CLA-2 CO:R:CR:SM 561383 CW

Mr. Don Trotter
MT Associates, LLC
6727 Heritage Business Ct., Suite 724
Chattanooga, TN 37421

RE: Eligibility of yarns dyed in Canada and returned for a partial duty exemption; Amity Fabrics; HRL 556523

Dear Mr. Trotter:

This is in response to your letter of May 5, 1999, requesting a ruling on the applicability of the partial duty exemption under subheading 9802.00.50, Harmonized Tariff Schedules of the United States (HTSUS), to Egyptian-made yarns which are dyed in Canada and returned to the U.S.

FACTS:

You advise that MT Associates sells imported as well as domestically-produced cotton yarns. Your principal source of imported cotton yarns is Egypt. The imported Egyptian yarns are under quota and require a visa which is supplied by the mill for each shipment. These yarns are imported through the Norfolk, Virginia port of entry and then delivered to your warehouse in Winston-Salem, North Carolina, from which they are sold and distributed principally to customers in the U.S.

You state that the Egyptian yarns are essentially a finished product as many of your customers can knit, weave or sew with them just as they come from the mill in Egypt. Your customer base for these products is the hosiery (socks) knitting, sewing thread, and weaving trades. You advise that certain of your customers knit or weave the yarns to create pattern or jacquard fabrics, and that, in these situations, the yarns must be dyed to color first. We are informed that these fabrics are generally more expensive to produce than fabrics that are knitted or woven and then dyed solid colors in the piece. One of your U.S. customers wishes to buy packaged dyed yarn for a jacquard program and has asked that you sell the imported natural Egyptian yarns to a particular Canadian dyehouse for dyeing because this dyehouse offers the range of dye lot sizes he needs.

Your primary concern with this prospective transaction is to be able to ship these yarns to Canada for dyeing and then legally return them to the U.S. without an Egyptian visa. You recognize that the country of origin of the returned dyed yarn will continue to be Egypt, but ask whether the returned yarn may be entered under subheading 9802.00.50, HTSUS, thereby avoiding the visa requirement.

ISSUE:

Whether imported Egyptian yarns which are exported to Canada for dyeing are eligible for the partial duty exemption under subheading 9802.00.50, HTSUS, when returned to the U.S.

LAW AND ANALYSIS:

Articles returned to the U.S. after having been exported to Canada or Mexico to be advanced in value or improved in condition by means of repairs or alterations may be entitled to a partial or complete duty exemption under subheading 9802.00.50, HTSUS, provided the documentation requirements of section 181.64, Customs Regulations (19 CFR 181.64), are satisfied. However, the application of this tariff provision is precluded in circumstances where the operations performed abroad destroy the identity of the articles or create new or commercially different articles. See A.F. Burstrom v. United States, 36 Cust.Ct. 46, C.D. 1752, aff’d 44 CCPA 27, C.A.D. 631 (1956), and Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Tariff treatment under this provision is also precluded where the exported articles are incomplete for their intended use and the foreign operation constitutes an intermediate processing operation performed as a matter of course in the preparation or manufacture of finished articles. See Dolliff & Company, Inc. v. United States, 81 Cust.Ct. 1, C.D. 4755 (1978), aff’d, 66 CCPA 77, C.A.D. 1225 (1979).

According to 19 CFR 181.64(a), “‘repairs or alterations’ means restoration, addition, renovation, redyeing, cleaning, resterilizing, or other treatment which does not destroy the essential characteristics of, or create a new or commercially different good from, the good exported from the United States.”

In the referenced Dolliff case, certain Dacron polyester fabrics (greige goods) were exported and subjected to multiple processing operations abroad, including heat-setting, chemical scouring and dyeing. The finished fabric that was returned to the U.S. was denied the partial duty exemption for alterations abroad because it was determined that the dyeing and other processing steps were all necessarily undertaken to produce the finished fabric. The court stated (66 CCPA at 82) that:

. . . repairs and alterations are made to completed articles and do not include intermediate processing operations which are performed as a matter of course in the preparation or manufacture of finished articles. In the instant situation, the operations performed in Canada comprise further processing steps which are performed on unfinished goods and which lead to completed articles, i.e., the finished fabrics, and, therefore, the processing cannot be considered alterations.

In C.J. Tower & Sons of Niagara, Inc. v. United States, C.D. 2208, 45 Cust.Ct. 111 (1960), cotton drills (greige goods) were exported and subjected to multiple operations, including dyeing and finishing. The cotton cloth that was returned to the U.S. was similarly denied the partial duty exemption for alterations abroad because it was determined that the merchandise exported was changed in color, width, length, porosity, in the distribution of the threads in the weave, in weight, tensile strength, and suppleness by the foreign processing. In holding that the foreign processing constituted more than an alteration, the court found that the returned merchandise was a new and different article, having materially different characteristics and a more limited and specialized use.

However, in Amity Fabrics, Inc. v. United States, C.D. 2104, 43 Cust.Ct. 64 (1959), "pumpkin" colored fabrics were exported to Italy to be redyed black since the pumpkin color had gone out of fashion and black was a consistently good seller. The court held that the identity of the goods was not lost or destroyed by the dyeing process, that no new article was created since there was no change in the character, quality, texture, or use of the merchandise; it was merely changed in color. The court found that such change constituted an alteration for purposes of a precursor provision to subheading 9802.00.50, HTSUS.

Headquarters Ruling Letter (HRL) 556523 dated May 29, 1992, concerned whether U.S.-manufactured sewing thread that is exported to Cost Rica for dyeing to match fabric qualifies as an alteration under subheading 9802.00.50, HTSUS, when returned to the U.S. Customs determined that the returned, dyed thread was entitled to the partial duty exemption under that provision because:

...dyeing thread to match fabric is analogous to the dyeing of fabric in Amity in that the thread is merely dyed a different color, and there is no change in the porosity, surface, texture or character of the thread. As illustrated in Amity, merely changing color does not destroy the identity of the thread or create a new or commercially different article.

In HRL 555744 dated January 28, 1991, Customs considered whether tipping, flagging and/or dyeing operations performed abroad on bunches of nylon bristles (for paint brushes) qualified as an alteration under subheading 9802.00.50, HTSUS. According to the facts in that ruling, the foreign processing consisted of tipping, which caused the ends of the bristles to become more pointed, or flagging, which caused the ends to split. Sometimes the bristles were also dyed. The ruling stated that the operations were performed on the bristles “ostensibly to give them the appearance of natural hog bristles so as to enhance their marketability.” The facts also indicated that the bristles as exported from the U.S. were ready to be incorporated into finished paint brushes, and that both the “altered” and “unaltered” bristles were used in the manufacture of paint brushes.

Customs determined in HRL 555744 that the foreign processing constituted acceptable alterations. Specifically in regard to the dyeing of the bristles, we stated that this operation is distinguishable from the dyeing of the greige fabric involved in the Dolliff and C.J. Tower cases because fabric in the greige is, by definition, unfinished merchandise requiring processing to render it suitable for its purpose, while the bristles in HRL 555744 were suitable for their intended use (incorporation into paint brushes) in their condition as exported and, in fact, were so used. Additionally, we stated that the dyeing did not affect the quality, texture, character or performance characteristics of the bristles.

In the instant case, the information you have provided indicates that many of your customers use the yarns for knitting, weaving or sewing in their condition as imported from Egypt. It is only in situations in which the yarns are to be knitted or weaved to create patterned or jacquard fabrics that it is necessary for the yarns to be dyed to color first. Thus, we are satisfied that the foreign dyeing operation in this case does not constitute an “intermediate processing operation which is performed as a matter of course in the preparation or manufacture of finished” yarns. Moreover, as in Amity, the dyeing process clearly does not destroy the identity of the exported article or create a new or different article of commerce. Thus, we find that the dyeing operation qualifies as an alteration within the meaning of subheading 9802.00.50, HTSUS.

Pursuant to a directive issued by the Committee for the Implementation of Textile Agreements (CITA) dated December 20, 1993 (copy enclosed), textile and apparel products which are produced or manufactured in various countries and entered into the U.S. for consumption under existing visa and quota requirements are no longer subject to visa or quota requirements upon re-entry into the U.S. under subheading 9802.00.40 or 9802.00.50, HTSUS, after repairs or alterations abroad.

HOLDING:

Based on the information presented, we find that the dyeing of Egyptian-made yarns in Canada constitutes an alteration within the meaning of subheading 9802.00.50, HTSUS. Therefore, when returned to the U.S., the dyed yarns are entitled to the special tariff treatment provided for under that provision, assuming compliance with the documentation requirements of 19 CFR 181.64.

A copy of this ruling should be attached to the entry documents filed at the time this merchandise is 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,

John Durant, Director
Commercial Rulings Division

Enclosure