OT:RR:CTF:VS H326890 AMW
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 basis of appraisement, the nature and
description of the surrogate transactions and products, and how the information was gathered to
ensure appropriate comparisons. The Protestant also argues that RPCARSEP cannot adequately
compare the valuation apportionment used for its watches to other importers because the
technology used in developing and manufacturing its subject movements is distinct from other
watch brands.
ISSUES:
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?
3
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.
See 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)).
In the present matter, as noted above, the Protestant utilized the transaction value in
reporting the total value of each imported watch. The Protestant asserts that the transaction value
is based on an arm’s-length negotiation between the Protestant and its parent, [ ], in
accordance with an advance pricing agreement. This office has not reviewed the pricing
agreement, but notes that the overall valuation of the imported watches was not challenged in
TRA’s audit nor was the overall transaction value changed when CBP liquidated the subject
entries. As such, our analysis focuses solely on the apportionment of the component value of the
watches as outlined in Statistical Note 1, Chapter 91, HTSUS.
4
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, providing:
For the purposes of this chapter:
(a) The term “watches” embraces timepieces . . . 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.
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, HTSUS, 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,
provides 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. . . .
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. 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.”)
5
1. Whether the Protestant’s Valuation Formulas Complied with Statistical Note 1,
Chapter 91, HTSUS
As outlined in the FACTS above, the Protestant utilized two formulas to apportion the
component valuation of the imported watches, which resulted in either 70% or 75% of the
transaction value being attributed to the movement. In its protest, the Protestant argues that the
valuation formulas were approved by CBP and accepted by the agency since at least 1987. In so
doing, the Protestant argues that CBP has followed a “practice” regarding the Protestant’s
apportionment methodology that cannot be altered without a formal notice and comment process
outlined in 19 U.S.C. § 1625.
First, the Protestant asserts that the apportionment percentages were agreed to between it
and CBP during a series of communications occurring in 1987. The Protestant provides two
documents it purports to represent communication in response “to a request by CBP to provide
component cost breakdowns for its watches.” However, the documents do not show any
communication with CBP and do not reference any such request. Instead, the documents depict
communication between “[ ]” and [ ] and
are addressed to “Export/Import Manager” with a copy to the Protestant. These documents
contain no indication they are addressed to, or intended for, CBP. In addition, the
communication dated March 31, 1987, contains the following instructions for the recipient to
include a statement that “US $ .040 per piece of battery cost is included in the movement cost.”
In addition to incorrectly attributing the cost of the battery to the movement, this phrasing
indicates the documents were directed towards an internal actor responsible for arranging
shipping, rather than CBP.
Next, the Protestant argues that the subject component apportionment is in line with
“CBP’s 1987 directions concerning the allocation of values of watch components [which]
constitute ‘rulings,’ since they are pronouncements by CBP officials regarding a particular
issue.” In support, the Protestant provides a “Public Bulletin” issued by the Port of Los Angeles
on February 19, 1987. This document provides several possible component allocations for
“watches made or assembled in Hong Kong.” Even if this document were to represent a binding
ruling, it would not apply to the subject entries. Although the subject watches were shipped
through Hong Kong, they were not manufactured or assembled there. The Protestant concedes
that the watches contain Japanese-origin movements (which typically impart the country of
origin of a watch) and were assembled in either Thailand or China.
Moreover, the Protestant provides two additional communications involving a single
CBP Import Specialist for the proposition that CBP accepted the Protestant’s valuation
apportionment. This includes a 2008 communication in which, the Protestant claims, the Import
Specialist “advised that CBP was looking into the allocation of value to watch components in
respect of many watch importers and sought information on how [ ] allocated costs.” We note,
however, that the Protestant did not provide an email from the Import Specialist, but rather an
out-of-context reply from an employee of the Protestant noting that its “movement allocation
range [sic] from 70-75% of cost.” Nevertheless, the Protestant has not provided any related
6
communication in which CBP acknowledges and approves of this methodology. In addition, the
Protestant provides a 2011 email exchange between the same Import Specialist and the
Protestant in which the specialist asks whether the Protestant had included a watch’s mechanical
display in the valuation of that watch, and noting that the Protestant would be potentially
overpaying duties if it had not done so. This exchange contains no reference to the Protestant’s
method of apportionment, but rather references the undisputed position that the component value
of a watch’s mechanical display is attributable to the value of the movement. As such, these
communications do not provide evidence of agency practice regarding the Protestant’s method of
apportioning component value. Furthermore, even if this had been the case, such
communications would not constitute a binding CBP ruling in accordance with 19 CFR § 177.
In addition to its argument that CBP had “accepted” its valuation of the subject watches,
the Protestant asserts that the apportionment formulas used in the subject entries are acceptable
and compatible with the requirements of Statistical Note 1, Chapter 91 of the HTSUS. In a
supplemental submission to CBP, the Protestant represents that it obtained supplier component
purchase invoices for the cases and watches used in its highest-volume watches for 2017 and
2018. However, the Protestant did not provide the invoices to CBP, but rather created an
analysis comparing the valuation apportionment in the subject entries to an apportionment in
which the component valuation of the subject watches was calculated with reference to HQ
H259490. In that matter, CBP permitted the importer of certain “shop worn” watches to
calculate the value of the movement by subtracting the component value of the strap/band and
case from the total value of the watch. For 2017, the Protestant calculated that the apportionment
methodology discussed in HQ H259490 would have resulted in an average of 62.72% of the
value of the high-volume watches being attributed to the movement as opposed to the actual
average apportionment of 73.99% (a delta of 11.27% of the watches’ value). For 2018, [ ]
calculates that the HQ H259490 methodology would have resulted in an average of 66.98% of
the watches’ value being attributed to the movement as opposed to the actual average
apportionment of 74.14% (a delta of 7.16%).
Before considering the merits of the Protestant’s comparison to the methodology in HQ
H259490, we note that the Protestant’s own analysis indicates that, even under an approach that
would place the entire portion of the watch’s value attributable to overhead, profit, and
intellectual property to the movement, the company still overvalued the movements by 11.27%
in 2017 and 7.17% in 2018. Put in relative terms, even if all intangible value was to be placed
into the value of the movement, the average value apportionment to the movement in 2017
would have been 15.23% lower than what the Protestant actually reported (11.27% of the total
valuation difference) and in 2018 would have been 9.66% lower than what [ ] reported
(7.16% of the total valuation). Instead of supporting the Protestant’s position, this analysis
supports a conclusion that its apportionment formulas overvalued the imported movements and
were unconnected with actual component values.
Of even greater concern is that the Protestant cannot seem to pinpoint exactly where,
when, or how the apportionment formulas were first calculated and implemented. The
Protestant’s supplemental submission concedes that it cannot conclusively pinpoint when or how
7
the formulas were established, noting, “historical documents are not available” and “[t]he
deriviation of the component cost allocation methodology…predates all current employees.”
Furthermore, the analysis provided by the Protestant only incorporates component value data for
the case and band/strap, but not the battery. Given that the 40 cent valuation for the battery is
based on the 1970s formula, it is possible and likely that the component cost for the batteries in
each unit has also changed.
In any event, we determine that the Protestant’s reference to HQ H259490 is misplaced,
and that apportioning the valuation of the movement by subtracting the value of the other
components from the total transaction value cannot be used (either in its own right or as an
analog to the formulas 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.
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
8
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,”
that is, “the time and labor expended on the watch cases and watch movements . .
. in combining them to form watches, . . .” in the value of the cases, as well as the
value of the movements.
In HQ H331108, dated June 11, 2025, CBP noted that, when taken together, HQ
H259490 and HQ H305372 demonstrate that it is only in a narrow set of circumstances that CBP
will permit importers to calculate the value of a watch’s movement by subtracting the material
and component costs for the non-movement components from the watch’s total value. As with
HQ H259490, such a method may be appropriate when an importer of used watches for which it
has no component-level cost information has specific, component-level cost data for similar
watches that it sources from contract or third-party manufacturers. In contrast, CBP has not
approved such an approach when an importer has specific, component-level data for the
imported watches (e.g., the manufacturer-sourced watches in HQ H259490) or when the
importer cannot access specific, comparable values. In addition, as in H305372, an importer
may not apportion the entire profit, labor, or intellectual property costs associated with a watch
to the movement in instances where it is clear such costs are not entirely attributable to the
movement. See HQ H305372 (although in HQ H259490, CBP accepted Timeworks contention
that the majority of the value contained in a brand name of a watch can generally be attributed to
the movement, it did not address whether all intellectual property value should be attributed to
the movement.) Nevertheless, due to the complexity of a watch’s movement, CBP has
recognized that a majority of labor, overhead, and profit costs is likely to be allocated to the
movement. See id. CBP does not require that a majority of labor, overhead, and profit expenses
be allocated to the movement, however.
9
Based on the above, HQ H259490 is not applicable. Unlike Timeworks, the Protestant
does not import shop-worn watches produced by unrelated parties; the Protestant purchases the
watches from its parent, which has a direct relationship with its suppliers. Further, the Protestant
has located and analyzed supplier purchase invoices for components used in its highest-volume
watches for 2017 and 2018. This level of insight is similar to the quality of information
Timeworks had regarding its manufacturer-sourced watches in HQ H259490. In relevant part,
the manufacturer-sourced watches in HQ H259490 were produced in relation to Timeworks’
own in-house brands and for which the company had direct contact with its manufacturers and
could “obtain the invoices showing the actual cost of each of the four watch components.” In
addition, as in HQ H305372 and S.H. Pomerance Co., 21 Cust. Ct. 334 (1948), it would be
clearly erroneous to allocate the entire value of the watches’ intellectual property, labor, and
profit costs to the value of the movement. As the Protestant has noted, the final watches undergo
final assembly in China or Thailand, where the movement is combined with the battery, case,
and strap/band. This process inevitably involves labor related to casing the watches and
attaching the straps/bands. See HQ H331108. As such, we determine that HQ H259490 is
inapplicable to the present matter.
We therefore determine that the Protestant’s blanket apportionment of the watches in the
subject entries was not in accordance with Statistical Note 1, Chapter 91, HTSUS. The
Protestant, furthermore, has not provided sufficient evidence that CBP appraised its watches
pursuant to an established practice.
2. Whether CBP’s Use of RPCARSEP Complied with Statistical Note 1, Chapter 91,
HTSUS?
In its final audit report, TRA stated that the Protestant’s allocation of 70% or 75% of the
value of each watch to the movement was “significantly higher when compared to compliant
companies with similar merchandise with the same classification, value, country of origin, and
year, which averaged 33 percent for the scope period of 2013 to 2017.” As outlined above, TRA
utilized RPCARSEP to recalculate the apportionment used in reference to similar imported
watches, and the subject entries were liquidated accordingly.
As it is apparent from the analysis above that the Protestant’s allocation of value to the
components of the imported watches is clearly flawed and incorrect, it was appropriate for TRA
and the CEE to reject it. Under section 500 of the Tariff Act of 1930, as amended (19 U.S.C. §
1500), CBP is granted the authority to determine the valuation of imported merchandise. The
Statement of Administrative Action (“SAA”), which constitutes part of the legislative history of
section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979,
provides:
Section 500 [19 U.S.C. § 1500] is the general authority for Customs to appraise
merchandise. It is not a separate basis of valuation and cannot be used as such.
Section 500 allows Customs to consider the best evidence available in appraising
merchandise. . . . Section 500 authorizes the appraising office to weigh the nature
of the evidence before him in appraising the imported merchandise. . . . As broad
10
as this grant of authority may be, it is clear, under authority of judicial decisions,
that it does not give the appraising officer authority to do whatever he wants. He
must and will appraise merchandise under the constraints of section 402.
In those transactions where no accurate invoice or other documentation is available, and
the importer is unable, or refuses to provide such information, then reasonable ways and means
will be used to determine the appropriate value, using whatever evidence is available, again
within the constraints of section 402. See, e.g., HQ H019263, dated November 8, 2010.
Although the total appraised value of the watches is not analyzed in this memorandum,
the correct allocation of the watches’ value to the underlying components, which are the
imported merchandise being assessed duty, falls within CBP’s general appraisement authority set
forth in 19 U.S.C. § 1500. It is our understanding that TRA and the CEE utilized RPCARSEP as
a fallback methodology to reallocate the watch components. RPCARSEP is based on the
experience of CBP personnel as well as information regarding similar merchandise that CBP has
obtained through data obtained from previous entries. 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 will only be 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). As determined in HQ
H305372, a fallback methodology “based upon the experience of CBP personnel and information
regarding similar merchandise which the CEE had obtained through previous importations” to
reallocate the valuation of watch components for the purpose of duty assessment falls under 19
U.S.C. § 1401a(f) and the provisions of 19 CFR § 152.107(b) with regard to identical and similar
merchandise and flexibility as to the time of exportation.
We note, however, that use of the RPCARSEP is not compulsory. Should the Protestant
provide information, such as invoices from the seller/supplier evidencing the value of its watch
components, CBP should accept the values presented unless there is reason to doubt whether the
invoice reflects the price paid for these components.
Based upon our review, we agree that the Protestant’s value allocation is not a correct
application of Statistical Note 1, Chapter 91, HTSUS. As the Protestant has failed to support its
method of allocation of the watches’ components, CBP correctly utilized a “fallback”
methodology to reapportion the components. The subject protest should be denied.
HOLDING:
Based on the above discussion, the protest should be denied. In accordance with the
Protest/Petition Processing Handbook (CIS HB 3500-08A, December 2007, pp. 24 and 26), you
are to mail this decision, together with the CBP Form 19, to the protestant no later than 60 days
from the date of this letter. Any reliquidation of the entry in accordance with this decision must
be accomplished prior to mailing of the decision. Sixty days from the date of the decision, the
Office of Trade, Regulations and Rulings will make the decision available to CBP personnel, and
to the public on the Customs Rulings Online Search System (CROSS) at https://rulings.cbp.gov/
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which can be found on the U.S. Customs and Border Protection website at http://www.cbp.gov
and other methods of public distribution.
Sincerely,
For Yuliya A. Gulis, Director
Commercial and Trade Facilitation Division
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