CLA-2-71:OT:RR:NC:N4:433
Carmen A. Trutanich, Counsel
Tucker Ellis, LLP
515 South Flower Street
Los Angeles, CA 90071-2223
RE: The tariff classification of a plastic cartridge containing a piercing earring and clutch from Mexico, North American Free Trade Agreement (NAFTA) determination, country of origin determination, and whether there are any other duty exemptions applicable.
Dear Mr. Trutanich:
In your letter dated March 17, 2015, on behalf of Onyx Industries Inc. (Onyx), you requested a tariff classification ruling, country of origin determination, and whether there are any duty exemptions, for the “System 75 Display,” which is assembled and packaged in Mexico. As requested, the sample submitted will be returned to you.
We note from the position paper filed on behalf of your client Onyx that past CBP business transactions have occurred. However, since all entries have reached final liquidation of those past business transactions, you are now requesting a ruling based upon prospective business transactions of work undertaken in Mexico and imported into the United States.
The merchandise concerned is a plastic cartridge containing a piercing earring and clutch used within an ear-piercing instrument. The backend of the stud is sharpened to a point that enables the earring to pierce through an earlobe without a preexisting hole. The piercing studs are made of stainless steel or titanium posts, and the clutches are made of stainless steel, of which some of the posts and clutches are gold-plated. Some of the posts are further embellished with foreign origin faux jewels made of glass or of Cubic Zirconia (CZ) which is considered a simulated (synthetic) precious gemstone of diamond. Some imitation jewels are also made of plastic, such as those that are sold as faux pearls. Two System 75 Display(s) are sealed together in an adjoining, perforated sterile blister pack and are meant to be sold in pairs, however, one can purchase an individual Display.
Each System 75 Display, not including the foreign faux or simulated gemstone or faux pearl, consists of four plastic components (a white plastic box, a white plastic support, two clear plastic inserts) of United States origin and three base metal components (spring, stud and clutch) of United States origin, all of which are assembled in Mexico. It is unstated whether the faux gemstone or pearl or CZ is affixed to the earring post in the United States or Mexico; for purposes of this discussion the faux stone or faux pearl or CZ will be considered affixed to the post within the United States. The unassembled cartridge itself prior to being assembled in Mexico consists of a white plastic box, a white plastic support, two clear plastic inserts and a base metal spring. In Mexico the plastic cartridge with base metal spring (five pieces) is assembled, and the base metal piercing earring along with its base metal clutch are positioned and placed appropriately within the cartridge. After which two System 75 Display(s) are sealed together in an adjoining, perforated sterile blister pack. In total seven United States components are assembled together to form the System 75 Display.
Under the General Rules of Interpretation (GRIs) to the Harmonized Tariff Schedule of the United States (HTSUS), specifically at GRI 3(b), the System 75 Display, without a CZ gemstone, is composed of different components (chiefly plastic and metal, and may contain glass) and is therefore considered a composite good. Regarding the essential character of composite goods, the Explanatory Notes (ENs) to GRI 3 (b) (VIII) of the HTSUS state that “the factor which determines essential character will vary between different kinds of goods. It may for example, be determined by the nature of the materials or components, its bulk, quantity, weight or value, or by the role of a constituent material in relation to the use of the goods.” When the essential character of a composite good can be determined, the whole product is classified as if it consisted only of the material or component that imparts the essential character to the composite good.
We recognize that the foreign faux gemstone or faux pearl provides the visual attractiveness to the studded earring. Nevertheless in this particular case, the fact that the base metal stud is worked into a point expressly fulfills the functionality of this good, which is to allow for the discharge of a piercing earring into one’s earlobe for establishing articles of jewelry worn for personal adornment. Accordingly, the essential character is imparted by the base metal stud.
The applicable subheading for the System 75 Display, without a CZ gemstone, will be 7117.19.9000, Harmonized Tariff Schedule of the United States (HTSUS), which provides for “Imitation Jewelry: Of base metal, whether or not plated with precious metal: Other: Other: Other.” The rate of duty will be 11% ad valorem.
In regard to the System 75 Display, with a CZ, Legal Note 11 to Chapter 71 of the Harmonized Tariff Schedule of the United States (HTSUS) provides that for the purposes of heading 7117, the expression “imitation jewelry” means articles of jewelry within the meaning of paragraph (a) of note 9 above (but not including buttons or other articles of heading 9606, or dress combs, hair slides or the like, or hairpins, of heading 9615), not incorporating natural or cultured pearls, precious or semiprecious stones (natural, synthetic or reconstructed) nor (except as plating or as minor constituents) precious metal or metal clad with precious metal. See Legal Note 9 (a), HTSUS, for exemplars of articles of jewelry. With case in point, a CZ is a synthetic (simulated) diamond and is categorized under precious gemstones. Accordingly, this item is classifiable, not as imitation jewelry of subheading 7117.19, HTSUS, but rather as precious (synthetic) jewelry in subheading 7116.20, HTSUS.
The applicable subheading for the System 75 Display, with a CZ gemstone, will be 7116.20.0580, Harmonized Tariff Schedule of the United States (HTSUS), which provides for “Articles of natural or cultured pearls, precious or semi-precious stones (natural, synthetic or reconstructed): Of precious or semiprecious stones (natural, synthetic or reconstructed): Articles of jewelry: Valued not over $40 per piece: Other.” The rate of duty will be 3.3% ad valorem.
Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on World Wide Web at http://www.usitc.gov/tata/hts/.
Due to the fact that the System 75 Display is being assembled in Mexico, and that the country of origin is governed by the North American Free Trade Agreement (NAFTA), we will also rule on whether or not the System 75 Display is eligible for preferential duty treatment under NAFTA. To be eligible for tariff preferences under NAFTA, goods, must be “originating goods” within the rules of origin in General Note 12 (b), HTSUS.
In this particular case, to be an “originating good” the System 75 Display must be transformed in the territory of Mexico pursuant to General Note 12 (b) (ii), (A) or (B), which states: (A) except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein, or (B) the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note. In the event that 12 (b) (ii), (A) or (B) cannot be satisfied, then General Note 12 (b) (iii) states: they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials.
In examining whether or not the System 75 Display is transformed in the territory of Mexico, the NAFTA tariff shift rule of origin, as provided in General Note 12 (t), Chapter 71, Note 2 to the HTSUS, is applicable. The rule states at Note 2: A change to headings 7113 through 7118 from any heading outside that group. We note that all of seven components used in the assembling of the System 75 Display are originating in the United States, and therefore we find no change to headings 7113 through 7118 occurred; consequently this rule does not satisfy the rule of origin for NAFTA preferential duty treatment. However, we find that the System 75 Display is made from “exclusively originating materials,” and therefore satisfies the rule of origin under General Note 12 (b) (iii); accordingly, the System 75 Display is eligible for NAFTA preferential duty treatment.
Part 134, Customs Federal Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. In Section 134.1 (b), the country of origin of an article is defined as the country of manufacture, production, or growth of any article of foreign origin entering the United States. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the country of origin for country of origin marking purposes. 19 CFR 134.1 (b) is not applicable for NAFTA goods, as country of origin will be determined in accordance with 19 CFR 102 – Rules of Origin.
19 CFR, Section 102.20, “specific rule by tariff classification” is inapplicable to a country of origin determination for the System 75 Display, in that all of the materials are originating and therefore cannot meet the rules: “a change to heading 7116 …. or a change to heading 7117 …..” As such, 19 CFR, Section 102.11 (b) (1) provides that “the country of origin of the good is the country or countries of origin of the single material that imparts the essential character to the good.” 19 CFR, Section 102.18 (b) (1) elaborates on the meaning of “essential character” to include only those materials, both domestic and foreign, in which a change in tariff classification is not allowed under 19 CFR 102.20. As all of the materials are of United States origin, it is our opinion that the base metal piercing stud imparts the essential character to the good, resulting in the country of origin being that of the United States.
Further, we find that 19 CFR 102.19 (NAFTA preference override) is implicated. 19 CFR 102.19 (b) states: “If, under any other provision of this part, the country of origin of a good which is originating within the meaning of 19 CFR 181 (q) of this chapter is determined to be the United States and that good has been exported from, and returned to, the United States after having been advanced in value or improved in condition in another NAFTA country, the country of origin of such good for Customs duty purposes is the last NAFTA country in which that good was advanced in value or improved in condition before its return to the United States.” It is our position that the assembling of the seven components of U.S. origin in the manufacturing of a dedicated part used in an ear piercing gun is an advancement in value and an improvement in condition of the unassembled cartridge with its piercing earring and clutch. Accordingly, the country of origin for “duty purposes” is Mexico.
Subheading 9801.00.10, HTSUS, provides that products of the United States when returned after having been exported, without having been advanced in value or improved in condition by any process of manufacture or other means while abroad can be entered duty free provided the documentary requirements of 19 CFR 10.1 are satisfied.
The question in this particular case is whether the seven unassembled United States components that when assembled together in Mexico to make a plastic spring-loaded cartridge containing a piercing earring and clutch, for use as a one-time functional part in an ear piercing gun, is an advancement in value or improvement in condition of the ear piercing stud.
The court held in Border Brokerage Company, Inc. v. United States, 314 F. Supp. 788 (1970), that tomatoes of American origin were entitled to duty free entry under item 800.00, Tariff Schedules of the United States (“TSUS”) (the predecessor to subheading 9801.00.10, HTSUS). The tomatoes were shipped to Canada where they were unloaded, unpacked, sorted, graded by color and size, and repacked. The court stated that the test to be applied in item 800 cases is whether the merchandise of American origin has itself (apart from its container) been the object of advancement in value or improvement in condition while abroad. The court noted that there was no cleaning, wiping or individual wrapping of any of the involved tomatoes in Canada. Further, in Superscope, Inc. v. United States, 727 F. Supp. 629 (CIT 1989), the court held that American glass panels that were repackaged in New Zealand as part of unassembled cabinets were entitled to duty free status under item 800.00, TSUS.
Counsel uses five Headquarters rulings to assert that the plastic spring-loaded cartridge containing a piercing earring and clutch is simply packaging of American goods returned, and is entitled to duty-free treatment under 9801.00.10. Counsel also suggest by means of GRI 5 (b) to the HTSUS that the System 75 Display cartridge undergoes a packaging operation, rather than an assembly into a new device. The following five rulings are referenced in support of Counsel’s position: HQ 560811 dated February 11, 1998; HQ 555183 dated February 15, 1989; HQ 557322 dated August 31, 1993; HQ 560993 dated September 23, 1989; and HQ 560802 dated March 19, 1998.
Examination of five Headquarters rulings as referenced by Counsel indicates a common denominator, in that all of the components were of solid construction and were of fully prepared products, requiring no assembly to build a packaging instrument, and that those components did not influence (advance in value or improve in condition) the primary component of United States origin from simply being packaged. Unlike HQ 560811, in which the packaging of United States screws onto carrier reels were merely packaging operations, or HQ555183 and HQ 557322, in which United States dental floss was placed into plastic dispensers, the System 75 Display in unassembled form lacks any type of packaging instrument until being assembled together in Mexico. GRI 5 (b) requires a good prior to an allowance for its packing materials and packing containers, and as such, we are of the opinion that only the sealed blister pack is entitled to such treatment upon placing the assembled plastic spring-loaded cartridge containing a piercing earring and clutch within its packaging.
We are not persuaded that the unassembled components sent to Mexico for assembly of a plastic spring-loaded cartridge containing a piercing earring and clutch is simply packaging of American goods returned – see Headquarters ruling HQ 555509 dated January 29, 1990. There is no packaging until the good is assembled. Further, once assembled, the base metal spring used to force the piercing earring from its held position within the cartridge upon squeezing the trigger of the gun is an indication that the finished good is a dedicated part of an ear piercing gun, even with recognizing that the assembly operation is not complex. Equally important and not discussed by Counsel is the sterilization of the blister pack, which may, in and over itself, further advance and improve in condition the piercing earring, if sterilized in Mexico. Accordingly, the merchandise concerned is not entitled to 9801.00.10 treatment.
Subheading 9802.00.80, HTSUS, provides a partial duty exemption for: Articles … assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process such as cleaning, lubricating and painting.
All three requirements of subheading 9802.00.80, HTSUS, must be satisfied before an article may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full appraised value of the imported assembled article, less the cost or value of the U.S. components assembled therein, upon compliance with the documentation requirements of 19 CFR 10.24.
19 CFR 10.24 (a) (1), requires an assembler’s declaration to be filed in connection with the entry of assembled articles claimed to be subject to the exemption under subheading 9802.00.80, HTSUS, indicating that the imported articles were assembled in whole or in part from fabricated components which are products of the United States. The assembler’s declaration should include: marks of identification or numbers, description of the component, quantity, unit value at the time and place of export from the U.S., the port and date of export from the U.S., and the name and address of the manufacturer of the component. In addition, Customs and Border Protection (CBP) regulations require that the importer sign an endorsement stating that the assembler’s declaration and any other information submitted in support of the entry is correct and in compliance with the legal notes to the HTSUS – see 19 CFR. 10.24 (a) (2).
Subsection 10.24 (c) provides that, in lieu of filing duplicate lists of components and descriptions of assembly operations with each entry, the documents specified in subsection 10.24 (a) may refer to assembly descriptions and lists of components previously filed with and approved by the port director, or to records showing costs, names of manufacturers, and other necessary data on components, provided the importer has arranged with the port director to maintain such records and keep them available for examination by authorized CBP officers – see 19 CFR 10.24(c).
In this particular case, there are seven United States components that when assembled together in Mexico make a plastic spring-loaded cartridge containing a piercing earring and clutch, which is used within an ear-piercing instrument. Provided information indicates that the four plastic pieces of the cartridge and spring snap together, while the base metal stud and clutch, embellished or not, are tightly placed and positioned within the cartridge. Based on the facts presented, the seven United State components are exported ready for assembly without further fabrication. Accordingly, the snapping together of components and placing of components into fixed, held positions within the cartridge is an acceptable assembly operation performed abroad. All seven components of U.S. origin are eligible for “partial duty-exemption” under 9802.00.80, HTSUS, upon compliance with the documentation requirements of 19 CFR 10.24.
This ruling is being issued under the provisions of Part 177 of the Customs Regulations (19 C.F.R. 177).
A copy of the ruling or the control number indicated above should be provided with the entry documents filed at the time this merchandise is imported. If you have any questions regarding the ruling, contact National Import Specialist Neil H. Levy at [email protected].
Sincerely,
Gwenn Klein Kirschner
Director
National Commodity Specialist Division