Application for Further Review of Protest 2720-08-100003; eligibility of gold jewelry for duty-free treatment under the GSP; diamond and semiprecious stones

HQ H023268 August 21, 2009 CLA-2 OT:RR:CTF:VS H023268 RSD CATEGORY: Classification Port Director U.S. Customs and Border Protection 11099 South La Cienega Blvd. Los Angeles, California 90045 RE: Application for Further Review of Protest 2720-08-100003; eligibility of gold jewelry for duty-free treatment under the GSP; diamond and semiprecious stones Dear Port Director: This is in response to your correspondence forwarding the application for Further Review of Protest 2720-07-100406 timely filed by Modawest International, Inc. (Modawest) concerning the eligibility of certain gold a silver jewelry imported from India for duty-free treatment under the Generalized System of Preferences (“GSP”). FACTS: The Protest concerns a shipment of 18 kt. gold and 22 kt silver jewelry studded with diamonds and semi-precious stones. The record describes the jewelry at issue as a pendant necklace, earrings, bracelet, ring, necklace plus earring pendant plus earring that were imported from India. Protestant claimed that the imported jewelry was entitled to duty free treatment under the GSP. U.S. Customs and Border Protection’s (“CBP”) denied the claim for duty free treatment under the GSP. The Protestant states that ingots of 24 karat gold were imported into India from non-beneficiary countries. In India the ingot are melted down and alloyed in Karat age of 22kt or 18kt gold. The alloyed gold undergoes a casting process to form jewelry. The Protestant further claims that rough diamonds and stones are also imported into India where they are cut and polished and set into jewelry. However, the Protestant did not provide a description of the specific processing steps that were used to make the gold ingots into the jewelry. The record contains an invoice that indicates that cut and polished diamonds were purchased by jewelry manufacturer from a company based in India. ISSUE: Whether the imported gold jewelry is eligible for the 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 “product of” requirement means that to receive duty-free treatment, an article 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, the jewelry would be eligible for treatment as a good “wholly produced or manufactured” in India. Therefore, the foreign materials would have to be substantially transformed in India to be considered a “product of” India. Headquarters Ruling Letter (“HQ”) 560331 dated December 2, 1997 involved imported jewelry from the Dominican Republic claiming duty-free treatment under the Caribbean Basin Economic Recovery Act (“CBERA”). The precious metals, alloy metal and stones were from a foreign country other than a BDC. In one scenario, the alloying and pouring the alloy material into the casting was done in the Dominican Republic. CBP held that casting non-beneficiary precious metal alloys into jewelry and setting foreign gem stones in jewelry resulted in a substantial transformation and therefore, the jewelry was considered a product of the Dominican Republic for the purpose of the CBERA. In HQ H022844 dated June 20, 2008, ingots of 24 karat gold, alloy metal and rough semi- precious stones were imported into Thailand from non-beneficiary countries. The manufacturing process employed in Thailand included (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 was then melted with alloy pellets 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. CBP held that the imported jewelry was a product of Thailand for purposes of the GSP since the imported materials were substantially transformed in Thailand with a new name, character, and use. Based on the above rulings, we find that the imported materials were substantially transformed in India into Jewelry, a new article with a new name, character and use. Therefore, the imported jewelry would be considered a “product of” India for purposes of GSP. To be eligible for duty-free treatment under the GSP, merchandise must also satisfy the 35 percent 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. 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 ("HQ") 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 HQ 555801, dated January 2, 1991. In HQ 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.  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 HQ 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 percent value-content requirement. CBP 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 HQ 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, CBP 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 to establish that the diamonds were cut and polished in the India. The record indicates that two companies Maharaja Overseas and Paras Gems sold diamonds to the exporter/shipper Jaimin Jewelry Exports in India. However there is no evidence in the record from either of these sellers to indicate that they performed the cutting and polishing of the diamonds in India. Counsel submitted a statement from Jaimin which stated that the diamonds were cut and polished in India. However, there is no indication that Jaimin had any specific knowledge on where diamonds were processed and on what basis it could substantiate its claim that the diamonds cut and polished in India. Since Jaimin had obtained the diamonds already cut and polished, there is no way of knowing that it is statement that the diamonds were cut and polished in India is accurate. Therefore, we find that Jaimin’s statement to be unpersuasive and give it little weight. Due to the lack of adequate supporting documentation that the diamonds were cut and polished in India, we find that the protestant has not shown that the 35 percent value content requirement of the GSP 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. I n 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