HQ H022844

June 20, 2008

CLA-2 OT:RR:CTF:VS H022844KSG

CATEGORY: Classification

Port Director

U.S. Custom & Border Protection

John F. Kennedy International Airport

Bldg #77

Jamaica, NY 11430

> RE: Application for Further Review of Protest 4701-2007-100553;
> eligibility of gold jewelry for duty-free treatment under the GSP;
> semi-precious stones

Dear Port Director:

This is in reply to your correspondence forwarding the application for
Further Review of Protest 4701-20007-100553 timely filed by Pranda North
America, Inc., concerning the eligibility of certain gold jewelry
imported from Thailand for duty-free treatment under the Generalized
System of Preferences ("GSP").

**FACTS:**

The Protest is against U.S. Customs and Border Protection's ("CBP") rate
advance of this merchandise as dutiable. The Protestant claims that the
imported jewelry is entitled to duty-free treatment under the GSP.

This case involves imported gold jewelry set with semi-precious stones
and/or diamonds which the importer classified in heading 7113 of the
Harmonized Tariff Schedule of the United States ("HTSUS"). The importer
claims that the country of origin is Thailand. The protestant purchased
the jewelry from a related Thailand manufacturer.

The protestant states that ingots of 24 karat gold, alloy metals and
rough semi-precious stones were imported into Thailand from
non-beneficiary countries. The protestant also states that cut diamonds
were imported and in some instances, set into castings in Thailand. The
Protestant has not claimed that the cost of the diamonds may be counted
toward the 35% value-content in this case.

Counsel states that the traditional "lost wax" manufacturing process is
employed in this case to create jewelry. This process, which takes place
in Thailand, includes: (1) creation of a master mold of the article to
be produced; (2) the formation of rubber molds from the master models;
(3) the production of a wax tree to form a plaster investment mold; (4)
formation of the plaster investment mold; (5) gold ingot is then melted
with alloy pellets to form molten gold alloy; (6) the production of a
gold tree from the molten gold alloy; (7) various cutting, grinding,
shaping, assembly, polishing and electroplating processes and (8) the
cutting, polishing and setting of semi-precious stones, where
applicable.

The first phase of the processing involves the creation of a master wax
model of each jewelry item. The model of each individual item of jewelry
desired is carved from wax into a "pattern." In a process referred to as
"spruing," several wax patterns are attached to a rubber base by
"sprues" to form a wax "tree." The wax tree is then placed into a metal
flask and covered in a coat of plaster "investment," a substance that
resembles plaster of Paris. Once the plaster investment dries, the flask
is then placed into a casting burn-out oven and the wax is vaporized,
leaving a hollow impression in the plaster. The resulting cavity formed
in the plaster investment becomes a plaster mold which is an accurate
negative of the original wax tree. A low-cost molten metal alloy is
poured into the plaster mold and allowed to cool and solidify into the
shape of the original wax tree. Once this occurs, the plaster is washed
away to reveal low-cost metal tree, which is used to produce numerous
metal master models of the articles to be produced.

The metal master models are removed from the alloy tree and are used to
produce rubber molds. Rubber molds are prepared in order to produce
numerous wax replicas of the pieces that will be used to make more wax
trees for the purpose of making more plaster molds used to manufacture
the gold castings. To create a rubber mold, the low cost alloy master
models are removed from the tree and placed between two flat pieces of
rubber which are pressed together until the metal model is completely
embedded between them. The two pieces of rubber with the metal model
embedded are then placed inside a rubber mold frame, which is inserted
into a vulcanizing machine and cured. The rubber is then removed from
the frame and is cut in half by hand to produce the finished rubber
mold.

Once the rubber molds are created, they are used to produce multiple wax
replicas of jewelry and/or components. To accomplish this, molten wax is
injected into the finished rubber molds about once every two to three
minutes. The molds cool and the wax hardens.

The gold is mixed with the appropriate amount of alloy metals, to
produce the appropriate gold blend (e.g., 10, 14, 18 karat), and gold
scrap in a tray and melted down in a process known as alloying. When
melted, the resulting gold liquid is then poured into a cylindrical
flask or crucible and then into the plaster investment mold, and allowed
to cool and solidify. When the gold alloy mixture has cooled and
solidified, the plaster investment mold is submerged into a bin of water
until all of the plaster is dissolved, resulting in a gold alloy tree.
The tree is comprised of crude "castings" or "findings" of the articles
being manufactured, attached by sprues to a "trunk." These gold trees
are melted into gold alloy bars, segregated and stored by gold content
(e.g., 10, 14, 18 karat). The bars are routinely melted again and
blended with molten gold alloy.

The castings are then cut from the tree. The castings have a rough
surface, protruding sprue fragments, mold residue, parting lines, rivets
and scratches. An abrasive pad is used and then, a deburring process,
both by hand and using a grinding wheel, to smooth the surface. The
pieces are then shaped, often by bending or stretching to conform to the
desired configuration and size.

For those pieces that require the setting of precious or semi-precious
stones, reshaping of the findings is required to accommodate an array of
stone sizes.

Finishing operations are performed on each piece by hand using hand-held
gravers, hand-directed and controlled motor-driven grinders with rubber
and emery wheels on flexible shafts, as well as by buffing and grinding
machines. When the pieces are ready for assembly, they are pre-polished
by hand, machine-washed and ultrasonically cleaned to remove residual
abrasives and polishing compounds.

The rough semi-precious stones are cut, faceted and polished in
Thailand. They are then sorted by size and quality before they are set
into any article of jewelry.

The assembly of component parts and cut stones involves riveting,
wiring, hammering, cutting, shaping or soldering, or any combination of
those operations, depending on the item and design.

To assemble or set a stone, each piece is set in shellac for support.
The mounting sites on the individual pieces are measured and adjusted to
receive the stone. Portions of the prongs or beads are cut to proper
size and a hole is formed in the casting to accommodate the base of the
stone. When prongs are employed in the mounting, the surfaces from which
portions have been cut or ground are then reshaped and polished to
finished tolerances. If a bezel or beads are used instead of prongs,
appropriate techniques are used to form the bezel or raise and shape the
beads to support and retain each stone in the mounting.

Each finished piece is polished and then washed and steamed to remove
residual compound and alloy particles. Last, the finished jewelry
articles undergo electroplating to protect the pieces from abrasion or
corrosion

.

**ISSUE:**

Whether the imported gold jewelry is eligible for special tariff
treatment under the GSP.

**LAW AND ANALYSIS:**

Title V of the Trade Act of 1974, as amended (19 U.S.C.A. 2461-65),
authorizes the President to establish a Generalized System of
Preferences to provide duty-free treatment for eligible articles from
beneficiary developing countries ("BDCs"). Articles produced in a BDC
may qualify for duty-free treatment under the GSP if the good are
imported directly into the customs territory of the U.S. from the BDC
and the sum or value of materials produced in the BDC plus 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 U.S. [See]{.underline} 19 U.S.C. 2463(a)(2) and (3).

Thailand has been designated as a BDC for purposes of the GSP and may be
afforded preferential treatment under the HTSUS. [See]{.underline} GN
4(a), HTSUS. The imported jewelry is classified in a GSP-eligible
provision.

A good is considered to be a "product of" a BDC if it is wholly the
growth, product or manufacture of the BDC, or if made of materials
imported into the BDC, those materials are substantially transformed in
the BDC into a new and different article of commerce. [See]{.underline}
19 CFR 10.176(a). 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]{.underline}, 681
F.2d 778 (1982).

We assume for the purposes of this ruling that the goods have satisfied
the "imported directly" requirement.

The first issue involved in this case is whether the imported jewelry is
a "product of" Thailand. 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. In this case, counsel
acknowledges that this jewelry would not be eligible for treatment as a
good "wholly produced or manufactured" in Thailand. Therefore, the
foreign materials would have to be substantially transformed in Thailand
to be considered a "product of" Thailand.

Headquarters Ruling Letter (\"HRL\") 560331, dated December 2, 1997,
involved imported jewelry from the Dominican Republic claiming duty-free
treatment under the Carribbean Basin Economic Recovery Act ("CBERA").
The precious metals, alloy metals, and stones were from a foreign
country other than a BDC. In one scenario, the alloying and pouring of
the alloy material into the casting was done in the Dominican Republic.
Customs held that casting non-beneficiary precious metal alloys into
jewelry and setting foreign gem stones in the jewelry resulted in a
substantial transformation and therefore, the jewelry was considered a
product of the Dominican Republic for the purpose of the CBERA. [See
also]{.underline} HRL 555801, dated January 2, 1991 and HRL 556457,
dated March 5, 1992.

Based on the above rulings, we find that the imported materials were
substantially transformed in Thailand into jewelry, a new article with a
new name, character, and use. Therefore, the imported jewelry would be
considered a "product of" Thailand for the purposes of GSP.

To be eligible for duty-free treatment under the GSP, 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.

In [Texas Instruments Inc. v. U.S.]{.underline}, 681 F.2d 778 (1982),
the court held that the assembly of three integrated circuits,
photodiodes, one capacitor, one resistor and a jumper wire onto a
flexible circuit board (PCBA) constituted a second substantial
transformation. It was suggested that in situations where all of 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 BDC is significant, and the
intermediate and final articles are distinct articles of commerce, then
the double substantial transformation will be satisfied.

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, poured into molds and cast into jewelry pieces were
subjected to a double substantial transformation, but that finished
stones which were only set into the castings in the Dominican Republic
were not subjected to a double substantial transformation.

Based on the description provided in this case, it would appear that
gold is alloyed, poured into a molding and cast in Thailand. This is
very similar to the processing described in HRL 560331 that was held to
constitute a double substantial transformation. Based on the above, we
find that the gold and alloy metals would undergo a double substantial
transformation in Thailand and therefore, may be counted toward the 35
percent value content requirement under the GSP.

Customs and Border Protection has previously held that cutting and
polishing a rough diamond or semi-precious stone and setting it would be
considered a double substantial transformation. [See]{.underline} HRL
556457, dated March 5, 1992 and HRL 563127, dated December 15, 2004.
Therefore, the value of the rough semi-precious stones would undergo the
requisite double substantial transformation and could be counted toward
the 35% value-content requirement.

**HOLDING:**

Based on the information provided, the gold, alloy and rough
semi-precious stones may be counted toward the 35% value-content
requirement under the GSP. Therefore, the protest should be granted
provided the 35% value-content requirement is met.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065,
dated August 4, 1993, Subject: Revised Protest Directive, you are to
mail this decision, together with the Customs Form 19, to the protestant
no later than 60 days from the date of this letter. Any reliquidation of
the entry or entries in accordance with the decision should be
accomplished prior to mailing of this decision. Sixty days from the date
of this decision, the Office of Regulations and Rulings will make the
decision available to Customs personnel, and to the public on the
Customs Home Page on the World Wide Web at
[www.customs](http://www.customs/)[.gov]{.underline}, by means of the
Freedom of Information Act, and other methods of public distribution.

> Sincerely,
>
> Myles B. Harmon, Director
>
> Commercial & Trade Facilitation Division