OT:RR:CTF:VS H293882 CMR
U.S. Customs and Border Protection
John F. Kennedy International Airport
Building 77, 2nd Floor, Executive Office
Jamaica, NY 11430
RE: Application for Further Review of Protest No. 4701-17-100583; Eligibility for GSP; jewelry; double substantial transformation
Dear Port Director:
This is in response to your referral of the Application for Further Review of Protest No. 4701-17-100583, filed by Cowan, Liebowitz & Latman, on behalf of their client, Arpas International Ltd., against your decision to liquidate one entry of gold and silver jewelry without benefit of preferential tariff treatment under the Generalized System of Preferences (GSP). We note that the protest was timely filed. Counsel sought further review pursuant to 19 CFR § 174.24(b). While we agree that further review is warranted, we find the basis is actually in 19 CFR § 174.24(a) as evidenced by the submitted argument.
FACTS:
The merchandise at issue consists of various pieces of gold and silver jewelry produced by the protestant’s related party manufacturer in Turkey. The entry summary identified six line items, only four of which are at issue. The four line items consist of gold and silver jewelry entered under four subheadings of heading 7113, Harmonized Tariff Schedule of the United States (HTSUS), which provides for “Articles of jewelry and parts thereof, of precious metal or of metal clad with precious metal[.]” The specific subheadings under which the merchandise was entered are: subheadings 7113.11.20, HTSUS; 7113.11.50, HTSUS; 7113.19.29, HTSUS; and 7113.19.30, HTSUS.
Protestant’s counsel explains that the related manufacturer, located in Turkey, “employs over 1,160 workers trained in all aspects of precious metal jewelry design and production from raw materials through finished product.” See p.3, protest submission. The manufacturer “is one of the largest fully integrated jewelry manufacturers in the world. . . . It does not source finished goods from any other entity.” The manufacturer has been certified by the Responsible Jewellery Council and sources environmentally clean mined pure gold and silver from international refineries. Counsel further clarified that the 24 karat fine gold originates from international refineries located within, and outside, Turkey. “The precious metal goes through alloying processes in the factory, and jewelry is manufactured through traditional investment casting methods, stamping, hollow, CNC [computerized numerical control], tubing, plastic injection, metal molding, laser cutting and fusion casting.” With regard to the alloying process, counsel states that the fine gold, for example, is alloyed with base metals of copper, bronze, silver and/or zinc to create the desired 10 karat and 14 karat fineness. The alloying process is described as:
. . . melting the fine gold and base metal alloy to create 10 karat and 14 karat gold shot in solid form (“shot”). The fine gold is converted to shot in solid form for inventory, and not merely molten, poured and cast in a single operation.
In support of the GSP claim, protestant’s counsel submitted documentation to show that the manufacturer purchased gold ingots in November 2015 from refineries. The origin of the gold ingots is not clear; however, counsel indicates that the manufacturer uses gold that originates within, and outside, Turkey. The entry summary identified that the merchandise was imported under three different invoices. In the protest submission, counsel identified specific items of jewelry from each invoice, along with the model code for the identified items, and provided the purchase order from the United States customer. In addition to the purchase orders/confirmations from customers in the United States, counsel provided spreadsheets identifying the employees of the manufacturer who worked on producing the ordered jewelry, and printouts that appear to be from the manufacturer’s production tracking system of the work progress and employees involved in the production of the jewelry, including the dates and times the employees worked on the items.
Counsel also submitted information regarding the purchase and receipt of raw materials used in the production of the merchandise. The documentation shows that the manufacturer purchased gold bars that were 99.5 percent pure gold. The purchase orders and invoices show that the merchandise ordered and sold was of 10 karat or 14 karat gold or of sterling silver. No documentation regarding the raw material for the silver used in the sterling silver jewelry was submitted. Counsel submitted digital images taken during production at the manufacturing facility in Turkey and a video of onsite production of goods at the manufacturing facility in Turkey.
Your office did not believe the documentation provided by the protestant was sufficient to support the GSP claim as it was not sufficiently linked to the merchandise at issue in the entry. Your office also expressed concerns regarding the certainty that the photographs and videos were of the related manufacturer’s facility in Turkey.
In response to your office’s concerns, counsel submitted additional information, including a sworn certification from the Administrative Affairs Manager of the manufacturer certifying that the company “photographed actual materials, products and machinery and videotaped workers performing their respective jobs in the manufacturing process.” Further, the manager’s certification stated that all images and videos depicted actual employees performing their duties at the Istanbul manufacturing facility. The manager further certified that the records submitted to U.S. Customs and Border Protection (CBP) were true copies of actual business records maintained in the ordinary course of business by the manufacturer.
ISSUE:
Whether the merchandise at issue, consisting of gold and silver jewelry manufactured in Turkey, qualifies for preferential tariff treatment under the GSP.
LAW AND ANALYSIS:
Title V of the Trade Act of 1974, as amended (19 U.S.C. §§ 2461-65), authorizes the President to establish a Generalized System of Preferences to provide duty-free treatment for eligible articles imported directly from beneficiary developing countries (“BDCs”). Articles produced in a BDC may qualify for duty-free treatment under the GSP if the goods are imported directly into the customs territory of the United States from the BDC and the sum of the cost or value of materials produced in the BDC, or any two or more countries that are members of the same association of countries and are treated as one country under 19 U.S.C. § 2467(2), plus the direct costs of the processing operations performed in the BDC or member countries, is equivalent to at least 35 percent of the appraised value of the article at the time of entry into the United States. See 19 U.S.C. § 2463(a)(2) and (3); General Note 4, HTSUS; and, the implementing Bureau of Customs and Border Protection (“CBP”) Regulations at 19 CFR § 10.171-178.
Turkey has been designated as a BDC for purposes of the GSP and may be afforded preferential treatment under the 2015 Harmonized Tariff Schedule of the United States (“HTSUS”) which is the relevant HTSUS at the time of the entry. See General Note 4(a), HTSUS (2007). General Note 4(c), HTSUS (2007), provides in pertinent part as follows:
Articles provided for in a provision for which a rate of duty of “Free” appears in the “Special” subcolumn followed by the symbols “A” or “A*” in parentheses are those designated by the President to be eligible articles for purposes of the GSP pursuant to section 503 of the Trade Act of 1974.
* * *
. . . Whenever an eligible article which is the growth, product, or manufacture of a designated beneficiary developing country listed in subdivision (a) of this note is imported into the customs territory of the United States directly from such country of territory, such article shall be eligible for duty-free treatment as set forth in the “Special” subcolumn, unless excluded from such treatment by subdivision (d) of this note; provided that, in accordance with regulations promulgated by the Secretary of the Treasury the sum of (1) the cost or value of the materials produced in the beneficiary developing country . . ., plus (2) the direct costs of processing operations performed in such beneficiary developing country . . . is not less than 35 percent of the appraised value of such article at the time of its entry into the customs territory of the United States. . . .
See also, 19 CFR §§ 10.176(a), 10.177, and 10.178.
Subheadings 7113.11.20, HTSUS, and 7113.11.30, HTSUS, under which some of the merchandise at issue was entered, have the “Free” rate of duty in the “Special” subcolumn followed by the special program indicator (SPI) “A”, among other SPIs. Subheadings 7113.11.50, HTSUS, and 7113.19.29, HTSUS, under which the rest of the merchandise at issue was entered, have the “Free” rate of duty in the “Special” subcolumn followed by the special program indicator (SPI) “A*”, among other SPIs, which excludes GSP treatment for goods classified in these provisions if goods of India or Thailand; or goods of Thailand, respectively. Therefore, to be eligible for GSP treatment, the jewelry at issue must be a product of Turkey, imported directly to the United States, and meet the 35 percent value-added requirement set forth in General Note 4(c), HTSUS. See also 19 U.S.C. § 2463(a)(2).
If an article consists of materials that are imported into a beneficiary developing country, as in the instant case, the cost or value of these materials may be counted toward the 35 percent value-content requirement only if they undergo a double substantial transformation in the beneficiary developing country. See 19 CFR 10.177(a)(2). Materials imported into the beneficiary developing country must first be substantially transformed into a new and different article of commerce which becomes "material produced," and these materials produced in the beneficiary developing country must then be substantially transformed into a new and different article of commerce (the final article). This intermediate product must be a distinct article of commerce. An article of commerce is commercially recognizable as an article which is readily susceptible of trade and one that persons might well wish to buy and acquire for their own purposes of consumption or production. See Azteca Mill Co. v. U.S., 703 F. Supp. 949 (CIT 1988), and F.F. Zuniga a/c Refractarios Monterrey, S.A. v. United States, 996 F.2d 1203 (Fed. Cir. 1993).
Your office questioned the documentation of the work done in Turkey. In response, an affidavit was provided. We accept the sworn certification from the Administrative Affairs Manager of the manufacturer that all of the jewelry sold by the importer was manufactured from raw materials at the company’s Istanbul factory. Counsel identified specific items of jewelry from each invoice, along with the model code for the identified items, the purchase orders from the United States customers, spreadsheets identifying the employees who worked on the production of the specific jewelry items and information from the manufacturer’s production tracking system for each item. While the information provided was only a representative sampling of items from the entry, we have carefully reviewed it and believe that it is sufficiently linked to the merchandise in the entry at issue. As such, we find that all of the labor to produce the jewelry occurred in Turkey. In addition, counsel submits that the raw material, gold and silver, underwent a double substantial transformation in the production process, thus allowing the value of the material to be included in the value of the jewelry.
We agree that the gold and silver underwent a double substantial transformation in Turkey. The pure metals require alloying with other materials in order to have the strength necessary to be used in production. The alloyed metals are formed into intermediate products, such as shot, sheeting, tubing, that are used in the production of jewelry under several of the methods employed. The submitted videos show the intermediate materials in the form of sheets being processed into jewelry. Further, with regard to the jewelry produced using the casting method, we held in HQ H033857, dated September 23, 2009, that in the case of gold and metal alloy, blended, melted and poured into molds, the gold alloy underwent a double substantial transformation, and the value of the gold and metals with which it was alloyed could be counted toward meeting the required 35 percent value content requirement of the GSP. Therefore, we agree with protestant’s counsel that the gold and silver raw materials underwent a double substantial transformation in Turkey and their value may be counted toward meeting the 35 percent value requirement of the GSP. See HQ H033857; HQ H022844, dated June 20, 2008; and, HQ 560331, dated December 2, 1997.
HOLDING:
The protest should be allowed. In accordance with the Protest/Petition Processing Handbook (CIS HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with this decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision, the Office of Trade, Regulations and Rulings will make the decision available to CBP personnel, and to the public on the Customs Rulings Online Search System (CROSS) at https://rulings.cbp.gov/ which can be found on the U.S. Customs and Border Protection website at http://www.cbp.gov and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division