Co. states that the subject merchandise is manufactured by a watchmaker in Switzerland. Once the watches arrive in the United States, Tiffany & Co. inspects them before offering them for sale to U.S. customers. This inspection occasionally reveals certain flaws in the merchandise.
When a flaw is discovered, Tiffany & Co. sends the merchandise back to the manufacturer in Switzerland to be repaired. After repair in Switzerland, the merchandise is then reimported into the United States. If the flaw is covered by the manufacturer’s warranty, Tiffany & Co. enters the merchandise under subheading 9802.00.40, Harmonized Tariff System of the United States (“HTSUS”), which provides for a partial duty exemption for “articles exported for repairs or alterations: [r]epairs or alterations made pursuant to a warranty.” If the flaw is not covered by the manufacturer’s warranty, Tiffany & Co. enters the merchandise under subheading 9802.00.50, HTSUS, which provides for a partial duty exemption for “articles exported for repairs or alterations: [o]ther.” Both subheading 9802.00.40, HTSUS, and subheading 9802.00.50, HTSUS, provide that the rate of duty is “[a] duty upon the value of the repairs or alterations.”
The issue in this case is how to determine the rate of duty applicable to the “value of the repairs or alterations.” As an example, Tiffany & Co. provided the following information along with its internal advice request.
A Tiffany & Co. watch was imported into the United States under subheading 9102.21.7010, HTSUS, which provides for “[w]rist watches, pocket watches and other watches, including stop watches, other than those of heading 9101: [h]aving over 17 jewels in the movement: [w]ith strap, band or bracelet of textile material or of base metal, whether or not gold- or silver-plated.” Articles of subheading 9102.21.7010, HTSUS, are subject to a compound rate of duty of “$1.53 each + 4.2% on the case + 9.8% on the strap, band or bracelet.”
According to an invoice provided by Tiffany & Co., the total value of the watch as entered was $5,003.00, with the movement valued at $2,501.50, the case valued at $2,001.20, and the strap valued at $500.30. As required under the terms of subheading 9102.21.7010, HTSUS, the duty owed on the watch as imported was $134.61 ($1.53 plus $84.05 for the case and $49.03 for the strap).
After the watch was imported into the United States, Tiffany & Co. discovered a flaw with the movement. The watch was returned to the manufacturer in Switzerland, where the movement was repaired. Tiffany & Co. states that the value of the repair was $360.00. Tiffany & Co. seeks guidance on how to calculate the rate of duty applicable to the “value of the repairs or alterations” for purposes of subheadings 9802.00.40 and 9802.00.50, HTSUS, when the repaired watch is subsequently reimported into the United States.
ISSUE:
What rate of duty applies to the “value of the repairs of alterations” for purposes of subheadings 9802.00.40 or 9802.00.50, HTSUS, when the watch is reimported after being repaired abroad?
LAW AND ANALYSIS:
Subheading 9802.00.40, HTSUS provides a partial duty exemption for articles returned to the United States after having been exported to be advanced in value or improved in condition by means of a repair or alteration pursuant to a warranty. Subheading 9802.00.50, HTSUS, also provides a partial duty exemption for articles returned to the United States after having been exported to be advanced in value or improved in condition by means of a repair or alteration, but the repair or alteration need not be made pursuant to a warranty. In either case, duty is assessed only on the cost or value of the repair or alteration abroad, provided that the documentary requirements of 19 C.F.R. § 10.8 are met.
Here, it is undisputed that the watches reimported into the United States by Tiffany & Co. are eligible for a partial duty exemption under either subheading 9802.00.40, HTSUS, or subheading 9802.00.50, HTSUS. The sole issue is how to determine the rate of duty applicable to the value of the repair or alteration.
U.S. Note 3(c) to Subchapter II of Chapter 98, HTSUS, provides that:
The duty, if any, upon the value of the change in condition shall be at the rate which would apply to the article itself, as an entirety without constructive separation of its components, in its condition as imported if it were not within the purview of this subchapter. If the article, as returned to the United States, is subject to a specific or compound rate of duty, such rate shall be converted to the ad valorem rate which when applied in the full value of such article determined in accordance with said section 402 would provide the same amount of duties as the specific or compound rate. In order to compute the duties due, the ad valorem rate so obtained shall be applied to the value of the change in condition made outside the United States.
Using the watch in the example provided by Tiffany & Co., the merchandise as returned to the United States is subject to the compound rate of duty applicable to articles of subheading 9102.21.7010, HTSUS, namely, “$1.53 each + 4.2% on the case + 9.8% on the strap, band or bracelet.” Under U.S. Note 3(c), the applicable rate of duty for the watch when returned to the United States from Switzerland under subheadings 9802.00.40 or 9802.00.50, HTSUS, thus “shall be converted to the ad valorem rate which when applied in the full value of such article determined in accordance with said section 402 would provide the same amount of duties as the specific or compound rate.” To calculate the duties owed when the watch is returned to the United States from Switzerland, U.S. Note 3(c) therefore establishes a two-step procedure: (1) calculating an ad valorem rate that is equivalent to the compound rate of duty on the full value of the watch; and (2) applying this ad valorem rate to the value of the repairs conducted in Switzerland.
As noted above, an invoice provided by Tiffany & Co. listed the value of the watch at the time of the first importation to the United States as $5,003.00. The movement was valued at $2,501.50, the case was valued at $2,001.20, and the strap was valued at $500.30. Accordingly, under the terms of subheading 9102.21.7010, HTSUS, the duty owed on the merchandise as originally imported was $134.61 ($1.53 plus $84.05 for the case, plus $49.03 for the strap). The first step requires finding an ad valorem rate of duty that is equivalent to the $134.61 of duties owed when applying the compound rate of duty. Here, $134.61 is approximately 2.7% of $5,003.00. Therefore, 2.7% is the ad valorem rate of duty to be applied to the full value of the watch that will provide the same amount of duties as the compound rate of duty.
In the second step, the ad valorem rate of duty calculated in the first step is applied to the value of the repair or alteration performed abroad. Here, in the example provided by Tiffany & Co., the value of the repair conducted in Switzerland is $360.00. Applying a 2.7% ad valorem rate of duty to the $360.00 in repairs results in $9.72 in duties owed for the example transaction when the watch is returned to the United States under either subheading 9802.00.40 or 9802.00.50, HTSUS.
HOLDING:
Based on the example of a watch classified in subheading 9102.21.7010, HTSUS, we find that the applicable rate of duty on the value of repairs under subheading 9802.00.40 or 9802.00.50, HTSUS, is 2.7% when the watch is returned to the United States after having been repaired in Switzerland.
This decision should be mailed by your office to the party requesting Internal Advice no later than 60 days from the date of this letter. On that date, the Office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch