CLA-2 CO:R:C:S 557144 WAW
District Director
U.S. Customs Service
6269 Ace Industrial Drive
P.O. Box 37260
Milwaukee, WI 53237-0260
RE: Application for Further Review of Protest No. 3701-92- 100083;
applicability of a partial duty exemption to fabric which is
embossed abroad and returned to the U.S.
Dear Sir:
This is in reference to the above-referenced protest which
was forwarded to this office for further review. The protestant,
Krueger International, contests the denial of the partial duty
exemption available under subheading 9802.00.50, Harmonized Tariff
Schedule of the United States (HTSUS), for fabric which is exported
to Italy for embossing and returned to the U.S.
FACTS:
The protestant, also known as Pallas Textiles, produces
upholstered office chairs and room dividers. At the direction of
a designer based in New York, the company purchases upholstery
fabric from sources located in Ireland, Great Britain, Germany,
and Italy. The protestant imports approximately fifty percent of
the fabric it stocks, while the remaining fifty percent is
purchased domestically. Of the imported fabric, seventy-five
percent is not intended to be used on the furniture the protestant
produces, but rather, is to be resold to competing U.S. office
furniture makers. The remaining twenty-five percent is consumed
in protestant's own production process.
The merchandise the subject of this protest is upholstery
fabric, referred to as style "Kathin," from Italy. Protestant
stated that when the fabric was initially imported into the U.S.,
it did not sell well in the U.S. market. Consequently, the fabric
was returned to Italy to undergo an "embossing" procedure.
Embossing is a heat/plastics application that changes the surface
texture of the fabric as well as the design. Protestant decided to emboss the fabric to enhance the marketability and
characteristics of the fabric for prospective buyers.
ISSUE:
Whether the embossed fabric qualifies for the partial duty
exemption available under subheading 9802.00.50, HTSUS, when
returned to the U.S.
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 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
different articles through a process of manufacture. However,
entitlement to this tariff treatment is precluded where the
exported articles are incomplete for their intended use prior to
the foreign processing, Guardian Industries Corp. v. United States,
3 CIT 9 (1982), or where the foreign operation constitutes an
intermediate processing operation, which is performed as a matter
of course in the preparation or the manufacture of finished
articles. Dolliff & Company, Inc. v. United States, C.D. 4755, 81
Cust. Ct. 1, 455 F. Supp. 618 (1978), aff'd, C.A.D. 1225, 66 CCPA
77, 599 F.2d 1015 (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., provided the
documentary requirements of 19 CFR 10.8 are satisfied.
In the above-referenced Dolliff case, certain dacron polyester
fabrics--greige goods--were exported and subjected to multiple
processing operations abroad, including dyeing. 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 another alterations case, C.J. Tower & Sons of Niagara,
Inc. v. United States, C.D. 2208, 45 Cust. Ct. 111 (1960), cotton
drills--also greige goods--were exported and subjected to multiple
operations, including dyeing. The cotton cloth that was returned
to the U.S. was similarly denied the partial duty exemption for
alterations abroad 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, texture, and suppleness as a result of 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 another alterations case which dealt with the redyeing of
fabric, the court held that the foreign processing constituted an
acceptable alteration. See Amity Fabrics, Inc. v. United States,
C.D. 2l04, 43 Cust. Ct. 64, 305 F. Supp. 4 (1959). In Amity
Fabrics, unmarketable, pumpkin-colored cotton twill-back velveteen
was exported to be redyed a black color. The court determined that
the dying operation was a change which rendered the fabric
marketable and that this improved its condition commercially, and
found that such change constituted an alteration under the statute
and Customs Regulations. As the parties had stipulated that the
redyeing in no way changed the quality, texture, or character of
the material, the court concluded that the identity of the goods
was not lost or destroyed by the dyeing process; no new article was
created; there was no change in the character, quality, texture,
or use of the merchandise; it was merely changed in color.
In Royal Bead Novelty Co. v. United States, C.D. 4353, 68
Cust. Ct. 154, 342 F. Supp. 1394 (1972), uncoated glass beads were
exported so that they could be half-coated with an Aurora Borealis
finish which imparted a rainbow-like luster to the half-coated
beads. The court found that the identity of the beads was not lost
or destroyed in the coating process and that no new article was
created. Moreover, there was no change in the beads' size, shape,
or manner of use in the making of jewelry (as the plaintiff
testified that both uncoated and half-coated beads were used
interchangeably). The sole change was in the finish, which did not
change the quality, texture, or character of the exported beads.
Accordingly, the court concluded that application of the Aurora
Borealis finish constituted an alteration within the intendment of
item 806.20, Tariff Schedules of the United States (TSUS) (the
precursor tariff provision to subheading 9802.00.50, HTSUS).
In Headquarters Ruling Letter (HRL) 555124 dated November 11,
1988, we considered a brushing operation performed on fabric used
in the making of women's raincoats and found that while the
brushing process imparted a slightly different appearance to the
fabric, it did not appear to significantly change the quality,
texture or character of the fabric. Accordingly, we held that the
brushing operation constituted an "alteration" for purposes of
subheading 9802.00.50, HTSUS.
Additionally, in HRL 554945 dated June 14, 1988, we held that
the process of "crushing" fabric abroad constituted an "alteration"
within the meaning of item 806.20, TSUS. In HRL 554945, fabric was
exported to France where it was subjected to a processing operation
designed to impart a permanent "crushed" or wrinkled look to the
fabric, before being returned to the U.S. for use in producing
women's swimsuits. We held that the identity of the fabric was not
lost or destroyed by the "crushing" operation and this process did
not result in the creation of a new and different commercial
article. The "crushing" process also did not appear to result in
any significant change in the quality, texture, or character of the
fabric.
In the present case, we believe that the operations performed
on the fabric in Italy, like the operations in Amity, Royal Bead,
and HRL 555124 and 554945, constitute acceptable alterations of the
fabric for purposes of subheading 9802.00.50, HTSUS. The record
before us indicates that the fabric exported to Italy is suitable
for its intended use (upholstery of furniture) in its condition as
exported, and, in fact, is so used. Protestant claimed that the
sole purpose for embossing the fabric was to enhance its
marketability; without the embossing the fabric did not sell well
in the U.S. market. Therefore, we are persuaded that the embossing
of the fabric does not constitute an intermediate processing
operation performed as a matter of course in the preparation or the
manufacture of the finished fabric.
Moreover, as in Amity, we believe that the application of the
plastic material onto the fabric in no way affects the quality,
character or performance characteristics of the fabric; the
embossing simply renders the fabric more marketable; it does not
change the durability or strength of the fabric. The information
and sample submitted indicate that, as was the case with respect
to the beads in Royal Bead, the embossing operation does not
destroy the identity of the exported article or create a new or
different article of commerce. Although the embossing procedure
slightly changes the texture and appearance of the fabric, it does
not significantly alter the quality or character of the
merchandise. Accordingly, we find that the embossing operation
constitutes an acceptable "alteration" within the meaning of
subheading 9802.00.50, HTSUS.
Your office advises that, although the protestant claimed that
the reworking cost $1.00 per yard, no correspondence or documentary
evidence has been provided to substantiate this claim. Absent
evidence of the cost of the alteration, your office believes that
no partial duty exemption can be allowed for the returned embossed
fabric.
By letter dated May 11, 1993 (copy enclosed), protestant
provided additional information directly to this office indicating
that the foreign processing cost $2.10 per yard (or $2.30 per
meter). Assuming that your office is satisfied that this
represents a reasonable cost or value of the embossing operation,
this amount should be used to determine the protestant's duty liaibility under subheading 9802.00.50, HTSUS,
for the returned fabric.
HOLDING:
Based on the information provided, we are of the opinion that
the process of "embossing" the subject fabric in Italy constitutes
an "alteration," as that term is used in subheading 9802.00.50,
HTSUS, and the returned fabric should be subject to duty only upon
the value of the foreign alterations. Therefore, assuming that
your office is satisfied that the processing cost information
provided to us by the protestant ($2.10 per yard) represents a
reasonable value for the foreign embossing, then this amount may
be used to determine the amount of duties due.
Based on the foregoing discussion, this protest should be
disposed of as set forth above. A copy of this decision should be
attached to the Custom Form 19 and mailed to the protestant as part
of the notice of action on the protest.
Sincerely,
John Durant, Director
Commercial Rulings Division
Enclosure