CLA-2 CO:R:C:S 556865 BLS
District Director of Customs
Lincoln Juarez Bridge, Building 2
P.O. Box 3130
Laredo, TX 78044-3130
Re: Request for Internal Advice No. 49/92; Paper shopping bags
with top serrated edge folded over; Alterations; 19 CFR
10.8; Royalty Bead Novelty; HRL 555740; Bags of paper, other
Dear Sir:
This is in response to the request from the Acting District
Director dated July 9, 1992, forwarding a letter from Roser
Customs Service, Inc., on behalf of Equitable Bag Co. Inc.,
concerning the applicability of subheading 9802.00.50, Harmonized
Tariff Schedule of the United States (HTSUS), to shopping bags of
paper to be imported from Mexico. The classification of the
imported bags is also requested. Samples of the bags before and
after the processing in Mexico were submitted for examination.
FACTS:
The sample bags are constructed in the general format known
as a "shopping bag". They are made of strong paper and are
capable of transporting merchandise, and have plastic handles.
The bags are reinforced at the bottom by a configuration of
additional paper lending support to the paper structure. The
front and back of each bag is covered by a centered design with
the configuration of a closed belt and the name "The Pocketbook
Man" within the perimeter of the enclosed design.
Prior to exportation to Mexico, the bags have a raw,
partially serrated paper edge around the bag opening. In Mexico,
this top edge will be folded over about 3/4 of an inch into the
interior of the bag. The bags will then be imported for the U.S.
market. The concerned import specialist advises that these types
of shopping bags with the serrated edge are sold in that
condition at a local store in Laredo. A visual inspection of the
bags reveals that with the exception of the serrated edge, the
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"Before" and "After" bags are identical. The serrated edge of
the "Before" bag is neither sharp nor uncomfortable to the touch.
Mr. Ralph Yarosh, a representative of the importer, has
telephonically advised that the further processing provides a
more aesthetically pleasing product, with the intention to
increase marketability.
ISSUE:
1) Whether the paper bags will be entitled to the partial
duty exemption available under subheading 9802.00.50,
HTSUS, when imported into the United States.
2) What is the correct classification of the imported paper
bags?
LAW AND ANALYSIS
1) Applicability of Subheading 9802.00.50, HTSUS
Subheading 9802.00.50, HTSUS, provides for the assessment of
duty on the value of repairs or alterations performed on articles
returned to the U.S. after having been exported for that purpose.
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 (1956), aff'd, C.D. 1752, 36 Cust. Ct. 46 (1956); and
Guardian Industries Corporation v. United States, 3 CIT 9 (1982),
Slip Op. 82-4 (Jan. 5, 1982). Additionally, the operations
performed abroad will not be considered alterations if the
foreign processing is a step in the manufacture needed to finish
the article for its intended use. Alterations are made only to
completed articles and do not include intermediate operations
which are performed in the manufacture of finished articles.
See, 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 (1979). However, the operations abroad will
be considered an alteration within the intendment of the statute
if the processing abroad does not create a new or different
article and the identity of the exported item is retained. See,
Royal Bead Novelty Co., Inc. v. United States, C.D. 4353, 68
Customs Court 154, 342 F. Supp. 1394 (1972).
In Royal Bead, glass beads used in making costume jewelry
were exported to Austria for a coating that imparted an "Aurora
Borealis" finish. The court pointed out that while the value of
the beads increased due to the coating, the identity of the goods
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was not lost or destroyed in the process and no new articles were
created; beads went out and beads came back. There was no change
in the size, shape, or manner of use of the beads. The sole
change was in the finish, which did not change the beads'
character, quality or texture. Accordingly, the processing
qualified as an alteration within the meaning of Item 806.20,
TSUS (precursor to subheading 9802.00,50). See, also Amity
Fabrics, Inc. v. United States, 43 Customs Court 64, C.D. 2104
(1959), (velveteen fabric sent abroad for redyeing only).
In Headquarters Ruling Letter (HRL) 555740, dated May 28,
1991, a herbicide was exported to France where it was subjected
to processes of formulation and granulation, which made the
product more marketable and "user friendly". A market existed
within the United States for the product as exported. We found
that the product in its exported condition was complete for its
intended use as a herbicide, and that the additional processing
abroad did not appear to result in a significant change in the
quality or character of the product. Accordingly, we held that
the foreign processing constituted an alteration within the
meaning of Subheading 9802.00.50.
These authorities are in point in this case. The shopping
bag has not lost its identity as a result of the foreign
processing, nor has a new product emerged. The "After" bag
retains the identical function as the "Before" bag, albeit the
imported article is, presumably, more marketable, and "user-
friendly". Accordingly, we find that the processing abroad
qualifies as an alteration within the meaning of subheading
9802.00.50, HTSUS.
The facts in this matter are distinguishable from HRL
555800, dated April 5, 1991, and HRL 555055, dated April 26,
1989, cited in the opinion of the National Import Specialist. In
HRL 555055, large paper and paperboard in rolls were sent to
Canada where they were slit by machine into new shapes of smaller
dimensions or specific size sheets. We held in that case that
the foreign processing went beyond mere cutting to length and
created a new character, name and use of the exported product.
Similarly, in HRL 555800, we held that solid sheets of plywood
were transformed into a new product, microcrystalline cellulose,
after being subjected abroad to chemical processing and other
treatment. In the instant case, the shopping bag is a finished
product appropriate for a specific use when exported; that use
remains unchanged in its altered form upon importation. The
foreign processing has not changed the identity of the bag.
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2) Classification of the Paper Bags
The paper bags are classifiable in HTSUS subheading
4819.40.0040, which provides for: Other (than certain enumerated
bags and sacks, of paper).
HOLDING:
The folding-over of the upper, serrated edge of the shopping
bag constitutes an alteration within the meaning of subheading
9802.00.50, HTSUS. Therefore, the shopping bag will be entitled
to classification under this tariff provision with duty only on
the value of the foreign processing upon compliance with the
documentary requirements of section 10.8, Customs Regulations (19
CFR 10.8) Further, the bags are classifiable in HTSUS subheading
4819.40.0040, which provides for: Other (than certain enumerated
bags and sacks, of paper).
Sincerely,
John Durant, Director
Commercial Rulings Division