CLA-2 RR:TC:SM 560324 JML
TARIFF NO: 9802.00.50
Mr. Pierre Dumas
Production Manager
The Dye House
888 Bradford Street
Winnipeg, Manitoba
Canada R3H ON5
RE: Applicability of partial duty exemption under subheading
9802.00.50, HTSUS, to certain apparel articles exported from
the U.S. to Canada for dyeing; alterations; 19
CFR 181.64; NAFTA.
Dear Sir:
This is in response to your letter dated January 31, 1997,
in which you requested a binding ruling regarding the eligibility
for duty-free treatment of certain apparel products exported from
the United States ("U.S.") to Canada for dyeing before return to
the U.S.
FACTS:
According to the facts provided, your company, The Dye
House, intends to import certain leisure apparel from the U.S.
into Canada for dyeing and subsequent return. The subject
apparel will consist of either knit or woven T-shirts,
sweatshirts, sweatpants, shorts, skirts and dresses, and be made
of 100% cotton, cotton/lycra blend, or cotton/polyester blend.
Upon importation of the apparel into Canada, it will be in
an undyed, natural color or half-bleached color. In addition to
the dyeing processes, you stated in a telephone conversation with
a member of my staff on May 1, 1997, that the apparel may be
subject to a softening process as well as the application of an
anti-piling agent.
ISSUE:
Whether the apparel, upon its return to the U.S., will be
eligible for a partial duty exemption pursuant to subheading
9802.00.50, Harmonized Tariff Schedule of the United States
("HTSUS").
LAW AND ANALYSIS:
Articles returned to the U.S. after having been exported to
be advanced in value or improved in condition by repairs or
alterations may qualify for the complete or partial duty
exemption under subheading 9802.00.50, HTSUS, 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'd, C.D. 1752, 36 Cust. Ct. 46
(1956); Guardian Industries Corp. v. United States, 3 CIT 9
(1982). Accordingly, entitlement to this tariff treatment is
precluded where the exported articles are incomplete for their
intended purpose prior to the foreign processing and the foreign
processing operation is a necessary step in the preparation or
manufacture of finished articles. Dolliff & Company, Inc. v.
United States, 455 F. Supp. 618 (CIT 1978), aff'd, 559 F.2d 1015
(Fed. Cir. 1979). Articles entitled to this partial duty
exemption are dutiable only upon the cost or value of the foreign
repairs or alterations when returned to the U.S. from Canada,
provided the documentary requirements of section 181.64, Customs
Regulations (19 CFR 181.64), are satisfied.
Section 181.64(b), Customs Regulations (19 CFR 181.64(b))
provides that:
(B) Goods not eligible for duty-free or reduced
duty-treatment after
repair or alteration. The duty free or
reduced-duty treatment referred to in
paragraph (a) of this section shall not apply to goods which, in
their imported condition as exported
from the United States to Canada or
Mexico, are incomplete for their intended
use and for which
the processing operation performed in
Canada or Mexico constitutes
an operation that is performed as a matter
of course in the
preparation or manufacture of finished
goods.
"Repairs or alterations," as that term is used for purposes
of 19 CFR 181.64 is defined in paragraph (a) as "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."
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 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.
Indeed, Congress did not intend to permit incomplete
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 this regard, Customs has
consistently held that the initial dyeing of goods constitutes a
finishing operation--a step in the manufacture of finished
goods-which exceeds the meaning of the term "alteration" under
this tariff provision.
In Headquarters Ruling Letter ("HRL") 559283, dated January
18, 1996, Customs held that U.S.-origin fabric exported to Canada
for dyeing and finishing operations was not eligible for the
partial duty exemption provided under subheading 9802.00.50,
HTSUS, as the dyeing operation undertaken in Canada exceeded an
"alteration" within the meaning of the term under this tariff
provision. Customs stated that the dyeing and finishing
operations performed in Canada to the U.S.-origin fabric
constituted "intermediate processing operations which are
performed as a matter of course in the preparation or the
manufacture" of the desired end product, and thus the fabric was
an incomplete article when exported from the U.S. to Canada.
Similarly, in HRL 559207, dated February 2, 1996, Customs
determined that U.S.-origin greige fabric sent to Canada for
bleaching and dyeing constituted a step in the manufacture of a
finished textile good and thus exceeded an "alteration" for
purposes of subheading 9802.00.50, HTSUS. See also HRL 555510,
dated January 30, 1990 (initial dyeing of carpet tiles exceeds an
alteration).
Consistent with the court cases and rulings cited above, we
find that the dyeing operations performed in Canada to the U.S.-origin apparel constitute "intermediate processing operations
which are performed as a matter of course in the preparation or
the manufacture" of the desired end product (dyed apparel).
Thus, the dyeing operation exceeds an "alteration" within the
meaning of subheading 9802.00.50, HTSUS, and the dyed apparel
returned to the U.S. from Canada is not eligible for the partial
duty exemption provided under this tariff provision.
HOLDING:
On the basis of the information submitted, we find that the
dyeing operations performed to the U.S.-origin apparel in Canada
constitute a step in the manufacture of finished apparel and
thus, exceed an "alteration" within the meaning of subheading
9802.00.50, HTSUS. Accordingly, the dyed apparel returned to the
U.S. from Canada is not eligible for the partial duty exemption
provided under subheading 9802.00.50, HTSUS.
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 handling the
transaction.
Sincerely,
John Durant, Director
Tariff Classification Appeals Division