CLA-2 CO:R:C:S 556060 KCC
Mr. Peter Wang
Goldig U.S.A. Inc.
2255 Kuhio #825
Honolulu, Hawaii 96815
RE: Jewelry created by mixing, casting, cutting, filing,
bending, soldering, enameling, polishing, engraving,
steaming, and cleaning.GSP; substantial transformation;
554689; 071314; 731963; 043004; 045106; 047663; 554823;
555716; 555337; 055726; 071788; 555532
Dear Mr. Wang:
This is in response to your letter dated May 16, 1991,
concerning the eligibility of gold and sterling sliver jewelry
for duty-free treatment under the Generalized System of
Preferences (GSP) (19 U.S.C. 2461-2466).
FACTS:
You intend to purchase raw materials in the U.S., such as 14
and 18 karat gold alloy, 14 and 18 karat gold casting grain, 14,
18, and 24 karat gold sheet, sterling silver wire and strip, 14
karat gold ring and bracelet blanks, 14 and 18 karat gold
settings and bails, 14 and 18 karat gold finding, 14 karat gold
chain, 14 and 18 karat gold solder, 14 karat gold clasp, enamel
and tools. These materials will be shipped to Mexico for
processing operations to create rings, bracelets, pendants,
earrings, and necklaces. Although the Mexican operations are
similar for the various jewelry pieces, variations do occur.
I. 14 and 18 karat gold strip; sterling silver strip, 14 karat
gold findings and enamel are used to create jewelry as follows:
a) cutting an initial or name on the strip by hand or
machine to approximately 0.4mm in depth;
b) filing both sides of the strip until straight and
smooth;
c) bending the strip into a ring or bracelet shape (only
for rings and bracelets);
d) i. soldering the ring or bracelet into one piece,
ii. soldering a bail or jump ring onto a pendant,
iii. soldering a chain and clasp onto an ID pendant to
create an ID bracelet or ID necklace, or
iv. soldering a pin to a pendant to create an earring;
e) filing the solder until smooth;
f) placing enamel powder into the cut-out initial or name
and heating it until it melts (only for enameled
jewelry);
g) sanding off the overflow or improperly laid enamel;
h) repeating steps (f) and (g) two or three more times;
i) polishing off the discoloration caused by the enamel
heating operation;
j) drawing and engraving a design onto the uncut surface;
k) cutting out area to create a filigree appearance
(certain jewelry only);
l) polishing the sharp edges caused by the engraving; and
m) steaming the jewelry piece to create a cleaned,
finished jewelry article.
II. 14 and 18 karat gold blanks and findings are used to create
jewelry in the same manner as found in Category I, except that
steps (b), (c), (d), (e), and (f) are not necessary as preformed
blanks are used. Additionally, in this category, to create
earrings, the preformed ring blank is cut in half and then a pin
(stud earring) or clip (clip-on earring) is soldered onto the cut
ring blank.
III. 14 karat gold sheet, usually 6 inches by 18 inches, is used
to create jewelry by cutting the sheet to the desired size,
filing the edges, soldering the bail onto the cut piece, and
performing Category I steps (e), (f), (g), (j), (l), and (m).
IV. Jewelry is created by a casting process in the following
manner:
a) mixing 24 karat fine gold (U.S. or Mexican origin) and
14 karat gold alloy to create 14 karat gold casting
grain, or using 14 karat gold casting grain (U.S.
origin) to cast a piece of jewelry;
b) cutting an initial or name by machine to approximately
0.3mm to 0.4mm in depth (except for the engraved French
mounting ring);
c) filing away the casting sprue until smooth;
e) i. soldering the bail to the pendant,
ii. soldering clip onto the earring, or
iii. soldering a chain and clasp onto an ID pendant to
create an ID bracelet or ID necklace;
f) placing enamel powder into the cut out initial or name
and heating it until it melts (only for enameled
jewelry);
g) sanding off the overflow or improperly laid enamel;
h) repeating steps (f) and (g) two or three more times;
i) polishing off the discoloration caused by the enamel
heating operation;
j) drawing and engraving a design on the uncut surface;
k) polishing the sharp edges caused by the engraving; and
l) steaming the article to create a cleaned, finished
product.
Upon completion of the Mexican operations, the finished
jewelry pieces will be imported into the U.S.
ISSUE:
Whether the jewelry will be entitled to duty-free treatment
under the GSP when imported into the U.S.
LAW AND ANALYSIS:
Under the GSP, eligible articles the growth, product or
manufacture of a designated beneficiary developing country (BDC)
which are imported directly into the customs territory of the
U.S. from a BDC may receive duty-free treatment if the sum of 1)
the cost or value of materials produced in the BDC, plus 2) the
direct costs of the processing operation in the BDC, is
equivalent to at least 35% of the appraised value of the article
at the time of entry. See, 19 U.S.C. 2463(b).
Mexico is a BDC. See, General Note 3(c)(ii)(A), Harmonized
Tariff Schedule of the United States (HTSUS). From the
information you have provided, it appears that the sterling
silver jewelry would be classified under subheading 7113.11.50,
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 precious metal:
of silver, whether or not plated or clad with other precious
metal: other: other. The gold jewelry appears to be 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 precious metal: of other precious metal, whether or
not plated or clad with precious metal: other: other. Both of
these are GSP eligible provisions for products of Mexico.
An article made from materials which are imported into the
BDC is considered the "growth, product or manufacture" of the BDC
only if those materials are substantially transformed so as to
make the article a "product of" the BDC.
If an article is produced or assembled from materials which
are imported into the BDC, the cost or value of those materials
may be counted toward the 35% value-content minimum only if they
undergo a double substantial transformation in the BDC. See,
section 10.177, Customs Regulations (19 CFR 10.177), and Azteca
Milling Co. v. United States, 703 F. Supp. 949 (CIT 1988), aff'd,
890 F.2d 1150 (Fed. Cir. 1989). That is, the cost or value of
the imported materials used to produce the jewelry may be
included in the GSP 35% value-content computation only if they
are first substantially transformed into a new and different
article of commerce, which is itself substantially transformed
into the jewelry.
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." See, Torrington Co., v. United States, 764 F.2d 1563
(Fed. Cir. 1985), citing Texas Instruments Incorporated v. United
States, 681 F.2d 778, 69 CCPA 151 (1982).
We have previously held that embellishment and finishing
operations, such as polishing, enameling and cleaning, are not
regarded as extensive processes that result in new and different
articles. See, Headquarters Ruling Letter (HRL) 554689 dated
August 21, 1987 (enameling is an embellishment of an already
completed article and does not result in a new and different
article of jewelry); and HRL 071314 dated May 10, 1983
(polishing, assembly of labels and catches, and packaging do not
substantially transform the jewelry into a product of the Virgin
Islands).
Additionally, we have held that cutting or engraving an
article for decorative purposes does not result in a substantial
transformation of that article. In rulings addressing this
issue, the engraving or decorative cutting operations were
performed on partially or nearly completed articles, and,
therefore, we determined that the operations were analogous to
finishing operations which do not result in a substantial
transformation. See, HRL 731963 dated July 26, 1989, which held
that hand-faceting of jewelry, a process whereby a worker uses a
diamond tipped high-speed rotating wheel to cut away small pieces
of silver, does not result in a substantial transformation. See
also, HRL 043004 dated January 7, 1976, HRL 045106 dated April
22, 1976, and HRL 047663 dated March 21, 1977, each of which
held that decorative cutting of wine glasses does not result in a
substantial transformation of the wine glasses into products of
Canada.
We have also held that the conversion of pure gold and alloy
shot into 14 karat gold shot produces a substantially transformed
intermediate article of commerce, which is then substantially
transformed a second time by casting the 14 karat gold shot into
jewelry pieces. See, HRL 554823 dated December 15, 1987, HRL
555716 dated April 15, 1991, and HRL 555337 dated March 8, 1990.
Additionally, cutting or bending materials into defined shapes or
patterns suitable for use in making finished articles, as opposed
to mere cutting to length or width which does not render the
article suitable for a particular use, constitutes a substantial
transformation. See, HRL 055726 dated September 18, 1979 (a
substantial transformation results from cutting, bending, and
crimping wire into identifiable trigger pins for spring rings);
HRL 071788 dated April 17, 1984 (forming 18 karat gold wire into
circles, ovals, and other specially designed links for bracelets
results in a substantial transformation); and HRL 555532 dated
September 18, 1990 (shearing cold rolled steel to rectangular
shape, piercing to form the various openings, and roll forming
the steel into tubular shape results in a substantial
transformation).
Based on the information provided and prior rulings, we find
that only the jewelry pieces in category IV which are
manufactured by mixing the U.S.-origin 24 karat fine gold and 14
karat gold alloy, creating the 14 karat gold casting grain which
is then cast into jewelry pieces, are subjected to a double
substantial transformation in Mexico. Therefore, the cost or
value of the 24 karat gold and the gold alloy imported into
Mexico to make these jewelry pieces may be included in the GSP
35% value-content calculation. See, HRL 554823 and HRL 555716.
As we do not find that a double substantial transformation
results from the processing described in categories I, II
(earrings), and III, as well as the processing in category IV
using 14 karat gold casting grain imported into Mexico, the cost
or value of materials imported into Mexico to make these jewelry
pieces may not be counted toward the 35% requirement.
In category I, II (earrings only) and III, the gold and
silver strip or sheet and blanks, used to create the earrings in
category II, are substantially transformed by the bending,
cutting and soldering operations. Additionally, in category IV,
U.S.-origin casting grain cast into jewelry pieces results in a
substantial transformation. The gold and silver jewelry pieces
emerge as new articles with new characteristics, a different name
and a defined specific use different from that possessed by the
gold and silver strip or sheet, blanks and casting grain from
which the jewelry pieces are made. See, HRL 071788, HRL 055726
and HRL 554823. However, we do not find that the jewelry pieces
are subjected to a second substantial transformation when
enameled, engraved, decoratively cut, polished and cleaned. The
enameling, engraving, decorative cutting, polishing, and
cleaning operations are embellishments and finishing operations
which do not create a new article or alter the intended use of
the articles. See, HRL 554689, HRL 731963, and HRL 047663.
Therefore, in regard to category I, II (earrings only), III and
IV (casting only), as the U.S.-origin gold and silver strip and
sheet, blanks, and casting grain are not subjected to a double
substantial transformation, the cost or value of the U.S.-origin
gold and silver strip and sheet, blanks, and casting grain may
not be counted toward the 35% value-content requirement.
Additionally, we do not find that the category II (except
earrings) jewelry has been substantially transformed into
"products of" Mexico. The blanks are dedicated to use as, and
have the essential character of, jewelry pieces such as rings and
bracelets. The engraving, decorative cutting, polishing and
cleaning operations are embellishments and finishing operations
which do not create new articles or alter the intended use of
the articles. Therefore, as the U.S.-origin blanks are not
substantially transformed into "products of" Mexico, they are not
entitled to duty-free treatment under the GSP.
HOLDING:
Based on the information submitted, we are of the opinion
that a substantial transformation does not occur where the U.S.-
origin blanks in category II (excluding earrings) are subject to
engraving, decorative cutting, polishing and cleaning
operations. Therefore, the jewelry items in category II
(excluding earrings), are not entitled to GSP treatment.
The creation of the jewelry pieces in categories I, II
(earrings only), III and IV (casting using 14 karat gold imported
into Mexico) constitutes a substantial transformation. However,
no additional substantial transformation results from the
enameling, engraving, decorative cutting, polishing, and cleaning
operations. Therefore, the cost or value of the materials
imported into Mexico to make these items may not be included in
the 35% value-content minimum required for eligibility under the
GSP. For these items to receive GSP treatment, the cost or value
of any materials of Mexican origin plus the direct processing
costs incurred in Mexico must equal or exceed 35% of the
jewelry's appraised value when entered into the U.S.
The alloying of the U.S. gold and alloy shot and the
subsequent casting of the alloy into ring castings is sufficient
to constitute a double substantial transformation for purposes of
the GSP. Accordingly, the cost or value of the 24 karat gold and
gold alloy imported into Mexico may be counted in determining the
35% value-content requirement for GSP eligibility purposes.
Sincerely,
John Durant, Director
Commercial Rulings Division