CLA-2 CO:R:C:S 556617 RAH
Mr. Meade G. Stone, Jr.
W.M. Stone & Co., Inc.
P.O. Box 3160
838 Granby Street
Norfolk, VA 23510
RE: Applicability of partial duty exemption to yarn and fabric
exported for foreign processing; Dyeing; Bleaching;
Printing; Spinning; Country of Origin; Substantial
Transformation; 19 CFR 12.130; 19 CFR Part 134
Dear Mr. Meade:
This is in response to your letter of March 27, 1992, on
behalf of Fieldcrest Cannon, Inc., regarding the classification,
dutiability and country of origin of yarn and fabric.
FACTS:
Fieldcrest Cannon, Inc., plans to export fabric woven in the
United States from U.S yarn to Italy for bleaching, dyeing and
printing. Alternatively, it intends to export U.S. fiber to
Switzerland to be spun into yarn and then import it into the
United States for weaving into fabric. Thereafter, the fabric
will be exported to Italy for the bleaching, dyeing and printing
operations. Following the processing in Italy, the fabric will
be imported into the United States.
Your client plans to register the goods on exportation to
the foreign country and pay duty on the processing performed in
that country, upon importation into the United States [a
procedure under section 10.8. Customs Regulations (19 CFR 10.8)
whereby a Certificate of Registration is filed before exporting
articles which are subject on return to the United States to duty
on the value of the repairs or alterations under subheading
9802.00.50, Harmonized Tariff Schedule of the United States
(HTSUS)].
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ISSUES:
(1) Whether U.S. fiber exported to Switzerland to be spun
into yarn is eligible for a partial duty exemption under
subheading 9802.00.50, HTSUS, when returned to the United States.
(2) Whether U.S.-origin fabric exported to Italy for
dyeing, bleaching and printing is eligible for a partial duty
exemption under subheading 9802.00.50, HTSUS, when returned to
the United States.
(3) What is the country of origin of the yarn which is spun
in Switzerland and the fabric which is dyed, bleached and printed
in Italy?
LAW AND ANALYSIS:
ALTERATIONS
Subheading 9802.00.50, HTSUS, provides a 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. Such articles are dutiable only
upon the value of the foreign repairs or alterations, provided
the documentary requirements of section 10.8, Customs Regulations
(19 CFR 10.8), are satisfied. However, entitlement to this
tariff treatment 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);
Guardian Industries Corp. v. United States, 3 CIT 9 (1982).
Tariff treatment under subheading 9802.00.50, HTSUS, is also
precluded where the exported articles are incomplete for their
intended use prior to the foreign processing. Guardian; 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, 82, 599 F.2d
1015, 119 (1979).
In the Dolliff case, certain dacron polyester fabric goods
were exported and subjected to multiple processing operations
abroad, including dyeing, heat-setting, chemical-scouring and
treating with chemicals. The finished fabric that was returned
to the U.S. was denied the partial duty exemption for alterations
abroad because it was determined that the dyeing and numerous
other processing steps were all necessarily undertaken to produce
the finished fabric.
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
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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 merchandise exported 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.
In the instant case, the operations performed in Italy
exceed an alteration. The fabric is exported to Italy in greige
(gray) goods condition. The dyeing, printing and bleaching
operations in Italy create finished fabric which is ready to be
cut and sewn in the United States. Customs has long held that
printing and finishing operations exceed the meaning of the term
alteration for the purposes of item 806.20, Tariff Schedules of
the United States (TSUS) (the predecessor to subheading
9802.00.50, HTSUS). Headquarters Ruling Letter (HRL) 039311
dated April 11, 1985 (fabrics in greige goods condition exported
to Germany for printing and finishing clearly exceed the term
alteration for tariff purposes). Dolliff and C.J. Tower, supra.
Accordingly, the fabric will not be entitled to a partial duty
exemption under subheading 9802.00.50, HTSUS, upon importation
into the United States. Additionally, spinning U.S. fiber into
yarn exceeds an alteration. The fiber is incomplete for its
intended use (as yarn for weaving into fabric) prior to the
foreign processing and a new and commercially different article
is created as a result of that processing. See, HRL 075063 dated
December 21, 1984 (spinning yarn results in a substantial
transformation).
Briefly, you should be aware that under the facts presented,
the yarn and fabric do not qualify for treatment under other
subheadings of Chapter 98, HTSUS. Subheading 9801.00.10, HTSUS,
provides for the free entry of U.S.-made products that are
exported and returned without having been advanced in value or
improved in condition by any process of manufacture or other
means while abroad. The foreign processing in Switzerland and
Italy will advance the value of the merchandise and improve its
condition. Subheading 9802.00.80, HTSUS, is not applicable as it
only applies to articles assembled abroad in whole or in part of
U.S.-fabricated components.
COUNTRY OF ORIGIN
You also inquire as to the country of origin of the
merchandise on each importation into the United States. Section
12.130, Customs Regulations (19 CFR 12.130), sets forth the
principles for country of origin determinations for textile and
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textile products. 19 CFR 12.130(b), provides that a textile
product that is processed in more than one country or territory
shall be a product of that country or territory where it last
underwent a substantial transformation. A textile product will
be considered to have undergone a substantial transformation if
it has been transformed by means of substantial manufacturing or
processing operations into a new and different article of
commerce. However, an exception to this rule for U.S. textile
articles sent abroad for processing is set forth in 19 CFR
12.130(c), which provides as follows:
Chapter 98, Subchapter II, Note 2, Harmonized Tariff
Schedule of the United States, provides that any
product of the U.S. which is returned after having been
advanced in value or improved in condition abroad, or
assembled abroad, shall be a foreign article for the
purposes of the Tariff Act of 1930, as amended. In
order to have a single definition of the term "product
of" and, therefore, a single country of origin for
textile or textile product, notwithstanding paragraph
(b), merchandise which falls within the purview of
Chapter 98, Subchapter II, Note 2, Harmonized Tariff
Schedule of the United States, may not, upon its return
to the U.S., be considered a product of the U.S.
In the instant case, the U.S. fiber that is spun into yarn
in Switzerland clearly is advanced in value and improved in
condition within the meaning of 19 CFR 12.130(c). Therefore, the
country of origin of the yarn in question is Switzerland.
After the Swiss-made yarn is imported into the United
States, it is woven into fabric. According to 19 CFR
12.130(e)(iii), an article or material usually will be a product
of a particular country when it has undergone "weaving, knitting
or otherwise forming fabric" in that country. See, HRL 700752
dated January 17, 1973. Therefore, the fabric when woven in the
United States, is considered to be a product of the United
States. The U.S.-fabric is then exported to Italy for dyeing,
bleaching and printing. Those operations undoubtedly advance the
value and improve the condition of the fabric within the meaning
of 19 CFR 12.130(c). Accordingly, the country of origin of the
fabric when returned to the United States is Italy.
Your request for tariff classification of the yarn and
fabric should be directed to the appropriate Area/District
Director of Customs, and should include a full and complete
description of the article, a sample of the article, information
as to the article's chief use in the United States, its
commercial, common, or technical designation, and if composed of
two or more materials, the relative quantity (by weight and by
volume) and the value of each.
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HOLDINGS:
U.S. fiber exported to Switzerland to be spun into yarn and
U.S. fabric exported to Italy for dyeing, bleaching and printing
are not eligible for a partial duty exemption under subheading
9802.00.50, HTSUS, upon importation into the United States.
Pursuant to 19 CFR 12.130(c), the country of origin of the yarn
is Switzerland, and the country of origin of the bleached, dyed
and printed fabric is Italy.
Sincerely,
John Durant, Director
Commercial Rulings Division