CLA-2 RR:TC:SM 559283 KKV
Mr. Richard W. Zuckerman
Doubletex
9785 Rue Jeanne-Mance St.
Montreal, Quebec H3L 3B6
CANADA
RE: Applicability of HTSUS 9802.00.50 to U.S. greige fabric
exported to Canada for dyeing and finishing and returned to U.S;
textile product; alterations; incomplete; intermediate
processing;
Dear Mr. Zuckerman:
This is in response to your letter dated June 21, 1995,
which requests a ruling regarding the applicability of subheading
9802.00.50, Harmonized Tariff Schedule of the United States
(HTSUS) to U.S. greige fabric exported to Canada for dyeing and
finishing before its return to the United States. We regret the
delay in processing. No sample of the merchandise was submitted
for examination.
FACTS:
We are informed that Doubletex is a Canadian firm which
converts greige fabric for sale to apparel and home furnishing
industries. Specifically, U.S. greige fabric is sent to Canada
where the fabric undergoes dyeing and other finishing operations
before its return to the United States. Upon entry into the
U.S., duty is currently being paid upon the total value of the
shipment, including the value of the U.S. greige fabric.
ISSUE:
Whether the greige fabric is a completed product when
exported from the U.S., and therefore eligible for the partial
duty exemption under subheading 9802.00.50, HTSUS, when returned
to the United States.
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LAW AND ANALYSIS:
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. Tariff treatment under subheading 9802.00.50 is also
precluded where the exported articles are incomplete for their
intended use prior to the foreign processing, Guardian Industries
Corp. v. United States, 3 CIT 9 (1982), or where the foreign
operation constitutes an intermediate processing operation, which
is performed as a matter of course in the preparation or the
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, 1019 (1979).
In Dolliff & Company, Inc. v. U.S., 66 CCPA 77, C.A.D. 1225
(1979), 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.
Congress did not intend to permit uncompleted articles to be
exported and made into finished products in the foreign country
and when returned to be subject to duties only on the cost of the
so-called alterations. U.S. v. J.D. Richardson Co., 36 CCPA 15,
C.A.D. 390 (1948).
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
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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."
Therefore, 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). Customs has consistently held that the initial
dyeing of greige goods constitutes a finishing operation--a step
in the manufacture of finished textile goods--which exceeds the
meaning of the term "alteration" under this tariff provision. In
Headquarters Ruling Letter (HRL) 556617 (dated June 19, 1992),
Customs held that U.S.-origin greige fabric exported to Italy for
dyeing, bleaching and printing was not eligible for the partial
duty exemption provided by subheading 9802.00.50 as the
operations undertaken in Italy went beyond an "alteration" within
the meaning of the term under this tariff provision. See also,
HRL 555478 (dated July 23, 1990), HRL 555535, (dated March 15,
1990), HRL 039311 (dated April 11, 1985) and HRL 071501 (dated
November 2, 1983).
In the instant case, we are of the opinion that the dyeing
and finishing operations performed in Canada to the U.S.-origin
goods constitute "intermediate processing operations which are
performed as a matter of course in the preparation or the
manufacture" of the desired end product. Accordingly, we find in
this case that the greige fabric is an incomplete article when
exported from the U.S. to Canada, and, therefore, is ineligible
for the partial duty exemption under HTSUS subheading 9802.00.50.
HOLDING:
On the basis of the information presented and our consistent
position that the initial dyeing of greige fabric constitutes a
step in the manufacture of finished textile goods, it is our
opinion that the greige fabric exported to Canada for dyeing and
finishing operations is not a finished product. Therefore, the
returned fabric is ineligible for the partial duty exemption
under HTSUS subheading 9802.00.50.
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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 Division