HQ 0955807 - Gold jewelry with and without gems; NAFTA; rules of origin; General Note 12(b); goods wholly obtained or produced; General Note 12(n); General Note 12(t) 71.2; change in tariff classification; 19 CFR 134.1(b); country of origin; Marking 102.20(n); 102.16(a)(2); production; substantial transformation; foreign material; material; advanced in value; improved in condition; minor processing; 102.1(a), (e), (i), (l), (m), (n), (p); 102.14; 102.11(b); essential character - United States International Trade Commision Rulings

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HQ 955807
May 2, 1994
CLA-2 CO:R:C:M 955807 KCC

CATEGORY: CLASSIFICATION

TARIFF NO.: 7113.19

Mr. Jeff Cross
Dolphin Brokerage International
P.O. Box 52-7305
Miami, Florida 33152-7305

RE: Gold jewelry with and without gems; NAFTA; rules of origin; General Note 12(b); goods wholly obtained or produced; General Note 12(n); General Note 12(t) 71.2; change in tariff classification; 19 CFR 134.1(b); country of origin; Marking 102.20(n); 102.16(a)(2); production; substantial transformation; foreign material; material; advanced in value; improved in condition; minor processing; 102.1(a), (e), (i), (l), (m), (n), (p); 102.14; 102.11(b); essential character

Dear Mr. Cross:

This is in response to your recently received undated letters written on behalf of Aurafin Corp., concerning the country of origin, applicability of the North American Free Trade Agreement (NAFTA) and tariff classification of gold jewelry under the Harmonized Tariff Schedule of the United States (HTSUS).

FACTS:

In the United States, United States or foreign-origin twenty- four karat gold is alloyed into eighteen, fourteen or ten karat gold. After the gold is alloyed, it is cast into rough forms of rings, earrings, etc. The rough forms are then assessed for purity and sent to Mexico. Non-United States origin gems of limited value (approximately 10% of the gold castings) are sent to Mexico for incorporation into some of the gold jewelry. For purposes of this ruling, we assume that the gems are not of Mexican origin either.

In Mexico, the rough forms are brought to a high polish and some of the pieces, such as bracelets, are assembled together. Additionally, gems are set into other jewelry pieces. The gold jewelry with gems are marked with hang tags stating "Made in Mexico" and the gold jewelry without gems are marked with hang tags stating "Handfinished in Mexico." Thereafter, all the finished gold jewelry is shipped back to the United States.

ISSUE:

I. What is the tariff classification of the gold jewelry with and without gems under the HTSUS?

II. Is the gold jewelry with and without gems eligible for preferential tariff treatment under the NAFTA?

III. What are the country of origin and the proper marking requirements applicable to the gold jewelry with and without gems?

LAW AND ANALYSIS:

I. Tariff Classification

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 terms of the headings and any relative section or chapter notes...."

We are of the opinion that the gold jewelry with and without gems are classified under subheading 7113.19, 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....

Classification to the eight digit level is dependant upon the exact type of jewelry being imported, i.e., rings, earrings, necklaces, bracelets, etc.

II. North American Free Trade Agreement

To be eligible for tariff preferences under the North American Free Trade Agreement (NAFTA), goods must be "originating goods" within the rules of origin in General Note 12(b), HTSUS. In this case, there are two methods by which goods imported into the United States may be "goods originating in the territory of a NAFTA party." The first method is that "they are goods wholly obtained or produced in the territory of Canada, Mexico and/or the United States." See, General Note 12(b)(i), HTSUS. The second method is that they be "transformed in the territory of Canada, Mexico and/or the United States" pursuant to General Note 12(b)(ii)(A), HTSUS, which states:
except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein....

In the first method, the phrase "goods wholly obtained or produced in the territory of Canada, Mexico and/or the United States", means, in pertinent part:

(i) mineral goods extracted in the territory of one or more of the NAFTA parties;...

(x) goods produced in the territory of one or more of the NAFTA parties exclusively from goods referred to in subdivisions (n)(i) through (ix), inclusive, or from their derivatives, at any stage of production.

See, General Note 12(n), HTSUS.

We are of the opinion that the gold jewelry without gems manufactured from United States-origin twenty-four karat gold is considered "originating goods" for purposes of the NAFTA pursuant to General Note 12(b)(i), HTSUS. The finished gold jewelry without gems are goods wholly obtained or produced in the territory of a NAFTA country. The twenty-four karat gold of United States-origin is alloyed and forged in the United States. In Mexico, the forged pieces are polished and, in some cases, assembled. Therefore, the gold jewelry without gems manufactured from United States-origin twenty-four karat gold is eligible for preferential treatment under the NAFTA.

For all the other situations, we must examine whether the gold jewelry with or without gems is "transformed in the territory of Canada, Mexico and/or the United States" pursuant to General Note 12(b)(ii)(A), HTSUS. As the gold jewelry with or without gems is classified under subheading 7113.19, HTSUS, a transformation is evident when a change in tariff classification occurs that is authorized by General Note 12(t) 71.2, HTSUS. General Note 12(t) 71.2, HTSUS, states:

A change to headings 7113 through 7118 from any heading outside that group.

Therefore, any non-originating materials must come from a heading outside of headings 7113 through 7118, HTSUS. The non- originating twenty-four karat gold is classified under heading 7108, HTSUS, and the non-originating gems are classified under heading 7103, HTSUS. A change in tariff classification does occur. Therefore, the gold jewelry with or without gems manufactured from non-originating twenty-four karat gold and/or
non-originating gems are eligible for preferential tariff treatment under the NAFTA.

III. Country of Origin and Marking

The marking statute, section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin (or its container) imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to the ultimate purchaser in the United States the English name of the country of origin of the article. Part 134, Customs Regulations (19 CFR Part 134) implements the country of origin marking requirements and exception of 19 U.S.C. 1304.

The country of origin marking requirements for a "good of a NAFTA country" are also determined in accordance with Annex 311 of the NAFTA, as implemented by section 207 of the North American Free Trade Agreement Implementation Act (Pub. L. 103-182, 107 Stat. 2057) (December 8, 1993) and the interim amendments to the Customs Regulations published as T.D. 94-4 (59 Fed. Reg. 109, January 3, 1994) with corrections (59 Fed. Reg. 5082, February 3, 1994) and T.D. 94-1 (59 Fed. Reg. 69460, December 30, 1993). These interim amendments took effect on January 1, 1994, to coincide with the effective date of the NAFTA. The Marking Rules used for determining whether a good is a good of a NAFTA country are contained in T.D. 94-4 (adding a new Part 102, Customs Regulations). The marking requirements of these goods are set forth in T.D. 94-1 (interim amendments to various provisions of Part 134, Customs Regulations).

Section 134.1(b) of the interim regulations, defines "country of origin" as:
the country of manufacture, production, or growth of any article of foreign origin entering the U.S. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the "country of origin"; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin (emphasis added).

Section 134.1(j) of the interim regulations, provides that the "NAFTA Marking Rules" are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country. Section 134.1(g) of the interim regulations, defines a "good of a NAFTA country" as an article for which the country of origin is Canada, Mexico or the United States as determined under the NAFTA Marking Rules. Section 134.45(a)(2) of the interim regulations, provides that "a good of a NAFTA country may be marked with the name of the country of origin in English, French, or Spanish." Part 102 of the interim regulations, sets forth the "NAFTA Marking Rules" for purposes of determining whether a good is a good of a NAFTA country for marking purposes. Section 102.11 of the interim regulations, sets forth the required hierarchy for determining country of origin for marking purposes. Section 102.11(a) of the interim regulations states that "[t]he country of origin of a good is the country in which:

(1) The good is wholly obtained or produced; (2) The good is produced exclusively from domestic materials; or
(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20 and satisfies any other applicable requirements of that section, and all other requirements of these rules are satisfied."

In this case, the applicable rule is section 102.11(a)(3) of the interim regulations. "Foreign Material" is defined in section 102.1(e) of the interim regulations as "a material whose country of origin as determined under these rules is not the same country as the country in which the good is produced." In order to determine whether Mexico is the country of origin, we must look at those materials whose country of origin is other than Mexico. The operations performed in the United States, i.e., alloy process, and forging, establish the United States as the country of origin of the gold jewelry rough forms. As indicated above, the gems are assumed to be not of Mexican origin. Therefore, the foreign material in the finished gold jewelry with and without gems is the gold jewelry rough forms and the gems.

As the gold jewelry with or without gems is classified under subheading 7113.19, HTSUS, the change in tariff classification must be made in accordance with section 102.20(n), Section XIV: Chapter 71, 7113-7115 of the interim regulations, which states that:

A change to subheading of heading 7113 through 7115 from any other subheading, including to a subheading within that group.

Therefore, each foreign material incorporated in the gold jewelry with and without gems must come from a subheading outside of subheading 7113.19, HTSUS. A change in the tariff classification does take place for the foreign gems from heading 7103, HTSUS, to subheading 7113.19, HTSUS. However, the cast rough forms of jewelry, i.e., rings, earrings, etc., are classifiable under the same subheadings as the completed gold jewelry with and without gems. In this case, a change in tariff classification does not occur pursuant to section 102.20(n), Section XIV: Chapter 71, 7113-7115 of the interim regulations.

However, section 102.16(a)(2) of the interim regulations states that "[i]f a good is produced in one country but one or more of the foreign materials incorporated into the good do not undergo an applicable change in tariff classification provided in section 102.20 because:

(2) The heading for the good provides for both the good itself and its parts and is not further subdivided into subheadings, or the subheading for the good provides for both the good itself and its parts, the country of origin of a good is the country in which the good was produced provided that the production of the good results in a substantial transformation of those parts.

"Production" is defined in section 102.1(n) of the interim regulations as "growing, mining, harvesting, fishing, trapping, hunting, manufacturing, processing or assembling a good." "Substantial Transformation" is defined in section 102.1(p) of the interim regulations as "production which results in a new and different article, with a new name, character, and use."

Although Mexico is the last country where the gold jewelry was produced, the production operations in Mexico do not result in a substantial transformation of the rough form gold jewelry. The Mexican operations do not result in a new and different article with a new name, character and use since both before and after the Mexican processing, the goods are gold jewelry articles. Therefore, section 102.16(a)(2) of the interim regulations is not applicable.

Since the country of origin is not determined by section 102.11(a) (incorporating section 102.20) of the interim regulations, we must proceed to section 102.11(b) of the interim regulations hierarchy to determine the country of origin. Section 102.11(b) of the interim regulations states that:

Except for a good that is specifically described in the Harmonized Tariff Schedule as a set, or is classified as a set pursuant to General Rule of Interpretation 2, where the country of origin cannot be determined under paragraph (a), the country of origin of the good:

(1) Is the country or countries of origin of the single material that imparts the essential character of the good....

"Material" is defined in section 102.1(l) of the interim regulations as "a good that is incorporated into another good as a result of production with respect to that other good, and includes parts, ingredients, subassemblies, and components."

We are of the opinion that the "single material which imparts the essential character" of the gold jewelry with and without gems is the gold jewelry rough forms. As previously stated, we determined that the country of origin of the gold jewelry rough forms is the United States. Therefore, pursuant to section 102.11(b)(1) of the interim regulations, the country of origin of the finished gold jewelry with and without gems is the United States.

However, section 102.14 of the interim regulations states that:

No good, last advanced in value or improved in condition outside the United States has United States origin. If under any other provision of this part such a good is determined to be a good of the United States, that determination will be disregarded and the country of origin of the good will be the last foreign country in which the good was advanced in value or improved in condition.

"Advanced in value" is defined in section 102.1(a) of the interim regulations as "an increase in the value of a good as a result of production with respect to that good, other than by means of those "minor processing" operations described in paragraphs (m)(5), (m)(6) and (m)(7) of this section." "Improved in Condition" is defined in section 102.1(i) as "the enhancement of the physical condition of a good as a result of production with respect to that good, other than by means of those "minor processing" operations described in paragraphs (m)(5), (m)(6) and (m)(7) of this section." "Minor processing" operations described in sections 102.1(m)(5), (m)(6) and (m)(7) of the interim regulations include unloading, reloading or any other operation necessary to maintain the good in good condition; putting up in measured doses, packing, repacking, packaging, repackaging; testing, marking, sorting or grading.

We find that the gold jewelry with and without gems has been advanced in value or improved in condition as a result of the polishing, and in some cases assembly operation, in Mexico. Accordingly, pursuant to section 102.14 of the interim regulations, the country of origin of the imported gold jewelry with and without gems is Mexico, the last foreign country in which the good was advanced in value or improved in condition. Therefore, for purposes of the country of origin marking requirements of 19 U.S.C. 1304, the imported gold jewelry with and without gems must be marked to indicate that the country of origin of the gold jewelry is "Mexico."

Section 134.43(e) of the interim regulations, provides in part that "where the country of origin of an article is determined in accordance with section 102.14, part 102 of this Chapter, such article, at the choice of the importer, exporter or producer of the good, may be marked, as appropriate, in a manner such as the following:

(1) Assembled in (name of foreign country) from U.S. components;

(2) Further processed in (name of foreign country) from U.S. materials;

(3) Product of (name of foreign country) made from U.S. components; or

(4) Product of (name of foreign country)."

Therefore, the hang tags on the gold jewelry with and without gems are to be marked pursuant to section 134.43(e) of the interim regulations. The proposed marking on the hang tag "Made in Mexico" is acceptable but "Handfinished in Mexico" is not acceptable. Hang tags are an acceptable method of marking provided they are affixed in a manner which assures that unless deliberately removed they will remain on the article until it reaches the ultimate purchaser. See, 19 CFR 134.44.

HOLDING:

The gold jewelry with and without gems is classified under subheading 7113.19, HTSUS, as articles of jewelry of other precious metal, whether or not plated or clad with precious metal. Classification to the eight digit level is dependant upon the exact type of jewelry being imported, i.e., rings, earrings, necklaces, bracelets, etc.

The gold jewelry with or without gems is eligible for the NAFTA tariff preference, upon compliance with all the applicable regulations.

Pursuant to section 102.14 of the interim regulations, the gold jewelry with and without gems is considered to be a product of Mexico for purposes of country of origin marking. Therefore, the gold jewelry with and without gems must be marked according to section 134.43(e) of the interim regulations.

Sincerely,

John Durant, Director
Commercial Rulings Division

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