CLA-2 CO:R:C:S 557162 WAW
District Director
U.S. Customs Service
111 W. Huron St.
Buffalo, N.Y. 14202-2378
RE: Internal Advice Request 73/92; applicability of partial duty
exemption to wiping towels from Canada; repairs or
alterations; 553843; 554534; 071475; 555174; Burstrom;
Guardian Industries; Dolliff
Dear Sir:
This is in response to your request for internal advice dated
October 7, 1992, initiated by Specialty Paper Products, on the
applicability of the partial duty exemption available under
subheading 9802.00.50, Harmonized Tariff Schedule of the United
States (HTSUS), to wiping towels from Canada. Samples of the roll
goods and processed toweling were submitted for our review.
FACTS:
Based on the information provided, the wiping towels are
composed of 100 percent spunbonded nonwoven polypropylene toweling,
which has been chemically treated in the U.S. to make it moisture
absorbent and to give it the requisite characteristics of paper
toweling. The treated material is produced in the U.S. by Polybond
of Waynesboro, VA, and then shipped in 30 inch diameter rolls to
Specialty Paper Products in Canada where the material is folded,
perforated, cut to length, placed in dispensing boxes, packaged and
returned to the U.S. Specifically, the U.S.-origin material is cut
to a required width of 11.75 inches and chemically treated in the
U.S. The fabric is shipped to Canada in rolls along with certain
corrugated packaging of U.S.-origin. At the Specialty Paper
Products facility in Canada, the toweling is put through an
interfolder machine that folds the material and perforates it at
17 inch intervals. The material is then cut at approximately 50
foot lengths and two interfolded sheets of the same length are
placed in the corrugated twin boxes supplied from the U.S. Each
"twin pack" contains approximately 76 sheets on a side. Specialty
Paper Products states that their processing and packaging costs in
Canada are approximately 10 percent of the value of the raw
materials.
ISSUE:
Whether the spunbonded polypropylene toweling material of
U.S.-origin which is perforated, cut to length, folded and packaged
in Canada is entitled to the partial duty exemption available under
subheading 9802.00.50, HTSUS, when returned to the U.S.
LAW AND ANALYSIS:
Subheading 9802.00.50, HTSUS, provides for the assessment of
duty on the value of repairs or alterations performed on articles
returned to the U.S. after having been exported for that purpose.
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, 44 CCPA 27, C.A.D.
631 (1956), aff'd, C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian
Industries Corporation v. United States, 3 CIT 9 (1982), Slip Op.
82-4 (Jan. 5, 1982). Subheading 9802.00.50, HTSUS, treatment is
also precluded where 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.
Dolliff & Company, Inc. v. United States, 81 Cust. Ct. 1, C.D.
4755, 455 F. Supp. 618 (1978), aff'd, 66 CCPA 77, C.A.D. 1225, 599
F.2d 1015 (1979).
At issue in Dolliff was the question of whether certain dacron
polyester fabrics, which were manufactured in the U.S., and
exported to Canada for heat-setting, chemical-scouring, dyeing, and
treating with chemicals were eligible for the partial duty
exemption available under item 806.20, Tariff Schedules of the
United States (TSUS) (the precursor to HTSUS subheading
9802.00.50), when returned to the U.S. In Dolliff, the U.S. Court
of Customs and Patent Appeals stated 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.
Thus, the focus is upon whether the exported article is
"incomplete" or "unsuitable for its intended use" prior to the foreign processing. Guardian Industries Corp. v. United States,
3 CIT 9 (1982).
We have previously held that cutting an article to shorter
material lengths constitutes an acceptable alteration within the
meaning of subheading 9802.00.50, HTSUS. See HRL 553843 dated
October 1, 1985 (holding that cutting bow ribbon material to length
constitutes an alteration within the meaning of item 806.20, TSUS;
HRL 554534 dated September 24, 1985 (holding that the foreign
cutting of exported random length steel rebars to shorter lengths
constitutes an "alteration" within the meaning of item 806.20,
TSUS.
However, in a case involving the application of TSUS item
806.20, (HRL 071475 dated September 20, 1983) we held that:
. . . where rolls of material are exported and finished goods
are returned merely by cutting to length, this cutting
constitutes a finishing step in the manufacture of the goods,
converting large rolls of raw material to finished, usable
sheets. The conversion from material lengths to finished
products exceeds the meaning of the term "alterations" under
this tariff provision.
In another case, HRL 555174 dated April 25, 1989, decorative
banners, bearing repetitive holiday greetings which were printed
approximately 52 times on continuous sheets of plastic were
exported in rolls to Mexico. In Mexico, the operations performed
there consisted of rolling off as many repetitions of the holiday
greeting as were required (usually 5 to 7), cutting the banner to
length at a right angle, and folding the banner into a plastic
package intended for retail sale. We held that the exported
banners were incomplete products as they were unsuitable for their
intended use in the continuous lengths in which they were exported.
Thus, the returned banners were ineligible for the partial duty
exemption available under subheading 9802.00.50, HTSUS.
In the instant case, we are of the opinion that the cutting
and perforation operations performed in Canada to the U.S.-origin
roll goods constitute "intermediate processing operations which
are performed as a matter of course in the preparation or the
manufacture" of the desired end product. The cutting and
perforation operations in the instant case are analogous to
cutting a decorative banner exported in continuous sheets of
plastic to length as described in HRL 555174. Prior to these
operations, the toweling consists of rolls of material, and it is
only after the perforation and cutting operations that the roll
goods can be used for their intended purpose by the ultimate
consumer. We believe that these steps are necessarily undertaken
in the production of the finished paper toweling. The article does
not become a complete or finished article, for purposes of
subheading 9802.00.50, HTSUS, until it is cut and perforated into
lengths of 17 inches. Therefore, the operations performed in
Canada cannot be considered proper "alterations" and the returned
toweling will not be eligible for the partial duty exemption
available under subheading 9802.00.50, HTSUS.
In support of its position, the importer argues that since
the material used for the toweling is classified under subheading
5603.00, HTSUS, when shipped to Canada and subsequently returned
to the U.S., after processing, under the same tariff provision,
the material undergoes an acceptable alteration and should be
eligible for the partial duty exemption under subheading
9802.00.50, HTSUS. However, this argument was specifically
rejected by the court of appeals in Dolliff, which noted the
"irrelevance" to its determination of whether the foreign
processing in that case was an alteration, the fact that both the
greige goods and finished fabrics were classifiable under the same
tariff item.
HOLDING:
Based on the information and samples presented, it is our
opinion that the foreign processing operations comprise further
processing steps which are performed on unfinished goods and which
lead to completed articles. Accordingly, the wiping towels are not
eligible for the partial duty exemption available under subheading
9802.00.50, HTSUS, but are dutiable on their full value when
returned to the U.S.
Sincerely,
John Durant, Director
Commercial Rulings Division