CLA-2 CO:R:C:S 558912 MLR
Ms. Ann Williams
A.N. Deringer, Inc.
173 W. Service Road
Champlain, NY 12919
RE: Applicability of HTSUS subheadings 9801.00.10 and 9802.00.50
to steel tubing; cut to length; country of origin marking;
Canada; 19 CFR Part 102
Dear Ms. Williams:
This is in response to your letter of October 11, 1994, to
U.S. Customs, Champlain, New York, requesting a ruling regarding
the applicability of subheadings 9801.00.10 and 9802.00.50,
Harmonized Tariff Schedule of the United States (HTSUS), to steel
tubing.
FACTS:
You state that several Canadian steel service centers
purchase steel tubing from various suppliers, including U.S.
manufacturers. Upon receiving orders from U.S. customers, the
tubing of U.S. origin is cut to the ordered lengths and shipped
to the U.S.
ISSUES:
I. Whether the U.S.-origin cut steel tubing is eligible for
subheading 9801.00.10, HTSUS, treatment when returned to the
U.S.
II. Whether the Canadian cutting operation qualifies as an
alteration, thereby allowing the cut steel tubing to be
eligible for the partial duty exemption under subheading
9802.00.50, HTSUS, when returned to the U.S.
III. Whether the steel tubing must be marked with its country of
origin.
LAW AND ANALYSIS:
I. Subheading 9801.00.10, HTSUS
Subheading 9801.00.10, HTSUS, provides for the free entry of
products of the U.S. that have been exported and returned without
having been advanced in value or improved in condition by any
process of manufacture or other means while abroad, provided the
documentary requirements of section 10.1, Customs Regulations (19
CFR 10.1), are met. See 59 Fed. Reg. 25563 (May 17, 1994), for
recent amendments to 19 CFR 10.1 (copy enclosed). While some
change in the condition of the product while it is abroad is
permissible, operations which either advance the value or improve
the condition of the exported product render it ineligible for
duty-free entry upon return to the U.S. Border Brokerage
Company, Inc. v. United States, 314 F. Supp. 788 (1970), appeal
dismissed, 58 CCPA 165 (1970).
Customs has previously stated that cutting exported
merchandise to length generally advances its value or improves
its condition. See Headquarters Ruling Letter (HRL)555174 dated
April 25, 1989 (decorative banners cut to shorter lengths for
retail sale were more marketable than rolls of banners in
140-foot lengths; consequently, this change in the banners'
marketability constituted an improvement in the merchandise's
condition, thereby precluding the duty exemption available under
HTSUS subheading 9801.00.10); and HRL 554179 dated September 10,
1986 (ribbon exported to Mexico to be cut to length, rewound onto
spools and wrapped in plastic packaging was not eligible for item
800.00, Tariff Schedules of the United States (TSUS) (now
9801.00.10, HTSUS), treatment as the cutting to shorter lengths
improved the condition of the ribbon by making it ready for sale
upon return to the U.S.
Similarly, in this case, we find that cutting the steel
tubing to length improves its condition. Therefore, it will not
qualify for subheading 9801.00.10, HTSUS, treatment when it is
returned to the U.S.
II. Subheading 9802.00.50, HTSUS
Subheading 9802.00.50, HTSUS, provides a partial duty
exemption for articles returned to the U.S. after having been
exported to be advanced in value or improved in condition by
repairs or alterations. Such articles returned from Canada are
dutiable only upon the cost or value of the foreign repairs or
alterations, provided the documentary requirements of section
181.64, Customs Regulations (19 CFR 181.64) are satisfied.
However, entitlement to this tariff treatment is precluded in
circumstances where the operations performed abroad destroy the
identity of the exported articles or create new or commercially
different articles. See A.F. Burstrom v. United States, 44 CCPA
27, C.A.D. 631 (1956), aff'g C.D. 1752, 36 Cust. Ct. 46 (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 purpose prior to the foreign processing and the foreign
processing operation is a necessary step in the preparation or
manufacture of finished articles. Guardian; Dolliff & Company,
Inc. v. United States, 455 F. Supp. 618 (CIT 1978), aff'd, 599
F.2d 1015 (Fed. Cir. 1979).
We have previously ruled that, under certain circumstances,
the cutting of merchandise from a long material length to a
shorter material length without manufacturing a finished good can
be considered an alteration within the meaning of subheading
9802.00.50, HTSUS. In HRL 555534 dated September 24, 1985,
Customs reconsidered the cutting of reinforcing steel bars
(rebars). Originally, it was determined that rebars exported in
material lengths in order to produce finished cut-to-size
lengths, ready for whatever further use was contemplated for such
cut lengths, were not eligible for item 806.20, Tariff Schedules
of the United States (TSUS) (now subheading 9802.00.50, HTSUS),
treatment. Upon reconsideration, it was determined that, after
cutting 20 and 40 foot standard lengths from rebars ranging in
length from 50 to 300 feet, end rebars of various, non-standard
lengths, referred to as "random lengths," were left over.
Although some of the random lengths were sold directly to U.S.
customers from the manufacturing plant, others were exported to
Mexico and cut to shorter lengths, ranging from one to 14 feet.
It was held that this cutting-to-length operation constituted an
"alteration" of the rebars within the meaning of item 806.20,
TSUS. See also HRL 555411 dated August 11, 1989 (cutting
exported wire into shorter lengths and winding it onto spools or
tying it into coils constituted an alteration under subheading
9802.00.50, HTSUS; and HRL 555782 dated April 22, 1991,
(U.S.-manufactured fabric shipped to Canada in rolls, where it
was cut into shorter lengths and re-rolled constituted an
acceptable alteration).
However, in situations where rolls of material-length
merchandise are exported, and finished goods are returned merely
by cutting to length, this cutting constitutes a finishing step
in the manufacture of the goods, and exceeds the meaning of the
term "alterations." See HRL 555174 dated April 25, 1989
(decorative banners, bearing repetitive holiday greetings, cut at
a right angle, were incomplete products as they were unsuitable
for their intended use in the continuous lengths in which they
were exported); HRL 555343 dated May 30, 1989 (jumbo rolls of
multistrike coated film 34 inches in width and 20,000 feet long
slit into ribbon material for use in plastic cartridges for data
processing machines constituted an intermediate step in the
manufacture of the computer tape which is essential to render it
suitable for its intended use); and HRL 555766 dated April 2,
1991 (fabric coated with acrylic and cut into 3 1/2 inch strips
for vertical blinds was not complete for its intended use but
required cutting for use as vertical blinds).
Based upon the cases cited above, it appears that the main
distinction between acceptable and unacceptable alterations when
articles are cut-to-length is whether the cutting process is a
necessary step in the production or preparation of an article for
its particular purpose. For example, in HRL 555782, the fabric
cut into shorter lengths and re-rolled remained fabric, whereas
in HRL 555766 the cut fabric became vertical blind strips. In
this case, the steel tubing is cut into shorter lengths as needed
by a particular customer. It is our opinion that this is more
analogous to the cases involving cutting rope, fabric, or rebars
to shorter lengths. The steel tubing remains steel tubing; it is
only cut to shorter lengths. Consequently, it is our opinion
that the cutting operation performed in Canada constitutes an
acceptable alteration within the meaning of subheading
9802.00.50, HTSUS.
III. Country of Origin Marking
In regard to country of origin marking, since the good at
issue is subjected to processing in the territories of NAFTA
parties, it will be subject to the country of origin marking
rules set out in the interim amendments to the Customs
Regulations (19 CFR Part 102). The interim amendments to the
Customs Regulations were published as T.D. 94-4 (59 Fed. Reg.
109, January 3, 1994) with corrections (59 Fed. Reg. 5082,
February 3, 1994) and T.D. 94-1 (59 Fed. Reg. 69460, December 30,
1993). These interim amendments took effect on January 1, 1994,
to coincide with the effective date of the NAFTA.
Section 102.11(a) of the Interim Rules provides that the
country of origin of a good is the country in which:
(1) the good is wholly obtained or produced;
(2) the good is produced exclusively from domestic
materials; or
(3) each foreign material incorporated in that good
undergoes an applicable change in tariff classification set
out in section 102.20, and satisfies any other applicable
requirements of that section, and all other applicable
requirements of these rules are satisfied.
Section 134.32(r), Customs Regulations {19 CFR 134.32(r)},
provides an exception from marking for articles determined to be
of U.S. origin under part 102 prior to exportation from the U.S.,
when such articles are exported for repairs or alterations and
returned. Accordingly, if the tubing exported to Canada is a
product of the U.S. under the NAFTA marking rules, the steel
tubing returned to the U.S. will not be required to be marked,
pursuant to 19 CFR 134.32(r), because they are merely exported to
Canada for alterations.
HOLDING:
On the basis of the information submitted, the steel tubing
is not eligible for duty-free treatment under subheading
9801.00.10, HTSUS, because the cutting operation improves its
condition. However, since the steel tubing is only cut to
shorter lengths, it is our opinion that this constitutes an
acceptable alteration within the meaning of subheading
9802.00.50, HTSUS. Accordingly, if the tubing exported to Canada
is a product of the U.S. under the NAFTA marking rules, the steel
tubing returned to the U.S. will not be required to be marked,
pursuant to 19 CFR 134.32(r), because they are merely exported to
Canada for alterations.
A copy of this ruling letter should be attached to the entry
documents filed at the time the goods are entered. If the
documents have been filed without a copy, this ruling should be
brought to the attention of the Customs officer handling the
transaction.
Sincerely,
John Durant, Director
Commercial Rulings Division