CLA-2-CO:R:C 555055 RA
Gerald T. Walsh, Esq.
Kavinoky & Cook
120 Delaware Avenue
Buffalo, New York 14202
RE: Applicability of the alterations provision of subheading
9802.00.50, HTSUS, to paper exported in rolls and
returned in smaller rolls and sheets
Dear Mr. Walsh:
This is in response to your letters of June 13 and November
2, 1988, on behalf of Niagara Paper Co., Inc. requesting a review
of a ruling by the Area Director of Customs, New Yerk Seaport,
dated February 26, 1988 (827641), regarding the classification of
certain paper, to be exported to Canada in rolls and cut into
smaller rolls or sheets and returned.
FACTS:
In response to a request from your client dated December 31,
1987, the Area Director, New York Seaport, ruled that cutting the
paper to specification from exported raw material bulk rolls
amounts to the final step in the manufacturing process of the
paper that prepares the paper for final sale and use and cannot
be considered under the repair or alterations provision of item
806.20, Tariff Schedule of the United States (TSUS). Your client
proposes to export to Canada paper and paperboard in-rolls in
widths of from 8 inches to 120-inches and in lengths of from 800
lineal feet to 50,000 lineal feet which will be cut into smaller
rolls or sheets and returned for sale in the U.S. The finished
product is plain, bleached paper or paperboard in many different
sizes. The large rolls are slit by machine into rolls or sheets
of smaller dimensions, and are not merely cut to shorter lengths.
No additional coating, finishing, or other processing related to
the composition of the paper is performed in Canada.
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ISSUE:
Do the operations to be performed in Canada constitute
alterations under the provizions of subheading 9802.00.50,
Harmonized Tariff Schedule of the U.S. (HTSUS), which replaced,
in part, item 806.20, TSUS, so that duty will be assessed only on
the cost of the foreign processing?
LAW AND ANALYSIS:
Subheading 9802.00.50, HTSUS, provides for a duty only on
the cost or value of alterations made on articles returned to the
U.S. after having been exported for that purpose. However, the
application of this tariff provision is precluded where the
operations performed abroad result in articles with new and
different uses or characteristics, or where the foreign
operations constitute a part of a manufacturing
process begun in the U.S. In the instant case, in accordance
with numerous previous rulings, the Area Director determined that
changing the large rolls of paper products in Canada into
narrower rolls or sheets of specific sizes amounts to a finishing
step of a manufacturing process begun in the U.S. As stated by
the appellate court in Dolliff & Company inc. v. U.S., 66 CCPA
77, C.A.D. 1225 (1979), alterations are made only to completed
articles and do not include intermediate operations which are
performed in the manufacture of finished articles. If the
foreign processing is a step in the manufacture needed to finish
the article for its intended use, the statutory provision for
alterations will not be applicable. Guardian Industries
Corporation v. U.S., 3 CIT 9 (1982). Congress did not intend to
permit uncompleted articles to be exported abroad and there made
into finished products 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 support of your contention that the foreign processing of
the paper products constitutes an alteration, you cite Amity
Fabrics, Inc. v. U.S., C.D. 2104, 43 Cust. Ct. 64 (1959), and
Wilbur G. Hallauer v. U.S., C.A.D. 518, 40 CCPA 197 (1953).
However, these cases concerned the redyeing of shirts and
cleaning of apples, respectively, and did not involve any cutting
to shape or the completion of a finishing process as in your
case. Also the rolls of bleached muslin and percale sheeting
which were the subject of T.D. 70-76(1) (1970), did not concern
cutting.
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As previously held, we are of the opinion that the slitting
of the exported rolls of paper products to obtain new shapes of
smaller dimensions or specific size sheets constitutes a step in
the manufacture which is essential to obtain the desired end
product. This processing goes beyond mere cutting to length
which does not effect a new character, name, or use but rather
only a shorter version of the same product. See rulings 058960
dated April 25, 1979, 065398 dated November 10, 1980, and 554736
dated February 16, 1988.
HOLDING:
The slitting to shape of paper products abroad is a
foreign processing which exceeds an alteration under subheading
9802.00.50, HTSUS, as it is a necessary step in finishing the
product for a particular use in the U.S. and completes the
manufacture of the merchandise. This renders the alterations
provision inapplicable to the returned paper products.
Sincerely,
John Durant, Director
Commercial Rulings Division