Chief Operating Officer
Silpada Designs, Inc.
11550 Renner Blvd.
Lenexa, Kansas 66219-9600
RE: Eligibility of bracelet watches under the United States-Israel Free Trade Agreement Act of 1985
Dear Mr. Herdman:
This is in response to your correspondence of December 8, 2008 requesting a ruling as to the eligibility of certain bracelet watches imported from Israel for preferential duty treatment under the United States-Israel Free Trade Implementation Act of 1985 ("Israel FTA"). Our ruling follows.
You describe the pertinent facts as follows. 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
Silpada requests that, if Customs and Border Protection ("CBP") does not determine that the country of origin of the bracelet watches is Israel, it issue a ruling regarding the proper allocation of duties to the bracelet watches, i.e., Silpada requests that CBP determine that the duties are not applicable on the components of the bracelet watches that originate and are produced in Israel.
The issue presented is the country of origin of the subject bracelet watches.
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), 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).
In National Hand Tool v. United States, 16 Ct. Int'l Trade 308 (1992), aff'd, 989 F.2d 1201 (Fed. Cir. 1993), a country of origin marking case, certain hand tool components used to make flex sockets, speeder handles, and flex handles, were imported from Taiwan. The imported components were either cold-formed or hot-forged into their final shape before importation, with the exception of the speeder handle bars, which were reshaped by a power press after importation. In the U.S., the components were subject to heat treatment, which increased the strength of the components, sand-blasting (a cleaning process), and electroplating (enabling the components to resist rust and corrosion). After these processes were complete, the components were assembled into the final products, which were used to loosen and tighten nuts and bolts.
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 case, the country of origin of the watches is Japan as the movement is imported from Japan. See HQ 731546, dated October 27, 1978.
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 the 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.
Nonetheless, the holding in HQ 560471 does not apply in this case 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 for marking purposes is Japan. The battery, manufactured in Japan, is not substantially transformed in Israel. The country of origin of the battery for marking purposes is Japan. The country of origin of the watch case, manufactured in Israel, is Israel.
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.
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."
Therefore, to the extent the duty on the subject watches is calculated by constructively separating the watch into its component parts, the case and bracelet may be entered free of duty under the Israel FTA. Applicable duty will be due on the Japanese movement and battery. See HQ 968150. Please note that the subject watches must also satisfy the special marking requirement of Additional U.S. Note 4, Chapter 91, HTSUS.
To the extent the duty on the subject watches is calculated by constructively separating the watch into its component parts, the case and bracelet may be entered free of duty under the Israel FTA. Applicable duty will be due on the Japanese movement and battery. See HQ 968150. Please note that the subject watches must also satisfy the special marking requirement of Additional U.S. Note 4, Chapter 91, HTSUS.
A copy of this ruling letter should be attached to the entry documents filed at the time the subject goods are entered. If the documents have been filed without a copy, this ruling letter should be brought to the attention of CBP.
Monika R. Brenner
Valuation & Special Programs Branch