United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 2003 HQ Rulings > HQ 562537 - HQ 562708 > HQ 562648

Previous Ruling Next Ruling
HQ 562648




April 23, 2003

CLA-2 RR:CR:SM 562648 ALH

CATEGORY: CLASSIFICATION

Mr. Leonard L. Rosenberg, P.A.
Ms. Melissa Ann Miller
Sandler, Travis & Rosenberg, P.A.
The Waterford
5200 Blue Lagoon Drive
Miami, Florida 33126-2022

RE: Andean Trade and Promotion Drug Eradication Act ("ATPDEA"); gold jewelry

Dear Mr. Rosenberg and Ms. Miller:

This is in response to your letter dated January 27, 2003, on behalf of your client, Candela Jewelry, Inc. ("Candela"), requesting a binding ruling on the eligibility of gold jewelry for preferential tariff treatment under the Andean Trade Preference Act ("ATPA"). You submitted samples for our examination.

FACTS:

The articles at issue in this case are gold earrings manufactured in Ecuador. Candela, located in Fort Lauderdale, Florida, exports 14 karat yellow gold tubes and white gold tubes of U.S. origin to its manufacturing facility in Ecuador. The first step in the manufacturing process begins when the factory in Ecuador creates gold findings by forming the gold tubing into oval shapes, and then cutting the tubing. The tubing pieces are cut, bent, formed and shaped into ellipses and various other shapes that will be used as caps, clasps, hinges, and posts. These pieces in their final form are referred to as findings. The gold findings undergo further processing which includes the removal of rough edges, buffing, cleaning, and polishing.

The second step of manufacturing commences when the yellow gold ellipses are paired with white gold ellipses. This process involves additional bending, winding, cutting, and molding of the ellipses by hand to achieve the earrings' intended style - a characteristic "X" design. The paired yellow gold and white gold ellipses are then tacked together to stabilize the final "X" design of the earrings. The other findings are molded and shaped to create the caps, clasps, hinges, and posts. The caps are soldered onto the hollow edges of the paired ellipses to close the ends. The caps are larger in diameter than the original gold tubing, so they are filed down by hand to the width of the edges of the ellipses. Once the caps are in place, the white and yellow gold ellipses are soldered together into the earrings' final "X" design. Top joints are soldered onto the top of the article. The clasps, hinges and posts are attached to the article. The soldering operations cover the earrings in black soot so they are subjected to an acid bath in a "pickling" solution. Subsequently, the earrings are polished, cleaned and dried. In order to bring out the luster of the white gold component of the earrings, rhodium plating is hand-painted onto the white gold component. The yellow gold component is masked in wax to protect it from the rhodium plating process. The earrings are then again buffed, cleaned, polished, and subjected to quality control inspection. Lastly, the earrings are prepared for export to the United States.

ISSUE:

Whether the subject merchandise is eligible for preferential tariff treatment under the ATPDEA.

LAW AND ANALYSIS:

The Trade and Development Act of 2002 ("the Act"), was signed into law on August 6, 2002 (Pub.L. 107-210, 116 Stat. 933). Title XXXI of the Act concerns the renewal and expansion of the Andean Trade Preference Act ("ATPA") and is entitled the "Andean Trade and Promotion Drug Eradication Act" ("ATPDEA"). The ATPDEA immediately restored duty-free trade treatment to articles that had been eligible for ATPA benefits prior to the program's expiration on December 4, 2001. The ATPDEA amends the ATPA, which is codified at 19 U.S.C. 3201 through 3206, to provide additional trade benefits to designated beneficiary countries. The amendment provides preferential tariff treatment for textile and apparel articles, as well as for certain non-textile goods previously excluded from ATPA eligibility. The expanded benefits require a presidential determination concerning the eligibility of products and countries.

The applicable Customs regulations for the ATPA are located at 19 CFR 10.201-10.208. Pursuant to these regulations, an article is eligible to receive duty-free treatment under the ATPA, if it is classified under a tariff provision for which a rate of duty of "Free" appears in the "Special" sub-column followed by the symbol "J" or "J*". See 19 CFR 10.203. In Headquarters Ruling Letter ("HRL") 957053 dated January 25, 1995, at issue was the classification of a pair of gold earrings which were similar in design to those described in the present case. The ruling made the determination that the gold earrings were classified under subheading 7113.19.50, Harmonized Tariff Schedule of the United States ("HTSUS"), as articles of jewelry and parts thereof, of precious metal or metal clad with precious metal, of precious metal whether or not plated or clad with precious metal, of other precious metal, whether or not plated or clad with precious metal, other. Based on HRL 957053, the gold earrings in the present case are considered classified under subheading 7113.19.50, HTSUS. In the special sub-column of subheading 7113.19.50, HTSUS, appears the symbol "J." Therefore, the gold earrings are articles eligible to receive duty-free treatment under the ATPA.

The ATPDEA renewed all existing provisions under the ATPA. The relevant provision of the ATPA, codified at 19 U.S.C. 3203(a)(1), for eligible articles provides:

(a) In general.
(1) Unless otherwise excluded from eligibility (or otherwise provided for) by this title, the duty-free treatment (or preferential treatment) provided under this title shall apply to any article which is the growth, product, or manufacture of a beneficiary country if - (A) that article is imported directly from a beneficiary country into the customs territory of the United States; and (B) the sum of -
(i) the cost or value of the materials produced in a beneficiary country or 2 or more beneficiary countries under this Act, or a beneficiary country under the Caribbean Basin Economic Recovery Act or 2 or more such countries, plus (ii) the direct costs of processing operations performed in a beneficiary country or countries (under this Act or the Caribbean Basin Economic Recovery Act), is not less than 35 percent of the appraised value of such article at the time it is entered.

Therefore, the gold earrings at issue in this case will receive ATPA duty-free treatment if they are considered a "product of" Ecuador, they meet the value content requirements, and are imported directly into the United States. See 19 CFR 10.205 & 19 CFR 10.206.

The ATPA defines a "product of" a beneficiary country as an article that meets the rules of origin for a good set forth in 19 CFR 10.205, which states:

(a) General. Except as otherwise provided in paragraph (b) of this section, an article may be eligible for duty-free treatment under the ATPA if the article is either: (1) Wholly the growth, product, or manufacture of a beneficiary country; or (2) A new or different article of commerce which has been grown, produced, or manufactured in a beneficiary country. (b) Exceptions. No article shall be eligible for duty-free treatment under the ATPA by virtue of having merely undergone simple (as opposed to complex or meaningful) combining or packaging operations, or mere dilution with water or mere dilution with another substance that does not materially alter the characteristics of the article. The principles and examples set forth in ยง10.195(a)(2) of the part shall apply equally for purposes of this paragraph.

In the present case, the gold earrings are not wholly the growth, product, or manufacture of an ATPA country due to the U.S.-origin yellow gold tubes and white gold tubes used in manufacturing the earrings. Therefore, in order for the gold earrings to receive preferential tariff treatment, the U.S.-origin yellow gold tubes and white gold tubes must undergo a substantial transformation into a new and different article of commerce during manufacture in Ecuador. A substantial transformation occurs when an article emerges from a process with a new name, character, or use that differs from that possessed by the article prior to processing. See Texas Instruments Inc. v. United States, 69 CCPA 152, 681 F.2d 778 (1982).

In previous rulings, Customs has held that cutting or bending materials into defined shapes or patterns suitable for use in making finished articles, as opposed to mere cutting to length or width, which does not render the article suitable for a particular use, constitutes a substantial transformation. See HRL 055726 dated September 18, 1979 (a substantial transformation results from cutting, bending, and crimping wire into identifiable trigger pins for spring rings); HRL 071788 dated April 17, 1984 (forming 18 karat gold wire into circles, ovals, and other specially designed links for bracelets results in a substantial transformation); HRL 556060 dated August 27, 1991 (gold and silver strip bent into ring or bracelet shape and soldered into one piece, gold sheet cut to desired size of a jewelry piece and soldering a bail onto the cut piece, or taking preformed ring blanks and cutting them in half and soldering a pin or a clip onto the cut ring blank to form an earring were considered substantially transformed); and HRL 558635 dated June 20, 1995 (gold tube made into hollow hoops and further processed by bending or winding to achieve oval shapes or smaller oval diameters were considered substantially transformed).

Based on the rulings cited above, the U.S.-origin yellow gold tube and white gold tube in the present case are considered to be substantially transformed as a result of the manufacturing process performed in Ecuador. The imported hollow yellow gold tube and white gold tubes are cut, bent, and shaped into identifiable gold findings to be used in the manufacture of the earrings. Therefore, the gold earrings will be considered a "product of" Ecuador.

In order to receive preferential treatment, the 35 percent value content requirement must be satisfied. See 19 CFR 10.206. For purposes of meeting the 35 percent rule, an amount not to exceed15 percent of the appraised value of the article at the time it is entered may be attributed to the cost or value of materials produced in the customs territory of the United States. See 19 CFR 10.206(c). If an article is produced or assembled from materials which are imported into the beneficiary country from a non beneficiary country, the cost or value of those materials may be counted toward the 35 percent value-content minimum (over and above the 15% cap for U.S. materials) only if they undergo a double substantial transformation in the beneficiary country. See Azteca Milling Co. v. United States, 703 F. Supp. 949 (CIT 1988), aff'd, 890 F.2d 1150 (Fed. Cir. 1989).

In order to achieve a "double substantial transformation", the materials imported into the beneficiary country 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...." See Torrington Co. v. United States, 8 CIT 150, 596 F.Supp. 1083 (1984), aff'd, 764 F.2d 1563 (Fed.Cir.1985).

Customs has held that, for purposes of the Generalized System of Preferences ("GSP"), an assembly process will not work a substantial transformation unless the operation is "complex and meaningful." See C.S.D. 85-25, 19 Cust. Bull. 544 (1985). Whether an operation is complex and meaningful depends on the nature of the operation. It is necessary to consider the time, cost, and skill involved, the number of components assembled, the number of different operations, attention to detail and quality control, as well as the benefit accruing to the beneficiary developing country as a result of the employment opportunities generated by the manufacturing process.

Previous rulings provide guidance in making a determination as to whether a double substantial transformation has occurred in the instant case. The following rulings are instructive inasmuch as the GSP, Caribbean Basin Economic Recovery Act ("CBERA"), and ATPA programs have similar statutory aims and the country of origin criteria of the statutes are very similar. In HRL 555210 dated April 26, 1989, Customs held the conversion of 24 karat fine gold into 14 karat gold wire produced an intermediate article of commerce, which was ultimately substantially transformed a second time when made into 14 karat gold necklaces. As a result of the double substantial transformation, the cost or value of the gold wire could be included in the 35 percent value-content requirement under the GSP.

In HRL 555929 dated April 22, 1991, U.S.-origin gold wire was imported into the Dominican Republic where it was cut and made into links. The links were interlocked and soldered together to form a chain. The chain was cut into appropriate lengths suitable for bracelets, necklaces, and ankle bracelets. Customs held that the conversion of the U.S.-origin gold wire into gold links and the subsequent assembly of the gold links into the gold rope chain for use in necklaces, bracelets and ankle bracelets, resulted in a double substantial transformation of the U.S. materials. Therefore, the cost or value of the U.S.-origin gold wire could be included in the 35 percent value-content calculation under the GSP as "materials produced" in the beneficiary country.

However, in HRL 558635 dated June 20, 1995, Customs held that a second substantial transformation did not occur when the operations consisted merely of soldering completed hoops together to form earrings, bangles or similarly-produced articles of jewelry, and adding a clasp or other type closure. Customs stated that the essential character of the hoops did not change as a result of this finishing operation.

The scenario described in the present case as it relates to the transformation of the findings into the finished earrings is distinguishable from HRL 558635. The manufacturing process performed in Ecuador on the findings constitutes more than mere soldering as in HRL 558635. In order to achieve the characteristic "X" design of the earrings, the yellow gold and white gold findings are paired, cut, bent, formed, and shaped to appear interwoven together. The various findings are buffed, polished and cleaned several times, soldered and plated. The final product undergoes a strict quality control inspection. A distinct article of commerce emerges after processing the findings into earrings.

In Texas Instruments, Inc. v. United States, 681 F.2d 778 (Fed.Cir.1982), the court implicitly found that assembly of 3 integrated circuits, photodiodes, one capacitor, one resistor, and a jumper wire onto a flexible circuit board (PCBA) constituted a second substantial transformation. It would appear that this assembly procedure does not achieve the level of complexity contemplated by C.S.D. 85-25. As the court pointed out in Texas Instruments, in situations where all the processing is accomplished in one GSP beneficiary country, the likelihood that the processing constitutes little more than a pass through operation is greatly diminished. Consequently, if the entire processing operation performed in the single beneficiary country is significant, and the intermediate and final articles are distinct articles of commerce, then the double substantial transformation requirement will be satisfied. Such is the case even though the processing required to convert the intermediate article into the final article is relatively simple and, standing alone, probably would not be considered a substantial transformation.

This principle was applied in HRL 071620 dated December 24, 1984. Customs held that in view of the overall processing in the one beneficiary country, the materials were determined to have undergone a substantial transformation, although the second transformation was a relatively simple assembly process, which if considered alone, would not have conferred origin.

In the present case, the gold tubing is transformed during the first stage of manufacturing into an intermediate article of commerce, gold findings. During the second stage of manufacturing, the findings are formed into a distinct article, the earrings. The nature of this operation involves bending, winding, cutting, and molding. This processing is performed by hand which requires attention to detail, time, and skill to ensure a matching pair of earrings that meet industry standards. The entire processing of the earrings is completed in one beneficiary country and is not the type of simple or minimal "pass-though" operation that should be disqualified from receiving ATPDEA benefits. Therefore, we hold that the second stage of manufacturing is sufficiently "complex and meaningful" to satisfy the requirements of a double substantial transformation.

HOLDING:

Based on the information submitted, Customs finds that the earrings are "products of" Ecuador. In addition, Customs holds that the findings (ellipses) are a substantially transformed constituent material of the earrings. Therefore, the cost or value of U.S. origin gold tubing comprising the findings may be included in the 35 percent value-content requirement of the ATPA as "materials produced" in Ecuador. The earrings will receive duty-free treatment under ATPA, provided they are "imported directly" and the 35 percent value content requirement is satisfied.

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,

Myles B. Harmon
Director

Previous Ruling Next Ruling

See also: