New York City. Aug. 30, 2019. Importers of fine jewelry from China, including loose pearls and pearl jewelry, are subject to increased tariffs of 15 percent as of Sept. 1, according to President Trump and office of the United States Trade Representative (USTR). The move is part of an ongoing trade war between China and the U.S., so the Cultured Pearl Association of America (CPAA) clarified some details about relevant imports for the benefit of its members.

According to Assistant General Counsel Arthur Tsao of the USTR, Hong Kong is a separate customs territory from China so, in general, increased tariffs do not apply to shipments out of Hong Kong. However, pearls and pearl jewelry made in China cannot simply pass through Hong Kong and escape tariffs if the country of origin of products and manufacturing is China. U.S. Customs and Border Patrol (CBP) determines when a “substantial transformation” has occurred from one type of product—like a loose pearl—to another, like a finished piece of pearl jewelry. This is where a tariff shift occurs, which CBP defines and enforces.

Documentation at every step of—and for every location in—the manufacturing process is recommended. Import brokers note that CBP wants proof of claims, such as that jewelry manufacturing occurred in Hong Kong though pearls were imported from China. CBP, meanwhile, points out that once pearls are manufactured or set into pearl jewelry in Hong Kong, that is the substantial transformation that changes its tariff number.

Freshwater pearls shot by Ted Morrison

Attorney Peter Klestadt of Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP of New York City specializes in the arena of customs and confirms that CBP will “determine substantial transformation on a case-by-case basis.”

“A substantial transformation takes place when the processing of a material or article results in a new and different article having a distinct name, character, or use,” he adds. “For example, freshwater cultured pearls, produced in China, were substantially transformed when manufactured into jewelry in Thailand. Therefore, freshwater pearl jewelry produced in Hong Kong from pearls originating in China should be a product of Hong Kong, the country in which the processing takes place. In the event that a substantial transformation does not occur in the second country, then the entire article’s value, inclusive of the value-add in the second country, would be subject to the tariff.”

For further assistance about your specific import scenario, email CBP at traderemedy@cbp.dhs.gov or consult Klestadt at 212-973-7728 or PKlestadt@GDLSK.com.

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CPAA is a nonprofit founded in 1957. The group comprises the finest manufacturers, wholesalers, dealers, and suppliers of cultured pearls in the United States, and its goals are to improve retail marketability of pearls and cultivate demand among consumers. Through promotion, education, public relations, and unwavering commitment to the category, CPAA aims to inspire an authentic passion for all cultured pearl varieties. For more information about becoming a certified pearl expert, please visit PearlsAsOne.org. To learn more about the Cultured Pearl Association of America, please visit CPAA.org.