CLA-2 RR:TC:SM 559711 KKV
Mr. Larry U. Rose
International Marketing and Sales, Inc.
1301 Highway 407
Suite 201
Lewisville, TX 75067
RE: Applicability of HTSUS 9802.00.50 and 9802.00.80 to
U.S. nylon yarn exported for processing abroad and
returned; textile product; alterations; incomplete;
intermediate processing; new and commercially
different product; covered rubber thread; covered
spandex thread; advanced in value; acceptable
assembly;
Dear Mr. Rose:
This is in response to your letter dated February 20,
1996, and subsequent facsimile dated September 24, 1996,
which requests a ruling regarding the eligibility of certain
prospective importations of rubber thread and spandex thread
for the various duty exemptions provided under heading 9802,
Harmonized Tariff Schedule of the United States (HTSUS),
upon their return to the U.S. No samples were submitted for
examination.
FACTS:
We are informed that International Marketing and Sales,
Inc., plans to export U.S.-origin nylon yarn, classified
under 5402.51.00, HTSUS, to Venezuela for use in the
production of covered thread, which involves mechanically
wrapping one or two strands of nylon yarn, from 20 to 80
turns per inch, around a single strand of foreign elastic
thread of either rubber or spandex. Upon importation into
the U.S., the rubber thread,
intended for use in the production of hosiery and elastic
fabrics, will be classified under
subheading 5604.10.00, HTSUS. The spandex thread, also
intended for use in the production of hosiery and elastic
fabrics, will be classified under subheading 5606.00.00,
HTSUS. We are informed that the finished products will be
significantly different from the components in character and
application.
ISSUE:
I. Whether mechanical winding operations performed
abroad, which combine U.S.-origin nylon yarn with
foreign rubber or spandex thread, qualifies as an
alteration, thus rendering the thread eligible for
the partial duty exemption provided under
subheading 9802.00.50, HTSUS, upon the return of
the finished covered thread to the U.S.
II. Whether U.S.-origin nylon yarn which is combined
with foreign rubber or spandex thread by means of a
mechanical winding operation will be entitled to
the partial duty exemption under subheading
9802,00,80, HTSUS, upon importation into the U.S.
LAW AND ANALYSIS:
I. Applicability of subheading 9802.00.50, HTSUS
Subheading 9802.00.50, HTSUS, provides a partial duty
exemption for articles returned to the U.S. after having
been exported to be advanced in value or improved in
condition by means of a repair or alteration and duty is
assessed only on the cost or value of the repair or
alteration abroad. 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) and Guardian
Industries Corp. v. United States, 3 CIT 9 (1982), Slip Op.
82-4 (January 5, 1982). The partial duty exemption provided
by subheading 9802.00.50, HTSUS, is also precluded where the
exported articles are incomplete for their intended use and
foreign operation constitutes an intermediate processing
operation, which is performed as a matter of course in the
preparation or the manufacture of finished articles. See
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, 1019 (1979).
In Dolliff & Company, Inc. v. U.S., supra, the court
found that the processing steps performed on exported greige
goods were undertaken to produce the finished fabric and
could not be considered as alterations. 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. Specifically, 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.
In an earlier alterations case, C.J. Tower & Sons of
Niagara, Inc. v. United States, C.D. 2208, 45 Cust.Ct. 111
(1960), cotton drills 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 under this tariff
provision because it was determined that the merchandise 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.
Thus, intermediate processing operations which are performed
in the preparation of finished articles do not come within
the scope of the term "alterations."
In Amity Fabrics, Inc. v. United States, C.D. 2104, 43
Cust.Ct. 64, 305 F.Supp. 4 (1959), the court held that
unmarketable, pumpkin colored cotton twill-back velveteen
which was exported to be redyed rendered the fabric
marketable and that this improvement in the exported fabric
advanced its value and improved its condition commercially.
As the parties had stipulated that the redyeing in no way
changed the quality, texture, or character of the material,
the court concluded that the identity of the goods was not
lost or destroyed by the dying process; no new article was
created; there was no change in the character, quality,
texture, or use of the merchandise; it was merely changed in
color; and that such change constituted an alteration under
the statute and Customs Regulations.
In the instant case, we find that the mechanical winding
of the U.S.-origin nylon yarn around foreign origin rubber
or spandex thread is analogous to situation presented in
C.J. Tower & Sons of Niagara, supra, where foreign
processing resulted in the creation
of a new or commercially different article. Indeed, as
indicated in your facsimile, "the finished product will be
significantly different from the components in
characteristics and application." Accordingly, we find that
the winding operation exceeds an "alteration" to the nylon
yarn, rendering it ineligible for the partial duty exemption
under subheading 9802.00.50, HTSUS, upon importation of the
covered thread into the United States.
II. Applicability of 9802.00.80, HTSUS
HTSUS subheading 9802.00.80 provides a partial duty
exemption for:
[a]rticles assembled abroad in whole or in
part of fabricated components, the product
of the United States, which (a) were
exported in condition ready for assembly
without further fabrication, (b) have not
lost their physical identity in such
articles by change in form, shape or
otherwise, and (c) have not been advanced
in value or improved in condition abroad
except by being assembled and except by
operations incidental to the assembly
process such as cleaning, lubrication, and
painting.
All three requirements of HTSUS subheading 9802.00.80 must
be satisfied before a component may receive a duty
allowance. An article entered under this tariff provision is
subject to duty upon the full value of the imported
assembled article, less the cost or value of such U.S.
components, upon compliance with the documentary
requirements of section 10.24, Customs Regulations (19 CFR
10.24).
Section 10.14(a), Customs Regulations (19 CFR 10.14(a)),
states in part that:
[t]he components must be in condition
ready for assembly without further
fabrication at the time of their
exportation from the United States to
qualify for the exemption. Components
will not lose their entitlement to the
exemption by being subjected to operations
incidental to the assembly either before,
during, or after their assembly with other
components.
Section 10.16(a), Customs Regulations (19 CFR 10.16(a)),
provides that assembly operations for purposes of subheading
9802.00.80 encompass any method used to join together solid
components such as sewing, welding, soldering, riveting,
force fitting,
gluing, or the use of fasteners and may be accompanied by
operations that are incidental to the assembly as provided
in section 10.16(b).
In the case before us, covered thread is assembled by
mechanically winding U.S.-origin nylon yarn around foreign
rubber or spandex thread. We find this operation to be
analogous to the situation presented in Headquarters Ruling
Letter (HRL) 555128, dated January 9, 1989, where Customs
held that the twisting of yarn on a machine to form twines
is an acceptable assembly operation for purposes of
9802.00.80, HTSUS, because it is a method used to combine or
join yarns, which are solid components. See also HRL
553593, dated May 16, 1985 and HRL 554531, dated May 29,
1987.
Under the facts presented, nylon yarn, which is ready
for assembly without further fabrication, is exported to
Venezuela where it is joined to another solid - either
foreign rubber or foreign spandex thread - by means of
mechanical winding, an assembly process analogous to one
which Customs has previously found acceptable for purposes
of 9802.00.80, HTSUS. Although the nylon yarn is wound
around a foreign material, the nylon yarn does not lose its
form or shape as nylon yarn. Moreover, the nylon yarn is
advanced in value or improved in condition as a result of
its assembly with either rubber or spandex thread, as it
results in a new product with different performance
characteristics. Accordingly, it is our determination that
the covered rubber and spandex thread will be eligible for
an allowance in duty under subheading 9802.00.80, HTSUS, for
the cost or value of the U.S.-origin nylon yarn, upon
compliance with the documentary requirements of 19 CFR
10.24.
HOLDING:
On the basis of the information provided, mechanical
winding operations performed abroad, which create a new and
commercially different product by combining U.S.-origin
nylon yarn with foreign rubber or spandex thread, exceeds an
"alteration," within the meaning of subheading 9802.00.50,
HTSUS. Accordingly, the finished covered thread is
ineligible for the partial duty exemption provided under
subheading 9802.00.50, HTSUS, upon importation into the U.S.
On the basis of the information provided, U.S.-origin
nylon yarn which is assembled into covered thread by means
of a mechanical winding operation will be entitled to a duty
allowance under subheading 9802.00.80, HTSUS, upon
compliance with the documentary requirements of 19 CFR
10.24.
A copy of this ruling letter 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.
Sincerely,
John Durant, Director
Tariff Classification
Appeals Division