CLA-2 CO:R:C:S 557327 WAW
William D. Outman, II, Esq.
Baker & McKenzie
815 Connecticut Avenue, N.W.
Washington, D.C. 20006-4078
RE: Applicability of the partial duty exemption available under
subheadings 9802.00.80 and 9802.00.50, HTSUS, to Levi jeans
and jackets; sewing; repair; alteration; press; label;
replacement of buttons, rivets
Dear Mr. Outman:
This is in reference to your letter dated May 6, 1993, on
behalf of International Garment Finishers Inc. ("IGF"), on the
applicability of the partial duty exemption available under
subheadings 9802.00.80 and 9802.00.50, Harmonized Tariff Schedule
of the United States (HTSUS), for Levi jeans and jackets from
Mexico, when returned to the U.S.
FACTS:
You state that IGF, a domestic corporation, is engaged in the
business of processing garments. IGF proposes to enter into a
contract with Levi Strauss & Co. ("Levi"). Under this proposed
contract, IGF will provide stone-washing or rinsing services on
jeans and jean jackets in the U.S. In addition, IGF will provide
final inspection, repair, pressing, labeling and packaging
services in Mexico.
The proposed steps involved in the production of the jeans
and jean jackets are as follows:
(1) U.S.-manufactured denim (i.e., fiber forward) will be cut
to pattern pieces in Levi's El Paso, Texas facility;
(2) The cut pieces will be assembled into completed articles,
namely jeans and jean jackets, by Levi's Mexican maquiladora
facility or a contract sewing operator in Mexico contracted by
Levi;
(3) The completed jeans and jackets will then be returned to
the U.S. and delivered to IGF for further processing.
(4) IGF will subject the garments to either: (a) a stone-washing operation, or (2) a rinsing operation. Both operations
involve chemically treating the garments to make them softer in
texture and "hand feel." The stone-washing also fades the color
of the garments;
(5) The garments are dried and returned to Mexico;
(6) In Mexico, all of the garments will be pressed and
labeled with four types of labels: (a) universal vendor marking
labels, (2) flasher tags (paper tags secured in the pocket), (3)
hand tags and (4) size stickers;
(7) All garments will be visually inspected for damage or
defects which may have occurred as a result of the U.S. stone-washing or rinsing operations or which were present from the
original assembly;
(8) The types of repair operations performed on the garments
in Mexico include the following: (a) restitching a broken or
skipped stitch; (b) replacing or restitching belt loops that have
become unraveled; (c) tucking under and restitching seams that
have become frayed; and (d) replacing rivets or buttons that may
have fallen off or become loose;
(9) Finally, all garments will be packaged for reimportation
into the U.S.
ISSUE:
(1) Whether the jeans and jean jackets will be entitled to
the partial duty exemption available under subheading 9802.00.80,
HTSUS, when returned to the U.S. after being assembled in Mexico.
(2) Whether the operations performed in Mexico when the
articles are returned to that country constitute acceptable
"repairs or alterations," so that they are entitled to the
partial duty exemption available under subheading 9802.00.50,
HTSUS, when imported into the U.S.
LAW AND ANALYSIS:
I. Applicability of subheading 9802.00.80. HTSUS
HTSUS subheading 9802.00.80 provides a partial duty exemption
for:
[a]rticles assembled abroad in whole or in part of
fabricated components, the product of the United States,
which (a) were exported in condition ready for assembly
without further fabrication, (b) have not lost their
physical identity in such articles by change in form, shape
or otherwise, and (c) have not been advanced in value or
improved in condition abroad except by being assembled and
except by operations incidental to the assembly process such
as cleaning, lubrication, and painting...
All three requirements of HTSUS subheading 9802.00.80 must be
satisfied before a component may receive a duty allowance. An
article entered under this tariff provision is subject to duty
upon the full value of the imported assembled article, less the
cost or value of such U.S. components, upon compliance with the
documentary requirements of section 10.24, Custom Regulations (19
CFR 10.24).
Section 10.14(a), Customs Regulations (19 CFR 10.14(a)),
states in part that:
[t]he components must be in condition ready for assembly
without further fabrication at the time of their exportation
from the United States to qualify for the exemption.
Components will not lose their entitlement to the exemption
by being subjected to operations incidental to the assembly
either before, during, or after their assembly with other
components.
Section 10.16(a), Customs Regulations (19 CFR 10.16(a)),
provides that the assembly operation performed abroad may consist
of any method used to join or fit together solid components, such
as welding, soldering, riveting, force fitting, gluing,
laminating, sewing, or the use of fasteners.
Operations incidental to the assembly process are not
considered further fabrication operations, as they are of a minor
nature and cannot always be provided for in advance of the
assembly operations. However, any significant process, operations
or treatment whose primary purpose is the fabrication,
completion, physical or chemical improvement of a component
precludes the application of the exemption under HTSUS subheading
9802.00.80 to that component. See 19 CFR 10.16(c).
At issue in this case is whether the operations performed in
Mexico such as sewing and packaging operations Constitute
acceptable assembly operations or operations incidental to the
assembly process under subheading 9802.00.80, HTSUS. The foreign
operations that entail sewing fabric onto itself using any type
of stitch, including a "close-out"/finishing or over-edge stitch
are considered acceptable assembly operations. See 19 CFR
10.16(a); L'Eggs Products v. United States, Slip Op. 89-5, 13 CIT
40, 704 F. Supp. 1127 (CIT 1989), which held that sewing together
the end of a pantyhose tube is considered an acceptable assembly
operation as the thread serves as a joining agent by joining the
tube to itself. Additionally, sewing two or more pieces of fabric
together, and sewing in care and marking labels are also
considered acceptable assembly operations pursuant to 19 CFR
10.16(a). Therefore, sewing the cut pattern pieces together in
Mexico to produce the jeans and jean jackets is an acceptable
assembly operation within the meaning of subheading 9802.00.80,
HTSUS.
II. Applicability of subheading 9802.00.50. HTSUS
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.
Repairs are operations aimed at restoring articles to their
original condition, but cannot be so extensive as to destroy the
identity of the exported article or create a new or different
article. Press Wireless. Inc. v. United States, 6 Cust. Ct. 102,
C.D. 438 (1941).
The replacement and/or addition of parts to restore products
to their original condition may constitute repair operations for
purposes of subheading 9802.00.50, HTSUS, if the particular
additions are not so extensive as to create a new or different
article. We have held in HRL 063221 dated July 31, 1979, that
defective wiring harnesses sent to Mexico for testing, replacing
faulty components, and labeling, before being returned to the
U.S., constituted an acceptable repair or alteration within the
meaning of item 806.20. In HRL 063221, the testing procedure was
described in terms of visual inspection plus checking for
electrical continuity and impedance with test machines. Defective
portions of the cable and one or more connectors were replaced by
means of crimping and soldering operations. The labeling
consisted of proper identification of the components by affixing
the proper tags, decals, part numbers, or plastic labels, to
identify the components. However, in 063221, we also found that
replacing the entire length of cable produced such a substantial
change as to create a new and different article of commerce, so
that the application of this tariff provision was precluded in
this circumstance. See also HRL 556992 dated May 7, 1993 (holding
that the replacement of a monochrome display on a computer with
an active-matrix color display is an alteration within the
meaning of subheading 9802.00.50, HTSUS). In the instant case, we
find that the replacement of rivets or buttons that may have
fallen off or become loose during the stone-washing or rinsing
operations which take place in the U.S., do not preclude the
application of subheading 9802.00.50, HTSUS.
These are operations which constitute genuine repairs and are not
so extensive as to result in a new and different article of
commerce which is commercially different from the article that
was exported, nor are these operations a necessary step in the
manufacture of the finished jeans and jean jackets.
With regard to the labeling operation you intend to conduct
in Mexico, we have held that marking or affixing a label to a
product constitutes an alteration. See T.D. 56320(1) dated
September 17, 1964 (electrical diodes exported to Mexico for
inspection, evaluation, and stamping of their electrical diode
characteristics were entitled to treatment under 806.00, TSUS
(now 9802.00.50, HTSUS); HRL 071159 dated March 2, 1983 (diodes
exported to Mexico for marking and packaging operations were
entitled to treatment under 806.20, TSUS, as the printing
operation had no more significance than a label for
identification purposes); HRL 554996 dated June 30, 1988
(sunglasses exported for inspection, temple adjustment and
retagging were entitled to the partial duty exemption in item
806.20, TSUS). Consistent with the above rulings, we are of the
opinion that the labeling of the jeans and jean jackets by means
of universal vendor marking labels, flasher tags, hang tags, and
size stickers are operations that constitute acceptable
"alterations" within the meaning of subheading 9802.00.50, HTSUS.
In addition, we have held that cutting off a dangling thread
and folding over the top serrated edge of a paper bag constitute
acceptable alterations within the meaning of subheading
9802.00.50, HTSUS, in HRL 555633 dated February 25, 1991 and
556865 dated October 30, 1992, respectively. In HRL 555633,
embroidered miniature rosebuds were sent from the U.S. to Mexico,
where they were inspected and in some instances a hanging thread
was removed prior to packaging. We held that cutting the thread
resulted in an advancement in value and improvement in condition,
so that the article was not precluded from the partial duty
exemption under this subheading. In HRL 556865, paper shopping
bags were sent from the U.S. to Mexico where the top serrated
edge of the bag was folded over about 3/4 of an inch into the
interior of the bag. We held that the shopping bag in this case
had not lost its identity as a result of the foreign processing,
nor had a new and different article emerged as a result of the
processing. Likewise, tucking under and restitching seams that
have become frayed, restitching a broken or skipped stitch and
replacing or restitching belt loops constitute acceptable
alterations within the meaning of subheading 9802.00.50, HTSUS.
The information submitted by counsel establishes that the
jeans and jean jackets in this case are suitable for their
intended use in their condition as exported, and, in fact, are so
used. Therefore, we are persuaded that the foreign processing
operations, i.e.. restitching a broken or skipped stitch,
replacing or restitching a belt loop, tucking under and
restitching seams that have become frayed, and replacing rivets
or buttons that may have fallen off or become loose, do not
constitute intermediate processing operations performed as a
matter of course in the preparation or the manufacture of a
finished pair of jeans or jean jackets. These operations
performed in Mexico in no way destroy the identity of the
exported article or create a new or different article of commerce
or significantly change the quality, texture or character of the
jeans or jean jackets. The jeans and jean jackets retain the
identical function as the article which is exported into Mexico.
Thus, we find that the operations performed in Mexico constitute
proper repairs or alterations within the meaning of subheading
9802.00.50, HTSUS.
HOLDING:
Based on the information provided, we are of the opinion that
sewing the cut pattern pieces together in Mexico to produce the
jeans and jean jackets is an acceptable assembly operation within
the meaning of subheading 9802.00.80, HTSUS. Therefore, the
imported jeans and jean jackets may be entered under subheading
9802.00.80, HTSUS, with allowances in duty for the cost or value
of the U.S.-origin components incorporated therein, upon
compliance with the documentary requirements of section 10.24,
Customs Regulations (19 CFR 10.24).
The operations performed in Mexico when the jeans and jean
jackets are returned to that country, consisting of pressing,
labeling, restitching broken or skipped stitches, replacing or
restitching belt loops, tucking under and restitching seams, and
replacing rivets and buttons, constitute repairs or alterations
within the meaning of subheading 9802.00.50, HTSUS. Therefore,
the jeans and jean jackets 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).
Sincerely,
John Durant, Director
Commercial Rulings Division