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HQ

558635

June 20,
1995

CLA-2 CO:R:C:S 558635 BLS

CATEGORY: CLASSIFICATION

Andrew P. Vance, Esq.
Barnes, Richardson & Colburn
475 Park Avenue South
New York, New York 10016

RE: Eligibility of gold jewelry imported from Bolivia for duty-free treatment under the GSP

Dear Mr Vance:

This is in reference to your letters dated July 12, 1994, and January 5, 1995, requesting a ruling that certain gold jewelry, to be imported from Bolivia, will be eligible for duty-free treatment under the Generalized System of Preferences (GSP). You also request that we rule on the proper classification of the articles to be imported.

FACTS:

Your client, Gori & Zucchi, (Zucchi), imports into Bolivia from Italy a gold clad solid tube about 4 meters long, consisting of a layer of 10kt. or 14kt. gold rolled around an iron core.

At the facility in Bolivia, the tube is wound around a forming pin to form a spiral. The pins are of various shapes and sizes (1", 2", or 3" in diameter) in accordance with the products to be obtained. The spirals are deoxidated, sawed down the length, thus separating each "ring" or "rung" in the spiral from the next. In some cases, the rings so obtained are manually aligned (made to lie flat).

The components are collected in PVC boxes, and heated in an oven. Thereafter, they are dipped in acid which attacks the iron and makes the rings empty of iron in about 24 hours. The acid is neutralized and the components, now hollow, are washed, cleaned and dried. These hollow hoops are then made into various items of jewelry, such as earrings, bracelets, chains, and bangles. In producing bracelets, the hoops may be further processed by bending or winding by hand to achieve oval shapes or smaller overall diameters. The shapes are cut and soldered into links,
buffed, cleaned, dried, and hand polished. A clasp is then soldered to the shapes. The finished items are subjected to quality control, and packaged.

A hoop can also be made into a necklace by combining, by hand, different links with different overall diameters of tubing, soldering them together, buffing, cleaning, polishing, soldering a clasp, hand polishing, quality control inspection, and packaging. In producing earrings and perhaps certain other articles of jewelry, such as bangles, the hollow hoops may be assembled without further change in shape or diameter with clasps, yokes, posts, jump rings, and other findings to produce the finished articles of jewelry.

You state that in the trade the hollow hoops are not considered jewelry, but "findings", and are offered for sale to the jewelry industry. You submit as an exhibit a catalog of jewelry findings and semi-products from a related company which establishes that these hoops are offered for sale in the trade.

ISSUE:

Whether the gold clad solid tubes to be imported into Bolivia and used in the production of gold jewelry undergo a double substantial transformation, thereby enabling the cost or value of the tubes to be included in the 35% value-content requirement under the GSP.

LAW AND ANALYSIS:

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

Under General Note 4, Harmonized Tariff Schedule of the United States, Bolivia is a designated BDC for purposes of the GSP. The articles to be imported are properly classifiable under subheading 7113.19.50, HTSUS, which provides for "Articles of jewelry and parts thereof, of precious metal... Of precious metal whether or not plated or clad with precious metal... Other... Other." Articles from Bolivia classified under this provision are eligible for GSP treatment.

Where an article is produced from materials imported into the BDC, as in this case, the article is considered to be a "product of" the BDC for purposes of the GSP only if those materials are substantially transformed into a new and different article of commerce. See 19 CFR 10.177(a)(2). The cost or value of materials which are imported into the BDC may be included in the 35 percent value-content computation only if the imported materials undergo a substantial transformation in the BDC. That is, the non-Bolivian components must be substantially transformed into an intermediate article of commerce, which is then used in Bolivia in the production of the imported article, the gold jewelry.

The test for determining whether a substantial transformation has occurred is whether an article emerges from a process with a new name, character or use, different from that possessed by the article prior to the processing. See Texas Instruments v. United States, 69 CCPA 152, 156, 681 F.2d 778,782 (1982).

In order to achieve a "double substantial transformation", the materials imported into the BDC must be substantially transformed into a new and different intermediate article of commerce, which is substantially transformed a second time into the final article. The intermediate article itself must "...be an article of commerce, which must be readily susceptible of trade, and be an item that persons might well wish to buy or acquire for their own purposes of consumption or production.." Torrington Co. V. United States, 8 CIT 150, 596 F. Supp. 1083 (1984), aff'd, 764 F.2d 1563 (Fed. Cir. 1985).

In Headquarters Ruling Letter (HRL) 555929 dated April 22, 1991, gold wire of U.S.-origin was converted in the Dominican Republic into gold links, which were then combined to create necklaces and bracelets. We held in that case that the gold links were substantially transformed intermediate articles of commerce.

Similarly, in the instant case, we find that the hollow hoops which will emerge from the processing in Bolivia are new and different articles of commerce in comparison to the gold clad solid metal tubes from which they were made. Accordingly, we find that these hoops are considered "products of" Bolivia. However, we do not find, as urged, that previous stages of the processing operations in Bolivia result in other substantially transformed intermediate articles of commerce. In this regard, we note that the evidence submitted establishes a trade only in one intermediate stage of production, i.e., upon completion of the hollow hoops. Preceding operations are merely steps in the production of the hoops.

The next question which must be addressed, however, is whether, during the
various types of operations performed resulting in the finished items of jewelry, the hoops themselves are substantially transformed into the completed necklaces, earrings, bracelets, etc.

In HRL 556060 dated August 27, 1991, we held that bending, cutting and soldering operations performed to create earrings resulted in a substantial transformation. Further, in HRL 556892 dated December 23, 1992, we found that gold links woven into chains formed the fundamental and essential character of the finished bracelet or necklace and dedicated its use as jewelry. Accordingly, we held in that case that the weaving operation substantially transformed the links into a new and different article, for purposes of the "product of" requirements.

However, Customs has long held that merely soldering closures to chains or other items of jewelry and cleaning and polishing operations provide new features to the items but do not change their essential character. See HRL 556624 dated July 31, 1992 (soldering clasps to gold chains constitutes a simple combining operation for which GSP treatment is not allowed); and HRL 557100 dated April 30, 1993 (cutting to length, soldering end tips, attaching locks or clasps and brushing and cleaning of gold chains does not result in a substantial transformation).

As applied to the instant case, we find that a second substantial transformation occurs where the hoops are further processed into bracelets or necklaces. The operations involved in producing these articles of jewelry include bending or winding of the tubing to achieve oval shapes or smaller diameters, cutting and soldering the resulting shapes into links, and combining the links by soldering and attachment of a clasp. We find that the completed necklace or bracelet has an essential character different from the hoop from which it was derived. However, where the operations consist merely of soldering the completed hoops together to form earrings, bangles or similarly produced articles of jewelry, and a clasp or other type closure is added, the essential character of the hoops has not changed as a result of this finishing operation. Therefore, the hoops do not undergo a second substantial transformation when used to produce these items of jewelry.

HOLDING:

Based on the information submitted, we find that the gold clad solid tube is a constituent material of the imported gold bracelets and necklaces. Therefore, the cost or value of this component may be included in calculating the 35 percent value-content requirement under the GSP. The bracelets and necklaces will receive duty-free treatment under the GSP, provided the "imported directly" and 35
percent value-content requirements are satisfied. However, the gold clad solid tube will not undergo the requisite double substantial transformation when used to produce the imported earrings, bangles, or other items of jewelry produced by a simple soldering operation of the hollow hoops, and the addition of a clasp or other closure. Therefore, the cost or value of the solid tube cannot be used in calculating the 35 percent value-content requirement under the GSP in this instance.

A copy of this ruling letter should be attached to the entry documents filed at the time the merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,


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