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HQ 559406




April 25, 1996

CLA-2 RR:TC:SM 559406 AT

CATEGORY: CLASSIFICATION

TARIFF NO.: 7113.19.50

Robert L. Follick, Esq.
Follick & Bessick, P.C.
225 Broadway, Suite 500
New York, New York 10007

RE: Ruling Request concerning eligibility of gold jewelry for duty-free treatment under U.S.-Israel FTA; product of; substantial transformation

Dear Mr. Follick:

This is in response to your letters dated August 21, 1995, and January 29 and March 19, 1996, on behalf of Almond Jewelers, Inc. ("Almond") requesting a ruling as to the eligibility of gold jewelry imported from Israel for duty-free treatment under the United States-Israel Free Trade Implementation Act of 1985 ("Israel FTA"). Samples of the gold jewelry in both the unfinished (unassembled) and finished (assembled) state were submitted for our review. We regret the delay in responding.

FACTS:

You state that Almond intends to import gold jewelry into the U.S. from Israel. The gold jewelry will be processed in two countries, Israel and Thailand. According to your submission, the Israeli processing commences with the melting and alloying of raw gold of foreign origin. Granular pure 24 karat gold is mixed and melted with selected metal alloys to produce a desired, uniform and consistent quantity of alloyed gold of less than 24 karat, usually 18, 14, 10 or 9 karat. The liquid alloyed gold of less than 24 karat uniform consistency is molded into bars 3/8" thick, weighing not less than 5 kg. The bars will vary in overall length depending on the size of the mix and may have a weight of several hundred kg. The gold bars are then further processed into coiled sheets by means of a continuous and prolonged rolling resulting in reduction of the thickness of the bars from 3/8" to between 4/1000" to 8/1000" and 6" in width. The coiled sheets will vary in overall length from several hundred to several thousand feet. Next the sheets will be further processed into stamped or tube type components depending on the type of jewelry to be manufactured.

For stamped fabricated components, the sheets must be uncoiled, flattened, cut into workable lengths and then subjected to a process of stamping the specific components required for use in the assembly of the subject gold jewelry.

To produce the tube-type components, the coiled sheets are first sliced lengthwise into narrow ribbons several hundred feet and/or yards in length. Next, the ribbons are further processed into round pipe with an open seam, again several hundred feet/yards in length. Then, the seam is welded closed forming a hollow tube which is repeatedly and continuously drawn down in diameter to remove the seam and create continuous lengths of hollow gold tubing of a specific composition (karat) and having a desired and predetermined diameter, depending on the specific article of jewelry to be manufactured. Thereafter, the continuous lengths of tubing will be etched or otherwise processed into various shapes (diamond cut, squares, rectangles etc.) which are then cut to shorter and final lengths into the desired jewelry components (tubing, rods, etc.) During the production process, the continuous tubing may be polished, matt or otherwise finished and/or bent to create the necessary and desired shape.

These components are then sent to Thailand where they will be assembled into finished articles of jewelry by means of soldering, oven heating, polishing by liquid tumbling and/or buffing and quality control. You state that small inexpensive findings of U.S. origin, such as U pins and joints or posts and butterflies may be used in the assembly of earrings. These U.S. origin components will be shipped from Israel to Thailand together with the Israeli components. You claim that each shipment to Thailand from Israel will contain all the necessary number and types of components to fill the order and will be returned to Israel in one or more shipments. You state that unused components will be returned with one or more of the shipments of the finished jewelry, but not later than the last shipment. You also state that no unfinished parts or components will remain in Thailand. After the processing in Thailand is completed, the finished jewelry will be returned to Israel where it will undergo quality control procedures, cleaning and packaging for direct export to the U.S. You state that the U.S. components which may be used in the assembly of earrings will not exceed 5 percent of the export price of the finished gold earrings.

You assert that the subject gold jewelry that is processed in Israel and Thailand in the manner described qualifies for duty-free treatment under the Israel FTA when imported into the U.S.

ISSUE:

Is the gold jewelry eligible for duty-free treatment under the Israeli FTA when imported into the U.S.?

LAW AND ANALYSIS:

Under the Israel FTA, eligible articles which are the growth, product, or manufacture of Israel and are imported directly to the U.S. from Israel qualify for duty-free treatment or a duty preference, provided the sum of 1) the cost or value of materials produced in Israel, plus 2) the direct costs of processing operations performed in Israel is not less than 35 percent of the appraised value of the article at the time it is entered. See, General Note 8, Harmonized Tariff Schedule of the United States (HTSUS).

Classification

In our opinion, the subject gold jewelry is properly classified under subheading 7113.19.50, 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. . . Other. . . Other. . ." Articles classified under this provision which otherwise satisfy the requirements of the Israel FTA will not be subject to duty upon importation into the U.S.

"Product of" Israel

The first issue that must be decided is whether the gold jewelry which is processed in Israel and Thailand in the manner described above is a "product of" Israel when imported into the U.S. as required under the Israel FTA. Articles are considered the "product of" Israel if they are made entirely of materials originating there or, if made from materials imported into Israel, they are substantially transformed 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 the processing. See, Texas Instruments v. United States, 69 CCPA 152, 681 F.2d 778 (1982).

In this case, there is no question that the melting and alloying of raw gold of foreign origin into gold bars in Israel results in a substantial transformation of the raw gold into products of Israel. Also, we find that subsequent production in Israel of the fabricated stamped and tube-type components as a result of of cutting, welding and bending colied sheets made from gold bars in Israel, as described above, results in at least a second substantial transformation of the raw gold. The name, character and use of the gold bars changes as a result of the operations performed in Israel--gold bars into gold jewelry components. See, HQ 055726 (September 18, 1979) (Customs held that a substantial transformation results from cutting, bending, and crimping wire into identifiable trigger pins for spring rings); HQ 071788 (April 17, 1984) (Customs held that forming 18 karat gold wire into circles, ovals, and other specially designed links for bracelets results in a substantial transformation. Thus, the jewelry components are "products of" Israel when sent to Thailand. Furthermore, inasmuch as the foreign raw gold is subjected to a double substantial transformation in Israel the cost or value of the raw gold can be included in the Israel FTA 35 percent value-content calculation if the jewelry components remain products of Israel after the further processing in Thailand. Thus, the remaining question is whether the jewelry components are substantially transformed into products of Thailand as a result of the assembly and processing operations performed in that country. In National Hand Tool v. United States, Slip Op. 92-61 (April 27, 1992, aff'd, 989 F.2d 1201 (1993), a country of origin marking case, certain hand tool components used to make flex sockets, speeder handles, and flex handles, were imported from Taiwan. The imported components were either cold-formed or hot-forged into their final shape before importation, with the exception of the speeder handle bars, which were reshaped by a power press after importation. In the U.S., the components were subject to heat treatment, which increased the strength of the components, sand-blasting (a cleaning process), and electroplating (enabling the components to resist rust and corrosion). After these processes were complete, the components were assembled into the final products, which were used to loosen and tighten nuts and bolts.

The Court of International Trade decided the issue of substantial transformation based on three criteria, i.e., name, character, and use. Applying these rules, the court found that the name of the components did not change after the post-importation processing, and that the character of the articles similarly remained substantially unchanged after the heat treatment, electroplating and assembly, as this process did not change the form of the components as imported. The court further pointed out that the use of the articles was predetermined at the time of importation, i.e., each component was intended to be incorporated in a particular finished mechanic's hand tool. Based on this test, the court concluded that the processing in the U.S. did not effect a substantial transformation of the foreign hand tool components.

In the instant case, the jewelry components exported to Thailand from Israel are in the same size and shape as the finished gold jewelry. As in National Hand Tool, the character and use of the jewelry components are predetermined by the form of the exported components. A review of the submitted samples indicates that the jewelry components look like finished jewelry except for the fact that they are not assembled together. The jewelry components' character and shape does not change as a result of the assembly and finishing operations performed in Thailand. The assembly and finishing operations performed in Thailand do not substantially transform the jewelry components into a new and different article, but rather constitute a continuation of the production process leading to its completion as finished gold jewelry. Accordingly, we find that the imported gold jewelry is considered to be a "product of" Israel for purposes of determining their eligibility for duty-free treatment under the Israel FTA. The presence of fabricated U-pins and joints or posts and butterflies of U.S. origin will not preclude treatment of the imported jewelry as a product of Israel assuming all other legal requirements are satisfied. See, HQ 557149 (November 22, 1993) (Customs held that the presence of trim items of Hong Kong or Chinese origin which were used in the assembly of Israeli-origin jean components in China did not preclude treatment of the imported jeans as a product of Israel assuming all other legal requirements were satisfied).

"Imported Directly" from Israel

Annex 3, paragraph 8, of the Israel FTA defines the words "imported directly," as follows:

(a) Direct shipment from Israel to the U.S. without passing through the territory of any intermediate country;

(b) If shipment is through the territory of an intermediate country, the articles in the shipment do not enter into the commerce of any intermediate country while en route to the U.S., and the invoices, bills of lading, and other shipping documents, show the United States as the final destination;

(c) If shipment is through an intermediate country and the invoices and other documentation do not show the U.S. as the final destination, then the articles in the shipment, upon arrival in the U.S., are imported directly only if they:

(i) remain under control of the customs authority in an intermediate country;

(ii) do not enter into the commerce of an intermediate country except for the purpose of a sale other than at retail, provided that the articles are imported as a result of the original commercial transaction between the importer and the producer or the latter's sales agent;

(iii) have not been subjected to operations other than loading and unloading, and other activities necessary to preserve the article in good condition. We have held for purposes of the Generalized System of Preferences (GSP) that merchandise is deemed to have entered the commerce of an intermediate country if manipulated (other than loading or unloading), offered for sale (whether or not a sale actually takes place), or subjected to a title change in the country. See HQ 071575, dated November 20, 1984. The definition of "imported directly" under the GSP is very similar to that under the Israel FTA. See 19 CFR 10.175.

In the instant case, the gold jewelry components will be sent to Thailand from Israel for assembly and processing (soldering, oven heating, polishing by liquid tumbling and/or buffing) into gold jewelry. It is apparent that these operations constitute a manipulation of the merchandise, and accordingly, the merchandise is deemed to have entered the commerce of Thailand. Therefore, the merchandise will be considered to be "imported directly" from Israel only if, upon its return from Thailand, it re-enters the commerce of, and then is directly shipped from, Israel to the U.S.

According to your submission, the gold jewelry upon return to Israel will undergo quality control procedures and be cleaned and packaged for direct export to the U.S. Under these facts, we find that there will be a manipulation of the merchandise in Israel, and thus the gold jewelry is considered to enter the commerce of Israel prior to direct exportation to the U.S. Accordingly, the gold jewelry will be considered to be "imported directly" from Israel into the U.S.

HOLDING:

Based on the information provided, we find that (1) the imported gold jewelry will be classified under subheading 7113.19.50, HTSUS, an Israel FTA eligible provision; (2) upon importation into the U.S., the imported gold jewelry will be considered "products of" Israel; (3) since the foreign raw gold imported into Israel undergoes a double substantial transformation, it may be counted towards the 35 percent value content requirement.; (4) the imported gold jewelry will be considered to be "imported directly" from Israel into the U.S. on condition that upon return to Israel from Thailand the jewelry goods will undergo quality control procedures and be cleaned and packaged for direct export to the U.S.; and (5) the imported articles will qualify for duty-free treatment under the Israel FTA, provided the sum of (a) the cost or value of the materials produced in Israel, plus (b) the direct costs of processing operations performed in Israel is not less than 35 percent of the appraised value of the merchandise at the time of entry. Whether the 35 percent value-content requirement will be met must await actual entry of the merchandise.

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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