CLA-2 RR:TC:SM 559406 AT
Robert L. Follick, Esq.
Follick & Bessick, P.C.
225 Broadway, Suite 500
New York, New York 10007
RE: Ruling Request concerning eligibility of gold jewelry for
duty-free treatment under U.S.-Israel FTA; product of;
substantial transformation
Dear Mr. Follick:
This is in response to your letters dated August 21, 1995,
and January 29 and March 19, 1996, on behalf of Almond Jewelers,
Inc. ("Almond") requesting a ruling as to the eligibility of gold
jewelry imported from Israel for duty-free treatment under the
United States-Israel Free Trade Implementation Act of 1985
("Israel FTA"). Samples of the gold jewelry in both the
unfinished (unassembled) and finished (assembled) state were
submitted for our review. We regret the delay in responding.
FACTS:
You state that Almond intends to import gold jewelry into
the U.S. from Israel. The gold jewelry will be processed in two
countries, Israel and Thailand. According to your submission,
the Israeli processing commences with the melting and alloying of
raw gold of foreign origin. Granular pure 24 karat gold is mixed
and melted with selected metal alloys to produce a desired,
uniform and consistent quantity of alloyed gold of less than 24
karat, usually 18, 14, 10 or 9 karat. The liquid alloyed gold of less than 24 karat uniform consistency is molded into bars 3/8"
thick, weighing not less than 5 kg. The bars will vary in
overall length depending on the size of the mix and may have a
weight of several hundred kg. The gold bars are then further
processed into coiled sheets by means of a continuous and
prolonged rolling resulting in reduction of the thickness of the
bars from 3/8" to between 4/1000" to 8/1000" and 6" in width.
The coiled sheets will vary in overall length from several
hundred to several thousand feet. Next the sheets will be
further processed into stamped or tube type components depending
on the type of jewelry to be manufactured.
For stamped fabricated components, the sheets must be
uncoiled, flattened, cut into workable lengths and then subjected
to a process of stamping the specific components required for use
in the assembly of the subject gold jewelry.
To produce the tube-type components, the coiled sheets are
first sliced lengthwise into narrow ribbons several hundred feet
and/or yards in length. Next, the ribbons are further processed
into round pipe with an open seam, again several hundred
feet/yards in length. Then, the seam is welded closed forming a
hollow tube which is repeatedly and continuously drawn down in
diameter to remove the seam and create continuous lengths of
hollow gold tubing of a specific composition (karat) and having a
desired and predetermined diameter, depending on the specific
article of jewelry to be manufactured. Thereafter, the
continuous lengths of tubing will be etched or otherwise
processed into various shapes (diamond cut, squares, rectangles
etc.) which are then cut to shorter and final lengths into the
desired jewelry components (tubing, rods, etc.) During the
production process, the continuous tubing may be polished, matt
or otherwise finished and/or bent to create the necessary and
desired shape.
These components are then sent to Thailand where they will
be assembled into finished articles of jewelry by means of
soldering, oven heating, polishing by liquid tumbling and/or
buffing and quality control. You state that small inexpensive
findings of U.S. origin, such as U pins and joints or posts and
butterflies may be used in the assembly of earrings. These U.S.
origin components will be shipped from Israel to Thailand
together with the Israeli components. You claim that each
shipment to Thailand from Israel will contain all the necessary number and types of components to fill the order and will be
returned to Israel in one or more shipments. You state that
unused components will be returned with one or more of the
shipments of the finished jewelry, but not later than the last
shipment. You also state that no unfinished parts or components
will remain in Thailand. After the processing in Thailand is
completed, the finished jewelry will be returned to Israel where
it will undergo quality control procedures, cleaning and
packaging for direct export to the U.S. You state that the U.S.
components which may be used in the assembly of earrings will not
exceed 5 percent of the export price of the finished gold
earrings.
You assert that the subject gold jewelry that is processed
in Israel and Thailand in the manner described qualifies for
duty-free treatment under the Israel FTA when imported into the
U.S.
ISSUE:
Is the gold jewelry eligible for duty-free treatment under
the Israeli FTA when imported into the U.S.?
LAW AND ANALYSIS:
Under the Israel FTA, eligible articles which are the
growth, product, or manufacture of Israel and are imported
directly to the U.S. from Israel qualify for duty-free treatment
or a duty preference, provided the sum of 1) the cost or value of
materials produced in Israel, plus 2) the direct costs of
processing operations performed in Israel is not less than 35
percent of the appraised value of the article at the time it is
entered. See, General Note 8, Harmonized Tariff Schedule of the
United States (HTSUS).
Classification
In our opinion, the subject gold jewelry is properly
classified under subheading 7113.19.50, HTSUS, which provides for
"Articles of jewelry and parts thereof, of precious metal or of
metal clad with precious metal. . . Of precious metal whether or
not plated or clad with other precious metal. . . Of other
precious metal, whether or not plated or clad with precious
metal. . . Other. . . Other. . ." Articles classified under
this provision which otherwise satisfy the requirements of the
Israel FTA will not be subject to duty upon importation into the
U.S.
"Product of" Israel
The first issue that must be decided is whether the gold
jewelry which is processed in Israel and Thailand in the manner
described above is a "product of" Israel when imported into the
U.S. as required under the Israel FTA. Articles are considered
the "product of" Israel if they are made entirely of materials
originating there or, if made from materials imported into
Israel, they are substantially transformed into a new or
different article of commerce. A substantial transformation
occurs when an article emerges from a process with a new name,
character or use different from that possessed by the article
prior to the processing. See, Texas Instruments v. United
States, 69 CCPA 152, 681 F.2d 778 (1982).
In this case, there is no question that the melting and
alloying of raw gold of foreign origin into gold bars in Israel
results in a substantial transformation of the raw gold into
products of Israel. Also, we find that subsequent production in
Israel of the fabricated stamped and tube-type components as a
result of of cutting, welding and bending colied sheets made from
gold bars in Israel, as described above, results in at least a
second substantial transformation of the raw gold. The name,
character and use of the gold bars changes as a result of the
operations performed in Israel--gold bars into gold jewelry
components. See, HQ 055726 (September 18, 1979) (Customs held
that a substantial transformation results from cutting, bending,
and crimping wire into identifiable trigger pins for spring
rings); HQ 071788 (April 17, 1984) (Customs held that forming 18
karat gold wire into circles, ovals, and other specially designed
links for bracelets results in a substantial transformation.
Thus, the jewelry components are "products of" Israel when sent
to Thailand. Furthermore, inasmuch as the foreign raw gold is
subjected to a double substantial transformation in Israel the
cost or value of the raw gold can be included in the Israel FTA
35 percent value-content calculation if the jewelry components
remain products of Israel after the further processing in
Thailand. Thus, the remaining question is whether the jewelry
components are substantially transformed into products of
Thailand as a result of the assembly and processing operations
performed in that country. In National Hand Tool v. United States, Slip Op. 92-61
(April 27, 1992, aff'd, 989 F.2d 1201 (1993), a country of origin
marking case, certain hand tool components used to make flex
sockets, speeder handles, and flex handles, were imported from
Taiwan. The imported components were either cold-formed or
hot-forged into their final shape before importation, with the
exception of the speeder handle bars, which were reshaped by a
power press after importation. In the U.S., the components were
subject to heat treatment, which increased the strength of the
components, sand-blasting (a cleaning process), and
electroplating (enabling the components to resist rust and
corrosion). After these processes were complete, the components
were assembled into the final products, which were used to loosen
and tighten nuts and bolts.
The Court of International Trade decided the issue of
substantial transformation based on three criteria, i.e., name,
character, and use. Applying these rules, the court found that
the name of the components did not change after the
post-importation processing, and that the character of the
articles similarly remained substantially unchanged after the
heat treatment, electroplating and assembly, as this process did
not change the form of the components as imported. The court
further pointed out that the use of the articles was
predetermined at the time of importation, i.e., each component
was intended to be incorporated in a particular finished
mechanic's hand tool. Based on this test, the court concluded
that the processing in the U.S. did not effect a substantial
transformation of the foreign hand tool components.
In the instant case, the jewelry components exported to
Thailand from Israel are in the same size and shape as the
finished gold jewelry. As in National Hand Tool, the character
and use of the jewelry components are predetermined by the form
of the exported components. A review of the submitted samples
indicates that the jewelry components look like finished jewelry
except for the fact that they are not assembled together. The
jewelry components' character and shape does not change as a
result of the assembly and finishing operations performed in
Thailand. The assembly and finishing operations performed in
Thailand do not substantially transform the jewelry components
into a new and different article, but rather constitute a
continuation of the production process leading to its completion as finished gold jewelry. Accordingly, we find that the imported
gold jewelry is considered to be a "product of" Israel for
purposes of determining their eligibility for duty-free treatment
under the Israel FTA. The presence of fabricated U-pins and
joints or posts and butterflies of U.S. origin will not preclude
treatment of the imported jewelry as a product of Israel assuming
all other legal requirements are satisfied. See, HQ 557149
(November 22, 1993) (Customs held that the presence of trim items
of Hong Kong or Chinese origin which were used in the assembly of
Israeli-origin jean components in China did not preclude
treatment of the imported jeans as a product of Israel assuming
all other legal requirements were satisfied).
"Imported Directly" from Israel
Annex 3, paragraph 8, of the Israel FTA defines the words
"imported directly," as follows:
(a) Direct shipment from Israel to the U.S. without passing through the territory of any intermediate country;
(b) If shipment is through the territory of an intermediate country, the articles in the shipment do not enter into the commerce of any intermediate country while en route to
the U.S., and the invoices, bills of lading, and other
shipping documents, show the United States as the final
destination;
(c) If shipment is through an intermediate country and the invoices and other documentation do not show the U.S. as the final destination, then the articles in the shipment, upon arrival in the U.S., are imported directly only if they:
(i) remain under control of the customs authority in an
intermediate country;
(ii) do not enter into the commerce of an intermediate
country except for the purpose of a sale other than at
retail, provided that the articles are imported as a
result of the original commercial transaction between
the importer and the producer or the latter's sales
agent;
(iii) have not been subjected to operations other than
loading and unloading, and other activities necessary
to preserve the article in good condition. We have held for purposes of the Generalized System of
Preferences (GSP) that merchandise is deemed to have entered the
commerce of an intermediate country if manipulated (other than
loading or unloading), offered for sale (whether or not a sale
actually takes place), or subjected to a title change in the
country. See HQ 071575, dated November 20, 1984. The definition
of "imported directly" under the GSP is very similar to that
under the Israel FTA. See 19 CFR 10.175.
In the instant case, the gold jewelry components will be
sent to Thailand from Israel for assembly and processing
(soldering, oven heating, polishing by liquid tumbling and/or
buffing) into gold jewelry. It is apparent that these operations
constitute a manipulation of the merchandise, and accordingly,
the merchandise is deemed to have entered the commerce of
Thailand. Therefore, the merchandise will be considered to be
"imported directly" from Israel only if, upon its return from
Thailand, it re-enters the commerce of, and then is directly
shipped from, Israel to the U.S.
According to your submission, the gold jewelry upon return
to Israel will undergo quality control procedures and be cleaned
and packaged for direct export to the U.S. Under these facts, we
find that there will be a manipulation of the merchandise in
Israel, and thus the gold jewelry is considered to enter the
commerce of Israel prior to direct exportation to the U.S.
Accordingly, the gold jewelry will be considered to be "imported
directly" from Israel into the U.S.
HOLDING:
Based on the information provided, we find that (1) the
imported gold jewelry will be classified under subheading
7113.19.50, HTSUS, an Israel FTA eligible provision; (2) upon
importation into the U.S., the imported gold jewelry will be
considered "products of" Israel; (3) since the foreign raw gold
imported into Israel undergoes a double substantial
transformation, it may be counted towards the 35 percent value
content requirement.; (4) the imported gold jewelry will be
considered to be "imported directly" from Israel into the U.S. on
condition that upon return to Israel from Thailand the jewelry
goods will undergo quality control procedures and be cleaned and
packaged for direct export to the U.S.; and (5) the imported
articles will qualify for duty-free treatment under the Israel FTA, provided the sum of (a) the cost or value of the materials
produced in Israel, plus (b) the direct costs of processing
operations performed in Israel is not less than 35 percent of the
appraised value of the merchandise at the time of entry. Whether
the 35 percent value-content requirement will be met must await
actual entry of the merchandise.
A copy of this ruling letter should be attached to the entry
documents filed at the time this merchandise is entered. If the
documents have been filed without a copy, this ruling should be
brought to the attention of the Customs officer handling the
transaction
Sincerely,
John Durant, Director
Tariff Classification
Appeals Division