[Federal Register Volume 59, Number 159 (Thursday, August 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-20308]
[[Page Unknown]]
[Federal Register: August 18, 1994]
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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.
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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section 301, Tariff Act of 1930, as amended (19 U.S.C. 1301a) (repealed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
