CLA-2 CO:R:C:V 555210 BJO

Mr. Cyrus Maybud
Maybud & Cie
Conseillers Juridiques et Economiques
Route du Remblais
1782 Belfaux
Fribourg, Switzerland

RE: GSP Eligibility of Gold Necklaces Imported from Malta

Dear Mr. Maybud:

This is in response to your letters of September 7, September 9, and October 10, 1988, to the Area Director, New York Seaport, in which you request a ruling on behalf of Silmar S.p.A., that 14 karat gold necklaces produced in Malta are eligible for duty-free entry under the Generalized System of Preferences (GSP)(19 U.S.C. 2461-2466).

FACTS:

You state that Silmar Malta S.p.A. will produce the gold necklaces in Malta from imported 24 karat fine gold. The Maltese manufacturing operation is described in your submissions as follows:

(1) The 24 karat fine gold will be melted down and alloyed to 14 karat gold in a continuous casting oven. The resulting gold wire will have a diameter of 6 millimeters.

(2) The wire will be passed through special extruding machinery to reduce its diameter to between 0.25 and 1.20 millimeters, and then machine formed into links and into chains.

(4) The links of the chain, which remain slightly open from the previous step, will next be welded by means of a chemical process. By means of a twisting machine, the chain will be flattened, and then it will be beaten to its desired width with a mechanical hammer. Because the hammering operation will leave the chain rigid, it must be "softened"

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through particular mechanical movements. The chain will then be diamond-beveled with a special lathe, machine printed with various designs, polished by means of ultra sound, and shined in an electronic galvanized bath.

(5) Clasps will be thermo-welded to the ends of the chain to form the necklace. The clasps will be polished with a rotative machine. The finished necklaces will be packed for export and shipped by air to the U.S.

ISSUE:

Whether the 14 karat gold necklaces produced in Malta are eligible for duty-free treatment under the GSP.

LAW AND ANALYSIS:

Under the GSP, eligible products of a designated beneficiary developing country (BDC) which are imported directly into the U.S. qualify for duty-free treatment if the sum of the cost or value of the constituent materials produced in the BDC plus the direct costs involved in processing the eligible article in the BDC is at least 35% of the article's appraised value at the time of its entry into the U.S. See 19 U.S.C. 2463.

Malta is a BDC, and the 14 karat gold necklaces, which are classified for tariff purposes under either subheading 7113.19.21 or 7113.19.29 of the Harmonized Tariff Schedule of the United States (HTSUS), depending upon the type of link, are GSP eligible articles. Your letters indicate that the necklaces will be imported directly to the U.S. Accordingly, the necklaces will receive duty-free treatment under the GSP if the direct costs of processing the necklaces plus the value of Maltese materials is equal to or greater than 35% of the appraised value of the necklaces.

Although the 24 karat gold used in the production of the necklaces is not of Maltese origin, its cost or value may nevertheless be included in the 35% value-content computation if it undergoes a double substantial transformation in Malta. That is, the 24 karat gold imported into Malta must be substantially transformed in Malta into a new and different intermediate article of commerce, which is then used in Malta in the production of the 14 karat gold necklaces exported to the U.S. See 19 CFR 10.177(a).

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A substantial transformation occurs when an article emerges from a process with a new name, character, or use different from that possessed by the article prior to processing. See Texas Instruments, Inc. v. United States, 69 CCPA 152, 681 F.2d 778 (1982).

In HQ 071788, dated April 17, 1984, we ruled that 18 karat gold wire produced from 24 karat fine gold bars was a substantially transformed constituent material of gold chains or bracelets for GSP purposes. In that case, the gold bars were imported into the BDC, and melted down and mixed with necessary alloys to reduce its purity. The resulting 18 karat gold was then rolled into wires of different gauge and size, which were shaped into round circles and ovals, soldered together, and stamped into a flat link figure-eight or similar shape. Clasps were then attached to form chains or bracelets, which were cleaned, polished and buffed, and exported directly to the U.S. Because the 18 karat gold wire was determined to be an intermediate article of commerce, we stated that its cost or value may be included as part of the GSP 35% requirement of the subsequently produced chains and bracelets.

The manufacture of the gold necklaces in Malta you describe appears to involve nearly identical raw materials, processing operations, and intermediate and final products as those described in HQ 071788. On the basis of that ruling, therefore, we find that the conversion of the 24 karat fine gold in Malta into 14 karat gold wire produces an intermediate article of commerce, which itself is ultimately substantially transformed into the 14 karat gold necklaces. The cost or value of the gold wire thus may be included in the 35% value-content requirement of the GSP.

Because of the absence of cost information in your letters, we cannot conclude that the 35% value-content requirement will be satisfied in this case. However, if the sum of the cost or value of the gold wire, plus the direct costs of producing the necklaces, is equivalent to at least 35% of the appraised value of the necklaces at the time of their entry into the U.S., then the necklaces will receive duty-free treatment under the GSP.

We have enclosed for your information a copy of the Customs Regulations relating the to the GSP.

- 4 - CONCLUSION:

The 14 karat gold wire produced in Malta from 24 karat fine gold imported into Malta is a substantially transformed constituent material for GSP purposes. Accordingly, if the sum of the cost or value of the gold wire plus the direct costs of processing operations performed in Malta equals or exceeds 35% of the appraised value of the necklaces at the time of entry into the U.S., the necklaces will qualify for duty-free treatment under the GSP.

Sincerely,

John Durant, Director
Commercial Rulings Division

Enclosure

cc: New York Seaport
(CLA-2-71:S:N:N3G:344 832953)