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The Curious Case of Watches

Posted May 28, 2015

The Braumiller Law Group recently posted an article about the valuation of watches, clocks, and other timepieces, which they noted “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.” 

Anyone familiar with the classification of these goods when imported into the United States, even after having perhaps struggled through the Customs and Border Protection agency’s somewhat baffling informed compliance publication on the subject, will doubtless concur with the authors that determining the proper value for these particular goods “presents a unique challenge.” This is especially so because while the CBP instructs “that these articles be constructively separated into their component parts” (i.e., movement, case, strap, band or bracelet, and battery) after having done so, it fails to address how valuation should properly be apportioned.  

A consequence of this situation has been the trade enforcement arm of CBP questioning the various methodologies employed by importers (e.g., how the individual component value is determined, how those individual components are recombined, and ultimately, how that value information is communicated and reported, etc.). Following such issues being raised by CBP, the authors state they have seen “additional duties being assessed totaling millions of dollars.” Accordingly, they sensibly counsel that importers would “do well to review the approach to watch valuation with their suppliers.”

Aside from the peculiar notion of “constructive separation” for tariff purposes, another oddity concerning the importation of watches is the elaborate scheme of marking applicable to them. Unlike most other commodities, watches are actually subject to marking under two separate requirements. One is the country of origin marking statute of Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304) and the other is the special marking requirements of Chapter 91, Additional Note 4, HTSUS. Among other things, this directs that watch movements be marked on one or more of the bridges or top plates to show the name of the country of manufacture; the name of the manufacturer or purchaser; and in words, the number of jewels, if any, serving a mechanical purpose as frictional bearings.

One might reasonably wonder why it is exactly that watches and clocks are singled out for this uniquely convoluted tariff and marking treatment, but a straightforward explanation is not readily apparent.  As best we can tell, it seems to be a lingering artifact of a U.S. tariff policy that can be traced back to the earliest days of industrial watchmaking in America.

Building on expertise first developed in the firearms industry, modern watch and clock manufacturing in the United States utilizing mass production techniques, interchangeable parts and the application of duplicating tools and machinery was first developed in 1851 at a factory in Massachusetts that would a decade later become the Waltham Watch Company. The other leading watch maker of the day, Elgin National in Illinois, was established in 1864, followed by dozens of lesser firms around the country, which soon were collectively producing millions of reliable jeweled watches and standardized timepieces that kept the country’s trains running on schedule.

This was in strong contrast to “the legendary slovenliness of the Jura watchmakers,” as Swiss historian Jean-Marc Barrelet uncharitably described that country’s industry, which “clung to the hoary traditions of a cottage trade” and was known primarily for supplying “the worst kind of junk” to combatants in the Civil War. Following alarming reports from the Swiss delegate to the Great Universal Exhibition in Philadelphia in 1876 where American watch manufacturers had staged a brilliant demonstration and an investigation into the comparatively advanced state of American factories from a Longines engineer dispatched by the Intercantonal Society, the Swiss now set out to modernize their processes and gain back market share with precision machining of their own.

Despite making considerable quality improvements in the following decades, owing to the terrible reputation Swiss timepieces still suffered from with most U.S. consumers, the Swiss used fake American-sounding brand names such as New York Central Watch, the Ohio Watch Co., and the Pennsylvania Watch to penetrate the market by disguising the actual origin of their watches from confused purchasers. It was precisely to weed out these so-called “Swiss fakes” and bring truth in origin labeling of watches imported into the U.S. that rigorous new marking requirements were included for the first time in the Dingley Tariff Act of 1897.

That same piece of protectionist legislation is also likely the origin of the unique tariff treatment of watches, specifically due to the lobbying efforts of the Elgin Company when the bill was before Congress to have a special duty on imported watch movements levied in addition to the ad valorem duty. The assessing of the specific duty, according to the number of jewels, was squarely aimed at curtailing rising imports of the lower “common” grades of Swiss watches. Illinois Senator William Mason (known as “The Champion of Liberty”) speaking in favour of the heavy compound tariff said “it was a necessity to enable American watchmakers to obtain living wages.” While it certainly did enable the Elgin company to substantially raise the price of its watches, striking employees the following year claimed there had been in fact been no increase in wages.