CLA-2 CO:R:C:S 556457 CW
Mr. Michael Stern
Secretary, CMS Products, Inc.
133 West 21st Street
New York, New York 10011
RE: Tariff treatment applicable to jewelry set with stones in
Costa Rica; CBERA; casting; polishing; substantial
transformation; product of; HRLs 555546, 555801 and 731963
Dear Mr. Stern:
This is in response to your letters dated December 12, and
21, 1991, requesting a ruling on the tariff status of certain
jewelry to be cast and set with stones in Costa Rica and imported
into the U.S. Additional information was provided by telephone
to a member of my staff by Mr. Jonathan Seidel of CMS Products,
Inc.
FACTS:
According to your submissions, the products that are being
produced in Costa Rica are gold, silver and base metal jewelry.
Fine pure gold and silver as well as alloys, all of U.S. origin,
are shipped to Costa Rica where they are manufactured into
various types of castings. The processing of the gold involves
melting down the fine gold and alloying it to create 10, 14 and
18 karat shot, which is then melted and poured into a mold to
create the castings. The fine silver is also melted and alloyed
to create sterling silver shot which is then cast into various
types of jewelry. The base metal jewelry is cast in a one-step
process from non-ferrous metals -- copper, zinc and tin --
presumably of U.S. origin. The castings are then polished before
any of a variety of stones are set into the jewelry pieces. You
state that the stones, which are almost exclusively of foreign
origin, are usually imported into the U.S. and then later shipped
to Costa Rica for assembly with the castings. However, polished
or rough stones may be shipped directly to Costa Rica from their
source, in which case the rough stones will be cut and polished
prior to the setting stage.
After the stones are set into the castings, the castings
undergo a final polish. The finished jewelry is then imported
into the U.S.
You ask whether those stones, such as diamonds, which arrive
in the U.S. duty-free, would again receive duty-free treatment
when they are shipped to Costa Rica, assembled with castings, and
returned to the U.S. as part of finished pieces of jewelry.
Secondly, you ask whether stones which were previously imported
and duty paid would incur further duty when shipped to Costa Rica
and returned to the U.S. as part of finished pieces of jewelry.
Lastly, you ask whether finished jewelry from Costa Rica would
receive duty-free treatment if the stones set in the castings
were previously shipped directly to Costa Rica from their source
in rough form and cut and polished in Costa Rica.
ISSUE:
Whether gold, silver, and base metal jewelry cast and set
with stones in Costa Rica are entitled to duty-free treatment
when imported into the U.S.
LAW AND ANALYSIS:
All articles imported into the U.S. are subject to duty
unless specifically exempted therefrom under the Harmonized
Tariff Schedule of the United States (HTSUS). In addition, in
the absence of a specific provision to the contrary, the tariff
status of an article is not affected by the fact that it was
previously imported into the U.S., whether or not duty was paid
upon the previous importation. See U.S. Note 2, Chapter 98,
HTSUS. To determine the duty applicable to an imported article,
it must be properly classified in a HTSUS tariff provision.
Without samples or a detailed description of the jewelry to be
imported, we are unable to make a definitive classification at
this time. However, based on the limited information provided,
it appears that the jewelry set with stones would be classified
in subheading 7116.20.10, HTSUS, which provides for articles of
precious or semiprecious stones (natural, synthetic or
reconstructed): articles of jewelry. Articles classified in
this provision are subject to a duty rate of 6.5% ad valorem.
However, eligible articles imported into the U.S. from
designated beneficiary countries (BCs) may be exempt from duty
under the Caribbean Basin Economic Recovery Act (CBERA) (19
U.S.C. 2701-2706). Costa Rica is a designated BC under this
program. Under the CBERA, eligible articles the growth, product
or manufacture of designated BCs may receive duty-free treatment
if such articles are imported directly to the U.S. from a BC, and
if the sum of 1) the cost or value of the materials produced in
the BC, plus 2) the direct cost of processing operations
performed in the BC, is not less than 35% of the appraised value
of the article at the time it is entered into the U.S. See,
section 10.195(a), Customs Regulations (19 CFR 10.195(a)). The
cost or value of materials produced in the U.S. may be applied
toward the 35% value-content minimum in an amount not to exceed
15% of the imported article's appraised value. See, section
10.195(c), Customs Regulations (19 CFR 10.195(c)).
Jewelry classifiable in subheading 7116.20.10, HTSUS, is
eligible for CBERA treatment. Therefore, we will assume for
purposes of this ruling that the jewelry under consideration here
is CBERA eligible.
Where an article is produced from materials imported into
the BC, as in this case, the article is considered to be a
"product of" the BC for purposes of the CBERA only if those
materials are substantially transformed into a new or different
article of commerce. Moreover, the cost or value of the U.S.-
and foreign- origin materials to be imported into Costa Rica may
be counted toward satisfying the 35% value-content requirement
(over and above the 15% cap on U.S. materials) only if there is a
finding that those materials were subjected to a double
substantial transformation in Costa Rica. See, section
10.196(a), Customs Regulations (19 CFR 10.196(a)). That is, the
cost or value of the materials imported into Costa Rica and used
to produce the jewelry may be included in the 35% computation
only if they are first substantially transformed into a new and
different intermediate article of commerce, which is itself
substantially transformed during the production of the final
article -- the finished jewelry.
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. Texas
Instruments Inc. v. United States, 69 CCPA 152, 681 F.2d 778
(1982).
The first issue to be addressed concerns whether the jewelry
is considered to be a "product of" Costa Rica for CBERA purposes.
In Headquarters Ruling Letter (HRL) 555801 dated January 2, 1991,
we held that casting precious metal alloys into a ring and then
mounting the ring with a gem stone in the Dominican Republic
results in a substantial transformation of the components into a
"product of" that country for CBERA purposes. Therefore, the
jewelry in the instant case which is cast into various types of
jewelry and then set with stones in Costa Rica would be
considered "products of" Costa Rica.
The next issue relates to whether the materials imported
into Costa Rica are subjected to a double substantial
transformation in the production of the jewelry so as to permit
the cost or value of the imported materials to be counted toward
the value-content requirement (over and above the 15% cap on U.S.
materials). In HRL 555546 dated January 30, 1990, we held that
24 karat gold imported into Mexico and converted into 14 karat
gold shot by an alloying process, and cast into jewelry items
results in a double substantial transformation for purposes of
the Generalized Systems of Preferences (GSP). See, also, HRLs
554823 dated December 15, 1987, and 555337 dated March 8, 1990.
Thus, the cost or value of the fine gold and the alloys of U.S.
origin which are cast into the 10, 14 and 18 karat gold jewelry
in Costa Rica may be included in the 35% calculation. Similarly,
the cost or value of the fine silver and the alloys of U.S.
origin which are converted into sterling silver and then cast
into jewelry in Costa Rica may also be included in the 35%
calculation. However, with respect to the base metal jewelry, as
the base metal of U.S. origin is cast into jewelry in its
condition as imported into Costa Rica, no double substantial
transformation results. Therefore, the cost or value of the base
metal used in the production of base metal jewelry may be applied
toward the 35% minimum in an amount not to exceed 15% of the
jewelry's appraised value.
The finished precious and semiprecious stones which are
imported into Costa Rica and merely set into castings clearly are
not subjected to a double substantial transformation. Thus, the
stones'cost or value may not be included in the 35% calculation.
However, with respect to the "rough" stones which are
imported into Costa Rica, and cut and polished (faceted) prior to
the setting operation, it is our opinion that such operations, if
performed on "rough" diamonds, result in a substantial
transformation. Although limited information was provided
concerning these operations, we understand that the cutting of a
gem quality diamond by cleaving or sawing to subdivide and shape
the stone and/or eliminate flaws, and putting 52 facets on each
diamond, are exacting processes which require considerable skill
and attention to detail. These operations, which we understand
remove approximately 50% or more of the weight of the "rough"
stones, result in more than a mere cosmetic change in the stone's
appearance; they significantly alter the shape and appearance of
the diamond, enhance its value, and transform an article with
numerous potential uses (e.g., cutting tools, thread grinders,
rock drills, wire drawing dies) to one dedicated to a single use
as a gem. In T.D. 44370(11) dated November 17, 1930, Customs
held that the country of origin of diamonds which are mined in
South Africa and cut and finished in Holland is Holland for
marking purposes.
Therefore, as the processes performed in Costa Rica on the
imported "rough" diamonds -- cutting and faceting the stones into
finished gems and setting the gems into jewelry pieces cast in
Costa Rica -- constitute a double substantial transformation, the
cost or value of the intermediate articles of commerce (the cut
and faceted diamonds) may be included in the 35% calculation.
Before a determination can be made on whether the cutting and
polishing of stones, other than diamonds, constitutes a
substantial transformation, more detailed information is required
concerning the types of stones and their potential uses, the
processing steps involved, and the value added and changes
effected by the processing.
Without information relating to the direct costs of
processing to be incurred in Costa Rica, the material costs and
the estimated appraised value of the jewelry when imported into
the U.S., we are unable to determine whether the 35% requirement
will be satisfied. We have enclosed for your information a copy
of the Customs Regulations relating to the CBERA (19 CFR 10.191-
10.198).
HOLDING:
Based on the information provided, the production of gold,
silver and base metal jewelry in Costa Rica by casting and
setting stones into the castings substantially transforms the
materials into "products of" Costa Rica for purposes of the
CBERA. The casting of the gold and silver jewelry results in a
double substantial transformation of the fine gold and silver and
the alloys imported into Costa Rica, thereby permitting the cost
or value of these materials to be included in the CBERA 35%
value-content calculation. In addition, "rough" diamonds
imported into Costa Rica and cut, polished and set into jewelry
items cast in that country are subjected to a double substantial
transformation, thereby permitting the cost or value of the cut
and polished diamonds to be counted toward the 35% requirement.
However, the cost or value of finished stones imported into Costa
Rica and merely set into castings may not be included in the
value-content calculation. Finally, the cost or value of U.S.-
origin base metals imported into Costa Rica and cast into base
metal jewelry may be counted toward the 35% requirement only up
to the 15% cap for U.S. materials.
Accordingly, the jewelry items will be entitled to duty-
free treatment under the CBERA, provided they are imported
directly into the U.S. and the 35% value-content requirement is
satisfied.
Sincerely,
John Durant, Director
Commercial Rulings Division
Enclosure