CLA-02 RR:CTF:VS W563554 HEF

Mr. Steven B. Zisser
Zisser Customs Law Group
2297 Niels Bohr Court, Number 114
San Diego, California 92154

RE: Applicability of subheading 9802.00.50, HTSUS, re-labeled t-shirts; unaltered t-shirts

Dear Mr. Zisser:

This letter is in response to your binding ruling request sent to the National Commodity Specialist Division (“NCSD”) of U.S. Customs and Border Protection (“CBP”), New York, dated July 5, 2006, on behalf of Giant Merchandising a California Partnership (“Giant”). Your request inquires whether certain men’s t-shirts that will be exported to Mexico to be re-labeled or that are intended to be otherwise altered or repaired in Mexico before re-entry into the United States are eligible for tariff treatment under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (“HTSUS”). You included two samples with your submission. Your request and the two samples have been forwarded to this office for a reply.

FACTS:

Re-labeled t-shirts

In the first scenario, Giant proposes to send foreign made t-shirts from the United States to its wholly owned and operated facility in Mexico, hereinafter referred to as “Giant Mexico,” for re-labeling. You advise that the t-shirts sent to Giant Mexico are individually marked by means of a sewn-in fabric label that will be removed and replaced by a newly sewn-in label featuring a trademark design or company logo. You state that the new label will include all of the required information for the t-shirt including all information contained on the original sewn-in generic fabric label. The new sewn-in label will contain size, country of origin, Registered Identification Number, fiber content, and care instructions. In addition, the t-shirt may also receive hangtags and price tickets.

Unaltered t-shirts

In the second scenario, you advise that Giant sends foreign made t-shirts from the United States to Giant Mexico for alteration by re-labeling, screen printing, or soldering, as described in New York Ruling Letter (“NY”) J88996. Screen printing applies a design directly onto the garment using ink. Soldering applies the design directly onto the article using a combination of plastic resins and other materials. You state that it is Giant’s intent, at the time the t-shirts are exported to Mexico, that 100 percent of the t-shirts will be altered by re-labeling, screen printing, or soldering before being returned to the United States.

You state that in all cases, blank t-shirts are sent to Giant Mexico for a specific order or for a specific customer, as virtually all shirts are made to a specific customer’s specifications. In most instances, Giant has a contract or purchase order for a specific quantity of t-shirts to be altered prior to the export of the blank t-shirts to Mexico. In addition, Giant, as exporter, and Giant Mexico, as importer in Mexico, have a contract for a specific quantity of t-shirts to be altered prior to the export of the blank t-shirts to Mexico. However, in limited instances involving several major customers, Giant has a contract to alter t-shirts prior to their export to Mexico, but the exact quantity has not been established. In these instances, the customer will issue ongoing purchase orders that include the specific quantity and embellishment type.

To fulfill an order, Giant typically sends a sufficient quantity of t-shirts to Giant Mexico to print the entire order plus an additional 1 to 5 percent, denominated as “overcut,” to accommodate printing errors or shirts that fail quality control inspections. The quality control process is subsequent to the printing or alteration of all of the t-shirts. You advise that once a print run begins, it is not stopped until all of the t-shirts are printed, including all overcut shirts. Shirts that do not meet quality control inspections after alteration are scrapped in Mexico or returned to the United States with the rest of the shipment.

In some instances, t-shirts exported to Mexico are not altered as planned and blank shirts are returned to the United States. Examples of such instances include situations where a customer or Giant changes a delivery date, instances in which Giant Mexico either is unable to meet a delivery date or unable to perform the required embellishment requested by the customer, or situations where the customer changes the order quantity. You advise that these changes are rare and occur in 1 to 5 percent of all orders. In support of this claim, you state that Giant Mexico exported to Giant 14,522,372 garments in 2005. Of this amount, a total of 491,783 were returned unaltered. In instances where the customer requires fewer garments, you note that Giant has documentation establishing the change in quantity between both Giant and the customer and Giant and Giant Mexico. You note that Giant typically does not receive any monetary or other compensation for the changes in the contract, as the company has long-term relationships with a majority of its customers and generally absorbs most changes out of goodwill.

ISSUES:

Whether the t-shirts that undergo re-labeling in Mexico are eligible for tariff treatment pursuant to subheading 9802.00.50, HTSUS.

Whether the t-shirts sent to Mexico for alteration, but that do not undergo any alteration process, are eligible for tariff treatment pursuant to subheading 9802.00.50, HTSUS.

LAW & ANALYSIS:

Applicability of subheading 9802.00.50, HTSUS, to the re-labeled t-shirts

Subheading 9802.00.50, HTSUS, provides a full or partial duty exemption for articles returned to the United States after having been exported to be advanced in value or improved in condition by means of repairs or alterations. Articles returned to the United States after having been repaired or altered in Mexico, whether or not pursuant to warranty, may be eligible for duty-free treatment, provided the documentary requirements of section 181.64, Customs Regulations, (19 C.F.R. § 181.64), are satisfied. Section 181.64(a) states, in pertinent part:

‘Repairs or alterations’ means restoration, addition, renovation, redyeing, cleaning, resterilizing, or other treatment which does not destroy the essential character of, or create a new and commercially different good from, the good exported from the United States.

Classification under subheading 9802.00.50, HTSUS, is precluded where: (1) the exported articles are not complete for their intended use and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles; or (2) the operations performed abroad destroy the identity of the exported articles or create new or commercially different articles through a process of manufacture. See Guardian Indus. Corp. v. United States, 3 Ct. Int’l Trade 9 (1982), and Dolliff & Co., 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).

With regard to the t-shirts that undergo re-labeling, CBP has held that marking or affixing a label to a product constitutes an alteration. See Headquarters Ruling Letter (“HRL”) 071159, dated March 2, 1983 (diodes exported to Mexico for marking and packaging operations were entitled to treatment under item 806.20, Tariff Schedules of the United States (“TSUS”), the precursor provision to 9802.00.50, HTSUS, as the printing operation had no more significance than a label for identification purposes); see also, HRL 554996, dated June 30, 1988 (sunglasses exported for inspection, temple adjustment, and retagging were entitled to partial duty exemption under item 806.20, TSUS); and HRL 562952, dated March 29, 2004 (belted jeans and pants exported for inspection and tagging were entitled to duty-free treatment under subheading 9802.00.50, HTSUS). Therefore, upon return to the United States, the t-shirts that undergo re-labeling operations in Mexico are entitled to tariff treatment under subheading 9802.00.50, HTSUS, provided the documentary requirements of 19 C.F.R. § 181.64(c) are satisfied.

Applicability of subheading 9802.00.50, HTSUS, to the unaltered t-shirts

In the second scenario, you argue that the t-shirts sent to Mexico for alteration, but that actually do not undergo any alteration process, are eligible for the tariff treatment provided under subheading 9802.00.50, HTSUS, as Giant intends to have all of the t-shirts altered at the time of exportation.

We must first consider whether the intended alterations, which include screen printing and soldering, constitute permissible alterations under subheading 9802.00.50, HTSUS. Pursuant to 19 U.S.C. § 1625(c)(1), a notice was published in the CUSTOMS BULLETIN on October 4, 2000, Vol. 34, No. 40, advising interested persons that CBP was modifying one ruling and revoking four rulings relating to the applicability of subheading 9802.00.50, HTSUS, to certain articles that were exported for decorating operations and returned to the United States. The notice further advised that CBP was revoking any treatment previously accorded by CBP to substantially identical transactions.

Among the rulings that were modified or revoked pursuant to the above-referenced notice was HRL 558935, dated January 31, 1995. That case involved previously imported lace that was exported for a “reembroidery” process, described as the attachment of rope (thick thread), sequins, or beads (or any combination thereof) to the lace with thread. The “reembroidery” operation was performed to improve the marketability of the lace. However, the importer stated that the lace was a totally finished product without the “reembroidery” process and that both the decorated and undecorated lace was sold in the same channels of trade for the same use – as ornamentation on women’s wearing apparel. CBP held in HRL 558935 that the returned “reembroidered” lace was ineligible for subheading 9802.00.50, HTSUS, treatment because the foreign decorating process “substantially changed the appearance of the product by imparting significant new characteristics to the lace.” However, the above holding was determined to be incorrect. Accordingly, HRL 561781, dated September 19, 2000, modified HRL 558935, holding that the “reembroidery” process constituted a qualifying alteration within the meaning of subheading 9802.00.50, HTSUS. In support, CBP stated that information in the record indicating that both the decorated and undecorated lace was sold in the same channels of trade for use as ornamentation on women’s apparel was persuasive evidence that the lace in its exported condition was complete for its intended use. Customs further stated that, while the “reembroidery” process clearly imparted new decorative characteristics to the lace, it did not significantly change the quality, character or performance characteristics of the product.

More recently, in HRL 560501, dated February 27, 2001, CBP considered whether lace brassieres exported to China where beads and sequins were affixed to the garments qualified for special treatment under subheading 9802.00.50, HTSUS. In that case, CBP noted that because both decorated and plain brassieres were sold at the retail level in the United States, the foreign decorating process was not a necessary step in the preparation or manufacture of finished brassieres and the garments were complete for their intended use at the time of export. Thus, adding beads and sequins to the exported brassieres qualified as a permissible alteration under subheading 9802.00.50, HTSUS. Similarly, the described screen-printing and soldering operations qualify as permissible alterations under subheading 9802.00.50, HTSUS. Regarding the t-shirts sent to Mexico for altering but not altered, Customs Information Exchange (“CIE”) 268/55, dated March 11, 1955, considered the applicability of the provision for “repairs or alterations” under paragraph 1615(g), Tariff Act of 1930, as amended, to a mould exported to Canada and re-imported into the United States without having undergone any alteration. The mould of foreign origin was exported for alteration. However, a detailed study was performed on the mould in Canada and calculations were made to determine the cost of making the intended alterations to the mould. The importer stated that the necessary changes to convert the mould would be made at a later date, and the mould was re-imported into the United States without having undergone any alteration. In finding that the mould was eligible for tariff treatment under paragraph 1615(g), CBP reasoned:

It would appear from the records that there was a bona fide intent on the part of the exporter from the United States to have the “Buick” mould altered. The fact, therefore, that the mould may have not been “altered” in Canada does not preclude its return under the provisions of paragraph 1615(g).

In both HRL 071296, dated April 27, 1983, and HRL 071390, dated June 28, 1983, CBP considered the applicability of item 806.20, TSUS, to certain carded electrical wiring devices that would be exported to Mexico for defined repackaging operations and returned to the United States. In HRL 071296, a reconsideration of HRL 071055, dated December 7, 1982, CBP affirmed HRL 071055 and stated that mere testing and separation of articles is not sufficient to qualify them for treatment under item 806.20, TSUS. CBP further stated that if the switches were additionally sorted, cleaned, and repackaged, such operations were sufficient to qualify the devices for a duty exemption under item 806.20, TSUS. In response to a second request for reconsideration of the matter, CBP found in HRL 071390 that the initial prospective ruling was correct in holding that unpacking, wiping, and repackaging of electrical articles would advance in value or improve in condition the devices in support of the claim for entry under the repair or alteration provision of item 806.20, TSUS. Furthermore, CBP stated that noncompliance with the factual situation found in the request for a binding ruling can be detrimental to the importer, and that, ultimately, it is up the district or area director to determine whether the claim for item 806.20, TSUS, relief is justified. Citing CIE 268/55, CBP concluded that the only exception to compliance in this regard occurs whenever there exists a bona fide intent on the part of the exporter to have an article repaired or altered abroad, but due to some intervening circumstance, which interrupts compliance with the tariff provision, the article is not repaired or altered. In HRL 071390, CBP found that this exception did not apply to the circumstances of the case.

HRL 555634, dated November 13, 1990, responded to a protest by the U.S. exporter in HRL 071055, HRL 071296, and HRL 071390. The entries subject to the prior rulings were liquidated, and only 20 percent of the returned articles were classified under item 806.20, TSUS. The U.S. exporter argued that the remaining articles, which were merely tested and repackaged, were entitled to tariff treatment under item 806.20, TSUS. In HRL 555634, CBP held that the devices that were merely tested and repackaged were not entitled to tariff treatment under item 806.20, TSUS. CBP concluded that the holding in CIE 268/55 was inapplicable to the devices that were merely tested and repackaged, as the U.S. exporter was aware at the time of the articles’ exportation that not all of the devices would be repaired abroad.

Based on the facts presented, we find that the instant case is similar to the situation described in HRL 555634. You state that, in instances with several major customers, Giant has a contract to alter t-shirts prior to the export of blank t-shirts to Mexico, but the exact quantity has not yet been established. You cite that out of 14,522,372 garments Giant Mexico exported to Giant in 2005 that a total of 491,783 were returned to the United States unaltered. While the number of t-shirts returned in an unaltered condition is a small percentage of the total number returned, such instances do not seem to be wholly unusual or unanticipated in Giant’s business. Rather, the changes in delivery dates and the changes in the amounts ordered appear to be a routine part of doing business in this commodity. Thus, we do not believe that such regular occurrences are comparable to the situation contemplated by CIE 268/55, where the U.S. exporter fully intended to have the mould altered at the time of its export to Canada. Based on Giant’s business practices and the nature of doing business in this commodity, Giant can reasonably anticipate, prior to the export of the blank t-shirts, that not all of the t-shirts will be altered. Therefore, we find that the t-shirts returned to the United States unaltered do not qualify for preferential tariff treatment under subheading 9802.00.50, HTSUS.

HOLDING:

On the basis of the information provided, it is our opinion that the Mexican re-labeling operations constitute “alterations” within the meaning of subheading 9802.00.50, HTSUS. Therefore, upon re-entry into the United States, the re-labeled t-shirts are entitled to tariff treatment under subheading 9802.00.50, HTSUS, provided the documentary requirements of 19 C.F.R. § 181.64 are satisfied.

Based on the facts presented, the t-shirts returned to the United States in an unaltered condition are not eligible for tariff treatment under subheading 9802.00.50, HTSUS. A copy of this ruling letter should be attached to the entry documents filed at the time the goods are 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,

Monika R. Brenner, Chief
Valuation & Special Programs Branch