HQ 0556519 - Eligibility for duty-free treatment under U.S. Note 2(b), subchapter II, Chapter 98, HTSUSA, of gold jewelry made in the Dominican Republic from U.S. materials; GSP; bezel; necklace; bracelet; ankle bracelet; double substantial transformation; 555929; melting; soldering; 555210; 071788 - United States International Trade Commision Rulings

United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org Rulings By Number Rulings By Category Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 1992 HQ Rulings > HQ 0556320 - HQ 0734154 > HQ 0556519

HQ 556519

April 17, 1992

CLA-2 CO:R:C:S 556519 WAW

CATEGORY: CLASSIFICATION

Brian S. Goldstein, Esq.
Siegel, Mandell & Davidson, P.C.
One Astor Plaza
1515 Broadway
43rd Floor
New York, N.Y. 10036

RE: Eligibility for duty-free treatment under U.S. Note 2(b), subchapter II, Chapter 98, HTSUSA, of gold jewelry made in the Dominican Republic from U.S. materials; GSP; bezel; necklace; bracelet; ankle bracelet; double substantial transformation; 555929; melting; soldering; 555210; 071788

Dear Mr. Goldstein:

This is in response to your letter dated January 23, 1992, addressed to the Area Director of Customs in New York, on behalf of your client, Kevin Lipton Rare Coins, Inc. ("KLRC"), which was forwarded to our office, concerning the tariff treatment and eligibility for duty-free treatment under U.S. Note 2(b), subchapter II, Chapter 98, Harmonized Tariff Schedule of the United States Annotated (HTSUSA) ("Note 2(b)"), of certain gold jewelry items from the Dominican Republic.

FACTS:

You state that KLRC currently imports "bezel" jewelry of 10 or 14 karat gold. The bezels are open circular pieces of precious metal (gold), which hold a coin or medallion. KLRC purchases the circular pieces used in the finished bezels from L.A. Clasp, which is located in the U.S. KLRC supplies gold that is refined and mixed with alloy in the U.S. to L.A. Clasp who then manufactures the circular pieces used in the bezels.

The circular pieces produced in the U.S. are shipped to a factory in the Dominican Republic owned by KLRC's subsidiary. The factory produces gold rope chain from gold refined and mixed with alloy in the U.S. The gold rope chain is then soldered onto the edge of the bezel using silver solder of U.S.-origin. Next, small circular pieces of 10 or 14 karat gold in the shape of loops are soldered onto the circular piece of the bezel. The loops are made at the factory in the Dominican Republic using gold wire from the U.S. The final stage in the production process is the interlinking of "bails" onto the loops. You state that "a bail is what a necklace is threaded through so as to hang the bezel like a pendant on a necklace to be worn around a customer's neck and enables the bezel to hang flat when worn." The bails are purchased from L.A. Clasp in the U.S. and are composed either of 10 or 14 karat gold which is refined and mixed with alloy in the U.S.

You state that all of the fabricated components and ingredients which are used to produce the finished bezel -- the circular piece of the bezel, the rope chain, the loops, the bails and the solder -- are all of U.S.-origin.

We recently issued HRL 555929 dated April 22, 1991, to you on behalf of KLRC concerning the eligibility of gold rope necklaces, bracelets and ankle bracelets from the Dominican Republic for duty-free treatment under both the Generalized System of Preferences (GSP) and Note 2(b). In HRL 555929, U.S.- origin gold wire was imported into the Dominican Republic where it was cut and made into links, the links were interlocked and soldered together to form a chain, and finally, the chain was cut into appropriate lengths suitable for bracelets, necklaces, and ankle bracelets. We held that the conversion of the U.S.-origin gold wire into gold links and the subsequent assembly of the gold links into the gold rope chain for use in necklaces, bracelets and ankle bracelets, result in a double substantial transformation of the U.S. materials. Therefore, we held that the cost or value of the U.S.-origin gold wire may be included in the 35% value-content calculation of the GSP. In addition, we determined that the gold necklaces, bracelets and ankle bracelets were eligible to enter into the U.S. duty free pursuant to Note 2(b) if made wholly from U.S. components or ingredients in the Dominican Republic.

You state that in addition to the production procedures which are outlined in HRL 555929, KLRC is contemplating transferring all of the stages of manufacture of gold rope chains to its factory in the Dominican Republic. Specifically, KLRC intends to export all the gold, alloy and solder components, which are of U.S.-origin, to its plant in the Dominican Republic. The factory will melt the gold and alloy to produce 10, 14 or 18 karat wire which will then be cut into links and woven into blackened spool chains. The remainder of the process in the Dominican Republic will be the same as that set forth in HRL 555929. The only contemplated change is the actual melting of the U.S.-origin gold and production of the wire in the Dominican Republic. You ask whether under the contemplated scenario your client's gold chain merchandise will continue to be eligible for duty-free treatment under the GSP, as well as Note 2(b).

ISSUE:

(1) What is the proper tariff classification of the 10 karat and 14 karat gold bezel pendants, bracelets, ankle bracelets, and rope chain necklaces under the HTSUS.

(2) Whether the gold bezel made in the Dominican Republic from U.S.-origin materials is eligible for duty-free treatment under Note 2(b).

(3) Whether the gold, alloy and solder components of U.S.- origin which are processed into gold wire, gold links and subsequently into gold rope necklaces, bracelets and ankle bracelets in the Dominican Republic undergo a double substantial transformation, thereby enabling the cost or value of the U.S. materials to be included in the 35% value-content requirement of the GSP.

LAW AND ANALYSIS:

The classification of merchandise under the HTSUS is governed by the General Rules of Interpretation (GRI's). GRI 1, HTSUS, states in part that "for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes. . . ."

The 10 karat and 14 karat gold bezel pendants, bracelets and ankle bracelets are classified under subheading 7113.19.50, HTSUS, which provides for "Articles of jewelry and parts thereof, of precious metal or of metal clad with precious metal. . . Of precious metal whether or not plated or clad with other precious metal. . . Of other precious metal, whether or not plated or clad with precious metal. . . Other. . . Other. . ." Articles from the Dominican Republic classified under this tariff provision are eligible for GSP treatment.

The 10 karat and 14 karat gold rope chain necklaces are classified under subheading 7113.19.21, HTSUS, which provides for "Articles of jewelry and parts thereof, of precious metal or of metal clad with precious metal. . . Of precious metal whether or not plated or clad with other precious metal. . . Of other precious metal, whether or not plated or clad with precious metal. . . Other. . . Necklaces and neck chains, of gold. . . Rope." All articles classified under this tariff provision are eligible for GSP treatment.

Section 222 of the Customs and Trade Act of 1990 (Public Law 101-382) amended U.S. Note 2, subchapter II, Chapter 98, HTSUSA ("Note 2(b)"), 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 (BC) 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.

Note 2(b) specifically provides as follows:

(b) No article (except a textile article, apparel article, or petroleum, or any product derived from petroleum, provided for in heading 2709 or 2710) 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 into the United States, enters the commerce of any foreign country other than a beneficiary country.

As stated in this paragraph, the term "beneficiary country" means a country listed in General Note 3(c)(v)(A).

Although Note 2(b)(i)(A) and (B) are separated by the word "or," it is our opinion that Congress did not intend to preclude duty-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.

Pursuant to General Note 3(c)(v)(A), HTSUSA, the Dominican Republic is a designated BC for CBERA purposes. Note 2(b) specifies four categories of products which are excluded from duty-free treatment under this provision: textile articles; apparel articles; petroleum; and certain products derived from petroleum. The gold bezel does not fall within any of these excluded categories and, therefore, is eligible for duty-free treatment under this provision, provided that all of the other requirements are satisfied.

With regard to the operations performed in the Dominican Republic, we believe that the soldering, cutting, interlinking and bending of the U.S. materials are encompassed by the operations specified in Note 2(b). See HRL 555929. Therefore, if, in fact, all the materials are U.S. origin, and neither the materials, after exportation from the U.S., nor the bezel itself, before importation into the U.S., enters the commerce of any foreign country other than a BC, and the applicable documentation requirements are satisfied, the gold bezel will be entitled to duty-free treatment under this provision.

We have enclosed a copy of Headquarters telex 9264071 dated September 28, 1990, which sets forth procedures for the entry of articles under Note 2(b).

In regard to the second issue presented, we believe that the gold, alloy and solder materials of U.S.-origin which are exported into the Dominican Republic and processed into gold rope chains undergo at least two substantial transformations, thereby permitting the cost or value of the U.S. materials to be counted toward the 35% value-content requirement of the GSP. A full enunciation of the law pertaining to eligibility of articles under the GSP was provided in HRL 555929 and, therefore, it will not be repeated here. We have previously held in HRL's 071788 dated April 17, 1984 and 555210 dated April 26, 1989, that 24 karat gold bars which were imported into the BDC, melted down and mixed with the necessary alloys to form an 18 karat gold composition and then rolled into wires, constituted a single substantial transformation, and the completion of the articles into jewelry constituted the second substantial transformation. Therefore, consistent with HRL 555929 and the above-referenced rulings, we believe that the melting of the gold and alloy of U.S.-origin in the Dominican Republic to produce 10, 14 or 18 karat wire which is then cut into links, woven into blackened spool chain, and finally, made into gold rope chain jewelry satisfies the double substantial transformation requirement for purposes of the GSP.

Similarly, consistent with our above analysis of Note 2(b), provided that the gold necklaces, bracelets and ankle bracelets are manufactured from 100% U.S. components in the Dominican Republic, the merchandise will also be eligible for duty-free treatment under Note 2(b).

HOLDING:

The 10 karat and 14 karat gold bezel pendants, bracelets and ankle bracelets are classified under subheading 7113.19.50, HTSUS, which provides for "Articles of jewelry and parts thereof, of precious metal or of metal clad with precious metal. . . Of precious metal whether or not plated or clad with other precious metal. . . Of other precious metal, whether or not plated or clad with precious metal. . . Other. . . Other. . ."

The 10 karat and 14 karat gold rope chain necklaces are classified under subheading 7113.19.21, HTSUS, which provides for "Articles of jewelry and parts thereof, of precious metal or of metal clad with precious metal. . . Of precious metal whether or not plated or clad with other precious metal. . . Of other precious metal, whether or not plated or clad with precious metal. . . Other. . . Necklaces and neck chains, of gold. . . Rope."

The gold bezel, if made wholly of U.S. materials in the Dominican Republic, is entitled to duty-free treatment under Note 2(b), upon compliance with the direct shipment and applicable documentation requirements.

Moreover, the processing of the gold, alloy and solder of U.S.-origin into gold wire, gold links, and subsequently into gold rope chain necklaces, bracelets and ankle bracelets satisfies the double substantial transformation requirement, and, as a result, the cost or value of the gold, alloy and solder materials may be included in the GSP 35% value-content calculation. Accordingly, if the sum of the cost or value of the gold, alloy and solder materials 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 gold jewelry will qualify for duty-free treatment under the GSP. The gold necklaces and bracelets, if made wholly of U.S. materials, also are entitled to duty-free treatment under Note 2(b), upon compliance with the direct shipment and applicable documentation requirements.

Sincerely,

John Durant, Director

Previous Ruling Next Ruling

See also: