CLA-2 CO:R:C:S 555929 WAW
Brian S. Goldstein, Esq.
Siegel, Mandell & Davidson, P.C.
One Whitehall Street
New York, N.Y. 10004
RE: GSP treatment of gold jewelry items from the Dominican
Republic; double substantial transformation; 057310; 067383
Dear Mr. Goldstein:
This is in response to your letter dated January 31, 1991,
on behalf of Kevin Lipton Rare Coins, Inc. (KLRC), in which you
request a ruling on whether the cost or value of U.S.-origin gold
wire which is imported into the Dominican Republic and made into
gold rope chain necklaces, bracelets and ankle bracelets, which
will be imported into the U.S., may be counted toward the 35%
value-content requirement of the Generalized System of
Preferences (GSP) (19 U.S.C. 2461-2466). No sample of the
merchandise was submitted for examination.
FACTS:
KLRC is presently importing "blackened" gold rope chains in
varying gauges and lengths into the U.S. which are produced in
the Dominican Republic by a wholly owned subsidiary of KLRC. The
gold rope chains are made in the Dominican Republic from gold
wire which is manufactured in the U.S. from pure gold bars. In
the Dominican Republic, the U.S.-origin gold wire is spun on a
mandrill into an 18 inch coil. A brass rod is inserted through
the coil which is then put through a cutting machine. After the
cutting process, small gold pieces in the shape of crooked
horseshoes are produced. Next, the horseshoe-shaped gold pieces
are inserted through a flattening machine to straighten them out
into links. Once the links are formed, workers then weave the
links by hand into a chain. Each link is joined together by
interlocking the open section of the horseshoe-shaped link.
The next stage of production involves transferring the
unsoldered woven chain to soldering stations where solderers
place a silver solder on the chain. The importer states that
there are approximately 50 solderers who perform this procedure
in the Dominican Republic. Next, soldered gold chains
approximately 20" - 30" long are soldered together to an
approximate length of 50 feet before being returned to the U.S.
for finishing processes.
The importer states that in addition to the procedures
already performed in the Dominican Republic, he is contemplating
performing additional operations in the Dominican Republic which
will transform the gold chains into necklaces, bracelets, and
ankle bracelets. KLRC plans on sending machinery to the
Dominican Republic to diamond cut the chains which gives them a
glittering appearance. In addition, KLRC will cut the chains to
appropriate lengths for necklaces, bracelets, and ankle
bracelets, and then a lock or clasp will be attached to the
chain.
Once the gold rope chain is imported into the U.S. it
undergoes a cleaning process which is referred to as "balming."
This process involves soaking the gold chain in an acid bath of
potassium cyanide and hydrogen peroxide to remove any excess
silver and black residue and to give the chain a shiny
appearance.
ISSUE:
Whether the gold links made in the Dominican Republic from
U.S.-origin gold wire are substantially transformed constituent
materials of the gold necklaces, bracelets, and ankle bracelets
for purposes of the 35% value-content requirement of the GSP?
LAW AND ANALYSIS:
Under the GSP, eligible articles the growth, product or
manufacture of a designated beneficiary country (BDC) which are
imported directly into the customs territory of the U.S. from a
BDC may receive duty-free treatment if the sum of 1) the cost or
value of materials produced in the BDC, plus 2) the direct costs
of the processing operation in the BDC, is equivalent to at least
35% of the appraised value of the article at the time of entry.
See 19 U.S.C. 2463(b).
If an article is produced or assembled from materials which
are imported into the BDC, the cost or value of those materials
may be counted toward the 35% value-content minimum only if they
undergo a double substantial transformation in the BDC. See
section 10.177, Customs Regulations (19 CFR 10.177), and Azteca
Milling Co. v. United States, 703 F. Supp. 949 (CIT 1988), aff'd,
890 F.2d 1150 (Fed.Cir. 1989). In the instant case, although the
gold wire used in the production of the necklaces and bracelets
is not of Dominican Republic origin, its cost or value may
nevertheless be included in the 35% value-content computation if
it undergoes a double substantial transformation in the Dominican
Republic. That is, the cost or value of the gold wire used to
produce the gold chains may be included in the GSP 35% value-
content computation only if the gold wire is first substantially
transformed in the Dominican Republic into a new and different
article of commerce, which is itself substantially transformed
into a gold necklace, bracelet or ankle bracelet.
A substantial transformation occurs "when an article emerges
from a manufacturing process with a name, character, or use which
differs from those of the original material subjected to the
process." Texas Instruments Incorporated v. United States, 681
F.2d 778, 69 CCPA 151 (1982).
The Dominican Republic is a BC. See General Note
3(C)(ii)(A), Harmonized Tariff Schedule of the United States
Annotated (HTSUSA). The 10 karat or 14 karat gold necklaces
would be properly classified under subheading 7113.19.21, HTSUSA,
which provides for articles of jewelry and parts thereof, of
precious metal or of metal clad with precious metal: . . . Other:
necklaces and neck chains, of gold: rope. The 10 karat or 14
karat bracelets or ankle bracelets would be properly classified
in subheading 7113.19.50, HTSUSA, which provides for articles of
jewelry and parts thereof, of precious metal or of metal clad
with precious metal: . . . Other: Other. Articles classified in
the above subheadings are eligible for duty-free treatment under
the GSP. Accordingly, the necklaces, bracelets, and ankle
bracelets will receive duty-free treatment under the GSP if the
sum of the direct costs of processing the necklaces plus the
value of materials produced in the Dominican Republic is equal to
or greater than 35% of the appraised value of the merchandise.
In Headquarters Ruling Letter (HRL) 057310 dated January 24,
1979, we held that 14 karat gold necklaces produced in a BDC from
gold wire of U.S.-origin were subjected to a double substantial
transformation for purposes of the GSP. In that case, gold wire
and flat stock from the U.S. was supplied to the manufacturer in
the BDC. Lengths of gold chain were produced in the BDC from the
imported gold wire, and finished necklaces were then produced
from the footage chains. Because the foreign processing resulted
in a double substantial transformation, we held that the cost or
value of the gold wire could be included as part of the 35%
value-content requirement of the subsequently produced gold
necklaces. See also HRL 067383 dated August 21, 1981.
After careful consideration, we find that the conversion of
the gold wire in the Dominican Republic into gold links results
in an intermediate article of commerce which is different in
name, character, and use from the component materials. Moreover,
because the gold links are themselves substantially transformed
into new and different articles of commerce (the 10 karat or 14
karat necklaces, bracelets, and ankle bracelets), we find that
the materials imported into the Dominican Republic will have
undergone the requisite double substantial transformation.
Therefore, if the sum of the cost or value of the gold wire,
plus the direct costs incurred in processing the necklaces,
bracelets, and ankle bracelets, is equivalent to at least 35% of
the appraised value of the necklaces, bracelets, and ankle
bracelets at the time of their entry into the U.S., then the
merchandise will receive duty-free treatment under the GSP. You
have indicated that, based on current estimates and computed
value calculations, the sum of the cost or value of materials
produced in the Dominican Republic, plus the direct costs of
processing operations, represents substantially more than 35% of
the appraised value of the imported merchandise. Based on your
estimated cost and appraised value information, we conclude that
the merchandise will be entitled to duty-free treatment under the
GSP.
In addition to the GSP program, recent legislation has
created a new duty-free program which appears to encompass your
transaction. Section 222 of the Customs and Trade Act of 1990
(Public Law 101-382) amended U.S. Note 2, subchapter II, Chapter
98, HTSUSA, 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
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.
U.S. Note 2(b) provides, in pertinent part, as follows:
(b) No article (except a textile article, apparel
article, or petroleum, or any product derived from
petroleum . . .) 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 to the United
States, enters the commerce of any foreign
country other than a beneficiary country.
Although U.S. Note 2(b)(i)(A) and (B) are separated by the
word "or", it is our opinion that Congress did not intend to
preclude 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.
The Dominican Republic is a CBERA BC. With regard to the
operations performed in the Dominican Republic, consisting of
cutting gold wire into links, weaving the links into a chain,
soldering the chain, cutting the chains to appropriate lengths,
and attaching a lock or clasp, we believe that these processes
are encompassed by the operations specified in Note 2(b). See
HRL 555742 dated November 5, 1990; HRL 555656 dated December 24,
1990. Accordingly, if only U.S. components or ingredients are
used during the foreign manufacturing operation, the gold
necklaces, bracelets, and ankle bracelets may enter the U.S.
duty-free pursuant to U.S. Note 2(b).
Enclosed is a copy of Headquarters telex 9264071 dated
September 28, 1990, to Customs field offices, setting forth
procedures for the entry of articles under U.S. Note 2(b).
HOLDING:
The gold wire of U.S.-origin which is processed into gold
links in the Dominican Republic and subsequently into gold rope
necklaces, bracelets and ankle bracelets undergoes a double
substantial transformation, and, as a result, the cost or value
of the gold wire may be included in the 35% value-content
calculation. Accordingly, if the sum of the cost or value of the
gold wire 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 articles will qualify for duty-free treatment under the
GSP.
Moreover, the gold necklaces, bracelets and ankle bracelets,
if made wholly from products of the U.S. in the Dominican
Republic, are entitled to duty-free treatment under U.S. Note
2(b), subchapter II, Chapter 98, HTSUSA, upon compliance with the
applicable documentation requirements.
Sincerely,
John Durant, Director
Commercial Rulings Division
Enclosure
cc: Ass't. Area Dir., NIS
(NY 860134)