H326890

H326890 August 22, 2025 OT:RR:CTF:VS H326890 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 2704-20-108728; 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. 2704- 20-108728, dated January 10, 2020, filed against U.S. Custom 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. The Protestant, [ ] (“[ ]” or the “Protestant”), seeks reliquidation at the component valuation declared at entry. FACTS: This protest relates to 13 entries of wrist watches imported by [ ] during the year 2018. [ ] purchased the subject watches from its [ ] parent company, [ ] (“[ ]” or the “Parent”). The Parent produces all movements for its watches in-house in Japan, either directly or via its wholly owned subsidiaries. The movements are subsequently assembled with cases, bands, and batteries at facilities located in the People’s Republic of China and Thailand. After assembly, the watches are shipped to the United States via Hong Kong. The Protestant imports watches under both the [ ] and [ ] brands. The present AFR only relates to the [ ] brand watches; the Protestant has filed a separate protest and AFR regarding CBP’s reallocation of value regarding the imported [ ] watches. [ ] declared the valuation of the subject watches to be the transaction value between the Protestant and Parent. In addition, Statistical Note 1, Chapter 91 of the Harmonized Tariff Schedule of the United States (“HTSUS”) requires that the valuation of watches be reported by specifying the valuation of four individual components, which shall comprise the total valuation of the watch: (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. For the subject entries, the Protestant apportioned the component valuation based on two separate formulas. For watches with a two-tone case and a metal band, the apportionment was as follows: 70% for the movement, 15% for the case, and 15% for the band. For all other watches, the Protestant’s apportionment was as follows: 75% for the movement, 15% for the case, and 10% for the band. In each instance, the Protestant deducted 40 cents from the battery to account for the battery’s valuation. The Protestant claims that the component allocations were based on “established practice, using ratios published in the Los Angeles/Long Beach Customs Pipeline, issued to the trade community and that such practice could not be altered without formal notice and comment procedures….” In a subsequent follow-up submission, the Protestant clarified that, “[a]lthough historical documents are not available, the formulas used to determine the component allocations for [ ] watches were based on relevant specific factors and considerations recognizing” the nature and complexity of the watches’ solar power system. The Protestant argues that ongoing research and development costs as well as the distinctive nature of its brand are also important factors. In 2017 and 2018, CBP’s Trade Regulatory Audit (“TRA”) audited the Protestant’s entries 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% 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. 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). 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 import, country of origin, and classification). If no direct or reasonably adjusted comparison can be made from the data available, then the reported valuation will remain unchanged and the CEE may further evaluate the apportionment. 2 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 RPCARSEP to reapportion the value of the imported watch components. First, the Protestant claims that its use of the two formulas above represents a “practice” accepted by CBP since at least the 1980s and that any change should be enacted via the statutory notice and comment procedures promulgated at 19 U.S.C. § 1625. Furthermore, the Protestant asserts, that the above formulas more accurately represent the apportionment of the subject components. In support of this position, the Protestant has provided analytical data that is based on supplier component invoices for a select sample of “high-volume” cases and attachments. Furthermore, the Protestant asserts, the valuation of the subject movements is similar to that obtained by subtracting the component value for the case and strap/band 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 included in the valuation of the movement. The Protestant asserts that its proposed valuation apportionment is 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. Furthermore, the Protestant explains that 90% of its watch models contain movements that rely on a proprietary [“ ”] technology, which functions by use of a rechargeable lithium battery system powered by solar and other ambient light. This system, the Protestant argues, is “fundamental to understanding the basis” for its allocation formulas, asserting that the company has both significant historic and ongoing research and development costs and that much of the brand’s distinctiveness and value relates to the [ ] technology. Second, the Protestant asserts that there is no legal basis for CBP to use RPCARSEP to appraise the subject merchandise. In relevant part, the Protestant argues that it is difficult to ascertain the basis upon which the RPCARSEP calculations were made because the agency has failed to provide sufficient information regarding the exact bas

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. See 19 U.S.C. § 1401a(a)(1). The alternative bases of appraisement, in order of precedence, are: the transaction value of