MAR-2 OT:RR:CTF:VS H304105 RSD
Mr. William Methenitis
Ernst & Young, LLP
2323 Victory Avenue
Suite 2000
Dallas, Texas 75219
RE: Country of origin of imported watches; Section 301 Trade Remedies
Dear Mr. Methenitis:
This is in response to your request, dated June 5, 2019, on behalf of Seiko Watch of America, LLC (Seiko) regarding the country of origin of complete wrist watches classified in headings 9101 or 9102, of the Harmonized Tariff Schedule of the United States (HTSUS). In your letter, you indicate that you are not seeking a ruling concerning the appropriate country of origin marking for purposes of complying with either 19 U.S.C. 1304 or the Special Marking Requirements specified in Additional U.S. Note 4 to Chapter 91 of the HTSUS. Rather, this request is being sought in order to declare the appropriate country of origin of the imported merchandise on Block 10 of the Customs and Border Protection (CBP) entry summary, and on each of the constructively separated components for Block 27. In addition, you have indicated that you are also interested in a getting a determination regarding whether the proposed Section 301 duties for Chinese origin merchandise would apply to the imported watches.
FACTS:
Seiko is a wholly owned U.S. subsidiary of Grand Seiko Corporation of America which is, in turn, a wholly owned subsidiary of Seiko Watch Corporation, headquartered in Tokyo, Japan. Seiko distributes watches and related products in the United States. There are four scenarios for which you are requesting a country of origin determination.
In the first scenario, the watch movement and battery of the watch are produced in Japan. The watch case and the watch band are produced in China, and the assembly of these components to make the watch occurs in Japan.
In the second scenario, the watch movement and battery of the watch are produced in Japan. The watch case and the watch band are produced in China, and the assembly of these components to produce the watch occurs in China.
In the third scenario, the watch movement and battery are produced in Japan. The watch case and band are produced in China, and the watch assembly occurs in Thailand.
In the fourth scenario, the watch movement is mechanical, and the watch has no battery. The watch movement is produced in Malaysia, while the case and the band are produced in China; the watch assembly occurs in China.
ISSUE:
What is the country of origin for the watches made with components from Japan, China, and Malaysia for purposes of application of the Section 301 measures in the four scenarios described above?
LAW AND ANALYSIS:
Effective July 6, 2018, the Office of the United States Trade Representative (USTR) imposed an additional tariff on certain products of China classified in the subheadings enumerated in Section XXII, Chapter 99, Subchapter III U.S. Note 20(b), HTSUS. See Notice of Action and Request for Public Comment Concerning Proposed Determination of Action Pursuant to Section 301: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 83 Fed. Reg. 28710 (June 20, 2018). Later, the USTR imposed additional tariffs on products classified under the subheadings enumerated in Section XXII, Chapter 99, Subchapter III U.S. Note 20(d), U.S. Note 20(f) and U.S. Note 20(g), HTSUS. The corresponding products of China that are provided for in subheadings 9903.88.01, 9903.88.02, 9903.88.03, or 9903.88.04, and are classified in one of the subheadings enumerated in U.S. Note 20(b), U.S. Note 20(d), U.S. Note 20(f) or U.S. Note 20(g) to Subchapter III, shall continue to be subject to antidumping, countervailing, or other duties, fees and charges that apply to such products, as well as to those imposed by the aforementioned Chapter 99 subheadings.
On May 17, 2019, the USTR published in the Federal Register a notice [Docket Number USTR–2019–0004] beginning the process of imposing additional duties of up to 25 percent on all remaining imports from China (i.e., List 4). According to the notice, “[i]n light of China’s failure to meaningfully address the acts, policies, and practices that are subject to this investigation and its response to the current action being taken in this investigation, and at the direction of the President, the Trade Representative proposes to modify the action being taken in this investigation.”
The modification being proposed would impose additional duties of up to 25 percent on “essentially all [Chinese-origin] products not currently covered” by one of the previous lists. This new “List 4” covers products of China which are classifiable in headings 9101 and 9102 HTSUS, such as the watches you have described. Under this proposed modification, the applicable products would be subject to the applicable duty rate plus an additional 25 percent under subheading 9903.88.03, HTSUS. Accordingly, you are requesting a country of origin determination for the watches that are produced in accordance with the four scenarios and whether they would be subject to the proposed Section 301 duties.
When determining the country of origin for purposes of applying current trade remedies under Section 301, the substantial transformation analysis is applicable. The test for determining whether a substantial transformation has occurred is whether an article emerges from a process with a new name, character, or use, different from that possessed by the articles prior to processing. See Texas Instruments Inc. v. United States, 69 C.C.P.A. 151 (1982). This determination is based on the totality of the evidence. See National Hand Tool Corp. v. United States, 16 C.I.T. 308 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993).
With respect to watches, CBP’s long-standing position has been that the country of origin of a watch (excluding the strap, band or bracelet) is the country of assembly where the watch movement occurs. It has been explained that 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 Headquarters Ruling Letter (HQ) 735197, dated January 4, 1994.
The term “watch movement,” is defined in Note 3 to Chapter 91, HTSUS, as follows:
For the purposes of this chapter, the expression "watch movements" means 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. Such watch movements shall not exceed 12 mm in thickness and 50 mm in width, length or diameter. See HQ H243796, dated December 8, 2015.
Concerning the watch bands, it also has been CBP’s position that a watch strap or band 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 HQ H047115, dated June 22, 2009.
In HQ H047115, CBP examined the country of origin of watch components constructively separated on entry for the purpose of determining eligibility under the U.S.-Israel Free Trade Agreement. CBP considered a fact pattern in which a watch movement and battery made in Japan were imported into Israel, and assembled into finished watches with a case and band that originated in Israel. CBP determined that the watch movement and battery were not substantially transformed in Israel, when assembled to make a complete watch, and therefore the country of origin of the movement and the battery remained Japan. In addition, the watch bracelet and the watch case manufactured in Israel were also not substantially transformed by the assembly process, and therefore, the country of origin of the band and the case was Israel. Consequently, CBP held since the case and the bracelet were of Israeli origin, they did qualify for duty free entry under the U.S.-Israel Free Trade Agreement, while the origin of the movement and battery were of Japanese origin and thus dutiable.
However, in HQ 560471, dated January 5, 1997, CBP determined that watch straps and bands assembled to a watch in the same country where the movement was assembled were substantially transformed and became a product where the watch movement was made.
You have described four scenarios for producing watches. In Scenario 1, the movement and the battery of the watch are produced in Japan, while the case and the band are produced in China. The assembly of the components of the watch also occurs in Japan. In accordance with CBP’s long standing position, the country of origin of the watch would be Japan, the country where the movement was produced. In addition, as the assembly also occurs in Japan, the country of origin of all the components, including the watchband and the case, would also be Japan.
In Scenario 2, a Japanese origin movement and battery are imported into China for assembly with a Chinese case and Chinese band to make the watch. The country of origin of the watch will be Japan, the country where the watch movement will be made. However, in accordance with prior decisions on watches, the watchband and watch case will not be substantially transformed, and thus the country of origin of these watch components would remain China.
In Scenario 3, the movement and the watch battery are produced in Japan. To make the watch, the Japanese watch movement is assembled with a Chinese case and a Chinese band in Thailand. The country of origin of the watch will be Japan, where the movement is made. However, the Chinese bands and cases are assembled with a movement in a country other than the country where the movement is made, Thailand. Therefore, the watch bands and watch case will not be substantially transformed and their country of origin would remain China.
In Scenario 4, the movement for a mechanical watch with no battery will be produced in Malaysia, while the case and band are produced in China and the assembly of the watch occurs in China. Because the movement is made in Malaysia, the country of origin of the watch will also be Malaysia. Consistent with HQ 560471, since the insertion of the Malaysian movement into the Chinese watch case and the attachment of the Chinese band to the watch occurs in China, not in Malaysia, the watch case and the band will not be substantially transformed. Thus, the country of origin of the watch case and band will remain China.
The HTSUS makes specific reference to the calculation of duties on watches. Statistical Note 1, Chapter 91 of the HTSUS states as follows.
The calculation of duties of various watches, clocks, watch movements and clock movements requires that these articles be constructively separated into their component parts and each component separately valued. The individual components shall be separately reported under the statistical suffixes show below. In each instance the sum of the values of the individual components shall be equal to the total value of the article. In those instances where components of an article are to be separately reported under the following reporting scheme, the entry should include all the individually named components even if not included in the shipment.
In other words, under Statistical Note 1 to Chapter 91 of the HTSUS, the value of a watch must be reported to CBP by specifying the value of four individual components. The four components are: 1) the movement; 2) the case; 3) strap, band, or bracelet; and 4) the battery. The value of the watch must equal the total value of the four individual components. Each of these components is subject to a different duty rate under the HTSUS
Therefore, in Scenario 1, because none of the components are of Chinese origin, the proposed Section 301 duties would not apply. In Scenario 2, because the Chinese origin cases and bands are not substantially transformed, the proposed 301 duties would apply to the Chinese origin case and band. Similarly, in Scenarios 3 and 4, since the Chinese origin watch bands and watch cases are not substantially transformed in the countries where these components are assembled with the watch movements, they will remain of Chinese origin, and the proposed Section 301 duties would apply to the watch bands and watch cases in these two scenarios.
HOLDING:
The country of origin of the watches, in Scenarios 1, 2, and 3, is Japan. In scenario 4 the country of origin of the watch is Malaysia. In Scenario 1, since all of components of the watches are of Japanese origin, the Section 301 duties for Chinese origin products would not be applicable. In Scenarios 2, 3, and 4 the watch cases and watch bands are not substantially transformed, and their country of origin is China. As these items will be products of China, in calculating the duties that will be imposed on the watches, the proposed Section 301 measures would apply to these items in Scenarios 2, 3, and 4.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy of this ruling, it should be brought to the attention of the CBP officer handling the transaction. Sincerely,
Monika R. Brenner, Chief Valuation and Special Programs Branch