H306338

U.S. Department of Homeland Security Washington, DC 20229 U.S. Customs and Border Protection 
 HQ H306338 May 14, 2021 OT:RR:CTF:VS H306338 CMR CATEGORY: Origin Shara L. Aranoff, Esq. William R. Isasi, Esq. Covington & Burling LLP One CityCenter 850 Tenth Street, NW Washington, DC 20001-4956 RE: Modification of Headquarters Ruling Letter (HQ) H304105; Country of origin of imported watches; Section 301 Trade Remedies Dear Ms. Aranoff and Mr. Isasi: This is in response to your submission, dated October 28, 2019, submitted on behalf of the American Watch Association (“AWA”) and certain of its member companies, including Casio, Citizen, Fossil, Movado, Seiko and Selco, requesting U.S. Customs and Border Protection (CBP) reconsider and revoke Headquarters Ruling Letter (HQ) H304105, dated June 25, 2019, issued to Seiko Watch of America, LLC, one of your member companies, regarding the country of origin to declare in Block 10 of the CBP Entry Summary Form (CBP 7501) or its electronic equivalent in ACE, and for purposes of the constructively segregated components as required in Block 27 for certain imported watches, and whether Section 301 duties apply. In reaching our decision to modify HQ H304105, set forth below, CBP has taken into consideration the additional arguments submitted in your supplemental submission, dated June 17, 2020. Pursuant to section 625(c)(1), Tariff Act of 1930 (19 U.S.C. 1625(c)(1)), as amended by section 623 of Title VI, a notice proposing to modify HQ H304105 was published on March 31, 2021, in Volume 55, Number 12 of the Customs Bulletin. Two comments were received in response to the proposed action, but only one commenter specifically addressed the modification of HQ H304105. Those comments are addressed in this decision. 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. The chart below sets forth the four scenarios that you presented. Movement Production Case Production Band Production Battery Production Assembly of entirety to wearable watch  1 Japan China China Japan Japan  2 Japan China China Japan China  3 Japan China China Japan Thailand  4 Malaysia China China  China   In the fourth scenario, the watch movement was mechanical and, therefore, the watch did not contain a battery. The complete wristwatches are classified in headings 9101 or 9102 of the Harmonized Tariff Schedule of the United States (HTSUS), specifically, subheadings 9101.11.40, 9101.11.80, 9101.19.40, 9101.19.80, 9102.11.10, 9102.11.25, 9102.11.30, 9102.11.45, 9102.11.50, 9102.11.65, 9102.11.70, 9102.11.95, 9102.19.20, 9102.19.40, 9102.19.60 and 9102.19.80, which are listed in Statistical Note 1(a), Chapter 91, and subheadings 9101.21.80, 9101.29.10, 9101.29.20, 9101.29.30, 9101.29.40, 9101.29.50, 9102.21.10, 9102.21.25, 9102.21.30, 9102.21.50, 9102.21.70, 9102.21.90, 9102.29.10, 9102.29.15, 9102.29.20, 9102.29.25, 9102.29.30, 9102.29.35, 9102.29.40, 9102.29.45, 9102.29.50, 9102.29.55 and 9102.29.60, which are listed in Statistical Note 1(d), Chapter 91. On June 25, 2019, CBP issued HQ H304105 and determined that the country of origin of the watches was Japan in scenarios 1, 2, and 3, based upon the country of origin of the watch movement, and Malaysia in scenario 4, again based upon the country of origin of the watch movement. However, with regard to the components of the watches, i.e., and for purposes of constructive segregation, HQ H304105 explained that the movement’s origin and where the entire watch was assembled with its components was relevant. Therefore, in scenario 1, CBP held that because the movement was made in Japan and the assembly of all of the components to form the watch occurred in Japan, the country of origin of all of the components would be Japan. However, in scenario 2, because the assembly of all of the components to form the watch occurred in China (not the country of origin of the movement which was Japan), the assembly of the components did not substantially transform the case or band and their origin remained China. Similarly, in scenario 3, as the assembly of the components to form the watch occurred in Thailand (a country other than the country where the movement was made which was Japan), the assembly of the components did not substantially transform the case or band and their origin remained China. Finally, in scenario 4, again, as the assembly of the components in China to form the watch did not occur in the same country as the origin of the movement which was Malaysia, the case and band retained their origin of China. Based upon the analysis in HQ H304105, CBP held that although the origin of the watches in scenarios 1, 2, and 3 was Japan, and the origin of the watch in scenario 4 was Malaysia; the watch cases and watch bands in scenarios 2, 3, and 4 did not undergo substantial transformations and retained their original origin which was China. In calculating the duties owed on these constructively segregated components of the subject watches, the Section 301 duties were found to apply as these components remained products of China. You seek reconsideration and revocation of HQ H304105 because you believe it incorrectly held that the watch cases and watch bands in scenarios 2, 3, and 4 were products of China subject to the Section 301 duties. You submit that CBP (and its predecessor the U.S. Customs Service) has, for decades, continuously and consistently found a watch to be a single article with a single country of origin which is determined by the country of assembly of the watch movement. You assert that HQ H304105 effectively modified or revoked Customs’ treatment of watches without complying with the notice and comment procedures of 19 U.S.C, § 1625 and 19 C.F.R. § 177.12(c)(2). You request that CBP find that the watches at issue are products of Japan or Malaysia for country of origin purposes, and likewise, are products of Japan or Malaysia for purposes of duty assessment. As such, they should not be subject to Section 301 duties. Further, you submit that CBP should immediately revoke HQ H304105 because the Automated Commercial Environment (ACE) does not permit importers to enter their imports in accordance with the ruling’s holding. You assert that the inability to comply with the ruling in ACE demonstrates the need for CBP to reconsider and revoke the ruling. You commented on the proposed modification of HQ H304105 raising concerns that CBP’s determination regarding watches and watch bands entered with them is inconsistent with Section 301 and the United States Trade Representative’s instructions to CBP. You also submit that CBP’s determination is inconsistent with its treatment of similar products. You cite to Headquarters Ruling Letter (HQ) H302801, dated October 3, 2019, which dealt with the country of origin of a Fitbit, and New York Ruling Letter (NY) N305154, dated July 31, 2019, which dealt with the country of origin of a Roomba robotic vacuum cleaner and its accessories. 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: For watches listed in Statistical Notes 1(a) and 1(d), Chapter 91, HTSUS, duty is assessed based upon the value of the constructively segregated components of the watch, i.e., the separately valued movement, watch case, and watch band, bracelet or strap. In addition, the battery is separately assessed pursuant to Statistical Note 1(a). The values of these components must equal the declared value of the watch. See Statistical Note 1, Chapter 91, HTSUS. The rate set forth in the tariff specifies a set amount per movement, an ad valorem rate for the case and band, strap, or bracelet, a

For watches listed in Statistical Notes 1(a) and 1(d), Chapter 91, HTSUS, duty is assessed based upon the value of the constructively segregated components of the watch, i.e., the separately valued movement, watch case, and watch band, bracelet or strap. In addition, the battery is separately assessed pursuant to Statistical Note 1(a). The values of these components must equal the declared value of the watch. See Statistical Note 1, Chapter 91, HTSUS. The rate set forth in the tariff specifies a set amount per movement, an ad valorem rate for the case and band, strap, or bracelet, and a different ad valorem rate for the battery. To understand the tariff treatment of watches for classification and origin purposes, an understanding of the history of watches under the various tariff schedules of the United States is essential. A review of the previous tariff schedules and various court decisions reveal that watches have received substantially similar treatment under the tariff schedules for more than 80 years. As stated in a report prepared by the United States International Trade Commission in the early 1980s, when the Tariff Schedules of the United States (TSUS) were in effect, the tariff structure for watches and parts of watches dates from 1930. Under the TSUS, “the duty on a watch classified under item 715.05 [was] composed of separate duties assessed on the case, the movement, and the bracelet (if any).” This is the case in the specific subheadings at issue here, i.e., the various subheadings of headings 9101 and 9102, HTSUS, identified above, with the addition of duties assessed on the battery, if applicable. Duty rates are established by Congress, and Congress did not change the manner in which duty is assessed for imported watches. Duty is not assessed against the watch, but based upon the value of the separately identified components of the watch. As the structure of the tariff with regard to the assessment of duty for watches has changed little over the ye