CLA-2 CO:R:C:M 952813 NLP
Mr. Daniel Murphy
Murphy Brothers & Associates, Inc.
P.O. Box 185
Leominster, MA 01453
RE: Fire opals; rough semi-precious gemstones; cut and polished
semi-precious gemstones; Explanatory Notes 71.02 and 71.03;
Annex to the Explanatory Notes to chapter 71; subheading
9802.00.50
Dear Mr. Murphy:
This is in response to your letter dated September 28, 1992,
in which you requested the tariff classification for fire opal
gemstones under the Harmonized Tariff Schedule of the United
States (HTSUS).
FACTS:
The merchandise at issue is a fire opal gemstone, whose
chemical make up is translucent hydrous silica. According to
your letter, you will send the rough fire opals to Thailand for
cutting and polishing. The cut and polished fire opals will then
be sent back to the U.S. to be sold to wholesalers for use in
jewelry. In addition, you state that you maintain ownership of
the opals throughout the entire cutting process and you do not
want to be charged duty when they are returned to the U.S.
ISSUE:
What is the tariff classification of the cut and polished
fire opal gemstones under the HTSUS?
LAW AND ANALYSIS:
The classification of merchandise under the HTSUS is
governed by the General Rules of Interpretation (GRI's). GRI 1
provides that classification shall be determined according to the
terms of the headings and any relative section or chapter notes.
Heading 7103, HTSUS, provides for "[p]recious stones (other
than diamonds) and semi-precious stones, whether or not worked or
graded but not strung, mounted or set; ungraded precious stones
(other than diamonds) and semi-precious stones, temporarily
strung for convenience of transport." Explanatory Note (EN)
71.03 of the Harmonized Commodity Description and Coding System
page 953, states that "[t]he provisions of the second paragraph
of the Explanatory Note to heading 71.02 apply, mutatis mutandis,
to this heading." EN 71.02 states, on page 952, that heading
7102, HTSUS, "covers unworked stones, and stones worked, e.g., by
cleaving, sawing, bruting, faceting, grinding, polishing,
drilling, engraving (including cameos, and intaglios), preparing
as doublets, provided they are neither set nor mounted."
Unworked semi-precious stones of subheading 7103.10, HTSUS,
are stones that are unworked and are in the same condition as
when they were mined from the earth. Otherwise worked semi-
precious stones of subheading 7103.99, HTSUS, includes stones
that have been, inter alia, polished and cut.
The fire opals at issue here are considered to be semi-
precious gemstones pursuant to the Annex to the ENs for Chapter
71. The fire opals in their condition as imported are cut and
polished. Therefore, they are considered "otherwise worked". As
a result, the gemstones are classified in subheading 7103.99.10,
HTSUS, which provides for "[p]recious stones (other than diamonds
and semi-precious stones, whether or not worked or graded but not
strung, mounted or set...: [o]therwise worked: [o]ther: [c]ut but
not set, and suitable for use in the manufacture of jewelry."
Subheading 9802.00.50, HTSUS, provides for the assessment of
duty on the value of repairs or alterations performed on articles
sent abroad for that purpose. However, the application of this
tariff provision is precluded in circumstances where the
operations performed abroad destroy the identity of the articles
or create new or commercially different articles. See
A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956),
aff'd, C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian Industries
Corporation v. United States, 3 CIT 9 (1982), Slip-Op. 82-4 (Jan.
5, 1982). Subheading 9802.00.50, HTSUS, treatment is also
precluded where the exported articles are incomplete for their
intended use and the foreign processing operation is a necessary
step in the preparation or manufacture of finished articles.
Dolliff & Company, Inc. v. United States, 81 Cust. Ct. 1, C.D.
4755, 455 F. Supp. 618 (1978), aff'd, 66 CCPA 77, C.A.D. 1225,
599 F.2d 1015 (1979).
With regard to the facts in this case, we believe that the
polishing and cutting of the rough fire opals in Thailand do not
constitute acceptable "alterations," within the meaning of HTSUS
subheading 9802.00.50. The processes that you describe appear
to constitute a series of finishing operations which are
necessary to the manufacture of the completed gemstone. The
process of cutting and polishing a gemstone to a desired texture
and configuration is a significant manufacturing operation which
has the effect of changing the character of the outer surface of
the gemstone. That some of the same retailers who purchase the
finished gemstones may also buy the gemstones that have not been
polished or otherwise finished, does not change the fact that
these foreign processing operations are necessary in the
preparation of the finished articles. We believe that the
process of cutting and polishing the gemstones imparts
significant new characteristics to the gemstone giving it a
unique and specialized appeal. Accordingly, it is our opinion
that the finishing operations performed in Thailand constitute a
process of manufacture which exceeds an alteration within the
meaning of HTSUS subheading 9802.00.50. The fact that you
maintain ownership of the gemstones throughout the process is not
relevant for classification purposes.
HOLDING:
The cut and polished fire opals are classified in subheading
7103.99.10, HTSUS. Based on the facts presented to us, the
gemstones would not be allowed entry free of duty on their
importation into the U.S. The fire opals imported from Thailand
would be subject to the 2.1% ad valorem. duty rate applicable to
merchandise classified in the above subheading.
Sincerely,
John Durant, Director
Commercial Rulings Division