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HQ 555614

October 9, 1990
CLA-2 CO:R:C:V 555614 SER


Area Director of Customs
New York Seaport
6 World Trade Center
New York, NY 10048

RE: Application for Further Review of Protest No. 1001-5-006973, contesting denial of duty-free treatment for gold rope chains under CBI. Dual substantial transformation.

Dear Sir:

The above-referenced protest, filed by counsel on behalf of Columbia Chain Centre, Inc., contests the assessment of duties by your office on gold rope chains imported from the Dominican Republic in 1984. Protestant claims that the gold rope chains are eligible for duty-free treatment under the Caribbean Basin Initiative (CBI). We have considered in connection with this protest a submission by counsel dated January 9, 1986.


Protestant states that Columbia Chain Centre, Inc. sends gold links of U.S. origin, made from wires of various diameters, to a Dominican Republic manufacturer. The links are in the shape of small circles which are not closed. In the Dominican Republic the links are sorted by size, then weighed and bagged in sufficient quantities to make a 30-inch length of unsoldered chain. Workers then weave the links by hand. Each link is joined to another link by interlocking via the open section of the circle. The interlocked links are arranged in a spiral pattern which is held stable by two black tin wires wrapped around the chain formed by the arrangement of the links. Protestant claims that when the weaving stage is completed, the resulting product is referred to as "unsoldered woven chain."

The next stage of the production involves transferring the unsoldered woven chain to soldering stations where solderers place solder paste between every two links of the chain, and then melt the paste with the use of a soldering torch. The chain is then examined by quality control personnel, and, if it is acceptable, the tin wire is removed from the soldered chain, and the individual 30-inch lengths are further soldered together to form 150-to-200 feet lengths of chain. Protestant claims that
the chain in this length is designated as "continuous gold rope chain." It is thereafter wound on a cardboard spool and shipped to the U.S. In the U.S., the importer cleans and polishes the chains by dipping and soaking them in chemical solutions. They are then sold in the U.S. wholesale market.


Whether the continuous gold chain imported from the Dominican Republic is entitled to duty-free treatment under the CBI.


Under the CBI, eligible articles the growth, product or manufacture of designated beneficiary countries (BC's), may enter the U.S. free of duty if such articles are imported directly to the U.S. from the BC, and if the sum of (1) the cost or value of the materials produced in a BC or BC's, plus (2) the direct cost of processing operations performed in a BC or BC's, is not less than 35% of the appraised value of the article at the time it is entered into the U.S. See 19 U.S.C. 2703(a). The cost or value of materials produced in the U.S. may be applied toward the 35% value-content minimum in an amount not to exceed 15% of the imported article's appraised value. See section 10.195(c), Customs Regulations (19 CFR 10.195(c)).

Where an article is produced from materials imported into a BC from non-BC's, as in this case, the article is considered a "product of" the BC only if those materials are substantially transformed into a new or different article of commerce. See 19 CFR 10.195(a). In the present situation, the cost or value of the gold from the U.S. may be counted toward satisfying the 35% value-content requirement (over and above the 15% cap on U.S. materials) only if there is a finding that the gold was subjected to a double substantial transformation in the Dominican Republic. See section 10.196(a), Customs Regulations (19 CFR 10.196(a)). If the cost or value of the U.S. gold links is not counted toward the 35% value-content requirement, the gold chains do not satisfy the requirement.

The test for determining whether a substantial transformation occurs is whether an article emerges from a process with a new name, character, or use different from that possessed by the article prior to processing. Texas Instruments, Inc. v. United States, 69 CCPA 152, 156, 681 F.2d 778, 782 (1982).

In examining the processing of the product at issue and applying the new name, character, or use test we find that although a single substantial transformation results from the processing of the gold links into gold chains, a double substantial transformation does not.

Protestant places great reliance on attempting to draw a factual analogy to the The Torrington Company v. United States, 8 CIT 150, 596 F.Supp. 1083 (1984), aff'd, 764 F.2d 1563 (1985) case. In that case, the court held that certain industrial sewing machine needles from Portugal were subjected to a double substantial transformation, and, as a result, satisfied the GSP 35% requirement. The protestant states that in Torrington, the starting material was wire, which was processed into needle blanks, the intermediate material. The needle blanks were then made into the finished product, needles. It is argued in this case that the raw material, gold links, were transformed into the intermediate product, unsoldered gold chain. This material is stated to have been transformed into the finished product, continuous gold chain rope. Therefore, it is deemed to also meet the dual substantial transformation requirements. Protestant's reliance on the factual analogy of his product and the Torrington case is limited by Treasury Decision (T.D.) 86-7, dated December 20, 1985, which limits the Torrington decision to those instances in which the factual situation conforms to the one on which the decision was based-- the dual substantial transformation of needles. Since the product at issue is gold chains rather than needles, we believe the Torrington decision is inapplicable to this case.

The Protestant also argues that the name change from "unsoldered gold chain" to "continuous gold chain" was significant in the finding of substantial transformations. The courts have held that although a name change may support a finding of substantial transformation, this fact is not necessarily determinative. Superior Wire, a Division of Superior Products Company v. United States, 669 F.Supp. 472, 479 (CIT 1987), aff'd 867 F.2d 1409 (Fed Cir. 1989). Moreover it has been stated that "a change in the name of the product is the weakest evidence of a substantial transformation." National Juice Products Ass'n v. United States, 628 F.Supp. 978, 989, (CIT 1986), citing Uniroyal Inc. v. United States, 542 F.Supp. 1026 (1982), aff'd, 702 F.2d 1022 (Fed.Cir.1983).

In Superior Wire, the Court found the "transformation of wire rod to wire to be minor rather than substantial", and that, "[a]lthough the steel and wire industries may have different names for the same products, wire rod and wire may be viewed as different stages of the same product. The difference in stages
may be important for tariff purposes but it is not determinative here." Superior Wire, at 479. Customs, in a similar analogy, views the names "unsoldered gold chain" and "continuous gold chain" as the same product at different stages of production, and not evidence of a substantial transformation. The gold chains, whether soldered or unsoldered, have a predetermined quality, and the only ultimate variable will be the final length of the chains in their finished condition. Thus, the continuous gold chain and the unsoldered chain are merely the result of different stages of production.

Protestant also argues that a difference in tariff classification between the unsoldered gold chain and the continuous gold chain is indicative of a substantial transformation. The continuous gold rope chain is properly classified under item 740.70, Tariff Schedule of the United States (TSUS), and the unsoldered chain is classifiable in item 656.19, TSUS, as articles of gold not specially provided. The Court of International Trade has held that a change in tariff classification is not dispositive, although it may be supportive of a substantial transformation. Belcrest Linens v. United States, 741 F.2d 1368 (1984). It is Customs position that the tariff classification change in this case is not indicative of a substantial transformation as the change in the materials from unsoldered chain to continuous gold rope chain is relatively minor and does not result in an article which is fundamentally different in character and use from the purported intermediate article.

In addition, the courts have often looked for a transition from producers' to consumers' goods, as another indication of substantial transformation. National Juice, 628 F.Supp. at 990, Superior Wire, 669 F.Supp. at 479. The gold chains at issue clearly are producer goods throughout the entire process in the Dominican Republic, which reinforces our position that a double substantial transformation does not occur.


Because we find that the processing of U.S. gold links into gold chain in the Dominican Republic does not result in a double substantial transformation, the cost or value of the gold links may not be counted toward the CBI 35% value-content requirement.

As a result, the merchandise subject to this protest fails to satisfy the 35% requirement and, therefore, is not entitled to duty-free treatment under the CBI. Accordingly, you should deny this protest in full. A copy of this decision should be attached to Form 19 to be returned to the protestant.


John Durant, Director
Commercial Rulings Division

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