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HQ 561149




January 10, 1999

MAR-02-05: RR:CR:SM 561149 MFC

CATEGORY: MARKING

Mr. Frank J. Desiderio
Grunfeld, Desiderio, Lebowitz & Silverman LLP 245 Park Avenue
33rd Floor
New York, New York 10167-3397

RE: Request for NAFTA Marking Ruling; gold rings; gem set gold rings; country of origin marking; Article 509

Dear Mr. Desiderio:

This is in reference to your letter dated September 15, 1998 requesting a ruling confirming preferential tariff treatment under the North American Free Trade Agreement (NAFTA) for gold rings, some of which are set with gemstones of foreign origin, assembled or finished in Mexico with U.S. castings or strikings. You also seek a ruling that the rings are exempt from country of origin marking requirements.

FACTS:

The rings at issue are produced from unwrought gold which is imported into the U.S. from a non-NAFTA country. The gold is alloyed and manufactured into castings or strikings ("rough forms") in the U.S. The gemstones, which are later set into some of the rings, are imported from other non-NAFTA countries. The rough forms and gemstones are exported from the U.S. to Mexico for assembly and finishing. The rings without gemstones are finished in Mexico by polishing or engraving. You state that the imported rings, with or without gemstones, are classifiable in heading 7113, Harmonized Tariff Schedule of the United States (HTSUS), the diamond gemstones are classifiable in heading 7102, and the non-diamond gemstones are classifiable in heading 7103. For purposes of this ruling, we are assuming that these classifications are correct.

ISSUES:

1) Whether the imported rings are eligible for preferential duty treatment under the NAFTA.
2) Whether the rings are exempt from country of origin marking requirements.

LAW AND ANALYSIS:

A. NAFTA Preference

Article 401 of the NAFTA is incorporated into General Note ("GN") 12 of the Harmonized Tariff Schedule of the United States ("HTSUS") which provides, in pertinent part, as follows:

(a)(ii) Goods that originate in the territory of a NAFTA party under subdivision (b) of this note and that qualifiy to be marked as goods of Mexico under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (whether or not the goods are marked), when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the "Special" subcolumn followed by the symbol "MX" in parentheses, are eligible for such duty rate, in accordance with section 201 of the North American Free Trade Implementation Act.

(b) For purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as "goods originating in the territory of a NAFTA party" only if:

(i) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or

(ii) they have been transformed in the territory of Canada, Mexico, and/or the
United States so that --

(A) except as provided in subdivision (f) of this note [de minimis provision], 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, or....

(iii) they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials....

Thus, by operation of GN 12, the eligibility of an article for NAFTA preferential treatment is predicated upon a finding that the goods are originating in the territory of a NAFTA party under GN12(b) and that they are goods of Canada or Mexico under the NAFTA Marking Rules.

Rings without gemstones

With respect to the rings imported from Mexico without gemstones, as the rings are made from unwrought gold from a non-NAFTA country, they are not "wholly obtained or produced entirely in" a NAFTA country pursuant to GN 12(b)(ii)(A), HTSUS, as those words are defined in GN 12(n). Thus, we must examine whether the production of the "rough forms" from the non-NAFTA unwrought gold in the U.S. results in the requisite change in tariff classification pursuant to GN 12(b)(ii)(A), HTSUS. As the rough forms of jewelry are classifiable under subheading 7113.19, HTSUS, the applicable tariff shift rule as set forth in GN 12(t) 71.2, HTSUS, is "a change to headings 7113 through 7118 from any heading outside that group, except from tariff items 7101.10.30 or 7101.22.30." The non-originating unwrought gold is classified under heading 7108, HTSUS. Thus, the requisite change in tariff classification occurs in the U.S. when the unwrought gold is manufactured into rough forms. As a result, when the rough forms are shipped to Mexico, they qualify as NAFTA originating materials and, when returned from Mexico after polishing or engraving operations, the finished rings qualify as originating goods pursuant to GN 12(b)(iii), HTSUS.

Rings with gemstones

While the rough forms enter Mexico as NAFTA originating materials, the gemstones do not, as they are sourced from non-NAFTA countries. The rings with gemstones imported from Mexico do not qualify as NAFTA originating goods under GN 12(b)(i), HTSUS, because they clearly are not "wholly obtained or produced entirely in" a NAFTA country as those words are defined in GN 12(n), HTSUS. Once again, we look to GN 12(b)(ii)(A), HTSUS, to determine whether the rings with gemstones are NAFTA originating. The imported rings with diamond or non-diamond gemstones are classifiable in heading 7113.19, HTSUS. The diamond gemstones are classifiable in heading 7102, HTSUS, while the non-diamond gemstones are classifiable under heading 7103, HTSUS. The applicable tariff shift rule set forth in GN 12(t)/71.2, HTSUS, is "a change to headings 7113 through 7118 from any heading outside that group, except from tariff items 7101.10.30 or 7101.22.30." Thus, as the gemstones undergo the requisite tariff shift when they are assembled with the rings in Mexico, the imported rings with gemstones qualify as NAFTA originating goods.

B. Country of Origin 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 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 exceptions of 19 U.S.C. ?1304.

The country of origin marking requirements for a "good of a NAFTA country" are 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 regulations set forth in 19 CFR Parts 102 and 134.

Section 134.1(b) (19 CFR ?134.1(b)) of the regulations defines "country of origin" as the country of manufacture, production, or growth. In order to change the country of origin, further work or material added to the article in another country must effect a substantial transformation. However, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin. 19 CFR ?134.4(b). A "good of a NAFTA country" is an article for which the country of origin is Canada, Mexico or the United States as determined under the NAFTA Marking Rules. 19 CFR ?134.1(g).

Part 102 of the regulations (19 CFR Part 102), contains the "NAFTA Marking Rules" for purposes of determining whether a good is a good of a NAFTA country. Section 102.11 of the regulations (19 CFR ?102.11) sets forth the required hierarchy for determining country of origin for marking purposes. Section 102.11(a) provides 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."

"Foreign Material" is defined in section 102.1(e) 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."

Neither style of ring is wholly obtained or produced, or produced exclusively from domestic materials. Accordingly, we must attempt to determine the country of origin pursuant to section 102.11(a)(3). We look at the foreign materials to determine if such materials have undergone the required tariff shift pursuant to this rule. Both the rough forms and the gemstones are of foreign (non-Mexican) origin.

We are now directed to 19 CFR ?102.20 to determine whether the required tariff shift has occurred. As discussed above, the gold rings (with or without gemstones) are classified under subheading 7113.19. Section 102.20(m) states that the rule for a good classifiable under 7113.19 is a change to subheading 7113.11 through 7115.90 from any other subheading, including a subheading in that group. The rough forms of jewelry are classifiable in subheading 7113.19. The gemstones are classified under heading 7102 or 7103. While the gemstones make the required tariff change, the rough forms do not. Therefore, the country of origin of the rings imported with and without gemstones cannot be determined under 19 CFR ?102.11(a).

Section 102.11(b) provides a country of origin determination for goods that cannot be classified under paragraph (a), and states that the country of origin of the good is the country or countries of origin of the single material that imparts the essential character of the good. 19 CFR ?102.11(b)(1).

The general rules of interpretation in section 102.18(b)(1) (19 CFR ?102.18(b)(1)) state that:
(b) (1) For purposes of identifying the material that imparts the essential character to a good under ?102.11, the only materials that shall be taken into consideration are those domestic or foreign materials that are classified in a tariff provision from which a change in tariff classification is not allowed under the ?102.20 specific rule or other requirements applicable to the good. For purposes of this paragraph (b)(1):
. . .

(iii) If there is only one material that is classified in a tariff provision from which a change in tariff classification is not allowed under the ?102.20 specific rule or other requirements applicable to the good, then that material will represent the single material that imparts the essential character to the good under ?102.11.

Applying section 102.18(b)(1)(iii) to the facts of this case, we find that the single material that imparts the essential character of both styles of rings are the rough forms. Therefore, pursuant to section 102.11(b)(1), the country of origin of both styles of rings is the U.S. The marking statute only requires articles of foreign origin to be marked with their country of origin (19 U.S.C. ?1304). Since the country of origin for marking purposes of both styles of rings imported into the U.S. will be the U.S., it will be excepted from country of origin marking requirements.

However, for duty purposes, 19 CFR ?102.19(b) of the NAFTA Marking Rules provides that both styles of rings will be treated as products of Mexico. Section 102.19(b) states that:

If, under any other provision of this part, the country of origin of a good which is originating within the meaning of ?181.1(q) of this chapter is determined to be the United States and that good has been exported from, and returned to, the United States after having been advanced in value or improved in condition in another NAFTA country, the country of origin of such good for Customs duty purposes is the last NAFTA country in which that good was advanced in value or improved in condition before its return to the United States.

While both styles of rings will be considered products of the U.S. for country of origin marking purposes upon their return to the U.S. (see country of origin discussion above), these will be subject to the NAFTA "MX" preferential duty rate since they were last advanced in value or improved in condition in Mexico before their return to the U.S. Section 102.19(b) "is intended to facilitate the application of the appropriate NAFTA preferential duty rate under General Note 12(a), HTSUS, in the case of originating goods the origin of which is determined to be the United States under the Part 102 provisions." 60 Fed. Reg. 22312, 22318 (May 5, 1995) (Notice of Proposed Rulemaking, Final Rule published 61 Fed. Reg. 28932 (June 6, 1996)).

HOLDING:

Based on the information submitted, the imported rings (with and without gemstones) are eligible for the NAFTA "MX" rate.

The subject imported rings are excepted from country of origin marking requirements as they are considered to be of U.S. origin under the NAFTA Marking Rules.

A copy of this ruling 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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