HQ 557100 - Eligibility of jewelry from Bolivia for duty-free treatment under the Andean Trade Preference Act; Presidential Proclamations 6455 and 6456; "product of"; gold; necklace; bracelet; 556892; weaving; cutting; attachment of clasp; soldering; melting of gold; adding alloys to pure gold - United States International Trade Commision Rulings

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HQ 557100

April 30, 1993

CLA-2 CO:R:C:S 557100 WAW

CATEGORY: CLASSIFICATION

J. Mario Rojas
Bolinvest Bolivia
Airport Corporate Center
7200 N.W. 19th Street, Suite 203
Miami, Florida 33126

RE: Eligibility of jewelry from Bolivia for duty-free treatment under the Andean Trade Preference Act; Presidential Proclamations 6455 and 6456; "product of"; gold; necklace; bracelet; 556892; weaving; cutting; attachment of clasp; soldering; melting of gold; adding alloys to pure gold

Dear Mr. Rojas:

This is in response to your letter dated January 6, 1993, addressed to the ATPA/CBI specialist in Miami, Florida, concerning the eligibility of gold chain jewelry from Bolivia for duty-free treatment under the Andean Trade Preference Act (ATPA) (19 U.S.C. 3201 and 3203).

FACTS:

You state that Christie's Jewelers, a Bolivian company, is presently manufacturing for Gori & Zucchi Inc. of New York, handmade gold bracelets and necklaces referred to as "rope". The total number of Christie's employees which includes the subcontractors, the "talleres", and the direct employees is approximately 1,000 Bolivians. Christie's Jewelers and Gori & Zucchi's parent company in Italy, Unoaerre Italia, plan to create a new Bolivian company - Christie's Unoaerre. Christie's-Unoaerre plans to produce types of chains referred to as "figaro", "veneziana", "herringbone", etc. in Bolivia according to the following steps:

(1) Christie's-Unoaerre purchases Bolivian raw gold;

(2) bars of pure gold are created (999,9/1000 parts of fine gold) by means of a melting process;

(3) by means of another melting process, new metals (silver, copper, zinc, etc.) are added, forming 10 kt. and 14 kt. alloy bars. (10 kt. alloy contain 417/1000 parts of pure gold and 583/1000 parts of added metals; 14 kt contains 585/1000 parts of pure gold and 415/1000 parts of added metals);

(4) by means of rolling mills and drawing machines, the bars are transformed into wires, and then wound around spools. The spools are then exported to Italy for further processing~

(5) spools with gold wires are then fed into automatic manufacturing machines which produce hundreds of meters of various gold chains;

(6) the chains are automatically cleaned and prepared with solder powder. After passing through the soldering ovens, the soldered chains are again wound around spools. The wound gold chains are then returned to Bolivia;

(7) the chains are cut to the appropriate length for necklaces and bracelets;

(8) special end tips are manually soldered to the chains;

(9) the chains are passed through ovens for heat treatment;

(10) the chains are cleaned with chemicals and ultrasonic processes;

(11) locks are manually assembled to the chains;

(12) the final product is cleaned again, using special vibrators;

(13) gold chains are given a finishing touch by brushing machines and then submitted to a quality control test;

(14) the gold chains are packed and ready for shipment to the U.S.

ISSUE:

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

LAW AND ANALYSIS:

On December 4, 1991, the President of the United States signed into law the Andean Trade Preference Act (ATPA), which provides the basic authority for the President to grant duty-free treatment to imports of eligible articles from countries designated as beneficiaries according to criteria set forth in the Act. This was implemented by Presidential Proclamations 6455 and 6456, both dated July 2, 1992. In Presidential Proclamation 6455, the President designated Colombia as a beneficiary country for purposes of the ATPA and modified the Harmonized Tariff Schedule of the United States (HTSUS) to incorporate the substance of the relevant provisions of the ATPA. In Presidential Proclamation 6456, the President designated Bolivia as a beneficiary country for purposes of the ATPA.

The relevant provisions of the ATPA provide that any article which is the growth, product, or manufacture of a beneficiary country (BC) will receive duty-free treatment provided that (1) the article is imported directly from a BC into the customs territory of the U.S.; and (2) the sum of (i) the cost or value of the materials produced in a BC or two or more BC's under this Act, or a BC under the Caribbean Basin Economic Recovery Act of 1983, as amended (CBERA) (19 U.S.C. 2701 ~), or two or more such countries, plus (ii) the direct costs of processing operations performed in a BC or countries (under this Act or the CBERA, as amended) is not less than 35% of the appraised value of such article at the time it is entered. The cost or value of any U.S. materials may be counted toward the 35% value-content requirement in an amount not to exceed 15% of the appraised value of the article at the time it is entered into the U.S. The ATPA is effective with respect to articles entered, or withdrawn from warehouse for consumption, on or after July 22, 1992.

In order to implement the tariff treatment provided under the ATPA, the HTSUS was modified to incorporate the substance of relevant provisions of the ATPA, pursuant to section 604 of the Trade Act of 1974 (19 U.S.C. 2483). General Note 3(c), HTSUS, was modified by adding subsection (ix). General Note 3(c)(ix)(A) states that Bolivia is designated as a BC for purposes of the ATPA.

Additionally, articles provided for in a provision for which a rate of duty of "Free" appears in the "Special" subcolumn followed by the symbol "J" or "J," in parentheses are eligible articles for purposes of the ATPA pursuant to section 204 of that Act. The subject merchandise which consists of gold necklaces and/or bracelets will be classified under heading 7113, HTSUS. Articles classified under this heading are deemed eligible for the ATPA, provided that all of the requirements are met. This means the gold necklaces and/or bracelets will receive duty-free treatment if they are considered to be "products of" Bolivia, the ATPA 35% value-content requirement is satisfied, and the merchandise is "imported directly" into the custom territory of the U.S. from Bolivia.

Merchandise is considered the "product of" a BC if is it either wholly the growth, product or manufacture of a BC or has been substantially transformed there into a new or different article of commerce. 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).

We have previously held that melting down gold bars and mixing with alloys to form wire to be made into jewelry, constitutes a substantial transformation. See HRL 071788 dated April 17, 1984, and HRL 556624 dated July 31, 1992. Thus, it is clear that the process of melting pure gold, mixing in other metals to create alloys and creating gold wire in Bolivia results in a substantial transformation of the gold and other metals into a "product of" Bolivia.

The next question is whether the gold wire (a "product of" Bolivia) has been further substantially transformed into a new and different article of commerce in Italy, where it will be cut into links and woven together into a chain. In that regard, Custom has held that the conversion of gold wire into links is a substantial transformation- See HRL 555929 dated April 22, 1991. Moreover, we have also held that weaving links into chain substantially transforms the links into a new and different "product of" the country where that process occurs. See 556892 dated December 23, 1992. Accordingly, consistent with HRL's 555929 and 556892, we are of the opinion that the process of cutting the gold wire into links and weaving the links into a chain in Italy constitutes a substantial transformation of the gold wire into a new and different article of commerce, thus rendering the chain a "product of" Italy.

You state that subsequent to the operations performed in Italy, the gold chain will be returned to Bolivia for further operations which include cutting to length, soldering end tips, attaching of locks or clasps, brushing and final cleaning operations. It is our opinion that once the woven gold chain is returned to Bolivia, the processes performed there to create the finished necklaces and bracelets do not substantially transform the imported chain into a "product of" Bolivia. We believe that the essential character of the bracelet or necklace is the chain which results from cutting, formation of the links and weaving operations which occur in Italy. Additionally we have previously held that soldering of closures (i.e., clasps, spring rings) to chains constitutes a simple combining operation for which duty-free treatment under the GSP is not allowed. See HRL 556892 and 19 U.S.C. 2463(b)(2). HRL 556892 is similar to the facts presented in this ruling since it involved the creation of gold necklaces and bracelets in beth a BDC and a third country. In HRL 556892, pure gold bars were melted with alloys in a BDC to create gold wire which was then converted into links. The links were then sent to a third country where they were woven together into chains. .The chains were subsequently returned to the BDC where they were soldered, cut into lengths, clasps attached to make bracelets and/or necklaces, cleaned, polished and exported to the U.S. We held that the processes performed in the BDC to the woven gold chain did not substantially transform it into a "product of" the BDC, and therefore, the merchandise was not eligible for duty-free treatment under the GSP. This case is instructive here inasmuch as the GSP, CBERA and ATPA programs have similar statutory aims, and the country of origin criteria of the statutes are very similar.

It is our opinion that, although cutting to length, soldering of the end tips, addition of the locks or clasps, and cleaning and polishing the gold chains may provide new features to the gold chain, the essence of the chain has not been changed so as to constitute a substantial transformation- Consistent with our holding in HRL 556892, the chains are dedicated for use as, and have the essential character of, jewelry pieces such as bracelets and/or necklaces prior to their importation into Bolivia from Italy. Furthermore, the mere cutting to length of the chain in Bolivia does not transform it into a new or different article of commerce. See HRL 556892. 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.

In sum, although the gold chains are considered "imported directly" from Bolivia, the further processing of the gold chains in Bolivia (i.e., cutting to length, soldering end tips, attaching locks or clasps, brushing and cleaning) does not result in a substantial transformation of the .gold chains into a "product of" Bolivia. Therefore, the finished necklaces and bracelets will not be eligible for duty-free treatment under the ATPA when imported into the U.S.

HOLDING:

Based on the information provided, it is our opinion that, as the gold chains have not undergone a substantial transformation when returned to Bolivia for further processing, the gold necklaces and/or bracelets do not constitute "products of" Bolivia. Accordingly, the gold necklaces and/or bracelets will not be eligible for duty-free treatment under the ATPA.

Sincerely,

John Durant, Director

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