CLA-2 CO:R:C:V 555614 SER
Area Director of Customs
New York Seaport
6 World Trade Center
New York, NY 10048
RE: Application for Further Review of Protest No. 1001-5-006973,
contesting denial of duty-free treatment for gold rope
chains under CBI. Dual substantial transformation.
Dear Sir:
The above-referenced protest, filed by counsel on behalf of
Columbia Chain Centre, Inc., contests the assessment of duties by
your office on gold rope chains imported from the Dominican
Republic in 1984. Protestant claims that the gold rope chains
are eligible for duty-free treatment under the Caribbean Basin
Initiative (CBI). We have considered in connection with this
protest a submission by counsel dated January 9, 1986.
FACTS:
Protestant states that Columbia Chain Centre, Inc. sends
gold links of U.S. origin, made from wires of various diameters,
to a Dominican Republic manufacturer. The links are in the shape
of small circles which are not closed. In the Dominican Republic
the links are sorted by size, then weighed and bagged in
sufficient quantities to make a 30-inch length of unsoldered
chain. Workers then weave the links by hand. Each link is
joined to another link by interlocking via the open section of
the circle. The interlocked links are arranged in a spiral
pattern which is held stable by two black tin wires wrapped
around the chain formed by the arrangement of the links.
Protestant claims that when the weaving stage is completed, the
resulting product is referred to as "unsoldered woven chain."
The next stage of the production involves transferring the
unsoldered woven chain to soldering stations where solderers
place solder paste between every two links of the chain, and then
melt the paste with the use of a soldering torch. The chain is
then examined by quality control personnel, and, if it is
acceptable, the tin wire is removed from the soldered chain, and
the individual 30-inch lengths are further soldered together to
form 150-to-200 feet lengths of chain. Protestant claims that
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the chain in this length is designated as "continuous gold rope
chain." It is thereafter wound on a cardboard spool and shipped
to the U.S. In the U.S., the importer cleans and polishes the
chains by dipping and soaking them in chemical solutions. They
are then sold in the U.S. wholesale market.
ISSUE:
Whether the continuous gold chain imported from the
Dominican Republic is entitled to duty-free treatment under the
CBI.
LAW AND ANALYSIS:
Under the CBI, eligible articles the growth, product or
manufacture of designated beneficiary countries (BC's), may enter
the U.S. free of duty if such articles are imported directly to
the U.S. from the BC, and if the sum of (1) the cost or value of
the materials produced in a BC or BC's, plus (2) the direct cost
of processing operations performed in a BC or BC's, is not less
than 35% of the appraised value of the article at the time it is
entered into the U.S. See 19 U.S.C. 2703(a). The cost or value
of materials produced in the U.S. may be applied toward the 35%
value-content minimum in an amount not to exceed 15% of the
imported article's appraised value. See section 10.195(c),
Customs Regulations (19 CFR 10.195(c)).
Where an article is produced from materials imported into a
BC from non-BC's, as in this case, the article is considered a
"product of" the BC only if those materials are substantially
transformed into a new or different article of commerce. See 19
CFR 10.195(a). In the present situation, the cost or value of
the gold from the U.S. may be counted toward satisfying the 35%
value-content requirement (over and above the 15% cap on U.S.
materials) only if there is a finding that the gold was
subjected to a double substantial transformation in the Dominican
Republic. See section 10.196(a), Customs Regulations (19 CFR
10.196(a)). If the cost or value of the U.S. gold links is not
counted toward the 35% value-content requirement, the gold chains
do not satisfy the requirement.
The test for determining whether a substantial
transformation occurs is whether an article emerges from a
process with a new name, character, or use different from that
possessed by the article prior to processing. Texas Instruments,
Inc. v. United States, 69 CCPA 152, 156, 681 F.2d 778, 782
(1982).
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In examining the processing of the product at issue and
applying the new name, character, or use test we find that
although a single substantial transformation results from the
processing of the gold links into gold chains, a double
substantial transformation does not.
Protestant places great reliance on attempting to draw a
factual analogy to the The Torrington Company v. United States, 8
CIT 150, 596 F.Supp. 1083 (1984), aff'd, 764 F.2d 1563 (1985)
case. In that case, the court held that certain industrial
sewing machine needles from Portugal were subjected to a double
substantial transformation, and, as a result, satisfied the GSP
35% requirement. The protestant states that in Torrington, the
starting material was wire, which was processed into needle
blanks, the intermediate material. The needle blanks were then
made into the finished product, needles. It is argued in this
case that the raw material, gold links, were transformed into the
intermediate product, unsoldered gold chain. This material is
stated to have been transformed into the finished product,
continuous gold chain rope. Therefore, it is deemed to also meet
the dual substantial transformation requirements. Protestant's
reliance on the factual analogy of his product and the Torrington
case is limited by Treasury Decision (T.D.) 86-7, dated December
20, 1985, which limits the Torrington decision to those instances
in which the factual situation conforms to the one on which the
decision was based-- the dual substantial transformation of
needles. Since the product at issue is gold chains rather than
needles, we believe the Torrington decision is inapplicable to
this case.
The Protestant also argues that the name change from
"unsoldered gold chain" to "continuous gold chain" was
significant in the finding of substantial transformations. The
courts have held that although a name change may support a
finding of substantial transformation, this fact is not
necessarily determinative. Superior Wire, a Division of Superior
Products Company v. United States, 669 F.Supp. 472, 479 (CIT
1987), aff'd 867 F.2d 1409 (Fed Cir. 1989). Moreover it has been
stated that "a change in the name of the product is the weakest
evidence of a substantial transformation." National Juice
Products Ass'n v. United States, 628 F.Supp. 978, 989, (CIT
1986), citing Uniroyal Inc. v. United States, 542 F.Supp. 1026
(1982), aff'd, 702 F.2d 1022 (Fed.Cir.1983).
In Superior Wire, the Court found the "transformation of
wire rod to wire to be minor rather than substantial", and that,
"[a]lthough the steel and wire industries may have different
names for the same products, wire rod and wire may be viewed as
different stages of the same product. The difference in stages
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may be important for tariff purposes but it is not determinative
here." Superior Wire, at 479. Customs, in a similar analogy,
views the names "unsoldered gold chain" and "continuous gold
chain" as the same product at different stages of production, and
not evidence of a substantial transformation. The gold chains,
whether soldered or unsoldered, have a predetermined quality, and
the only ultimate variable will be the final length of the chains
in their finished condition. Thus, the continuous gold chain
and the unsoldered chain are merely the result of different
stages of production.
Protestant also argues that a difference in tariff
classification between the unsoldered gold chain and the
continuous gold chain is indicative of a substantial
transformation. The continuous gold rope chain is properly
classified under item 740.70, Tariff Schedule of the United
States (TSUS), and the unsoldered chain is classifiable in item
656.19, TSUS, as articles of gold not specially provided. The
Court of International Trade has held that a change in tariff
classification is not dispositive, although it may be supportive
of a substantial transformation. Belcrest Linens v. United
States, 741 F.2d 1368 (1984). It is Customs position that the
tariff classification change in this case is not indicative of a
substantial transformation as the change in the materials from
unsoldered chain to continuous gold rope chain is relatively
minor and does not result in an article which is fundamentally
different in character and use from the purported intermediate
article.
In addition, the courts have often looked for a transition
from producers' to consumers' goods, as another indication of
substantial transformation. National Juice, 628 F.Supp. at 990,
Superior Wire, 669 F.Supp. at 479. The gold chains at issue
clearly are producer goods throughout the entire process in the
Dominican Republic, which reinforces our position that a double
substantial transformation does not occur.
HOLDING:
Because we find that the processing of U.S. gold links into
gold chain in the Dominican Republic does not result in a double
substantial transformation, the cost or value of the gold links
may not be counted toward the CBI 35% value-content requirement.
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As a result, the merchandise subject to this protest fails to
satisfy the 35% requirement and, therefore, is not entitled to
duty-free treatment under the CBI. Accordingly, you should deny
this protest in full. A copy of this decision should be attached
to Form 19 to be returned to the protestant.
Sincerely,
John Durant, Director
Commercial Rulings Division