December 15, 2004 MAR-05 RR:CR:SM 563127 NL
Judith A. Lee, Esq.
Gibson, Dunn & Crutcher LLP 1050 Connecticut Avenue, NW Washington, DC 20036-5306
Re: Country of Origin; Substantial Transformation; Rough Rubies Mined in Burma; Heat Treatment, Cutting and Polishing
Dear Ms. Lee:
This is in reply to your letter dated September 28, 2004, on behalf of Tiffany & Company (Tiffany) concerning the rules of origin applicable to rubies mined in Burma that subsequently are processed in other countries. You seek a prospective ruling that the rough stones undergo substantial transformation and thus would be no longer be considered products of Burma for purposes of the Burma Sanctions Regulations (19 CFR Part 537) and Executive Order (EO) 13310 (July 28, 2003).
Effective August 30, 2003, the importation into the United States of any article that is a product of Burma is prohibited, subject to certain Presidential waiver powers. Executive Order 13310, Sec. 3. Interpretive guidance concerning the identification of a good as a product of Burma, issued on November 5, 2003 by the Office of Foreign Assets Control, Department of the Treasury, stated:
If under the Customs Rules of Origin, the Burmese [goods were] "substantially transformed," then the goods would not be considered products of Burma and are not prohibited from importation by Executive Order 13310. The U.S. Customs Service [now U.S. Customs and Border Protection] is the primary authority that could ultimately determine whether or not a good is of Burmese origin…
http://www.treas.gov/offices/eotffc/ofac/rulings/bu120103.pdf. On the basis of this guidance you are requesting a determination by CBP as to whether rough rubies mined in Burma are products of Burma or other countries. The request concerns only rubies with faceted cuts, to the exclusion of other rubies, including cabochon cut or smooth rubies with no facets. As set forth in the submission, the rough rubies mined in Burma would be processed in another country to produce cut and polished rubies of gemstone quality. The production steps are as follows:
Sorting and removal of extraneous materials.
Rough sawing to give general shape and to remove remaining extraneous materials.
Heat treatment. The rough stones are packed in a clay crucible which is fired after drying. The choice of temperature, duration and other firing process techniques are stated to be matters of skill, judgment and experience that can greatly affect the result, particularly the color of the stone.
Pre-forming. This grinding process produces an outline of the shape and proportions of the finished gem. The stone is ground so as to maximize value and minimize the danger of breakage along cleavage planes. This step also is stated to require skill, judgment and experience.
Faceting. Secured in a special tool that allows precise alignment against the cutting wheel, the artisan first cuts numerous facets in the crown, or top of the stone, before reversing and re-securing the stone to facet the pavillion, or lower portion of the stone.
Polishing. A separate polishing wheel is used to produce the smoothest possible surface on each facet.
By these operations a rough ruby becomes a gemstone ruby.
Does the cutting and polishing of a rough ruby result in substantial transformation of the rough ruby?
LAW & ANALYSIS:
Section 134.1(b), Customs Regulations (19 CFR 134.1(b)), defines "country of origin" as:
The country of manufacture, production, or growth of any article of foreign origin entering the United States. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the "country of origin" within the meaning of this part; however for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
Accordingly, the country of origin of an article is the country in which it was wholly manufactured or, if processed in several countries, the country in which the article last underwent a substantial transformation. The well-established test for determining whether a substantial transformation has occurred is derived from language enunciated by the court in Anheuser-Busch Brewing Association v. United States, 207 U.S. 556, 562 (1908), which defined the term "manufacture" as follows:
Manufacture implies a change, but every change is not manufacture and yet every change in an article is the result of treatment, labor and manipulation. But something more is necessary, as set forth and illustrated in Hartranft v. Wiegmann, 121 U.S. 609. There must be transformation; a new and different article must emerge, having a distinctive name, character or use.
Simply stated, a substantial transformation occurs "when an article emerges from a process with a new name, character, or use different from that possessed by the article prior to processing." See Texas Instruments, Inc. v. United States, 69 CCPA 152, 681 F.2d 778 (1982) (cited with approval in Torrington Co. v. United States, 764 F. 2d 1563, 1568 (1985)). The issue of whether a substantial transformation occurs is determined on a case-by-case basis.
CBP has considered the very similar question of whether cutting and polishing a raw diamond results in substantial transformation in a number of determinations. The consistent outcome has been an answer in the affirmative. In Treasury Decision (T.D.) 44370 (November 17, 1930), it was held that diamonds mined in South Africa and cut and finished in Holland are products of Holland for country of origin marking purposes. This rule has been followed in, for example, Headquarters Ruling (HQ) 556457 (March 5, 1992) (cutting a gem quality rough diamond by cleaving or sawing, and putting 52 facets on each diamond transforms an article with numerous potential uses to one dedicated to a single use as a gem); and New York Ruling (NY) J80098 (January 15, 2003) (rough diamonds that are cut, faceted and polished in Thailand undergo substantial transformation for purposes of the Generalized System of Preferences (GSP)).
With regard to the production of finished gemstone rubies, the rulings cited above are appropriately viewed as supporting the position asserted by Tiffany. More specifically, CBP recently has ruled on the processing of raw rubies from Burma. In NY K85866 (May 14, 2004), the National Commodity Specialist Division, CBP, ruled that the cutting and polishing in Austria of raw ruby material originating in Burma resulted in substantial transformation for country of origin marking purposes.
With regard to Tiffany’s request, CBP believes that the CBP rule as set out in the determinations above applies to the heat treatment, cutting and polishing of Burmese-origin raw rubies. The processing will result in substantial transformation such that the finished gemstones are considered products of the country in which such operations are carried out. The fact that the processing of the raw rubies also includes heat treatment as set out above adds further weight to this conclusion.
The processing of Burmese-origin raw rubies in other countries by heat treatment, cutting and polishing to make finished gemstones results in substantial transformation. The finished stones are no longer considered products of Burma.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.
Sincerely, Myles B. Harmon, Director, Commercial Rulings Division