CLA-2 CO:R:C:S 557161 BLS
Scott E. Rosenow, Esq.
S. Richard Shostak
Stein Shostak Shostak & O'Hara
1620 L Street, N.W.
Washington, D.C. 20036-5605
RE: Applicability of subheading 9802.00.50, HTSUS, to wooden
shutters sent to Mexico for painting; Royal Bead; Amity;
Modification of HRL 555093; Reconsideration and Modification
of NY 873889
Gentlemen:
This is in reference to a request for reconsideration dated
February 22, 1993, on behalf of Ohline Corporation, of NY 873889,
dated May 26, 1992. You request that wooden interior window
shutters sent to Mexico for painting or staining be granted the
partial duty exemption under subheading 9802.00.50, HTSUS.
FACTS:
Ohline manufactures wooden shutters wholly for use in
interior settings, such as in homes or offices. Generally these
shutters are custom-made to the purchaser's specifications and
requirements. When an order is received for shutters which are
to be painted or stained a specific color, the completed shutters
are exported to Mexico. In Mexico, the shutters undergo a process
of inspection, preparation and application of several coats of
paint or stain (hereinafter "paint"). This process includes light
sanding and repairing between applications of paint. Following
these operations, the shutters are returned to the U.S. where the
necessary hardware will be attached. The shutters are then
packaged and shipped to the purchaser.
Ohline also sells shutters unpainted, in an "unfinished"
condition. While painted shutters constitute the majority of the
interior shutters sold in the U.S., counsel notes that the
unfinished market constitutes a significant portion of overall
sales.
ISSUE:
Whether the interior wooden shutters will be eligible for the
partial duty exemption under subheading 9802.00.50, HTSUS, when
imported into the U.S.
LAW AND ANALYSIS:
Subheading 9802.00.50, HTSUS, provides for the assessment of
duty on the value of repairs or alterations performed on articles
sent abroad 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); Guardian Industries
Corporation v. United States, 3 CIT 9 (1982), Slip Op. 82-4 (Jan.
5, 1982). Subheading 9802.00.50, HTSUS, treatment is also
precluded where the exported articles are incomplete for their
intended use and the foreign processing operation is a necessary
step in the preparation or manufacture of finished articles.
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).
In the instant case, you argue that the shutters are complete
for their intended use before being exported to Mexico to be
painted, and that the processing in Mexico neither destroys the
identity of the article nor creates a new or different article of
commerce. Specifically, you point out that at the time of
exportation, the shutters are ready to perform their function of
providing privacy and controlling light and ventillation. You
note that painting serves only a decorative purpose, and has no
effect upon these uses. Accordingly, you contend that unfinished
shutters are completed articles of commerce, and that their
identity as interior shutters of wood is unaffected by the
processing in Mexico.
In Headquarters Ruling Letter (HRL) 555093, dated April 26,
1989, wooden parts of furniture kits were to be sent to Mexico to
be stained, lacquered and packaged, and then returned to the U.S.
for retail sale. Some of the kits were sold "unfinished" (without
stain or lacquer) to some of the same retailers who purchased the
finished kits. We held in that case that the articles were
incomplete for their intended use when sent to Mexico for
processing.
In Amity Fabrics v. United States, Inc., 43 Cust. Ct. 64,
C.D. 2104 (1959), "pumpkin" colored velveteen fabric was sent
abroad for redyeing it black since "pumpkin" was not in fashion.
The redyeing did not change the use of the fabric and it was
offered for sale to the same trade. In that case, the court held
that the redyeing constituted an alteration under par. 1615(g) of
the Tariff Act of 1930 (the precursor to item 806.20, TSUS,
which, in turn, is the precursor of subheading 9802.00.50,
HTSUS).
In Royal Bead Novelty Co. Inc. v. United States, C.D. 4353,
68 Cust. Ct. 154, 342 F. Supp. 1394 (1972), glass beads were sent
abroad for a coating process which imparted an "Aurora Borealis"
finish. Both the coated and uncoated beads were used
interchangeably in making costume jewelry, however, this
"rainbow" finish was currently in fashion while there was a lack
of demand for the uncoated beads. The coated beads sold for a
price approximately 20 percent higher than the uncoated version.
In relying on the rationale in Amity Fabrics, the court
stated as follows:
"...the identity of the articles in question was not
lost or destroyed in the coating process and no new
articles were created; beads came out and beads came
back. Moreover, there was no change in the size, shape,
or manner of use in making articles of jewelry. The
sole change was in the finish in that the imported
beads now possessed a rainbow-like luster. This did not
change their quality, texture, or character."
Accordingly, the court held that the processing abroad
constituted an alteration under Item 806.20, TSUS.
Applying the court's reasoning in Royal Bead, we find in the
instant case that the processing in Mexico constitutes an
alteration within the meaning of subheading 9802.00.50, HTSUS.
Initially, we note that the use of the shutters, to provide
privacy, light and ventillation, is unchanged whether the
articles are painted, or remain unfinished. Thus, the articles
are complete for their intended use when exported to Mexico. As
in Royal Bead, the processing abroad results only in a change in
appearance of the shutters, but not in function, character, or
identity. What is sent abroad are wood interior window shutters,
marketable in the condition as exported, and what is returned are
the same articles, available to the same class of customers,
albeit enhanced in appearance, and priced accordingly. It is
noted that, both in Amity and in Royal Bead, the court relied
upon the fact, as in this case, that the exported article was
also sold in its condition as exported.
As a result of our determination, the wooden furniture parts
in HRL 555093 which are exported for staining, lacquering, and
packaging, and are also sold in an unfinished condition, are
considered completed articles of commerce at the time of
exportation. Accordingly, we now find that the stained and
lacquered furniture parts are entitled to the partial duty
exemption under subheading 9802.00.50, HTSUS upon importation.
HRL 555093 is modified accordingly.
HOLDING:
Interior wood shutters sent to Mexico for staining or
painting and also sold in an "unfinished" condition are eligible
for the partial duty exemption under subheading 9802.00.50,
HTSUS, upon return to the U.S. This assumes compliance with the
documentation requirements of section 10.8, Customs Regulations
(19 CFR 10.8). HRL 555093, dated April 26, 1989, is modified to
the extent that it disallowed Item 806.20, TSUS (precursor of
subheading 9802.00.50, HTSUS) treatment to wooden furniture parts
also sold in an "unfinished" condition and sent abroad for
staining and lacquering.
Sincerely,
John Durant, Director
Commercial Rulings Division