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HQ 562725




May 28, 2003

CLA-2 RR:CR:SM 562725 ALH

CATEGORY: CLASSIFICATION

Mr. Arthur W. Bodek
Mr. Matthew R. Leader
Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt, LLP 245 Park Avenue – 33rd Floor
New York, New York 10167-3397

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

Dear Mr. Bodek and Mr. Leader:

This is in reference to your letter dated March 31, 2003, requesting a ruling on a prospective transaction concerning gold and silver jewelry, made in Indonesia. Specifically, you ask whether the jewelry will be eligible for duty-free treatment under the Generalized System of Preferences (“GSP”). Photographs of samples were included with the submission.

FACTS:

Your client, Yamamori USA, Inc. (“Yamamori”), plans to import gold and silver jewelry (necklaces and footage) from Indonesia. Ingots of 24 karat gold from a non-beneficiary developing country under the GSP will be imported into Indonesia. In Indonesia, the ingots will be melted down, alloyed and drawn out into wire with an approximate diameter of 20 mm. The wire will then be further extruded into wire of various diameters, between 0.25 and 2 mm. The wires will then be machine formed into links and chains. Any open links will be chemically welded, the chain flattened and beaten to the desired width and then softened through mechanical manipulation. The chain will be beveled, machine printed, polished and shined before being wound onto bobbins and packed for shipment from Indonesia directly to the United States. In some cases, the chains will be formed into necklaces in Indonesia. Under such a scenario, clasps will be thermo-welded to the ends of the chain to form the necklace and polished before shipment to the United States. In other cases, the goods will be shipped as footage (i.e., not cut to length and without clasps attached). The same operation will also be performed with respect to silver ingots imported into Indonesia.

ISSUE:

Whether the gold and silver jewelry made in Indonesia as described above qualify for GSP preferential tariff treatment.

LAW AND ANALYSIS:

Under the GSP, eligible articles the growth, product or manufacture of a designated beneficiary developing country (“BDC”) which are imported directly into the customs territory of the United States 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 entry into the United States. See 19 U.S.C. 2463(b)(1). The Customs implementing regulations are found at 19 CFR 10.171 et seq.

Under General Note 4, Harmonized Tariff Schedule of the United States (“HTSUS”), Indonesia is a designated BDC for purposes of the GSP. In your submission, you note that the silver jewelry is classifiable in subheading 7113.11.10 (rope) and 7113.11.20-50 (necklaces), HTSUS, and the gold jewelry in subheading 7113.19.10 (rope) and 7113.19.21-29 (necklaces), HTSUS. These provisions are eligible for GSP treatment. For purposes of this ruling, we are assuming the correctness of these classifications.

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 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).

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 double substantial transformation in the BDC. 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 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." See Torrington Co. V. United States, 8 CIT 150, 596 F. Supp. 1083 (1984), aff'd, 764 F.2d 1563 (Fed. Cir. 1985). In the present case, to qualify for GSP treatment the non-Indonesian component must be substantially transformed into an intermediate article of commerce, which is then used in Indonesia in the production of the imported article, the gold and silver jewelry.

Previous rulings provide guidance in making a determination as to whether a substantial transformation has occurred. In HRL 071788 dated April 17, 1984, Customs ruled that 18 karat gold wire produced from 24 karat fine gold bars was a substantially transformed constituent material of gold chains or bracelets for GSP purposes. In that case, the gold bars were imported into the BDC, and melted down and mixed with necessary alloys to reduce the gold’s purity. The resulting 18 karat gold was then rolled into wires of different gauge and size, which were shaped into round circles and ovals, soldered together, and stamped into a flat link figure-eight or similar shape. Clasps were then attached to form chains or bracelets, which were cleaned, polished and buffed, and exported directly to the United States. The 18 karat gold wire was determined to be an intermediate article of commerce; therefore, it was determined that its cost or value may be included as part of the GSP 35 percent requirement of the subsequently produced chains and bracelets.

Similarly, in HRL 555210 dated April 26, 1989, imported 24 karat fine gold was converted in a BDC country into gold wire, which was then combined to create gold chain necklaces. Customs held that the conversion of the 24 karat fine gold in the BDC country into 14 karat gold wire produced an intermediate article of commerce, which itself was ultimately substantially transformed when made into the 14 karat gold necklaces. Again, it was determined that the gold wire’s cost or value may be included as part of the GSP 35 percent requirement of the subsequently produced necklaces.

The facts in the present case are nearly identical to those in HRL 071788 and HRL 555210. In your letter you state that, in Indonesia, imported 24 karat gold and silver ingots will be melted down, alloyed, and drawn out into wire. The wires will be machine formed into links and chains. Open links will then be chemically welded, the chain flattened and beaten to the desired width, and then softened through mechanical manipulation. The chain will then be beveled, machine printed, polished, shined and wound onto bobbins or formed into necklaces. Customs finds that gold and silver ingots will be substantially transformed in Indonesia into wire, a new and different article of commerce, and the wire will be substantially transformed into continuous lengths of chain links, new and different articles of commerce. Accordingly, we find that the completed gold and silver chains and necklaces are considered "products of" Indonesia. In addition, as a result of processing in the BDC, we find that the imported gold and silver ingots undergo a double substantial transformation in the BDC and, therefore, the cost or value of the wire may be included in the 35 percent value-content computation.

The term "imported directly" from a BDC, for GSP purposes, is defined in section 10.175, Customs Regulations (19 CFR 10.175). Articles which are shipped directly from a BDC to the United States without passing through the territory of any other country will clearly be "imported directly" to the United States from the BDC. See Customs Regulations (19 CFR 10.175(a)).

HOLDING:

Based on the information submitted, we find that the gold and silver chains and necklaces are “products of” Indonesia. We further find that, in Indonesia, the 24 karat gold and silver ingots undergo a substantial transformation into intermediate articles of commerce, wire. The wire is further transformed into chain links. Therefore, the cost or value of the wire may be included in calculating the 35 percent value-content requirement under the GSP. The jewelry will receive duty-free treatment under the GSP, provided it satisfies the 35% value-content and “imported directly” requirements.

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

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