Application for Further Review of Protest 2720-07-100406; eligibility of gold jewelry for duty-free treatment under the GSP; diamonds and semi-precious stones

HQ H020222 July 10, 2008 CLA-2 OT:RR:CTF:VS H020222KSG CATEGORY: Classification Port Director U.S. Customs & Border Protection 11099 South La Cienega Blvd. Los Angeles, California 90045 RE: Application for Further Review of Protest 2720-07-100406; eligibility of gold jewelry for duty-free treatment under the GSP; diamonds and semi-precious stones Dear Port Director: This is in reply to your correspondence forwarding the application for Further Review of Protest 2720-07-100406 timely filed by FWCD, Inc. concerning the eligibility of certain gold jewelry imported from India for duty-free treatment under the Generalized System of Preferences (“GSP”). Additional information was submitted by counsel on March 25, 2008, on April 25, 2008, and on May 19, 2008. FACTS: The Protest is against U.S. Customs and Border Protection’s (“CBP”) rate advance of 22 and 18 kt. gold jewelry studded with diamonds as dutiable. The Protestant claims that the good is entitled to duty-free treatment under the GSP. Your office states that sufficient documentation has not been submitted. The importer classified this merchandise at subheading 7113.19.50 of the Harmonized Tariff Schedule of the United States (“HTSUS”). The importer claims that the country of origin was India. The entry was filed on June 28, 2006. The protestant states that ingots of 24 karat gold, rough diamonds and stones and some alloys were imported into India from non-beneficiary countries. The inclusion of stones does not match the description of the merchandise in the CF 6445A as diamond studded. An invoice attached to the CBP form 3461 submitted lists 22 and 18 kt. gold jewelry studded with diamonds, uncut diamonds, precious and semi-precious stones. Further, counsel states in the Application for Further Review that the ingots are alloyed into “10 kt, 14kt or 18kt.” This does not match the description in the invoice of the imported merchandise as 22 or 18kt. It is claimed that the jewelry was produced in India by using the lost wax casting method. A master or prototype is used to make a rubber mold. Wax is placed into a flask and then into an oven and burned out . The wax melts away leaving a cavity. The gold is alloyed with a combination of silver and copper. For 22k gold, 92% gold and 8% alloy is used. For 18k gold, 75% gold and 25% alloy is used. Small shots of alloyed gold are prepared and then melted in a vacuum pressure casting machine. The alloyed gold is then poured into the cavity. The rubber mold is cut apart to create a production mold. A wax tree is then made out of various parts of the wax model and fixed into its base, which is then fixed in a flask. A mixture called investment is mixed with water. The investment must be placed in a vacuum chamber to remove all air bubbles from the solution. The flask is then placed in an oven. The wax tree is melted away leaving a cavity just like the wax tree. The flask is placed in a centrifugal casting machine where the gold is melted and forced into the cavity in the flask. The flask is then dipped into water to remove the investment. Finally, the components of the tree are removed from the stem. Each setting is drilled and the stones are set. The piece of jewelry is polished and cleaned. Counsel states that 24 carat gold is purchased from the Bank of Nova Scotia, and alloy is purchased from the Bangalore Refinery Private Limited. Counsel states that the gold was purchased for USD $20.36 per gram. Charts (Annexure-C, D, and E) indicate the invoice number and value of gold, alloy and stones. However, invoices were not submitted to support these values. Further, the figures in the charts do not conform to the entry value of the goods. The protestant did not provide a description of the processing of the diamonds and stones used in India to manufacture the imported jewelry. It is indicated that cut and polished diamonds are obtained from various suppliers and that rough diamonds are imported by certain suppliers. The protestant submitted an invoice dated April 17, 2006, to support the assertion that it purchased 3,000 rough diamonds. The protestant also submitted an affidavit dated March 20, 2008, signed by the Managing Director of Saklecha Diamonds, dealers in loose diamonds located in Bangalore (India’s third most populous city). The managing director’s name is not listed and the signature looks like just one letter. The affidavit states that “we hereby declare that the diamonds were purchased as rough and were cut and polished and transformed into polished stones in our facility India.” 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 19 U.S.C. 2463(a)(2) and (3). India has been designated as a BDC for purposes of the GSP and may be afforded preferential treatment under the HTSUS. See 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 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, 681 F.2d 778 (1982). The first issue involved in this case is whether the imported jewelry is a “product of” India. The importer claimed that the gold, some of the alloy, rough diamonds and stones were imported into India. Therefore, this jewelry would not be eligible for treatment as a good “wholly produced or manufactured” in India. The foreign materials (gold, alloy, stones, rough diamonds) would have to be substantially transformed in India to be considered a “product of” India. 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 casting into jewelry, and setting stones in the jewelry was considered a substantial transformation. Therefore, the finished pieces of jewelry were considered products of Costa Rica for the purposes of the Caribbean Basin Economic Recovery Act (“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 to create jewelry constituted a double substantial transformation for the purposes of the GSP. Based on the above rulings, the imported jewelry would be considered a “product of” India for the purposes of GSP since the imported materials are substantially transformed in India into jewelry, a new article with a new name, character, and use. 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., 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 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 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 only set into the castings in the Dominican Republic were not subjected to a double substantial transformation. See also HRL 556457, dated March 5, 1992. Based on the description provided by the protestant, gold is alloyed into shot and cast in India. Therefore, the gold and alloy metal would undergo a double substantial transformation in India and therefore, may be counted toward the 35 % value content requirement under the GSP if adequate information were provided to substantiate the 35% requirement. Regarding the stones, Customs and Border Protection has previously held that cutting and polishing a rough diamond or stone and setting it would be considered a double substantial transformation. See HRL 556457, dated March 5, 1992. The remaining issue in this case is whether the protestant has submitted sufficient documentation to show that the imported jewelry satisfies the 35% value-content requirement. Based on our review of this file, the protestant has not submitted sufficient documentation in this case. The charts submitted are self-serving and not supported by copies of relevant invoices. We are unable to determine which goods involved in this entry are diamond-studded. There were no invoices submitted to support the claim that rough stones (those that are not diamonds) were imported into India and used to produce jewelry. We have reviewed the 2008 affidavit submitted and a 2006 invoice describing rough diamonds. We give little weight to the affidavit because it was dated 2008, and it is unclear who signed it and whether they provided the diamonds involved in this case. The 2006 invoice is for 3,000 pieces. We are unable to determine how many pieces of diamond-studded jewelry were included in this entry. Due to all these factual inconsistencies and the lack of supporting documentation, we find that the protestant has not shown that the 35% value-content requirement was satisfied. HOLDING: Based on the information provided, the gold, alloy materials and the diamonds undergo a substantial transformation in India and therefore, the jewelry would be considered a “product of” India for the purposes of the GSP. The protestant has not demonstrated that the 35% value-content requirement is satisfied. The protest should be denied. 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.gov, by means of the Freedom of Information Act, and other methods of public distribution. Sincerely, Myles B. Harmon, Director Commercial & Trade Facilitation Division