Request for Internal Advice; Subheading 9802.00.50, HTSUS; Jewelry; Assists

HQ H057714 May 13, 2009 OT:RR:CTF:VS H057714 ARU CATEGORY: Valuation Assistant Port Director, Trade Operations U.S. Customs and Border Protection Miami International Airport PO Box 025280 Miami, FL 33102-5280 RE:     Request for Internal Advice; Subheading 9802.00.50, HTSUS; Jewelry; Assists Dear Assistant Port Director: This is in response to your memorandum, dated March 26, 2009, forwarding a Request for Internal Advice, submitted by Paul M. Voight, CHB, on behalf of Fairmont Creations Inc. (“Fairmont”), concerning the importation of articles of jewelry from India, United Arab Emirates, and Malaysia. You ask about the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (“HTSUS”), to articles of jewelry made from gold bars. In addition, you ask whether these gold bars constitute an assist to be included in the price actually paid or payable of the jewelry. FACTS: Fairmont imported articles of jewelry into the United States from various manufacturers in India, United Arab Emirates, and Malaysia. Fairmont supplied these manufacturers with gold bars stated to be of U.S.-origin. Fairmont imported the jewelry under subheading 9802.00.50, HTSUS. In response to a Request for Information, dated April 16, 2009, Fairmont acknowledged that it paid for the gold bars and shipped them at no cost to the manufacturers in India, United Arab Emirates, and Malaysia. Fairmont further acknowledged that the 24 Kt gold bars were melted and proportionately mixed with alloy as per the purity of 22 Kt gold. ISSUES: (I) Whether the imported jewelry is eligible for the partial duty exemption under subheading 9802.00.50, HTSUS. (II) Whether the provision of gold bars to the manufacturer, as described above, constitutes an assist within the meaning of 19 U.S.C. § 1401a(h)(1)(A).LAW AND ANALYSIS: Subheading 9802.00.50, HTSUS, provides a partial duty exemption for articles returned to the United States after having been exported to be advanced in value or improved in condition by means of repairs or alterations, provided that the documentary requirements of 19 CFR 10.8 are met. For qualifying articles, duty is assessed only on the cost or value of the foreign processing. However, in circumstances where the operations abroad destroy the identity of the exported article or create a new or commercially different article, entitlement to subheading 9802.00.50, HTSUS, is precluded. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff’d C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian Industries Corporation v. United States; 3 CIT 9 (1982). Additionally, entitlement to this tariff treatment is not available where the exported articles are incomplete for their intended purposes prior to their foreign processing and the foreign processing is a necessary step in the preparation or manufacture of the finished articles. Dolliff & Company, Inc. v. United States, 455 F. Supp. 618 (CIT 1978), aff’d, 599 F.2d 1015 (Fed. Cir. 1979).  At issue in Guardian Industries was the question of whether U.S.-produced annealed glass subjected to a tempering process in Canada to create sliding glass patio doors qualified as an "alteration" under item 806.20, TSUS (the precursor to subheading 9802.00.50). The court noted that glass must be tempered (i.e. strengthened) for practical safety use reasons and to conform to U.S. federal regulations before it could be marketed for use in sliding glass patio doors. The court concluded that the tempering process was not an alteration because the exported raw annealed glass was not a completed article and "completely unsuitable for their intended use." In Dolliff & Company, Inc. v. United States, 81 Cust. Ct. 1, 455 F. Supp. 618 (1978), aff’d 66 CCPA 77, 599 F.2d 1015 (1979), the issue presented was whether certain U.S.-origin Dacron polyester fabrics which were exported to Canada as griege goods for heat setting, chemical scouring, dyeing and treating with chemicals, were eligible for the partial duty exemption under item 806.20, TSUS, when returned to the U.S. The court found that the processing steps performed on the exported griege goods were undertaken to produce finished fabric and could not be considered as alterations. The court stated that “…repairs or alterations are made to completed articles and do not include intermediate processing operations, which are performed as a matter of course in the preparation or manufacture of finished articles.” In this case, the foreign processing uses the gold bars provided by Fairmont to create the jewelry. The melting of the gold bar results in the loss of the gold bar’s identity and creates a new and different article of commerce, namely finished pieces of jewelry. Accordingly, we find that the gold bars in question are not finished for their intended use prior to being exported from the United States and the jewelry is not eligible for a partial duty exemption under subheading 9802.00.50, HTSUS. As to the second issue, merchandise imported into the United States is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. § 1401a). The preferred method of appraisement is transaction value, which is defined as the "price actually paid or payable for the merchandise when sold for exportation to the United States," plus certain enumerated additions, including "the value, apportioned as appropriate, of any assist." 19 U.S.C. § 1401a(b)(1)(C). For the purpose of this decision we assume that transaction value is the proper basis of appraisement. The term "assist" is defined in 19 U.S.C. § 1401a(h)(1)(A) as any of the following if supplied directly or indirectly, and free of charge or at reduced cost, by the buyer of imported merchandise for use in connection with the production or the sale for export to the United States of the merchandise:(i) Materials, components, parts, and similar items incorporated in the imported merchandise.(ii) Tools, dies, molds, and similar items used in the production of the imported merchandise.(iii) Merchandise consumed in the production of the imported merchandise.(iv) Engineering, development, artwork, design work, and plans and sketches that are undertaken elsewhere than in the United States and are necessary for the production of the imported merchandise. See also 19 CFR § 152.103. As described above, the materials provided by Fairmont fit the definition of an assist. The gold bars are provided free of charge by the buyer and are incorporated into the finished pieces of jewelry. Accordingly, the value of the gold bars must be added to the price actually paid or payable for the imported merchandise. HOLDINGS: On the basis of the information submitted, the foreign operations constitute a process of manufacture and not an alteration, within the meaning of subheading 9802.00.50, HTSUS. Accordingly, the finished pieces of jewelry are not eligible for the partial duty exemption available under this provision.  In addition, gold bars provided free of charge to manufacturers of finished pieces of jewelry in India, United Arab Emirates, and Malaysia by the importer constitute a dutiable assist and, accordingly, the value of the assist must be added to the price actually paid or payable for the imported merchandise. Please mail this decision to the internal advice applicant no later than sixty (60) days from the date of this letter. Sixty days from the date of this letter, the Office of International Trade: Regulations and Rulings will take steps to make the public version of this decision available to CBP personnel and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution. Sincerely, Monika R. Brenner                                Chief, Valuation & Special Programs Branch