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