HQ 559266 - U.S. Note 2(b), subchapter II, Chapter 98, HTSUS; Sterling Silver Jewelry Imported from Costa Rica; Merchandise Processing Fee; HRL 556519; HRL 557104 - United States International Trade Commision Rulings

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HQ 559266

October 18, 1995

CLA-2 R:C:S 559266 DEC

CATEGORY: CLASSIFICATION

Mr. Joshua S. Grinspoon
Nordhaus Haltom Taylor Taradash & Frye
200 West De Vargas Street
Suite 9
Santa Fe, New Mexico 87501

RE: U.S. Note 2(b), subchapter II, Chapter 98, HTSUS; Sterling Silver Jewelry Imported from Costa Rica; Merchandise Processing Fee; HRL 556519; HRL 557104

Dear Mr. Grinspoon:

This is in response to your letters dated June 12, 1995, and October 13, 1995, requesting a ruling on whether certain jewelry that your client, Jezlaine, Ltd., Incorporated, will import is entitled to duty-free treatment under U.S. Note 2(b), subchapter II, Chapter 98, Harmonized Tariff Schedule of the United States (HTSUS) (Note 2(b)).

FACTS:

Your client, Jezlaine, Ltd., Incorporated (Jezlaine), intends to import various styles of low-price fashion sterling silver jewelry. Jezlaine will import six categories of jewelry including rings, earrings, pins, pendants, charms, and watch mounts. You state that Jezlaine is in the process of setting up a manufacturing operation in Costa Rica doing business as Nicolletta, S.A., Corporation (Nicolletta). Jezlaine and Nicolletta are 100 percent owned by the same U.S. citizen, Roger McVey.

Nicolletta will purchase U.S.-origin raw materials from Jezlaine, perform various manufacturing operations, and resell the finished merchandise back to Jezlaine for sale in the United States to Jezlaine's customers. The principal component of the jewelry will be pure sterling silver grain that is manufactured in Albuquerque, New Mexico. The silver grain is produced at the Academy Corporation's recovery plant in Albuquerque,

New Mexico. Silver is stripped off of X-ray film acquired from various U.S. companies. The silver is then melted down into silver beads for sale and transportation. In addition, 98 percent pure silver is extracted from photo finishing solution and then converted to pure silver which is converted into silver beads. You state that all of these processes occur in the United States. The silver is then combined with copper that is mined in Arizona to manufacture the pure sterling silver grain. The silver grain will be sent directly to Costa Rica without passing through the commerce of another country. Once in Costa Rica, the silver grain will be made into silver pieces of jewelry.

The production process actually begins in the United States where an original model of the desired style is hand carved in a special wax to produce a rubber mold that is used to produce a master silver piece. These molds are sent directly to Costa Rica. Next, a wax will be injected into the mold to create a replica of the original model. The mold will then be ready to be used to create hundreds of wax replicas per hour. The wax replicas are placed on a "tree" holding as many as 200 replicas of the original design model. This "tree" will then be placed inside a metal flask into which a plaster compound will be poured. After the plaster has hardened, the flask will be placed into a furnace where the wax is melted out leaving a cavity in the plaster mold identical in form to the original wax tree. Molten sterling silver grain will then be poured into the cavity. After the silver cools, the mold will be broken away leaving a sterling silver cast duplicate of the original tree and jewelry items (rings, earrings, pins, pendants, charms, and watch mounts).

You state that some of the jewelry items will contain cards, findings (parts that attach the jewelry to the ear of the card), chains, plastic baggies, and tickets which are all of U.S. origin. You also state that these materials will not pass through the commerce of a third country when they are exported from the United States to Costa Rica. Furthermore, the finished jewelry pieces will be imported directly into the U.S. without entering the customs territory or commerce of a third country. The finished products will consist of nothing other than the pure sterling silver grain, the exact material that was imported directly from the United States, but in different shapes and with the additional U.S.-origin attachments described above. Jezlaine produces over 3000 different design variations using the same raw materials and production technique.

ISSUE:

1. Whether the jewelry that is manufactured as described above is eligible for duty-free treatment under Note 2(b), HTSUS.

2. Whether the sterling silver jewelry is subject to the merchandise processing fee.

LAW AND ANALYSIS:

Section 222 of the Customs and Trade Act of 1990 (Public Law 101-382) amended U.S. Note 2, subchapter II, Chapter 98, HTSUS, to provide for the duty-free treatment of articles (other than textile and apparel articles, 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) 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 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 7(a), HTSUS, Costa Rica has been designated as a 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 subject articles (low-price fashion sterling silver jewelry) are not specifically excluded from duty-free eligibility. Customs is satisfied from the information provided that the sterling silver grain that is exported from the U.S. is of U.S. origin. The copper is mined in New Mexico and the silver that is extracted from the photo finishing solution and X-ray film, if not of U.S.-origin, undergoes a substantial transformation in the U.S. when it is extracted and then melted down into silver beads suitable for transportation. See Headquarters Letter Ruling (HRL) 556519, dated April 17, 1992 (Customs determined that the melting of the gold and alloy of U.S.-origin 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).

Provided the jewelry is processed in a BC wholly of fabricated components of U.S. origin, these articles will be entitled to duty-free treatment under Note 2(b), assuming the direct shipment and documentation requirements are met. Articles qualifying for duty-free treatment under Note 2(b) are fully exempt from the merchandise processing fee (MPF). See HRL 557104, dated July 19, 1993.

HOLDING:

1. Based on the information provided, the materials used to produce the jewelry described above are of U.S. origin. The various pieces of jewelry will qualify for duty-free treatment under Note 2(b), HTSUS, assuming compliance with the direct shipment and documentation requirements. This ruling letter is applicable to all of the design patterns that are produced using the same materials and meet the requirements of Note 2(b) as outlined above to the satisfaction of the port director.

2. The jewelry imported directly from Costa Rica will be exempt from the assessment of the MPF.

A copy of this ruling letter should be attached to the entry documents filed at the time this 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,

John Durant
Director

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