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HQ 556892

December 23, 1992

CLA-2 CO:R:C:S 556892 RAH

CATEGORY: CLASSIFICATION

Mr. Gary Glazer
Commercial Import and Export Company
6037 Seward Park Avenue
Seattle, Washington 98118

RE: GSP; Gold Chains; Bracelets; Weaving; Soldering; Diamond Cutting; Substantial Transformation; HRL 556624

Dear Mr. Glazer:

This is in response to your letters of August 18 and 19, 1992 and September 1, 1992, requesting clarification of Headquarters Ruling Letter 556624 dated July 31, 1992. This ruling concerned the eligiblility of gold necklaces and bracelets imported into the U.S. from Thailand for duty-free treatment under the Generalized System of Preference (GSP). Some of the manufacturing (weaving gold links into chain and soldering) occurred outside of Thailand in a non-GSP country.

FACTS:

CI&CE imports gold rope chains in varying gauges and lengths as well as gold necklaces and bracelets of gold rope chain. The rope chains, necklaces and bracelets are manufactured from 10K, 14K or 18K gold wire which is produced in Thailand by CI&CE's factory (Chaingmai Chain and Jewelry Company) by melting pure gold bars obtained from Thailand, the United States or Australia with alloys from Thailand. The gold wire is made into links and then woven together into approximately 18-inch pieces. The links are soldered together with the use of gold and cadmium obtained in the United States or Thailand. The 18-inch pieces are then combined to make one continuous length, or alternatively, they are made into necklaces and bracelets. The final processing involves cleaning and polishing.

CI&CE also imports "diamond cut" rope chain, necklaces and bracelets. The same manufacturing processes are performed with the additional step of a machine process called diamond cutting which is done after the chain is cleaned.

The production process for the regular rope is as follows:

1. Pure gold bars are melted with alloys to make gold wire; 2. Components are made;
3. Components are woven together in approximately 18" pieces;
4. Components are soldered together;
5. The soldered components are combined to make one continuous length;
6. The chains are then cleaned;
7. The chains are exported, or;
8. The chains are cut into lengths;
9. Clasps are attached and soldered;
10. Finished product is cleaned, polished and exported.

The production process for the diamond cut rope is as follows:

1. Pure gold bars are melted with alloys to make gold wire; 2. Components are made;
3. Components are woven together in approximately 18" pieces;
4. Components are soldered together;
5. The soldered components are combined to make one continuous length;
6. The chains are cleaned;
7. The continuous chain is then put through a machining process called diamond cutting;
8. The chains are cleaned;
9. The chains are exported, or;
10. The chains are cut to length;
11. Clasps are attached and soldered;
12. Finished product is cleaned, polished and exported.

With regard to the diamond cutting, the chain is wrapped around a large cylinder mounted on a lath. The cylinder is then frozen and turned at a high speed and a diamond tool does the cutting in the same manner as a traditional lath.

All the manufacturing processes are currently performed in Thailand. In HRL 556624, supra, we addressed the eligibility of the jewelry for GSP if steps 3 and 4 (weaving and soldering) were performed outside of Thailand in a non-GSP eligible country. We held that the weaving and soldering of the links into chain substantially transformed the links into "products of" the country where those operations occurred, and that the remaining steps which were performed in Thailand did not substantially transform the chain into a "product of" that country. You now ask for clarification concerning whether the jewelry will still be eligible for duty-free treatment under the GSP if only step 3 (weaving) is done outside of Thailand.

Bracelets made of regular rope chain and diamond cut rope chain were submitted for our review.

ISSUES:

Whether, under the circumstances described above, the gold rope chains, necklaces and bracelets from Thailand are entitled to duty-free treatment under the GSP.

LAW AND ANALYSIS:

Under the GSP, eligible articles the growth, product or manufacture of a designated beneficiary developing 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 operations in the BDC, is equivalent to at least 35 percent of the appraised value of the article at the time of entry. See, 19 U.S.C. 2463(b).

The 35 percent value-content and "imported directly" requirements of 19 U.S.C. 2463(b) were conceived as separate and distinct country of origin tests designed to ensure that the benefits of the duty-free program actually accrue to the countries for which they were intended. See, The Trade Act of 1973: Hearings on H.R. 10710 Before the Senate Committee on Finance, 93rd Cong., 2nd Sess. 326 (1974) (statement of William D. Eberle, U.S. Special Representative for Trade Negotiations). This goal is accomplished by limiting the opportunities during which non-eligible goods may be commingled with eligible goods. The importer must satisfy both requirements, in addition to the "product of" requirement, in order to receive duty-free treatment of its merchandise.

Thailand is a designated BDC. See, General Note 3(c)(ii)(A), HTSUS. The bracelets and necklaces will be classified under heading 7113, HTSUS. Articles classified under this heading are eligible for GSP. Therefore, the necklaces and bracelets will receive duty-free treatment if they are considered to be the "product of" Thailand, the 35 percent GSP value-content minimum is met, and the goods are "imported directly" into the United States from Thailand.

Merchandise is considered the "product of" a BDC if it either is wholly the growth, product or manufacture of a BDC or has been substantially transformed there into a new or different article of commerce. 19 U.S.C. 2463(b)(2). A substantial transformation occurs "when an article emerges from a manufacturing process with a new name, character, or use which differs from that of the original material subjected to the process." The Torrington Company v. United States, 764 F.2d 1563, 1568 (Fed. Cir. 1985).

As we stated in HRL 556624, melting down gold bars and mixing with alloys to form wire (steps 1 and 2) constitutes a substantial transformation. HRL 071788 dated April 17, 1984, and HRL 555210 dated April 26, 1989. Furthermore, the conversion of gold wire into links is a substantial transformation. HRL 555929 dated April 22, 1991.

Your primary question is whether the gold links (a product of Thailand) are substantially transformed into a new and different article of commerce in Burma, Laos, Cambodia, Sri Lanka or China, where they will be woven together in approximately 18 inch pieces. In this regard, we find that weaving links into chain forms the fundamental and essential character of the finished article (bracelet and/or necklace) and dedicates its use as jewelry. Accordingly, the weaving substantially transforms the links into a new and different "product of" the country where that process occurs.

Next, you ask whether the gold woven chains (now a product of the country where they were woven) are substantially transformed into a "product of" Thailand when exported back to that country. In Thailand, the woven chains are soldered, cut into lengths, clasps attached to make bracelets and/or necklaces, cleaned, polished and exported to the United States. Alternatively, the chains will be combined into one continuous length and cleaned. (See steps 4-12).

It is our opinion that the processes performed in Thailand do not substantially transform the woven chain into a "product of" that country. The essential character of the jewelry is the chain which results from the weaving operation. The soldering merely keeps the character of the chain permanently in place. Likewise, soldering closures (i.e., clasps, spring rings) to chains constitutes a simple combining operation for which duty- free treatment under the GSP is not allowed. 19 U.S.C. 2463(b)(2). It is our opinion that the addition of the clasps, cleaning and polishing of the gold chains provides new features thereto but does not change the essence of the chains. The chains are dedicated to use as, and have the essential character of, jewelry pieces such as bracelets and/or necklaces. Furthermore, combining the chains into one continuous length in Thailand and mere cutting to length of the chain does not transform it into a new or different article of commerce. Additionally, Customs has long held that cleaning and polishing operations do not create a new article or alter the intended use of the article. See HRL 556060 dated August 27, 1991.

Finally, the diamond cutting operation performed on the necklaces, bracelets, and continuous length chains would not substantially transform the articles into "products of" Thailand. We have generally held that cutting or engraving an article for decorative purposes does not result in a substantial transformation of that article. This is also applicable to your case where the chain is wrapped around a large cylinder mounted on a lath and cut with a diamond tool. In rulings addressing this issue, the engraving or decorative cutting operations were performed on partially or nearly completed articles, and, therefore, we determined that the operations were analogous to finishing operations which do not result in a substantial transformation. See HRL 731963 dated July 26, 1989 (hand- faceting of jewelry, a process whereby a worker uses a diamond tipped high-speed rotating wheel to cut away small pieces of silver, does not result in a substantial transformation. See also HRL 043004 dated January 7, 1976, HRL 045106 dated April 22, 1976, and HRL 047663 dated March 21, 1977, each of which held that decorative cutting of wine glasses does not result in a substantial transformation.

In summary, although the chains, necklaces and bracelets would be "imported directly" from Thailand, they would not be "products of" that country, as discussed above. Therefore, they will not be eligible for duty-free treatment under the GSP when imported into the United States.

HOLDING:

Under the facts presented, the finished gold bracelets and/or necklaces "imported directly" into the United States from Thailand are not "products of" that country. Accordingly, they will not be eligible for duty-free treatment under the GSP.

Sincerely,

John Durant, Director
Commercial Rulings Division

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