Eligibility of Certain Jewelry Under General Note 3(a)(iv) Harmonized Tariff Schedule of the United States (HTSUS)

DEPARTMENT OF THE TREASURY

Customs Service

Eligibility of Certain Jewelry Under General Note 3(a)(iv)

Harmonized Tariff Schedule of the United States (HTSUS)

AGENCY: U.S. Customs Service, Department of Treasury.

ACTION: Change of Practice; discussion of comments.

-----------------------------------------------------------------------

SUMMARY: This document changes the practice regarding the eligibility

of certain jewelry from the United States Virgin Islands for duty-free

treatment. Customs previously has ruled that attaching United States-

origin metal spring clips to otherwise finished earrings substantially

transforms those articles into ``products of'' the Virgin Islands.

Under the change set forth herein, the addition of fasteners, closures,

clasps, etc., to otherwise finished articles of jewelry would not

effect a substantial transformation of that jewelry into ``products

of'' a United States insular possession.

EFFECTIVE DATE: August 18, 1994.

FOR FURTHER INFORMATION CONTACT: Burton Schlissel, Special

Classification Branch, Office of Regulations and Rulings (202) 482-

6980.

SUPPLEMENTARY INFORMATION:

Background

In Headquarters Ruling Letter (HRL) 094018 dated January 17, 1963,

individually strung or linked glass and plastic beads, in varying

lengths, were imported into the United States Virgin Islands from

several foreign countries. Metal findings consisting of clasps and

hooks were attached to the strung beads, resulting in necklaces and

bracelets.

Additionally, glass and plastic beads strung and fastened to metal

screens and back findings to form earrings were imported into the

United States Virgin Islands from foreign countries. Metal clips were

imported from the United States.

Customs held that attaching United States clasps to the foreign

strung length of beads by inserting hooks into eyes in the metal

findings and bending the hooks closed, thereby forming necklaces and

bracelets, and fastening United States metal spring clips to foreign

earrings substantially transformed those imported articles into

``products of'' the United States Virgin Islands within the meaning of

section 301, Tariff Act of 1930, as amended (19 U.S.C. 1301a) (repealed

effective August 31, 1963).

Under the provisions of 19 U.S.C. 1301a, all articles imported from

an insular possession of the United States, except Puerto Rico, were

dutiable at the same rate as were importations from foreign countries,

except that those which (1) were of native growth, or (2) were

manufactured or produced in such possession and did not contain foreign

materials to the value of more than 50 per centum of their appraised

value in the United States, and came into the United States directly

from the insular possession, or (3) were articles previously imported

into the United States with payment of all applicable duties and taxes

which were shipped from the United States without remission, refund,

drawback of such duties and taxes, directly to the possession from

which they were being returned by direct shipment, were entitled to

free entry.

General Note 3(a)(iv), Harmonized Tariff Schedule of the United

States (HTSUS) (formerly General Headnote 3(a), Tariff Schedules of the

United States), which replaced 19 U.S.C. 1301(a), provides for the

duty-free treatment of goods imported from a United States insular

possession if they: (1) are the growth or ``product of'' the

possession; (2) meet certain value-content requirements; and (3) come

directly to the customs territory of the United States from the

possession.

To comply with the requirements of General Note 3(a)(iv), an

imported article first must qualify as a ``product of'' a United States

insular possession. See Yuri-Fashions v. United States, 632 F. Supp.

41, 46 (CIT 1986); T.D. 90-17 dated February 23, 1990. Where materials

are imported into the insular possession, they must be substantially

transformed into a product of that insular possession for the product

to receive duty-free treatment under General Note 3(a)(iv), HTSUS.

A substantial transformation occurs when a material is used ``in

the manufacture of a new article having a new name, character, and use

* * *.'' See United States v. Gibson-Thomsen Co., Inc., 27 CCPA 267,

273 (1940).

It is Customs position that adding a closure, clasp, or fastener to

otherwise completed articles of jewelry (i.e., bracelet, necklace,

earring) does not change the essence of the jewelry which is dedicated

to use as such and has the fundamental character of such jewelry. This

position is consistent with Customs rulings issued under the

Generalized System of Preferences (GSP) and Country of Origin Marking

statutes, 19 U.S.C. 2461-2465 and 19 U.S.C. 1304, respectively, which

utilize the substantial transformation test, for determining whether an

article is the ``product of'' a country for purposes of those statutes.

See HRL 556624 dated July 31, 1992 (adding clasps and spring rings to

chains is a simple combining operation for which duty-free treatment

under the GSP is not allowed); HRL 734350 dated April 9, 1992

(soldering a bar-pin clasp to a completed brooch is not a substantial

transformation; soldering a metal clip to completed barrettes is not a

substantial transformation; gluing stainless steel posts to completed

earrings is not a substantial transformation).

The proposed position with respect to the ineligibility of the

described jewelry for duty-free treatment under General Note 3(a)(iv),

HTSUS, is in conflict with HRL 094018 dated January 17, 1963.

Therefore, Customs proposed in a document published in the Federal

Register (58 FR 36512), on July 7, 1993, that the addition of

fasteners, closures, clasps, etc., to otherwise finished articles of

jewelry would not effect a substantial transformation of that jewelry

into ``products of'' a United States insular possession.

Discussion of Comments

Two comments were received in response to the published proposal.

Both comments were in opposition to the proposed change of practice.

The first commenter, a jewelry company in the Virgin Islands,

states that due to the depressed economy and competition from low wage

producers in Czechoslovakia, the added cost (i.e., Customs duties) to

its U.S. customers may cause the company to lose its competitive

position in the U.S. market and force it to shut down operations in the

Virgin Islands. This commenter also states that such a development

would seriously impair its ability to liquidate certain loans granted

or guaranteed by the Small Business Administration (SBA).

The second commenter, representing the Government of the Virgin

Islands, states that the failure of the first commenter's business

would result in loss of employment to 10-30 workers. Further, this

commenter believes that the proposal would impede its efforts to

attract other jewelry producers to the Virgin Islands. The commenter is

also of the opinion that the SBA loans made to the first commenter was

based on the company's financial condition at the time, and that as

matter of public policy, a Customs Service ruling should not be the

cause of a default by the company on its obligations to the SBA. If the

proposed change in position is made, the commenter urges that the

jewelry company be ``grandfathered'' so that the change would not be

applicable to the company.

The comments received do not touch upon the legal basis for the

proposed change in practice, and any unfavorable economic consequences

are beyond the scope of this document.

Conclusion

After careful consideration of the comments received and further

review of this matter, it has been determined that the change in

practice as proposed should be adopted.

Approved: August 1, 1994.

Samuel H. Banks,

Acting Commissioner of Customs.

[FR Doc. 94-20308 Filed 8-17-94; 8:45 am]

BILLING CODE 4820-02-P