Watches, clocks, and other timepieces hold a singular distinction in the Harmonized Tariff Schedule of the U.S. (HTSUS), as being the only products broken down into as many as four tariff numbers with separate duty rates for each component. This presents a unique challenge when determining the proper value to report for each tariff, and it is not addressed in the Informed Compliance Publication (ICP), “Classification and Marking of Watches and Clocks”.
Various methods have been historically used to determine value, including using a standardized percentage breakdown, which has resulted in U.S. Customs and Border Protection (CBP), the agency charged with enforcement, questioning the methodologies employed by a number of watch importers. We have seen a number of issues raised by CBP in this arena including additional duties being assessed totaling millions of dollars. Where there is lost revenue (underpaid duties) there is the risk of even more significant penalties. All companies who import timepieces, either as their primary product or as a secondary product, would do well to review the approach to watch valuation with their suppliers to insure that they are reporting an accurate value and paying proper duties. Failure to report correct duties could result in a large, unexpected duty bill from CBP.
Regarding the proper value determination, the HTSUS Chapter 91 Chapter Notes state in Statistical Note 1 that, “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 shown below. In each instance the sum of the values of the individual components shall be equal to the total value of the article.” So, what does that require importers to do?
First, the articles must be “constructively separated”. In short, the watch/clock need not be physically separated, but the final value must be separated into its individual component parts. Second, those component parts must be combined into the components that require reporting in the HTSUS. Third, the HTSUS components, when added together, should equal the agreed upon value of the article.
Using a watch as an example, value is reported on four main components:
- Strap, band or bracelet
A watch may include a number of individual components such as a crown, stem, dial, hands, case, crystal, plaiting, straps, buckles, battery, and design accessories affixed to the case or strap. There will also be profit and other expenses, depending on the importer’s purchasing agreement.
A watch’s value must be broken down into the individual components and then recombined into the four watch categories above. CBP has approached a number of watch importers to determine how the individual component value is determined, how those individual components are recombined, and ultimately, how that value information is communicated and reported.