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HQ W563550




October 25, 2006

CLA-02 RR:CTF:VS W563550 EAC

CATEGORY: CLASSIFICATION

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.

Dear Mr. McCue:

This is in response to your letter, dated July 27, 2006, 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.

FACTS:

You state that the 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 watches. The individual parts will be manufactured in various Asian nations. An assembly diagram and description for the watch movement was provided. The various parts shown on the assembly diagram include the bridge, wheels, electronic circuit, coil, pinions, stem, screws, and certain sub-assemblies. You advise that some movements will be more complicated than that shown in the design in order to incorporate a day and/or date function. Those more complex movements will include all the parts shown on the assembly chart and up to twenty 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 sent abroad for assembly into complete watches. The movements will be enclosed in cases and bands will or will not be attached. The finished watches will be imported into the United States. The cases or bands used for the finished watches 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.

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:
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 and Border Protection Regulations (19 C.F.R. §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 and Border Protection Regulations (19 C.F.R. §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 consist 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 Headquarters Ruling Letter (“HRL”) 563070 dated November 16, 2004, and HRL 563287 dated August 23, 2005, U.S. Customs and Border Protection (“CBP”) considered facts similar to those in the instant case. In those cases, 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 in those cases 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, regardless of whether the batteries are incorporated into the movements inside or outside of the United States. In support of this determination we note that the separate component parts lose their separate identity and the chart indicates that the assembly in the United States will include parts such as the wheels, 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”, regardless of whether the batteries are incorporated into the movements inside or outside of the United States. Therefore, provided the documentary requirements of 19 C.F.R. §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 watches abroad and returned to the United States.

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 during assembly, regardless of whether the batteries are incorporated into the movements inside or outside of the United States. Therefore, provided the documentary requirements of 19 C.F.R. §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 watches abroad and returned to the United States.

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

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