CLA-02 RR:CR:SM W563252 AL
Category: Classification Mr. C.J. Erickson
Mr. Carl R. Soller
Cowan, Liebowitz & Latman, P.C. 1133 Avenue of the Americas New York, New York 10036-6799
RE: U.S. Note 4(b), Subchapter II, Chapter 98, HTSUS; 9802.00.80, HTSUS; 9102.11.30, HTSUS; wristwatches
Dear Mr. Erickson and Mr. Soller:
This is in response to your ruling request on behalf of your client, concerning the application of U.S. Note 4(b), Subchapter II, Chapter 98, Harmonized Tariff Schedule of the U.S. ("HTSUS"), on imported wristwatches assembled with U.S. and foreign components.
We note that you have waived your confidentiality request which was submitted along with your ruling request, dated March 7, 2005.
FACTS:
On November 16, 2004, Headquarters Ruling Letter ("HQ") 563070 was issued in response to a ruling request that you made on behalf of your client which concerned the imported article at issue here. In HQ 563070, U.S. Customs and Border Protection ("CBP") held that the allowances in duty may be made under subheading 9802.00.80, HTSUS, for the cost or value of the quartz analog watch movements incorporated and assembled into wristwatches on their return to the U.S., provided that the watch movements are of U.S. origin and the documentary requirements of 19 CFR 10.24 are satisfied. As a result of HQ 563070, you have now submitted a ruling request concerning clarification on the proper apportionment of the duty allowance under U.S.
Note 4(b), Subchapter II, Chapter 98, HTSUS as it relates to the facts of HQ 563070 and the additional information that is provided in your present request for the finished wristwatches.
You have stated that on average, the entered value of the finished wristwatch is
$2.60, which consists of the following components, along with their respective values:
Movement:
$1.63
Case:
$0.46
Band:
$0.39
Battery:
$0.12
Watch
$2.60
You have also stated that the finished wristwatch is classifiable under subheading 9102.11.30, HTSUS, which lists a compound duty rate of $0.44 each + 6% on the case
+ 2.8% on the strap, band or bracelet+ 5.3% on the battery. Therefore, by taking each component's value that is listed above and multiplying it by their respective percentage of the value incorporated into the wristwatch (case, band, and battery), the compound duty rate for the wristwatch would be $0.49 each. The calculations are as follows:
Watch:
$0.440
Case:
$0.028
(0.46 X .060)
Band:
$0.011
(0.39 X .028)
Battery:
$0.006
(0.12 X .053)
$0.485 = $0.49
ISSUE:
What is the application of U.S. Note 4(b), Subchapter 11, Chapter 98, HTSUS,
in determining the duty rate of imported wristwatches subject to subheading 9802.00.80, HTSUS.
LAW and ANALYSIS:
Subheading 9802.00.80, HTSUS, provides a partial duty exemption for:
[a]rticles 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.
According to HQ 563070, all three requirements of subheading 9802.00.80, HTSUS were satisfied, when determining whether the watch movement manufactured in the
U.S. was able to receive a duty allowance. However, in calculating the actual duty allowance for the finished wristwatch upon importation into the U.S., subheading 9802.00.80, HTSUS refers to U.S. Note 4, Subchapter II, Chapter 98, HTSUS, which in pertinent part, states the following:
* * *
The duty, if any, on the imported article shall be at the rate which would apply to the imported article itself, as an entirety without constructive separation of its components, in its condition as imported if it were not within the purview of this subchapter. If the imported article is subject to a specific or compound rate of duty, the total duties shall be reduced in such proportion as the cost or value of such products of the United States bears to the full value of the imported article.
Upon importation into the U.S., the duty rate applied to the finished wristwatch will be based on the classification of the imported article. U.S Note 4(b) specifically states that the duty must be assessed on the imported article in its entirety and"... without constructive separation of its components ...," ensuring that an imported article will be classified as one entity rather than classifying the imported article's components.
You have asserted that the language and intent of U.S. Note 4(b)”… is to fairly and accurately account for the duty benefit of American goods returned to items subject to a compound rate of duty." We agree that the U.S. watch movement is distinct in its origin from the remaining components of the wristwatch and is free of duty under subheading 9802.00.80, HTSUS. However, we disagree with your application of U.S. Note 4(b).
The tariff classification 9102.11.30, HTSUS provides an ad valorem rate of $0.44 for each wristwatch, in addition to specific rates of duty for the remaining components: the case, the strap, band or bracelet and the battery. You state that the intent of U.S. Note 4(b) would support the separation of duties on the finished wristwatch, in order to support the assertion that the ad valorem rate of $0.44 for each wristwatch is essentially
$0.44 for the watch movement. However, the wristwatch is not imported into the U.S. in its separate components, but it is being imported as a finished wristwatch, the classification of which is subject to a compound rate of duty. We cannot disregard the language of U.S. Note 4(b) which clearly states that the duty used is the rate on the imported article in its entirety and not on its separate components. Therefore, the finished wristwatches classified as 9102.11.30, HTSUS, are subject to a compound rate of duty, and thus, "the total duties shall be reduced in such proportion as the cost or value of such products of the United States bears to the full value of the imported article." See U.S. Note 4(b).
To determine the full value of the finished wristwatch, we turn to the general rate of duty column 1 under subheading 9102.11.30, HTSUS, which states a compound duty
rate of $0.44 + 6% on the case+ 2.8% on the strap, band or bracelet+ 5.3% on the battery. Based on earlier calculations, the total duty assessment on the imported article is $0.49. However, since the U.S. watch movement qualifies under subheading 9802.00.80, HTSUS, and the watch movement comprises 62.69% of the wristwatch1, the total duty on the wristwatch will be "reduced in such proportion," i.e. 62.69%, while the remaining 37.31% will be subject to the duty rate of $0.49. As a result, the total duty on each imported wristwatch, provided that the information in your ruling is accurate, will be $0.18.2
HOLDING:
Based on U.S. Note 4(b), the duty cannot be assessed on the separate components of the imported article. Moreover, a compound rate of duty will be used in accordance with the designated classification upon importation into the U.S. of the finished wristwatches. Furthermore, 62.69% of the wristwatch will remain duty free, having been determined that the watch movement is of U.S. origin and therefore, qualifies under subheading 9802.00.80, HTSUS. The remaining 37.31% of the imported article will be subject to the total duty rate assessed on the wristwatch.
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 Customs and Border Protection officer handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation & Special Programs Branch
1 $2.60 (total value of the wristwatch) x Sl.63 (total value of the U.S. watch movement)= 62.69%.
2 37.31% (remaining percentage, representing the foreign components of the wristwatch) X $0.49 (total duty rate assessed on the wristwatch) = $0.18.