OT:RR:CTF:VS H212675 CMR
CST, Inc.
Customs Brokerage & Compliance Consulting
500 Lanier Ave. West
Suite 901
Fayetteville, GA 30214
RE: Applicability of subheading 9802.00.50, HTSUS, to sewing thread spooled in Mexico onto smaller spools; NAFTA
Dear Ms. Tovar:
This is in response to your letter of March 26, 2012, on behalf of your client, Champion Thread Company (hereinafter, Champion) requesting a ruling on the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS) to sewing thread exported to Mexico for respooling onto smaller spools. You also inquire as to whether the value is eligible for duty-free treatment under the North American Free Trade Agreement (NAFTA).
FACTS:
Champion purchases sewing thread from domestic U.S. suppliers, but the thread may be of foreign origin (from outside of the NAFTA parties) or of U.S. origin.
Two sewing threads are at issue. You submit the sewing threads are classified as follows:
HTSUS Subheading Description
5401.10.0000 Sewing thread of man-made fiber filaments, whether of not put up for retail sale, of synthetic filaments
5508.10.0000 Sewing thread of man-made staple fibers, whether or not put up for retail sale, of synthetic staple fibers
Champion purchases the sewing threads on large industrial spools and will export the thread to Mexico. In Mexico, the sewing thread will be rewound on smaller spools for use on industrial sewing machines. The rewinding process in Mexico consists of transferring the thread off of a large spool onto a small core (spool). As the thread is transferred to the smaller core, it passes through a wax solution called a tackifier which helps the thread “lay” on the small core in a precise uniform manner. After the thread is transferred, the small core is taken to a machine that compresses the thread and adds cardboard sides to the core. After this processing, the thread, on the smaller spools, is packed and shipped back to Champion in the U.S.
ISSUE:
Whether the thread is eligible for the duty exemption under subheading 9802.00.50, HTSUS, upon its return to the U.S.
LAW AND ANALYSIS:
Articles exported from and returned to the U.S., after having been advanced in value or improved in condition by repairs or alterations in Mexico, may qualify for a duty exemption under HTSUS subheading 9802.00.50, provided the foreign operation does not destroy the identity of the exported articles or create new or commercially different articles through a process of manufacture. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff'g C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian Industries Corp. V. United States, 3 CIT 9 (1982). Tariff treatment under subheading 9802.00.50, HTSUS, 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 C.C.P.A. 77, C.A.D. 1225, 599 F.2d 1015 (1979). Articles are entitled to this duty exemption
provided the documentary requirements of section 181.64(c), Customs and Border Protection (CBP) Regulations (19 CFR 181.64(c)), are met.
19 CFR 181.64, “Goods re-entered after repair or alteration in Canada or Mexico,” provides in relevant part:
General. This section sets forth the rules which apply for purposes of obtaining duty-free or reduced-duty treatment on goods returned after repair or alteration in Canada or Mexico as provided for in subheadings 9802.00.40 and 9802.00.50, HTSUS. Goods returned after having been repaired or altered in Mexico, whether or not pursuant to a warranty, and goods returned after having been repaired or altered in Canada pursuant to a warranty, are eligible for duty-free treatment, provided that the requirements of this section are met. . . . For purposes of this section, “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.
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You reference Headquarters Ruling Letter (HQ) 555296, dated June 16, 1989, as support for your view that the processing occurring in Mexico qualifies as an alteration under subheading 9802.00.50, HTSUS, and that the sewing thread does not lose its identity or become a new article with a different commercial use as a result of the processing in Mexico. In HQ 555296, bulk twine on large cones was shipped to Canada to be cut to shorter lengths, rewound onto smaller cardboard tubes and inserted into Canadian-made plastic dispensers, each with a built-in knife for cutting the twine. We held that the processing in Canada was an alteration within the scope of subheading 9802.00.50, HTSUS. In HQ 555708, dated September 21, 1990, we found that the processing of thread and yarn shipped abroad on “dye tubes” by despooling from the tubes, rewinding onto small plastic spools, and packaging into a blister pack as a sewing thread assortment was an alteration and the returned goods were dutiable only on the value of the foreign processing pursuant to subheading 9802.00.50, HTSUS. HQ 555708 appears to be quite similar to the situation herein. Both HQ 555708 and HQ 555296 serve as support for determining that the processing of the sewing thread in Mexico by respooling onto smaller spools and packaging is an alteration and the returned sewing thread may be entered under subheading 9802.00.50, HTSUS, with duty assessed only on the value of the alteration.
As you note, U.S. Note 3(d), Subchapter II, Chapter 98, provides:
For the purposes of subheadings 9802.00.40 and 9802.00.50, the rates of duty in the "Special" subcolumn of column 1 followed by the symbol "CA" or "MX" in parentheses shall apply to any goods which are returned to the United States after having been repaired or altered in Canada or in Mexico, respectively, whether or not such goods are goods of Canada or goods of Mexico under the terms of general note 12 to the tariff schedule.
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As the processing of the sewing thread occurs in Mexico and the symbol “MX” appears in the rates of duty “Special” Subcolumn of column 1 in the parenthetical after the designation of “Free”, no duty will be owed on the value of the alteration upon entry of the returned sewing thread. Provided you meet the documentary requirements of 19 CFR 181.64(c), the sewing thread will be duty free upon its return to the U.S. after the respooling in Mexico.
You also ask about the country of origin of the returned sewing thread. You are correct that the country of origin of the thread does not change due to the processing in Mexico. The origin of foreign thread remains where the fibers were spun or the filament extruded, pursuant to 19 U.S.C. § 3592, as does the origin of similarly produced U.S. sewing thread. See also 19 CFR 102.21.
With regard to the U.S.-origin thread, you raise 19 CFR 102.19(b) for finding the origin of the thread to be Mexico for duty purposes. However, 19 CFR 102.12(b) is not applicable unless you are making a claim for preferential tariff treatment under the NAFTA.
HOLDING:
The sewing thread exported from the U.S. to Mexico, respooled onto smaller spools, packaged, and returned to the U.S., qualifies for duty free entry under subheading 9802.00.50, HTSUS. As the symbol “MX” appears in the rates of duty “Special” Subcolumn of column 1 in the parenthetical after the designation of “Free”, and pursuant to U.S. Note 3(d), Subchapter II, Chapter 98, no duty will be owed on the value of the alteration upon entry of the returned sewing thread.
The country of origin of the sewing thread for marking purposes is not affected by the processing in Mexico.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch