OT:RR:CTF:VS H315335 CMR
Richline Group
1385 Broadway
New York, NY 10018
RE: Modification of Headquarters Ruling Letter H047115, dated June 22, 2009; Eligibility of bracelet watches under the United States-Israel Free Trade Agreement Act of 1985
Dear Sir/Madam:
On June 22, 2009, we issued Headquarters Ruling Letter (HQ) H047115 to Silpada Designs Inc. In 2016, your company acquired select assets of Silpada Designs Inc., including the brand name, jewelry designs and all sterling silver and fashion jewelry inventory. As the apparent successor company, we are informing you that we intend to modify HQ H047115, which dealt with the eligibility of bracelet watches under the United States-Israel Free Trade Agreement Act of 1985 (“Israeli FTA”). Upon review, we have determined that we erred in the determination of the origin of the watch case for the assessment of duty. For the reasons set forth below, we are modifying HQ H047115 with regard to the origin for duty purposes of the constructively segregated components, specifically, the watch case.
Pursuant to section 625(c)(1), Tariff Act of 1930 (19 U.S.C. 1625(c)(1)), as amended by section 623 of Title VI, a notice proposing to modify HQ H047115 was published on March 31, 2021, in Volume 55, Number 12 of the Customs Bulletin. Two comments were received in response to the proposed action, but only one commenter addressed the modification of HQ H047115. Those comments are not addressed herein as they are general in nature and policy oriented. Customs and Border Protection (CBP) cannot provide the remedy sought by the commenter.
FACTS:
The relevant facts stated in HQ H047115 are:
Silpada Designs, Inc. (“Silpada”) sells bracelet watches which are produced by a vendor in Israel. Item numbers T1372 and T1749 are at issue here. The bracelet watches are stated to be classified in subheading 9102.11.25, Harmonized Tariff Schedule of the United States (“HTSUS”). The value of the watches is determined by four components: the sterling silver bracelet; the sterling silver case; the watch movement; and the battery. The watch movement and battery are imported into Israel from Japan. The watch movement and battery are imported from Japan into Israel where they are made into the finished watches.
In HQ H047115, Silpada asked that if Customs and Border Protection (“CBP”) did not determine that the country of origin of the bracelet watches was Israel, that CBP issue a ruling regarding the proper allocation of duties to the bracelet watches, i.e., Silpada asked that CBP determine that duties were not applicable on the components of the bracelet watches that were produced in Israel.
ISSUE:
Whether the country of origin of the watches is Israel and whether the segregated components of the watches qualify for preferential tariff treatment under the Israeli FTA for duty assessment purposes.
LAW AND ANALYSIS:
Under the Israel FTA, eligible articles which are the growth, product, or manufacture of Israel and are imported directly to the U.S. from Israel qualify for preferential treatment provided, in pertinent part, the sum of (1) the cost or value of the materials produced in Israel, plus (2) the direct costs of processing operations performed in Israel, is not less than 35% of the appraised value of the article at the time it is entered. See General Note 8(b), Harmonized Tariff Schedule of the United States (HTSUS).
Pursuant to General Note 8(b)(i), HTSUS, in order to qualify for duty-free treatment under the U.S.-Israel FTA, the article must be the growth, product, or manufacture of Israel or a new and different article of commerce that has been grown, produced or manufactured in Israel.
You state that the bracelet watches are classified in subheading 9102.11.25, HTSUS. Articles classified under this provision which otherwise satisfy the requirements of the Israel FTA will not be subject to duty upon return to the U.S. Articles are considered "products of" Israel if they are made entirely of materials originating there or, if made from materials imported into Israel, they are substantially transformed into a new or 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 the processing. See Texas Instruments v. United States, 69 CCPA 152, 681 F.2d 778 (1982).
CBP’s 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 HQ 735197, dated January 4, 1994. In the instant situation, the country of origin of the watches is Japan as the movement is imported from Japan. See HQ 731546, dated October 27, 1978.
Additionally, CBP 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. In these cases, CBP 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, the watch would be considered a product of Japan and the band a product of Israel.
In HQ 560471, dated January 5, 1997, CBP held that the assembly in the U.S. Virgin Islands of a watch strap band or bracelet of non-U.S. Virgin Island origin to a watch made in the U.S. Virgin Islands resulted in a substantial transformation of the watch strap or bracelet in the U.S. Virgin Islands. However, in HQ 560471 CBP noted that, as a separate component, the watch band did 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 CFR §10.195(a)(2). Therefore, HQ 560471 modified HQ 733533 and HQ 734565 and held that, when attached in a country to a watch produced in that country, watch straps lose their identity and become an integral part of the finished watch. Therefore, CBP held that the watch bands assembled with their watches did not have to be marked, as they were considered to be a product of the U.S. Virgin Islands, a U.S. insular possession. See also HQ 563287, dated August 23, 2005.
However, the holding in HQ 560471 does not apply in the situation where the Japanese watch movement is combined with the Israeli sterling silver case bracelet in Israel. As noted in HQ 560471, the rulings were only modified therein to the extent that CBP stated or held that, based on the applicable facts, the watch straps assembled with their watches in the country in which the watches were produced must be marked with their own origin, if different from the country of origin of the watch. Based on the facts of some of the rulings mentioned in HQ 560471, it was not always clear where the final assembly of the watch took place.
Therefore, based upon the facts presented, we make the following determinations.
The watch movement, manufactured in Japan, is not substantially transformed in Israel. The country of origin of the watch movement is Japan. The battery, manufactured in Japan, is not substantially transformed in Israel. The country of origin of the battery is Japan.
Concerning the bracelet, it is CBP’s position that a watch strap must be separately marked with its country of origin when that country of origin is different from the country of origin of the watch. CBP has reasoned that the watch strap maintains its separate identity from the watch as the attachment of the watch strap to the watch does not effect a substantial transformation of the watch strap. See, for example, HQ 560471, dated January 5, 1997 and HQ 968218, dated July 10, 2006 (where it was noted that where the strap would be assembled in a country other than the Philippines, where the movement was made, the strap would be separately marked with its own origin). Therefore, the country of origin of the bracelet for marking purposes is Israel.
Regarding the watch case, however, in HQ H047115 it was determined that the country of origin of the watch case was Israel, which for the article under consideration was made in Israel of silver like the bracelet and that held the Japanese movement. After further consideration and review, we have determined that this is in error. While the Additional U.S. Notes to Chapter 91 make it clear that the method of duty assessment is based upon the constructive segregation of the components of a watch, and that for tariff purposes a watch consists of the movement and the case which are separate articles for purposes of tariff assessment, determining the classification of a good is a separate exercise from its origin determination.
As noted above, CBP has been consistent in ruling that the country of origin of an imported watch for marking purposes, 19 U.S.C. 1304, (excluding the strap, band or bracelet) is the country of assembly of the movement. In HQ H243796, CBP stated that a watch with one country of origin for the movement, another for the case, and another for the battery, was considered, for purposes of 19 U.S.C. 1304, to be a product of the country in which the movement was produced. Therefore, in accordance with HQ H243796, we find that the watch case should be considered a product of Japan, where the movement was made.
Statistical Note 1 to Chapter 91, HTSUS, provides in pertinent part that ‘[t]he calculation of duties on various watches, clocks, watch movements and clock movements requires that these articles be constructively segregated into their component parts and each component separately valued.”
As the watch is a product of Japan, it does not qualify for preferential tariff treatment under the Israeli FTA. After assembly, the segregated components of the watch, i.e., the movement, case and battery, are assessed duty based upon the origin of the watch. However, as the band of the watch is not substantially transformed when joined to the Japanese watch in Israel, the band, or in this case, bracelet, remains a product of Israel. As such, the bracelet is eligible for preferential tariff treatment under the Israeli FTA.
Please note that the subject watches must also satisfy the special marking requirement of Additional U.S. Note 4, Chapter 91, HTSUS, which in part, requires the movement and case to be marked with the name of the country of manufacture. In this situation, the country of manufacture of the movement would be Japan, and the country of manufacture of the case, for purposes of the special marking requirements would be Israel.
HOLDING:
The origin of the bracelet watch at issue is Japan, i.e., the country of origin of the movement. The movement, case, and battery, which are dutiable as segregated components, are subject to duty as products of Japan as the watch is a product of Japan. The band or bracelet of the wristwatch is not substantially transformed when joined to the watch and retains its origin of Israel. As such, the band or bracelet is dutiable as a good of Israel and eligible for preferential tariff treatment under the Israeli FTA.
HQ H047115, dated June 22, 2009, is hereby MODIFIED with regard to the origin for duty purposes of the constructively segregated components. In accordance with 19 U.S.C. 1625(c), this ruling will become effective 60 days after its publication in the Customs Bulletin.
Sincerely,
Craig T. Clark, Director
Commercial and Trade Facilitation Division