CLA-2 OT:RR:CTF:VS H022844KSG
Port Director
U.S. Custom & Border Protection
John F. Kennedy International Airport
Bldg #77
Jamaica, NY 11430
RE: Application for Further Review of Protest 4701-2007-100553; eligibility of gold jewelry for duty-free treatment under the GSP; semi-precious stones
Dear Port Director:
This is in reply to your correspondence forwarding the application for Further Review of Protest 4701-20007-100553 timely filed by Pranda North America, Inc., concerning the eligibility of certain gold jewelry imported from Thailand for duty-free treatment under the Generalized System of Preferences (“GSP”).
FACTS:
The Protest is against U.S. Customs and Border Protection’s (“CBP”) rate advance of this merchandise as dutiable. The Protestant claims that the imported jewelry is entitled to duty-free treatment under the GSP.
This case involves imported gold jewelry set with semi-precious stones and/or diamonds which the importer classified in heading 7113 of the Harmonized Tariff Schedule of the United States (“HTSUS”). The importer claims that the country of origin is Thailand. The protestant purchased the jewelry from a related Thailand manufacturer.
The protestant states that ingots of 24 karat gold, alloy metals and rough semi-precious stones were imported into Thailand from non-beneficiary countries. The protestant also states that cut diamonds were imported and in some instances, set into castings in Thailand. The Protestant has not claimed that the cost of the diamonds may be counted toward the 35% value-content in this case.
Counsel states that the traditional “lost wax” manufacturing process is employed in this case to create jewelry. This process, which takes place in Thailand, includes: (1) creation of a master mold of the article to be produced; (2) the formation of rubber molds from the master models; (3) the production of a wax tree to form a plaster investment mold; (4) formation of the plaster investment mold; (5) gold ingot is then melted with alloy pellets to form molten gold alloy; (6) the production of a gold tree from the molten gold alloy; (7) various cutting, grinding, shaping, assembly, polishing and electroplating processes and (8) the cutting, polishing and setting of semi-precious stones, where applicable.
The first phase of the processing involves the creation of a master wax model of each jewelry item. The model of each individual item of jewelry desired is carved from wax into a “pattern.” In a process referred to as “spruing,” several wax patterns are attached to a rubber base by “sprues” to form a wax “tree.” The wax tree is then placed into a metal flask and covered in a coat of plaster “investment,” a substance that resembles plaster of Paris. Once the plaster investment dries, the flask is then placed into a casting burn-out oven and the wax is vaporized, leaving a hollow impression in the plaster. The resulting cavity formed in the plaster investment becomes a plaster mold which is an accurate negative of the original wax tree. A low-cost molten metal alloy is poured into the plaster mold and allowed to cool and solidify into the shape of the original wax tree. Once this occurs, the plaster is washed away to reveal low-cost metal tree, which is used to produce numerous metal master models of the articles to be produced.
The metal master models are removed from the alloy tree and are used to produce rubber molds. Rubber molds are prepared in order to produce numerous wax replicas of the pieces that will be used to make more wax trees for the purpose of making more plaster molds used to manufacture the gold castings. To create a rubber mold, the low cost alloy master models are removed from the tree and placed between two flat pieces of rubber which are pressed together until the metal model is completely embedded between them. The two pieces of rubber with the metal model embedded are then placed inside a rubber mold frame, which is inserted into a vulcanizing machine and cured. The rubber is then removed from the frame and is cut in half by hand to produce the finished rubber mold.
Once the rubber molds are created, they are used to produce multiple wax replicas of jewelry and/or components. To accomplish this, molten wax is injected into the finished rubber molds about once every two to three minutes. The molds cool and the wax hardens.
The gold is mixed with the appropriate amount of alloy metals, to produce the appropriate gold blend (e.g., 10, 14, 18 karat), and gold scrap in a tray and melted down in a process known as alloying. When melted, the resulting gold liquid is then poured into a cylindrical flask or crucible and then into the plaster investment mold, and allowed to cool and solidify. When the gold alloy mixture has cooled and solidified, the plaster investment mold is submerged into a bin of water until all of the plaster is dissolved, resulting in a gold alloy tree. The tree is comprised of crude “castings” or “findings” of the articles being manufactured, attached by sprues to a “trunk.” These gold trees are melted into gold alloy bars, segregated and stored by gold content (e.g., 10, 14, 18 karat). The bars are routinely melted again and blended with molten gold alloy.
The castings are then cut from the tree. The castings have a rough surface, protruding sprue fragments, mold residue, parting lines, rivets and scratches. An abrasive pad is used and then, a deburring process, both by hand and using a grinding wheel, to smooth the surface. The pieces are then shaped, often by bending or stretching to conform to the desired configuration and size.
For those pieces that require the setting of precious or semi-precious stones, reshaping of the findings is required to accommodate an array of stone sizes.
Finishing operations are performed on each piece by hand using hand-held gravers, hand-directed and controlled motor-driven grinders with rubber and emery wheels on flexible shafts, as well as by buffing and grinding machines. When the pieces are ready for assembly, they are pre-polished by hand, machine-washed and ultrasonically cleaned to remove residual abrasives and polishing compounds.
The rough semi-precious stones are cut, faceted and polished in Thailand. They are then sorted by size and quality before they are set into any article of jewelry.
The assembly of component parts and cut stones involves riveting, wiring, hammering, cutting, shaping or soldering, or any combination of those operations, depending on the item and design.
To assemble or set a stone, each piece is set in shellac for support. The mounting sites on the individual pieces are measured and adjusted to receive the stone. Portions of the prongs or beads are cut to proper size and a hole is formed in the casting to accommodate the base of the stone. When prongs are employed in the mounting, the surfaces from which portions have been cut or ground are then reshaped and polished to finished tolerances. If a bezel or beads are used instead of prongs, appropriate techniques are used to form the bezel or raise and shape the beads to support and retain each stone in the mounting.
Each finished piece is polished and then washed and steamed to remove residual compound and alloy particles. Last, the finished jewelry articles undergo electroplating to protect the pieces from abrasion or corrosion
.
ISSUE:
Whether the imported gold jewelry is eligible for special tariff treatment under the GSP.
LAW AND ANALYSIS:
Title V of the Trade Act of 1974, as amended (19 U.S.C.A. 2461-65), authorizes the President to establish a Generalized System of Preferences to provide duty-free treatment for eligible articles from beneficiary developing countries (“BDCs”). Articles produced in a BDC may qualify for duty-free treatment under the GSP if the good are imported directly into the customs territory of the U.S. from the BDC and the sum or value of materials produced in the BDC plus the direct costs of the processing operations performed in the BDC is equivalent to at least 35 percent of the appraised value of the article at the time of entry into the U.S. See 19 U.S.C. 2463(a)(2) and (3).
Thailand has been designated as a BDC for purposes of the GSP and may be afforded preferential treatment under the HTSUS. See GN 4(a), HTSUS. The imported jewelry is classified in a GSP-eligible provision.
A good is considered to be a “product of” a BDC if it is wholly the growth, product or manufacture of the BDC, or if made of materials imported into the BDC, those materials are substantially transformed in the BDC into a new and different article of commerce. See 19 CFR 10.176(a). A substantial transformation occurs “when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process.” Texas Instruments Inc. v. United States, 681 F.2d 778 (1982).
We assume for the purposes of this ruling that the goods have satisfied the “imported directly” requirement.
The first issue involved in this case is whether the imported jewelry is a “product of” Thailand. The “product of” requirement means that to receive duty-free treatment, an article either must be made entirely of materials originating in the BDC, or if made of materials imported into the BDC, those materials must be substantially transformed in the BDC into a new and different article of commerce. In this case, counsel acknowledges that this jewelry would not be eligible for treatment as a good “wholly produced or manufactured” in Thailand. Therefore, the foreign materials would have to be substantially transformed in Thailand to be considered a “product of” Thailand.
Headquarters Ruling Letter ("HRL") 560331, dated December 2, 1997, involved imported jewelry from the Dominican Republic claiming duty-free treatment under the Carribbean Basin Economic Recovery Act (“CBERA”). The precious metals, alloy metals, and stones were from a foreign country other than a BDC. In one scenario, the alloying and pouring of the alloy material into the casting was done in the Dominican Republic. Customs held that casting non-beneficiary precious metal alloys into jewelry and setting foreign gem stones in the jewelry resulted in a substantial transformation and therefore, the jewelry was considered a product of the Dominican Republic for the purpose of the CBERA. See also HRL 555801, dated January 2, 1991 and HRL 556457, dated March 5, 1992.
Based on the above rulings, we find that the imported materials were substantially transformed in Thailand into jewelry, a new article with a new name, character, and use. Therefore, the imported jewelry would be considered a “product of” Thailand for the purposes of GSP.
To be eligible for duty-free treatment under the GSP, merchandise must also satisfy the 35% value-content requirement. If an article consists of materials that are imported into a BDC, as in the instant case, the cost or value of these materials may be counted toward the 35% value-content requirement only if they undergo a double substantial transformation in the BDC.
In Texas Instruments Inc. v. U.S., 681 F.2d 778 (1982), the court held that the assembly of three integrated circuits, photodiodes, one capacitor, one resistor and a jumper wire onto a flexible circuit board (PCBA) constituted a second substantial transformation. It was suggested that in situations where all of the processing is accomplished in one GSP beneficiary country, the likelihood that the processing constitutes little more than a pass-through operation is greatly diminished. Consequently, if the entire processing operation performed in the BDC is significant, and the intermediate and final articles are distinct articles of commerce, then the double substantial transformation will be satisfied.
In HRL 560331, Customs considered the issue of whether the materials imported into the Dominican Republic were subjected to a double substantial transformation so that their value could be included in the 35% value-content requirement. Customs held that the gold bars, silver, copper, zinc, nickel, or brass, which were alloyed to the desired specification, poured into molds and cast into jewelry pieces were subjected to a double substantial transformation, but that finished stones which were only set into the castings in the Dominican Republic were not subjected to a double substantial transformation.
Based on the description provided in this case, it would appear that gold is alloyed, poured into a molding and cast in Thailand. This is very similar to the processing described in HRL 560331 that was held to constitute a double substantial transformation. Based on the above, we find that the gold and alloy metals would undergo a double substantial transformation in Thailand and therefore, may be counted toward the 35 percent value content requirement under the GSP.
Customs and Border Protection has previously held that cutting and polishing a rough diamond or semi-precious stone and setting it would be considered a double substantial transformation. See HRL 556457, dated March 5, 1992 and HRL 563127, dated December 15, 2004. Therefore, the value of the rough semi-precious stones would undergo the requisite double substantial transformation and could be counted toward the 35% value-content requirement.
HOLDING:
Based on the information provided, the gold, alloy and rough semi-precious stones may be counted toward the 35% value-content requirement under the GSP. Therefore, the protest should be granted provided the 35% value-content requirement is met.
In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision should be accomplished prior to mailing of this
decision. Sixty days from the date of this decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial & Trade Facilitation Division