CLA-02 RR:CR:SM 562644 DCC

Brenda S. Ambrose
VF Playwear, Inc.
7800 Airport Center Drive (27409)
P.O. Box 21488
Greensboro, NC 27420-1488

RE: Applicability of partial duty exemption under subheading 9802.00.50, HTSUS to children’s apparel exported for enzyme softener washing or rinsing and returned; alteration; unfinished articles

Dear Ms. Ambrose:

This is in response to your letter dated January 22, 2003, requesting a ruling on behalf of VF Playwear, Inc. Your request concerns the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (“HTSUS”), to previously-imported children’s jeans that are exported to El Salvador to be washed or rinsed, and returned to the United States for finishing. You provided samples of the washed and unwashed jeans.

Facts:

VF Playwear designs and manufactures the Healthtex brand of children’s clothing. The merchandise at issue concerns children’s jeans that are exported to El Salvador for enzyme washing, softener washing, or rinsing. You state that such washing or rinsing is necessary to achieve the desired “hand,” or tactile qualities, of the fabric. Snap closures may be attached to the jeans before they are shipped to El Salvador or after they are returned to the United States. After washing or rinsing, the garments are returned to the United States for labeling and packing—and for those jeans without closures—attachment of the waistband snap closure. Finally, you state that although less desirable to customers, unwashed jeans can be sold as finished goods at the retail level.

Issue:

Whether unwashed denim jeans, with or without waistband snaps, that are exported for washing or rinsing qualify for a partial duty exemption when returned to the United States under subheading 9802.00.50, HTSUS.

Law and Analysis:

Subheading 9802.00.50, HTSUS, provides a partial duty exemption for articles exported from and returned to the United States after having been advanced in value or improved in condition abroad by repairs or alterations, provided the documentary requirements of 19 C.F.R. § 10.8 are satisfied.

Court cases considering the applicability of subheading 9802.00.50, HTSUS, and its precursor provisions (item 806.20, Tariff Schedules of the United States (TSUS), and, before that, paragraph 1615(g), Tariff Act of 1930), have held that this tariff provision is inapplicable when: (1) the exported articles are incomplete for their intended use and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles; or (2) the operations performed abroad destroy the identity of the exported articles or create new or commercially different articles through a process of manufacture.

In Chevron Chemical Co. v. United States, 59 F. Supp. 2d 1361 (Ct. Int’l Trade 1999), the Court of International Trade considered the applicability of subheading 9802.00.50, HTSUS, to certain petroleum products. In denying the importer’s claim, the CIT determined that the further processing performed in France on the petroleum did not constitute a repair or alteration of a finished good. The CIT held that the further processing was an intermediate step because the exported product was not a finished good. The court reasoned that “‘repairs and alternations [under subheading 9802.00.50, HTSUS] are made to completed articles and do not include intermediate processing operations which are performed as a matter of course in the preparation or the manufacture of finished articles.’ Thus, alterations can only be made to finished articles.” Chevron, 59 F. Supp. at 1369 (quoting Dolliff & Company, Inc. v. United States, 66 C.C.P.A. 77, 82, C.A.D. 1225, 599 F.2d 1015, 1019 (1979)). Similarly, in Guardian Industries v. United States, 3 CIT 9 (1982), the CIT stated that, in construing “the tariff provision for repairs and alterations performed abroad, the focus is upon whether the exported article is ‘incomplete’ or ‘unsuitable for its intended use’ prior to the foreign processing.” At issue in Guardian was the question of whether subjecting U.S.-produced annealed glass to a tempering process in Canada to create glass for sliding glass patio doors qualifies as an “alteration” under item 806.20, TSUS. The court noted that glass must be tempered (i.e., strengthened) for practical safety use reasons and to conform to U.S. federal regulations before it may be marketed for use in sliding glass patio doors. In concluding that the tempering process was not an “alteration,” the court stated that “the exported articles of raw annealed glass were not ‘completed articles’ since they were entirely unsuitable for their intended use” as sliding glass patio doors and required a manufacturing process to make them complete. The court further concluded that, because the tempering of the annealed glass transformed the glass in name, use, performance characteristics and tariff classification, the operation created a new and different commercial article.

Finally, in Dolliff & Company, Inc. v. United States, 66 C.C.P.A. 77, 599 F.2d 1015, C.A.D. 1225 (1979), the Court of Customs and Patent Appeals reviewed whether certain U.S.-origin Dacron polyester fabrics which were exported to Canada as griege goods for heat-setting, chemical-scouring, dyeing, and treating with chemicals, were eligible for the partial duty exemption available under item 806.20, TSUS, when returned to the United States. The court found that the processing steps performed on the exported goods were undertaken to produce finished fabric and could not be considered as alterations. The court stated:

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.

599 F.2d at 1019.

Pursuant to 19 U.S.C. § 1625(c)(1), Customs published a notice in the Customs Bulletin on October 4, 2000, Vol. 34, No. 40, advising interested persons that Customs was modifying one ruling and revoking four rulings regarding the applicability of subheading 9802.00.50, HTSUS, to certain articles exported for decorating operations and returned to the United States.

The modified ruling was HRL 558935, dated January 31, 1995, and concerned lace exported for “reembroidery.” The reembroidery operation involved attaching thread, sequins, or beads (or any combination thereof) to the lace, and was done to improve the marketability of the lace. Customs originally determined that the returned “reembroidered” lace was ineligible for partial duty exemption under subheading 9802.00.50 because the foreign decorating process “substantially changed the appearance of the product by imparting significant new characteristics to the lace.”

In HRL 561781, dated September 19, 2000, however, Customs modified HRL 558935, and held that reembroidery constituted a qualifying alteration within the meaning of subheading 9802.00.50, HTSUS. Customs stated that information in the record indicated that both the decorated and undecorated lace was sold in the same channels of trade for use as ornamentation on women’s apparel and consequently, the lace in its exported condition was complete for its intended use. Customs further stated that, although the “reembroidery” process clearly imparted new decorative characteristics to the lace, it did not significantly change the quality, character or performance characteristics of the product.

More recently, in HRL 560501, dated February 27, 2001, Customs considered whether lace brassieres exported to China where beads and sequins were affixed to the garments qualified for special treatment under subheading 9802.00.50. In that case, Customs noted that because both decorated and plain brassieres were sold at the retail level in the United States, the foreign decorating process was not a necessary step in the preparation or manufacture of finished brassieres and the garments were complete for their intended use at the time of export.

For jeans without a waistband snap, we determine that the garments shipped to El Salvador for washing and rinsing do not qualify for a partial duty exemption under subheading 9802.00.50, HTSUS. The absence of a front snap closure indicates that the jeans are not entirely suitable for their intended use at the time of export. Consequently, the subsequent washing or rinsing operations performed in El Salvador do not constitute a repair or alteration under subheading 9802.00.50, HTSUS. The washed jeans without snap closures are therefore not entitled to the partial duty exemption under this tariff provision.

For jeans with a snap closure, however, we determine that these garments are exported to El Salvador in a finished condition and therefore qualify for a partial duty exemption under subheading 9802.00.50, HTSUS, when returned to the United States. We are satisfied, based on the information submitted, that both washed and unwashed jeans are sold at the retail level.

Holding:

On the basis of the information presented, we find that the unwashed jeans without waistband snaps are not finished products at the time of export and therefore washing or rinsing the garments does not qualify as an alteration under subheading 9802.00.50, HTSUS. Therefore, the returned washed jeans without snap closures are not entitled to the partial duty exemption under this tariff provision. We further determine that jeans with snap closures that are shipped to El Salvador are in a finished condition at time of export and therefore qualify for a partial duty exemption under subheading 9802.00.50, HTSUS.

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