[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