Protest and Application for Further Review of 2720-20-101252; Valuation of Imported Watch Components; Statistical Note 1, Chapter 91, HTSUS

H326900 October 9, 2025 OT:RR:CTF:VS H326900 AMW CATEGORY: Valuation Director Consumer Products and Mass Merchandising CEE U.S. Customs and Border Protection 1500 Centre Pkwy Atlanta, GA 30344 C/O Paul Sumbi, Assistant Center Director RE: Protest and Application for Further Review of 2720-20-101252; Valuation of Imported Watch Components; Statistical Note 1, Chapter 91, HTSUS Dear Director: This is in response to the Application for Further Review (“AFR”) of Protest No. 2720- 20-101252, dated January 31, 2020, filed against U.S. Customs and Border Protection’s (“CBP’s”) decision to liquidate the subject imported wrist watches based on a revised apportionment of the value of the underlying components in accordance with Statistical Note 1, Chapter 91, Harmonized Tariff Schedule of the United States (“HTSUS”). The Protestant, [xx] (“[xx]” or the “Protestant”), seeks reliquidation at the component valuation declared at entry. FACTS: This protest relates to approximately 84 entries of wrist watches imported by the Protestant’s [xx] Division (“[xx]” or the “Subsidiary”) during the year 2018. The subject watches were typically purchased completely assembled from unrelated suppliers. However, the protest asserts that the Subsidiary “plays an active role in the design of all watches that bear the [xx] name and trademark.” Upon purchase, the Protestant states that each vendor provided the Subsidiary with an invoice and an allocation of the purchase price to the various statistically enumerated components of each watch purchased, all of which accompanied the imported goods. The Subsidiary based the component allocation reported to CBP on the invoice and apportionment representations provided by its suppliers.1 As outlined in the subject entries, the 1 Per [xx] protest, since April 2019, all Subsidiary-brand watches are purchased by the Subsidiary from [xx] and the Subsidiary no longer deals directly with third-party assemblers. All of the subject entries predate this arrangement, however. Protestant declared most of the watches as originating in Japan and exported to the United States via Hong Kong. The Protestant declared the valuation of the subject watches to be the transaction value between the Subsidiary and the watches’ manufacturers. However, regarding the Statistical Note 1, Chapter 91, HTSUS, component apportionment, CBP reliquidated the subject watches in 2020, assessing new component valuation apportionments for the underlying entries. CBP’s decision to reliquidate the entries followed an audit regarding the import practices of the Protestant. In 2017 and 2018, CBP’s Trade Regulatory Audit (“TRA”) audited entries of watches by the Protestant for the period of 2013-2017. In so doing, TRA determined that the Protestant, “did not provide cost production records or any other supporting documentation to reasonably support their apportionment of the value of the watch components….” Instead, TRA found that the valuation attributed to the movement for similar “compliant companies” averaged approximately 33% of the watches’ total value for the scope period of 2013 to 2017, which represented a significant departure from the 70%-75% reported by the Protestant. CBP then reliquidated the subject 2018 entries in accordance with TRA’s findings. Although the audit only reviewed practices related to the Protestant’s importation of [xx]-brand watches, and seemingly did not relate to [xx]-brand products, CBP also subsequently reliquidated the subject entries of watches imported by the Subsidiary. In reapportioning the valuation of the imported watch components, TRA utilized Reapportionment Percentages Constructed from Arithmetic Means of Stratified Entry Parameters (“RPCARSEP”). RPCARSEP is maintained by the Consumer Products and Mass Merchandising CEE (the “CEE”) and is used to assess the valuation for imported watch components when complete information is otherwise unavailable. In relevant part, RPCARSEP consists of hundreds of thousands of lines of entry data for watches imported by “compliant” importers (i.e., those importers that have demonstrated reasonable apportionment and value compliance based on verification of underlying production records). These data points may then be used to calculate the average valuation proportion for each component of a watch based on the following parameters: price range, year of import, country of origin, and classification. The CEE has also clarified that revised percentages are only calculated for watches for which there exist direct or reasonably comparable products represented in the underlying dataset (i.e., within the same price range, year of importation, country of origin, and classification). If no direct or reasonably adjusted comparison can be made from the data available, then no adjustment is made and CBP will accept the original valuation. The Protestant challenges CBP’s assessment on several bases, which can be divided into two categories: (1) that its initial means of valuing the watch components was a reasonable method of appraisal previously accepted by CBP; and (2) that CBP erred in using the RPCARSEP to reapportion the component value of the imported watches. 2 ISSUE: 1. Whether the Protestant correctly apportioned the valuation of the watch components in compliance with Statistical Note 1, Chapter 91, of the HTSUS? 2. Whether CBP’s use of the RPCRSEP to reallocate the component valuation complied with Statistical Note 1, Chapter 91, HTSUS? LAW AND ANALYSIS: As an initial matter, we note that the protest was timely filed on January 1, 2020, within 180 days of liquidation of the entry on September 13, 2019, under the statutory provisions for protests. See 19 U.S.C. §1514(c)(3). Merchandise imported into the United States is appraised for customs purposes in accordance with Section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. § 1401a). The primary method of appraisement is transaction value, which is defined as “the price actually paid or payable for the merchandise when sold for exportation to the United States,” plus amounts for certain statutorily enumerated additions to the extent not otherwise included in the price actually paid or payable. See 19 U.S.C. § 1401a(b)(1). As provided in 19 U.S.C. §1401a(b)(4): (A) The term “price actually paid or payable” means the total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller. Section 152.103(a)(1), CBP Regulations (19 CFR §152.103(a)(1)) provides, in pertinent part, as follows: In determining transaction value, the price actually paid or payable will be considered without regard to its method of derivation. It may be the result of discounts, increases, or negotiations, or may be arrived at by the application of a formula, such as the price in effect on the date of export in the London Commodity Market. When imported merchandise cannot be appraised on the basis of transaction value, it is appraised in accordance with the remaining methods of valuation, applied in sequential order. (19 U.S.C. § 1401a(a)(1)). The alternative bases of appraisement, in order of precedence, are: the transaction value of identical or similar merchandise (19 U.S.C. § 1401a(c)); deductive value (19 U.S.C. § 1401a(d)); computed value (19 U.S.C. § 1401a(e)); and the “fallback” method (19 U.S.C. § 1401a(f)). 3 In the present matter, as noted above, the Protestant utilized the transaction value in reporting the total value of each imported watch. The Subsidiary purchased the imported watches from unrelated manufacturers, and the overall valuation of the subject watches was not changed when the merchandise was reliquidated. As such, our analysis focuses solely on the apportionment of the component values of the watches as outlined in Statistical Note 1, Chapter 91, HTSUS. Beyond the general requirements of 19 U.S.C. § 1401a, in appraising watches and timepieces, the HTSUS also requires that certain additional information regarding watch component values be declared to CBP. Watches are classified in Chapter 91, HTSUS. The Additional U.S. Notes to Chapter 91 inform us as to the elements of a watch, providing: For the purposes of this chapter: (a) The term “watches” embraces timepieces (including timepieces having special features, such as chronographs, calendar watches and watches designed for use in skin diving) of a kind for wearing or carrying on the person whether or not the movement contained therein conforms to the definition of “watch movements” in note 3, above. Timepieces incorporating a stand, however simple, are not classifiable as watches. We note that this is essentially the same definition of “watches” provided in the prior Tariff Schedules of the United States, with minor differences. Additional U.S. Note 2 provides: Watch straps, watch bands and watch bracelets entered with wrist watches and of a kind normally sold therewith, whether or not attached, are classified with the watch in heading 9101 or 9102. Otherwise, watch straps, watch bands and watch bracelets shall be classified in heading 9113. Wrist watches imported into the United States, are not assessed duty on the appraised value of the watch and strap, band or bracelet as a whole. Duty is instead assessed on the allocation of the appraised value of watch components, as duty is assessed against the components, and not the watch. In relevant part, Statistical Note 1, Chapter 91 of the HTSUS, requires additional information regarding the duty rate set forth for the subject watches and states, in relevant part, as follows: The calculation of duties on 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 (sic) below. In each instance the sum of the values of the individual components shall be equal to the total value of the article. . . . 4 In other words, Statistical Note 1 to Chapter 91 of the HTSUS provides that the value of a watch must be reported to CBP by specifying the value of four individual components (also referred to herein as the “statistical breakouts”). The four statistical breakouts are: (1) the movement; (2) the case; (3) the strap, band, or bracelet; and (4) the battery (collectively, the “components” or “breakouts”). Each of these components is subject to a separate duty rate, with the movement typically being assigned the lowest duty, a flat duty rate as opposed to an ad valorem amount. The total value of the watch must equal the value of the individual breakouts. See also, See United States v. Continental Lemania, Inc., 21 CCPA 192 (1933) (“In a long line of decisions, among them United States v. European Watch Co., 11 Cust. Ct. App. 363, T.D. 59160, it is definitely settled that watch movements and watchcases had by judicial determination, as well as by departmental direction, attained a settled definite status as separate entities for tariff purposes prior to the act of 1913.”) 1. Whether the Subsidiary correctly apportioned the valuation of the watch components in compliance with Statistical Note 1, Chapter 91, HTSUS First, the Protestant asserts the valuation of the subject movements was similar to that obtained by subtracting the component value for the strap/band and case from the total transaction value of a watch. In doing so, the entirety of the watch’s value attributable to overhead, profit, and intellectual property would be attributed to the valuation of the movement. The requestor asserts that its method of valuation apportionment was in line with CBP Headquarters Ruling Letter (“HQ”) H259490, dated April 4, 2017. In that matter, CBP permitted the importer of certain “shop-worn” watches to deduct the costs of the watch case, strap or band, and battery from the overall value of the watch to determine the value of the watch movement. In support of this position, the Protestant also provided the following: (1) “true cost quotation forms” for a representative sample of imported watches, which provides the producers’ estimated component costs as part of the product development and negotiation process; and (2) analytical data based on supplier component invoices for a select sample of “high-volume” cases and attachments. Second, the Protestant asserts that there was no legal basis for CBP to use RPCARSEP to appraise the subject merchandise. To begin with, the Protestant claims that CBP’s use of RPCARSEP is in contravention of agency “practice” accepted by CBP since at least the 1980s and that any change should be enacted via statutory notice and comment procedures promulgated at 19 U.S.C. § 1625. Further, the Protestant argues that CBP should not have revalued the merchandise under RPCARSEP to begin with because the imported Subsidiary-brand watches were not the subject of TRA’s audit of the Protestant. In addition, the Protestant asserts that it is difficult to ascertain the basis upon which the RPCARSEP calculations were made because CBP has not provided sufficient information regarding the exact basis of appraisement, the nature and description of the surrogate transactions and products, and how the information was gathered to ensure appropriate comparisons. Although the protest does not fully outline the methodology used to apportion the component values at entry, it appears the Subsidiary attributed all or most of the intangible value 5 of each watch (e.g., profit, overhead, intellectual property value) to the movement of the watch. For 2017, the Protestant calculated that the apportionment methodology discussed in HQ H259490, when attributed to the Subsidiary-brand watches, would have resulted in an average of 57.42% of the value of the high-volume watches being attributed to the movement as opposed to the actual average apportionment of 46.43% (a delta of 10.99% of the watches’ value). For 2018, the Protestant calculates that the HQ H259490 methodology would have resulted in an average of 51.82% of the watches’ value being attributed to the movement as opposed to the actual average apportionment of 32.01% (a delta of 19.81%). In response, we determine that the Protestant’s reference to HQ H259490 is misplaced, and that apportioning the value of the movement by subtracting the value of the other components from the total transaction value cannot be used. In HQ H259490, the importer, Timeworks International Inc. (“Timeworks”), engaged in the importation of watches under two different types of transactions. The first type of transaction involved the importer engaging manufacturers to produce watches for sale (the “manufacturer-produced watches”). As Timeworks engaged the manufacturers directly, it had access to invoices showing the actual costs of the watch components assessed duty under the watch provisions set forth in Chapter 91. The second type of transaction involved Timeworks importing, for the most part, “shop-worn” luxury watches (e.g., factory-condition luxury watches previously used as shop display models, possibly with slight scratching or cosmetic defects). For the shop-worn watches, Timeworks knew the complete amount it paid for a finished watch, but did not have insight into the individual statistical breakouts. As a result, Timeworks developed a spreadsheet, based upon its experience and familiarity with the direct manufacturing costs of similar items, upon which to base values for watch components in the shop-worn watches. To determine the value of a shop- worn watch’s movement, Timeworks subtracted the calculated value of the watch case, strap/bracelet, and battery (if the watch had a quartz movement) from the amount paid for the finished watch. In reviewing Timeworks’ proposal, CBP stated that “based on the fact that Timeworks has access to cost information for the components made for its own Swiss origin house brand watches that are very comparable to the components of the luxury shop-worn Swiss origin watches that it is importing, CBP believes that Timeworks is in a unique position to furnish an accurate valuation for the four watch components that Statistical Note 1 of Chapter 91 of the HTSUS requires to be reported.” Further, CBP was satisfied that the watch components for Timeworks in-house brand watches were basically comparable to the components used in the other brands of Swiss watches it was importing. As a result, for the shop-worn watches, CBP permitted Timeworks to apply the cost information obtained from its manufacturer-produced watches to calculate the value of the individual components of the shop-worn watches, subtracting the component costs of the case, band/bracelet, and battery from the total cost of the watch to obtain the value of the movement. Importantly, however, this decision did not permit such an approach for the watches produced by manufacturers that Timeworks had engaged directly; instead, Timeworks had complete insights into the component costs and apportioned the value of each breakout based on the information obtained from its manufacturers. 6 In HQ H305372, dated January 17, 2020, CBP declined to extend the rationale in HQ H259490 to various models of imported Rolex watches. In HQ H305372, the importer did not specify whether the subject watches were new, used, or shop-worn, and did not have access to component data of similar watches as Timeworks did in HQ H259490. Instead, the importer in HQ H305372 proposed to value the individual breakouts based on the cost of similar watch components as found in a public internet search (e.g., for costs of identical leather, rubber, textile, and metal bands). The importer then proposed to use the same component percentage value allocations regardless of type, value, or classification of the entered watches. CBP declined to approve this methodology, distinguishing the importer’s approach from HQ H259490 on the basis that the importer did not have the same insight into specific component costs via the separate purchase of manufacturer-produced watches as Timeworks did. In addition, CBP noted that, in that matter, it would not make sense to apportion the entire cost of intellectual property to the movement: A search of the United States Patent and Trademark website reveals that patents are assigned to Rolex for components of watch straps and watch bracelets, and for watch cases, in addition to patents which are attributable to watch movements. Thus, in this case, it is clearly erroneous to allocate all of the intellectual property value of the watches to the movement components. Further, the labor for encasing the movement into the watch case should not be wholly attributed to the movement. See S.H. Pomerance Co., 21 Cust. Ct. 334 (1948) wherein the court upheld the decision of the appraiser in including part of the “casing-up expenses,