CLA-2 CO:R:C:S 556519 WAW
Brian S. Goldstein, Esq.
Siegel, Mandell & Davidson, P.C.
One Astor Plaza
1515 Broadway
43rd Floor
New York, N.Y. 10036
RE: Eligibility for duty-free treatment under U.S. Note 2(b),
subchapter II, Chapter 98, HTSUSA, of gold jewelry made in
the Dominican Republic from U.S. materials; GSP; bezel;
necklace; bracelet; ankle bracelet; double substantial
transformation; 555929; melting; soldering; 555210; 071788
Dear Mr. Goldstein:
This is in response to your letter dated January 23, 1992,
addressed to the Area Director of Customs in New York, on behalf
of your client, Kevin Lipton Rare Coins, Inc. ("KLRC"), which was
forwarded to our office, concerning the tariff treatment and
eligibility for duty-free treatment under U.S. Note 2(b),
subchapter II, Chapter 98, Harmonized Tariff Schedule of the
United States Annotated (HTSUSA) ("Note 2(b)"), of certain gold
jewelry items from the Dominican Republic.
FACTS:
You state that KLRC currently imports "bezel" jewelry of 10
or 14 karat gold. The bezels are open circular pieces of
precious metal (gold), which hold a coin or medallion. KLRC
purchases the circular pieces used in the finished bezels from
L.A. Clasp, which is located in the U.S. KLRC supplies gold that
is refined and mixed with alloy in the U.S. to L.A. Clasp who
then manufactures the circular pieces used in the bezels.
The circular pieces produced in the U.S. are shipped to a
factory in the Dominican Republic owned by KLRC's subsidiary.
The factory produces gold rope chain from gold refined and mixed
with alloy in the U.S. The gold rope chain is then soldered onto
the edge of the bezel using silver solder of U.S.-origin. Next,
small circular pieces of 10 or 14 karat gold in the shape of
loops are soldered onto the circular piece of the bezel. The
loops are made at the factory in the Dominican Republic using
gold wire from the U.S. The final stage in the production
process is the interlinking of "bails" onto the loops. You state
that "a bail is what a necklace is threaded through so as to hang
the bezel like a pendant on a necklace to be worn around a
customer's neck and enables the bezel to hang flat when worn."
The bails are purchased from L.A. Clasp in the U.S. and are
composed either of 10 or 14 karat gold which is refined and mixed
with alloy in the U.S.
You state that all of the fabricated components and
ingredients which are used to produce the finished bezel -- the
circular piece of the bezel, the rope chain, the loops, the bails
and the solder -- are all of U.S.-origin.
We recently issued HRL 555929 dated April 22, 1991, to you
on behalf of KLRC concerning the eligibility of gold rope
necklaces, bracelets and ankle bracelets from the Dominican
Republic for duty-free treatment under both the Generalized
System of Preferences (GSP) and Note 2(b). In HRL 555929, U.S.-
origin gold wire was imported into the Dominican Republic where
it was cut and made into links, the links were interlocked and
soldered together to form a chain, and finally, the chain was cut
into appropriate lengths suitable for bracelets, necklaces, and
ankle bracelets. We held that the conversion of the U.S.-origin
gold wire into gold links and the subsequent assembly of the gold
links into the gold rope chain for use in necklaces, bracelets
and ankle bracelets, result in a double substantial
transformation of the U.S. materials. Therefore, we held that
the cost or value of the U.S.-origin gold wire may be included in
the 35% value-content calculation of the GSP. In addition, we
determined that the gold necklaces, bracelets and ankle bracelets
were eligible to enter into the U.S. duty free pursuant to Note
2(b) if made wholly from U.S. components or ingredients in the
Dominican Republic.
You state that in addition to the production procedures
which are outlined in HRL 555929, KLRC is contemplating
transferring all of the stages of manufacture of gold rope
chains to its factory in the Dominican Republic. Specifically,
KLRC intends to export all the gold, alloy and solder
components, which are of U.S.-origin, to its plant in the
Dominican Republic. The factory will melt the gold and alloy to
produce 10, 14 or 18 karat wire which will then be cut into
links and woven into blackened spool chains. The remainder of
the process in the Dominican Republic will be the same as that
set forth in HRL 555929. The only contemplated change is the
actual melting of the U.S.-origin gold and production of the wire
in the Dominican Republic. You ask whether under the
contemplated scenario your client's gold chain merchandise will
continue to be eligible for duty-free treatment under the GSP, as
well as Note 2(b).
ISSUE:
(1) What is the proper tariff classification of the 10 karat
and 14 karat gold bezel pendants, bracelets, ankle bracelets, and
rope chain necklaces under the HTSUS.
(2) Whether the gold bezel made in the Dominican Republic
from U.S.-origin materials is eligible for duty-free treatment
under Note 2(b).
(3) Whether the gold, alloy and solder components of U.S.-
origin which are processed into gold wire, gold links and
subsequently into gold rope necklaces, bracelets and ankle
bracelets in the Dominican Republic undergo a double substantial
transformation, thereby enabling the cost or value of the U.S.
materials to be included in the 35% value-content requirement of
the GSP.
LAW AND ANALYSIS:
The classification of merchandise under the HTSUS is
governed by the General Rules of Interpretation (GRI's). GRI 1,
HTSUS, states in part that "for legal purposes, classification
shall be determined according to the terms of the headings and
any relative section or chapter notes. . . ."
The 10 karat and 14 karat gold bezel pendants, bracelets and
ankle bracelets are 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 from
the Dominican Republic classified under this tariff provision are
eligible for GSP treatment.
The 10 karat and 14 karat gold rope chain necklaces are
classified under subheading 7113.19.21, 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. . . Necklaces and neck chains, of gold. . .
Rope." All articles classified under this tariff provision are
eligible for GSP treatment.
Section 222 of the Customs and Trade Act of 1990 (Public Law
101-382) amended U.S. Note 2, subchapter II, Chapter 98, HTSUSA
("Note 2(b)"), to provide for the duty-free treatment of articles
(other than textile and apparel articles, and petroleum and
petroleum products) which are assembled or processed in a
Caribbean Basin Economic Recovery Act (CBERA) beneficiary country
(BC) wholly of fabricated components or ingredients (except
water) of U.S. origin. This amendment was effective with respect
to goods entered on or after October 1, 1990.
Note 2(b) specifically provides as follows:
(b) No article (except a textile article, apparel
article, or petroleum, or any product derived
from petroleum, provided for in heading 2709
or 2710) may be treated as a foreign article,
or as subject to duty, if--
(i) the article is--
(A) assembled or processed in whole
of fabricated components that are a
product of the United States, or
(B) processed in whole of
ingredients (other than water) that
are a product of the United States,
in a beneficiary country; and
(ii) neither the fabricated components,
materials or ingredients, after exportation
from the United States, nor the article
itself, before importation into the United
States, enters the commerce of any foreign
country other than a beneficiary country.
As stated in this paragraph, the term "beneficiary
country" means a country listed in General Note 3(c)(v)(A).
Although Note 2(b)(i)(A) and (B) are separated by the word
"or," it is our opinion that Congress did not intend to preclude
duty-free treatment under this provision to an article which is
created in a BC both by assembling and processing U.S.
fabricated components and by processing U.S. ingredients.
Pursuant to General Note 3(c)(v)(A), HTSUSA, the Dominican
Republic is a designated BC for CBERA purposes. Note 2(b)
specifies four categories of products which are excluded from
duty-free treatment under this provision: textile articles;
apparel articles; petroleum; and certain products derived from
petroleum. The gold bezel does not fall within any of these
excluded categories and, therefore, is eligible for duty-free
treatment under this provision, provided that all of the other
requirements are satisfied.
With regard to the operations performed in the Dominican
Republic, we believe that the soldering, cutting, interlinking
and bending of the U.S. materials are encompassed by the
operations specified in Note 2(b). See HRL 555929. Therefore,
if, in fact, all the materials are U.S. origin, and neither the
materials, after exportation from the U.S., nor the bezel itself,
before importation into the U.S., enters the commerce of any
foreign country other than a BC, and the applicable documentation
requirements are satisfied, the gold bezel will be entitled to
duty-free treatment under this provision.
We have enclosed a copy of Headquarters telex 9264071 dated
September 28, 1990, which sets forth procedures for the entry of
articles under Note 2(b).
In regard to the second issue presented, we believe that the
gold, alloy and solder materials of U.S.-origin which are
exported into the Dominican Republic and processed into gold rope
chains undergo at least two substantial transformations, thereby
permitting the cost or value of the U.S. materials to be counted
toward the 35% value-content requirement of the GSP. A full
enunciation of the law pertaining to eligibility of articles
under the GSP was provided in HRL 555929 and, therefore, it will
not be repeated here. We have previously held in HRL's 071788
dated April 17, 1984 and 555210 dated April 26, 1989, that 24
karat gold bars which were imported into the BDC, melted down
and mixed with the necessary alloys to form an 18 karat gold
composition and then rolled into wires, constituted a single
substantial transformation, and the completion of the articles
into jewelry constituted the second substantial transformation.
Therefore, consistent with HRL 555929 and the above-referenced
rulings, we believe that the melting of the gold and alloy of
U.S.-origin in the Dominican Republic to produce 10, 14 or 18
karat wire which is then cut into links, woven into blackened
spool chain, and finally, made into gold rope chain jewelry
satisfies the double substantial transformation requirement for
purposes of the GSP.
Similarly, consistent with our above analysis of Note 2(b),
provided that the gold necklaces, bracelets and ankle bracelets
are manufactured from 100% U.S. components in the Dominican
Republic, the merchandise will also be eligible for duty-free
treatment under Note 2(b).
HOLDING:
The 10 karat and 14 karat gold bezel pendants, bracelets and
ankle bracelets are 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. . ."
The 10 karat and 14 karat gold rope chain necklaces are
classified under subheading 7113.19.21, 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. . . Necklaces and neck chains, of gold. . .
Rope."
The gold bezel, if made wholly of U.S. materials in the
Dominican Republic, is entitled to duty-free treatment under Note
2(b), upon compliance with the direct shipment and applicable
documentation requirements.
Moreover, the processing of the gold, alloy and solder of
U.S.-origin into gold wire, gold links, and subsequently into
gold rope chain necklaces, bracelets and ankle bracelets
satisfies the double substantial transformation requirement, and,
as a result, the cost or value of the gold, alloy and solder
materials may be included in the GSP 35% value-content
calculation. Accordingly, if the sum of the cost or value of the
gold, alloy and solder materials plus the direct costs of
processing operations performed in the Dominican Republic equals
or exceeds 35% of the appraised value of the merchandise at the
time of entry into the U.S., the gold jewelry will qualify for
duty-free treatment under the GSP. The gold necklaces and
bracelets, if made wholly of U.S. materials, also are entitled to
duty-free treatment under Note 2(b), upon compliance with the
direct shipment and applicable documentation requirements.
Sincerely,
John Durant, Director
Commercial Rulings Division
cc: NIS Div., Branch 3
N.Y. Seaport (870798)