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HQ W563616

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January 17, 2007

CLA-2 RR:CTF:VS W563616 KSG

CATEGORY: CLASSIFICATION

C.J. Erickson
Cowan, Liebowitz & Latman, P.C.
1133 Avenue of the Americas
New York, NY 10036-6799

RE: Eligibility of silver jewelry for duty-free treatment under the CBERA

Dear Mr. Erickson:

This is in response to your request for a binding ruling on behalf of Jacmel Jewelry Inc. concerning the eligibility of certain silver jewelry imported from the Dominican Republic (“DR”) for duty-free treatment under the Caribbean Basin Economic Recovery Act (“CBERA”).

FACTS:

The imported article involved in this case is a sterling silver cast ring. The materials used to manufacture the rings are: 1) silver casting grain of U.S. origin (.925 sterling alloyed in the U.S. into solid form); 2) silver scrap and previously made casting of DR origin which is combined with the casting grain in a 50/50 ratio by weight and value; 3) diamonds of foreign origin; and 4) .925 silver solder of U.S. origin.

The following processing takes place in the DR. DR-origin rubber molds are pre cut with the required shape. Ring castings are made of U.S.-origin wax. The wax ring castings are setup in a “wax tree,” (the tree consists of many wax ring castings that are placed like branches on a wax stem). Once the “wax trees” are full, they are placed in metallic cylinders called flasks. These flasks are then filled with investment or white plaster. The flasks are placed inside high temperature furnaces that harden the investment and cause the wax to melt. The investment takes the shape of the wax, creating a hollow tree/casting form in the cylinder mold. The investment/wax melting is done overnight. Early the next day, the flasks are removed from the high temperature furnace and placed in a specialized casting machine. The flask is placed in a holding bucket and the casting machine is programmed to a specific temperature. The casting grain is poured into the flask. The melted silver in liquid form fills all the areas that were once wax. The flask is removed from the casting machine and set aside to cool. Once the flask has cooled, it is broken to remove all of the plaster or investment and a tree made of silver containing all of the pieces previously in wax remains.

Then the ring castings are cut off the tree. The balance of the silver casting tree is separated as scrap. The ring castings are polished with a grinding wheel and then dipped in the silver solder paste. The setting is soldered onto the ring. Then, the silver ring castings are made cleaner and brighter. The silver rings are then polished, using an electric polishing wheel with a fabric buff. The ring is then washed and dried, packaged, marked and shipped to the U.S.

ISSUE:

Whether the imported silver jewelry is eligible for special tariff treatment under the CBERA.

LAW AND ANALYSIS:

Articles imported into the U.S. from the Dominican Republic may be eligible for preferential tariff treatment under the CBERA. Under the CBERA, 19 U.S.C. 2701-2706, eligible articles the growth, product or manufacture of designated beneficiary countries (“BDC”) may receive duty-free treatment if such articles are imported directly to the U.S. from a BC and if the sum of 1) the cost or value of material produced in the BDC, plus the 2) the direct costs of processing operations performed in the BDC is not less than 35% of the appraised value of the article at the time it is entered into the U.S. The cost or value of materials produced in the U.S. may be applied toward the 35% value-content requirement in an amount not to exceed 15% of the imported article’s appraised value.

All jewelry described in chapter 71, HTSUS, is eligible for CBERA treatment. Therefore, the imported rings would fall under a CBERA-eligible tariff provision. The Dominican Republic is a BDC pursuant to GN 7(a).

The first issue involved in this case is whether the imported jewelry is a “product of” the Dominican Republic. The “product of” requirement means that to receive duty-free treatment, an article either must be made entirely of materials originating in the BDC, or if made of materials imported into the BDC, those materials must be substantially transformed in the BDC into a new and different article of commerce.

A substantial transformation occurs “when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process.” Texas Instruments Inc. v. United States, 681 F.2d 778 (1982).

Customs considered a similar issue in Headquarters Ruling Letter ("HRL") 560331, dated December 2, 1997, involving imported jewelry from the Dominican Republic. The stones were from a foreign country other than a BDC. In one scenario, the alloying and casting was done in the Dominican Republic. Customs held that casting non-beneficiary precious metal alloys into jewelry and setting foreign gem stones resulted in a substantial transformation and therefore, the jewelry was considered a product of the Dominican Republic. See also HRL 555801,dated January 2, 1991. In HRL 556457, dated March 5, 1992, Customs ruled that alloying U.S. origin gold and silver in Costa Rica to create shot, and then casting into jewelry, and the setting of stones was considered a substantial transformation. Therefore, the finished pieces of jewelry were considered products of Costa Rica for the purposes of the CBERA. See also HRL 555801, dated January 2, 1991. In HRL 556060, dated August 27, 1991, CBP ruled that producing gold casting grain and casting in Mexico to create jewelry constituted a double substantial transformation for the purposes of the GSP.

The facts that you have provided are similar to the above cited rulings. Like HRL 560331 and HRL 556457, the casting and setting of stones that transform the metals and stones into jewelry are performed in the beneficiary country. There is a change in name from silver casting grain, silver scrap and previously made castings and the stones into a finished ring. There is also a change in character and use. Therefore, the resulting material has different characteristics than pure silver or the alloy materials. Silver, alloying materials and stones have many potential uses while the finished silver ring has a single use. Therefore, we conclude that the silver casting grain, silver scrap and previously made castings and stones are substantially transformed into a finished piece of jewelry in DR with a different name, character and use. Thus, there is a substantial transformation and the finished jewelry is a "product of" the Dominican Republic for the purposes of the CBERA.

To be eligible for duty-free treatment under the CBERA, merchandise must also satisfy the 35% value-content requirement. If an article consists of materials that are imported into a BDC, as in the instant case, the cost or value of these materials may be counted toward the 35% value-content requirement only if they undergo a double substantial transformation in the BDC. See 19 CFR 10.177(a)(2). Materials imported into the BDC must first be substantially transformed into a new and different article of commerce which becomes “material produced” and these materials produced in the BDC must then be substantially transformed into a new and different article of commerce (the final article). This intermediate product must be a distinct article of commerce. An article of commerce is commercially recognizable as an article which is readily susceptible of trade and one that persons might well wish to buy and acquire for their own purposes of consumption or production. See Azteca Mill Co. v. U.S., 703 F. Supp. 949 (CIT 1988), and F.F. Zuniga a/c Refractarios Monterrey, S.A. v. United States, 996 F.2d 1203 (Fed. Cir. 1993).

In HRL 560331, Customs considered the issue of whether the materials imported into the Dominican Republic were subjected to a double substantial transformation so that their value could be included in the 35% value-content requirement. Customs held that the gold bars, silver, copper, zinc, nickel, or brass, which were alloyed to the desired specification from shot and cast into jewelry pieces were subjected to a double substantial transformation, but that the finished stones which were set into the castings in the Dominican Republic were not subjected to a double substantial transformation. See also HRL 556457, dated March 5, 1992, which held that finished precious and semiprecious stones set into castings are not subjected to a double substantial transformation. Based on the above rulings, the foreign diamonds could not be counted toward the 35% value-content requirement.

Accordingly, the silver casting grain, which is alloyed in the U.S. and cast in the DR, undergoes a substantial transformation in the Dominican Republic and therefore, may be counted toward the 35 percent value content requirement under the CBERA up to 15% of the appraised value of the imported silver rings. The silver scrap and previously made castings of DR-origin undergo a substantial transformation and may be counted toward the 35% value content requirement. The diamonds are of foreign origin and would not be counted toward the 35% value content requirement.

HOLDING:

Based on the information provided, the silver casting grain and the silver scrap and previously made castings undergo a single substantial transformation in the Dominican Republic and therefore, would be considered a product of the Dominican Republic for the purposes of the CBERA. The silver casting grain may be counted up to 15% of the appraised value of the imported silver rings. The silver scrap and previously made castings may be counted toward the 35% value-content requirement under the CBERA.

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,

Monika R. Brenner
Chief,

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