CLA-2 CO:R:C:V 555210 BJO
Mr. Cyrus Maybud
Maybud & Cie
Conseillers Juridiques et Economiques
Route du Remblais
1782 Belfaux
Fribourg, Switzerland
RE: GSP Eligibility of Gold Necklaces Imported from Malta
Dear Mr. Maybud:
This is in response to your letters of September 7,
September 9, and October 10, 1988, to the Area Director, New York
Seaport, in which you request a ruling on behalf of Silmar
S.p.A., that 14 karat gold necklaces produced in Malta are
eligible for duty-free entry under the Generalized System of
Preferences (GSP)(19 U.S.C. 2461-2466).
FACTS:
You state that Silmar Malta S.p.A. will produce the gold
necklaces in Malta from imported 24 karat fine gold. The Maltese
manufacturing operation is described in your submissions as
follows:
(1) The 24 karat fine gold will be melted down and alloyed
to 14 karat gold in a continuous casting oven. The
resulting gold wire will have a diameter of 6 millimeters.
(2) The wire will be passed through special extruding
machinery to reduce its diameter to between 0.25 and 1.20
millimeters, and then machine formed into links and into
chains.
(4) The links of the chain, which remain slightly open from
the previous step, will next be welded by means of a
chemical process. By means of a twisting machine, the chain
will be flattened, and then it will be beaten to its desired
width with a mechanical hammer. Because the hammering
operation will leave the chain rigid, it must be "softened"
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through particular mechanical movements. The chain will
then be diamond-beveled with a special lathe, machine
printed with various designs, polished by means of ultra
sound, and shined in an electronic galvanized bath.
(5) Clasps will be thermo-welded to the ends of the chain
to form the necklace. The clasps will be polished with a
rotative machine. The finished necklaces will be packed for
export and shipped by air to the U.S.
ISSUE:
Whether the 14 karat gold necklaces produced in Malta are
eligible for duty-free treatment under the GSP.
LAW AND ANALYSIS:
Under the GSP, eligible products of a designated beneficiary
developing country (BDC) which are imported directly into the
U.S. qualify for duty-free treatment if the sum of the cost or
value of the constituent materials produced in the BDC plus the
direct costs involved in processing the eligible article in the
BDC is at least 35% of the article's appraised value at the time
of its entry into the U.S. See 19 U.S.C. 2463.
Malta is a BDC, and the 14 karat gold necklaces, which are
classified for tariff purposes under either subheading 7113.19.21
or 7113.19.29 of the Harmonized Tariff Schedule of the United
States (HTSUS), depending upon the type of link, are GSP eligible
articles. Your letters indicate that the necklaces will be
imported directly to the U.S. Accordingly, the necklaces will
receive duty-free treatment under the GSP if the direct costs of
processing the necklaces plus the value of Maltese materials is
equal to or greater than 35% of the appraised value of the
necklaces.
Although the 24 karat gold used in the production of the
necklaces is not of Maltese origin, its cost or value may
nevertheless be included in the 35% value-content computation if
it undergoes a double substantial transformation in Malta. That
is, the 24 karat gold imported into Malta must be substantially
transformed in Malta into a new and different intermediate
article of commerce, which is then used in Malta in the
production of the 14 karat gold necklaces exported to the U.S.
See 19 CFR 10.177(a).
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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 processing. See Texas
Instruments, Inc. v. United States, 69 CCPA 152, 681 F.2d 778
(1982).
In HQ 071788, dated April 17, 1984, we ruled that 18 karat
gold wire produced from 24 karat fine gold bars was a
substantially transformed constituent material of gold chains or
bracelets for GSP purposes. In that case, the gold bars were
imported into the BDC, and melted down and mixed with necessary
alloys to reduce its purity. The resulting 18 karat gold was
then rolled into wires of different gauge and size, which were
shaped into round circles and ovals, soldered together, and
stamped into a flat link figure-eight or similar shape. Clasps
were then attached to form chains or bracelets, which were
cleaned, polished and buffed, and exported directly to the U.S.
Because the 18 karat gold wire was determined to be an
intermediate article of commerce, we stated that its cost or
value may be included as part of the GSP 35% requirement of the
subsequently produced chains and bracelets.
The manufacture of the gold necklaces in Malta you describe
appears to involve nearly identical raw materials, processing
operations, and intermediate and final products as those
described in HQ 071788. On the basis of that ruling, therefore,
we find that the conversion of the 24 karat fine gold in Malta
into 14 karat gold wire produces an intermediate article of
commerce, which itself is ultimately substantially transformed
into the 14 karat gold necklaces. The cost or value of the gold
wire thus may be included in the 35% value-content requirement of
the GSP.
Because of the absence of cost information in your letters,
we cannot conclude that the 35% value-content requirement will be
satisfied in this case. However, if the sum of the cost or value
of the gold wire, plus the direct costs of producing the
necklaces, is equivalent to at least 35% of the appraised value
of the necklaces at the time of their entry into the U.S., then
the necklaces will receive duty-free treatment under the GSP.
We have enclosed for your information a copy of the Customs
Regulations relating the to the GSP.
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CONCLUSION:
The 14 karat gold wire produced in Malta from 24 karat fine
gold imported into Malta is a substantially transformed
constituent material for GSP purposes. Accordingly, if the sum
of the cost or value of the gold wire plus the direct costs of
processing operations performed in Malta equals or exceeds 35% of
the appraised value of the necklaces at the time of entry into
the U.S., the necklaces will qualify for duty-free treatment
under the GSP.
Sincerely,
John Durant, Director
Commercial Rulings Division
Enclosure
cc: New York Seaport
(CLA-2-71:S:N:N3G:344 832953)