H331108

H331108 June 11, 2025 OT:RR:CTF:VS H331108 AMW CATEGORY: Valuation Mr. Louis S. Shoichet, Esq. Sandler, Travis & Rosenberg, P.A. 675 Third Avenue, Suite 1805-06 New York, NY 10017 RE: Valuation of Imported Watches and Watch Components; Statistical Note 1, Chapter 91, HTSUS Dear Mr. Shoichet: This is in response to your request of March 15, 2023, on behalf of your client, [ ] (the “requestor”). In your letter, you request a ruling pursuant to 19 CFR Part 177 concerning the valuation of watches and watch components imported by your client. Your client has asked that certain information submitted in connection with this internal advice request be treated as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R. § 177.2(b)(7), your client’s request for confidentiality is approved. The information contained within brackets as well as all documents forwarded to our office will not be released to the public and will be withheld from the published version of this decision. FACTS: The following information is based on your March 15, 2023, ruling request and follow-up information provided to this office on October 2, 2023, November 14, 2023, and July 12, 2024. The requestor is an importer and distributor of watches containing both Swiss and other foreign- made components. All watches imported by the requestor are purchased from wholly owned subsidiary companies. Your ruling request relates to two types of imported watches, which you refer to as: (1) “Self-Sourced Watches,” and (2) “Third-Party Sourced Watches.” The Self-Sourced Watches consist of watches whose components (e.g., movements, hands, dials, pushers, crowns, cases, and bands, bracelets or straps) are sourced by your client’s Swiss subsidiary and are assembled in Switzerland by a third-party contractor. These watches include only Swiss-origin movements. The Self-Sourced Watches category consists of three Swiss brands owned by the requestor: [ ], [ ], and [ ] (the “Swiss Brands”). The Third-Party Sourced watches consist of watches that are purchased as complete watches by the requestor’s Hong Kong subsidiary or, to a lesser extent, by its Swiss subsidiary from third-party contract manufacturers that source the parts themselves based on the requestor’s specifications. Most Third-Party Sourced Watches are produced in China. The Third-Party Sourced Watches consist of two brands owned by the requestor, [ ] and [ ], as well as several that are sold under exclusive license for several unrelated companies, including [ ], [ ], [ ], [ ], and [ ] (the “Fashion Brands”). Most of the imported watches are mechanical display watches with electrically operated quartz crystal movements having zero to one jewels or with two or more jewels and are classified under heading 9102, Harmonized Tariff Schedule of the United States (“HTSUS”). In addition, the requestor also imports watches with mechanical movements, including models with automatic winding, which are also classified under heading 9102, HTSUS. In the past, the requestor has utilized four different component cost allocation formulas to apportion the value of imported watches based on the specific value of the four individual dutiable components (i.e., movement, case, strap/band, and battery) as required by Chapter 91 of the HTSUS. These formulas were based on watch construction and factored in the level of skill, time, effort, and complexity of assembly operations as well as the significance of each component in the function and reputation of the watch. These formulas were derived from the information available to the requestor for its Self-Sourced Watches, as well as from the company’s knowledge and experience in the watch industry. The same formulas were used for Self-Sourced and Third-Party Sourced watches. The requestor never filed or received a ruling request related to these formulas, and they are not subject to the instant request. The requestor now proposes to use two different methods of valuing its Self-Sourced and Third-Party Sourced Watches. Specifically, for Self-Sourced Watches, recent software upgrades and information management enhancements have improved the requestor’s ability to track the value of Self-Sourced Watches to the individual component level. As a result, instead of using the historical allocation formulas, the requestor proposes to calculate and declare the portion of the total entered value of each Self-Sourced Watch SKU (stock keeping unit) attributable to the four statistical breakouts (i.e., movement, case, strap/band, and battery). These values will be derived from the component parts and material costs data provided by its suppliers, typically in the form of invoices issued to the requestor or its subsidiaries. Once the component and material costs are allocated to the four breakouts, the requestor asserts that the values provided for the four breakouts will not add to the total value of the watch because such amounts do not account for value related to intellectual property (e.g., trademarks), overhead, and profit. As a result, the requestor seeks to deduct the cost of the case, strap/band, and battery from the import value and attribute all remaining value to the movement. 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 requestor asserts that its proposed valuation apportionment is in line with U.S. Customs and Border Protection (“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. 2 For the Third-Party Sourced Watches, the requestor does not have a direct relationship with component suppliers and does not have access to specific component cost data. Instead, the requestor proposes to estimate the value of the Third-Party Sourced Watch components based on the cost of comparable watch parts purchased for its Self-Sourced Watches. As with its historical pricing formulas, the requestor will create set formulas to value specific groupings of its Third-Party Sourced watches, which will be based on various construction attributes (i.e., case material; strap/band material; whether the movement is electronically operated, automatic, or manually wound; and the type of display). These formulas will be used to calculate the values of the components in specific watch groupings (typically watches with similar physical characteristics), and each allocation formula will be determined on an annual or more frequent basis by calculating the weighted average allocation of each of the four statistical breakouts of all Self-Sourced Watch SKUs of that same construction grouping and applying that breakdown to Third-Party Sourced watches purchased and imported by the requestor. Once again, for the portions of the watch value attributable to labor, overhead, profit, and intellectual property, the requestor proposes to subtract the value attributable to the case, strap/band, and battery from the total customs value and attribute the entire amount to the value of the movement. In support of this methodology, the requestor asserts that the component data obtained from its Self-Sourced Watches can be verified via documentation supplied by manufacturers during the bidding process and because there is significant regional overlap in the supply chains used for both its Self-Sourced and Third-Party Sourced watches. As noted above, the requestor has also provided an illustrative sample of the pricing data it obtains in relation to its Self- Sourced Watches, and which is of the kind that may be used in estimating the value of comparable Third-Party Sourced Watches. These documents include invoices documenting the cost of various watch components and assembly charges incurred. The requ

Merchandise imported into the United States is appraised in accordance with Section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. § 1401a). The preferred method of appraisement of imported merchandise for customs purposes is transaction value. Transaction value is the price actually paid or payable for the merchandise 4 

when sold for export to the United States, plus certain enumerated additions. 19 U.S.C. § 1401 a(b)(l). 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. 19 U.S.C § 1401a(b)(4)(A). The duty assessed upon imported merchandise is most often, though not always, based upon a percentage of the appraised value of the merchandise, i.e., an ad valorem duty. 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 valuation 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. Specifically, Additional U.S. Note 1 provides: 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