CLA-2 CO:R:C:S 556981 RAH
Mr. John B. Rehm
Dorsey & Whitney
1330 Connecticut Avenue, N.W., Suite 200
Washington, D.C. 20036
RE: Assembly of Quartz Analog Watches; Movement; CBERA; Double
Dear Mr. Rehm:
This is in response to your letters of September 24, 1992,
October 15, 1992, and March 19, 1993, on behalf of Timex
Corporation ("Timex"), requesting a ruling on whether quartz
analog watches (QAs) assembled in a Caribbean country qualify for
duty-free treatment under the Caribbean Basin Economic Recovery
The assembly of the QAs will take place in Costa Rica, the
Dominican Republic, or another Caribbean country. You refer to
and describe the assembly of the QAs in two parts - the assembly
of the watch movement and the assembly of the completed watch.
The assembly of the watch movement consists of approximately
twenty-three separate operations in which twenty parts will be
assembled. None of the components are of U.S. origin. Two
critical operations relating to the assembly of the movement are
attaching the coil core assembly (CCA) to the front frame (Frame)
(Operation No. 20 on page 903-03), and crushing and cutting the
two leads of the CCA and soldering them to the printed circuit
board (PCB) (Operation Nos. 50 and 60). You contend that the
first assembly results in a substantial transformation of the
twenty parts into a new and different article of commerce (a
watch movement) which is regularly bought and sold in the watch
industry and has a distinctive and recognized commercial
You state that: (1) most of the parts are very small and
require special handling; (2) fifty percent of the operations
required to assemble the movement must be performed under a
microscope (3) a number of subassemblies must be separately
completed before the movement itself can be assembled; (4) the
soldering steps must satisfy very close tolerances, and; (5)
qualify control testing is carried out at frequent intervals
during the assembly of the movement.
In the second stage of assembly, you state that at least 28
parts and three subassemblies are needed to complete the QA. The
movement, dial, hands and some gear train parts will be combined
to produce the fit-up. To the fit-up will be added the bezel and
crystal subassembly, the case back and gasket subassembly, and
the strap assembly. You assert that the second stage changes the
movement into a new and different article of commerce, the QA,
which is regularly bought and sold in wholesale and retail
markets and has a distinctive commercial identity.
Two critical operations relating to the assembly of the
fit-up are the assembly of the three watch hands (Operation Nos.
140, 150 and 160) and leveling the hands (Operation No. 170).
The fit-up and QA will be subjected to five quality control tests
which are: (1) the torque test which ensures that the motor can
drive a wide variety of hand sizes and weights without impeding
the time-keeping accuracy for which the movement was designed;
(2) the power consumption test which guarantees the life of the
battery; (3) the hand/clash and interference test ensures that
the hands move freely without striking each other or the crystal
or dial; (4) the dynamic running test which guarantees that the
watch will run regardless of the position of the wearer's hand
and body; (5) the water-resistance test which ensures that the
water-resistant QAs run when fully immersed in water at both
atmospheric pressure and an elevated pressure of 42 pounds per
The operators who assemble the QAs undergo 5 phases of
training. An initial three-day orientation is followed by skill
training which will last from 10 to 35 days. After the operators
attain an acceptable level of skill, they must pass three
quality-control qualification stages which take at least eight
days to complete. In order to graduate from training and qualify
for a position, the operators must achieve a high level of
efficiency, as well as quality control. After graduation, the
operator's efficiency and quality of output will be monitored at
least two weeks to ensure that the operator's skill continues to
improve. Thereafter, they will be tested quarterly.
Finally, you state that the operators must work in a highly-
controlled environment. They wear finger "cots" to prevent
contamination of metal parts by finger oils. They put on
protective smocks made of dacron polyester yarn that will not
shed particles, and caps to avoid falling hairs. All tools and
work areas are cleaned at least once a day. Various devices must
be used in work and storage areas and on equipment to drain the
static electricity generated by the operators. The number of
dust particles in the work areas must be regularly monitored and
tightly controlled. The temperature must be 75 degrees, plus or
minus 2 degrees, and the relative humidity must not exceed 45
On February 19, 1993, we held a meeting at our office at
which time a watch maker demonstrated the assembly of a watch.
We had an opportunity to observe the assembly under a microscope.
Whether the QA will be entitled to duty-free treatment under
the CBERA, upon importation into the United States.
LAW AND ANALYSIS:
Under the CBERA, eligible articles the growth, product or
manufacture of a beneficiary country (BC), may enter the U.S.
free of duty if such articles are imported directly to the U.S.
from the BC, and if the sum of (1) the cost or value of the
materials produced in a BC or BCs, plus (2) the direct cost of
processing operations performed in a BC or BCs, is not less then
35 percent of the appraised value of the article at the time it
is entered into the United States. See 19 U.S.C. 2703(a). The
cost or value of materials produced in the U.S. may be applied
toward the 35 percent value-content minimum in an amount not to
exceed 15 percent of the imported article's appraised value. See
section 10.195(c), Customs Regulations (19 CFR 19.195(c)).
If an article is comprised of materials that are imported
into the BC, the cost or value of those materials may be included
in calculating the 35 percent value-content requirement only if
they undergo a "double substantial transformation" in the BC.
See section 10.177(a), Customs Regulations (19 CFR 10.177(a));
Azteca Milling Co. v. United States, 703 F. Supp. 949 (CIT 1988),
aff'd, 890 F.2d 1150 (1989). That is, the cost or value of the
parts imported into the BC for use in producing the QAs may be
counted towards the 35 percent value-content requirement only if
they are substantially transformed in the BC into a new and
different intermediate article of commerce which is, itself,
substantially transformed when used in the production of the
final article. A substantial transformation occurs "when an
article emerges from a manufacturing process with a new name,
character, or use which differs from that of the original
material subjected to the process." The Torrington Company v.
United States, 764 F.2d 1563, 1568 (Fed. Cir. 1985).
Customs has previously ruled on whether assembly operations
constitute a substantial transformation. In C.S.D. 85-25 dated
September 25, 1984 (Headquarters Ruling Letter (HRL) 071827), we
considered the issue of whether the assembly of components onto a
printed circuit board (PCB) resulted in a substantial
transformation of the materials. In that decision, Customs held
that an assembly process will not constitute a substantial
transformation unless the operation is "complex and meaningful,"
which depends on the nature of the operation, attention to detail
and quality control, and the benefit to the BC from the
standpoint of both the value added to each PCB and the overall
employment generated thereby. In C.S.D. 85-25, it was stated
that the factors which determine if a substantial transformation
occurs should be applied on a case-by-case basis.
The focus of C.S.D. 85-25 was a PCBA produced by assembling
in excess of 50 discrete fabricated components (e.g., resistors,
capacitors, diodes, transistors, integrated circuits, sockets,
connectors) onto a PCB. Customs determined that the assembly of
the PCBA involved a large number of components and a significant
period of time as well as skill, attention to detail, and quality
You cite HRL 555275 dated May 2, 1989, (which was in
response to a request from you on behalf of Timex) involving,
among other things, the assembly of a QA, which consisted of 49
parts, involved 99 operations and took 16.5 minutes to complete.
We held that the assembly of the watch movement constituted a
substantial transformation. The separate component parts
imported into the BC acquired new attributes, and the movement
subassemblies differed in character and use from the component
parts of which it was composed. The production of the
subassemblies involved substantial operations (pressing, driving,
deburring, cutting, welding, heating and quality control
testing), which increased the components' value and endowed them
with new qualities which transformed them into an article with a
distinct new commercial identity.
Using the standards defined in C.S.D. 85-25 and HRL 555275,
it is our opinion that the assembly of the watch movement in
question is a complex and meaningful assembly operation and,
therefore, results in a substantial transformation. It requires
a high level of skill and attention to detail. Attaching the CCA
to the front frame and crushing and cutting the two leads of the
CCA and soldering them to the PCB requires extreme skill and
precision. Each lead is one-third the width of a human hair and
must be handled with tweezers under a microscope. In the
soldering operation, the operator precisely must locate one lead
over the minute pre-tinned pad of the PCB (which is no larger
than the dot made by the point of a sharp pencil).
Moreover, we find that the movements are bought and sold as
separate articles of commerce. As evidence of that you submitted
copies of six advertisements from the February 1993 edition of
Asian Sources Timepieces which shows several companies that sell
movements. You also submitted copies of three catalogs of Time
Module, a Japanese-owned affiliate of Seiko based in Hong Kong,
which sell movements.
The question remains whether the assembly of the movement
and other components to create the finished QA constitutes a
second substantial transformation.
In the second part of the assembly, approximately 28 parts
and three subassemblies are needed to complete the QA. The
movement, dial, hands and some gear train parts will be combined
to produce the fit-up. After assembling the dial, the operator
assembles the hour, minute, and second hands in three successive
operations. The operator places the hand on the driving tool and
rotates the hand until it abuts against the stop on the tool.
Then the operator attaches the hand onto the shaft with the
driving tool. Once the three hands are properly assembled, the
operator levels them in sequence. With the use of the tweezers,
the operator must bend each hand slightly to assure that it will
rotate on a plane precisely parallel to the other two hands.
Next, the fit-up will be added to the bezel and crystal
subassembly, the case back and gasket subassembly, and the strap
assembly to create the QA.
In HRL 555275, supra, we held that the assembly of watch
movements with other component parts, creating the final product
(wrist watch), results in a second substantial transformation.
In that case, as here, the assembly of the constituent material
(the watch movement) with numerous other components changes its
character and results in a finished product which is recognized
as a new and different article of commerce with a distinct name,
character and use. Moreover, the second part of the assembly
process involves a significant number of components, different
operations, skill, attention to detail and quality control.
Accordingly, we conclude that the assembly of the QAs constitutes
a double substantial transformation.
Based on the information submitted and the foregoing cases,
we are of the opinion that the production of the watch movement
and the assembly thereof with other components to create a QA
constitutes a double substantial transformation. Therefore, the
cost or value of the materials imported into the BC and used to
product the watch movement may be counted toward the CBERA 35
percent value-content requirement. The QAs will be entitled to
duty-free treatment under the CBERA, assuming the 35% value-
content and imported directly requirements are satisfied.
John Durant, Director
Commercial Rulings Division