CLA-2 RR:TC:SM 560325 KKV
Port Director
U.S. Customs Service
477 Michigan Avenue,
Suite 200
Detroit, MI 48226
RE: Application for Further Review of Protest No.
3801-96-10246, concerning denial of partial duty
exemption to white wine glass stemware
silkscreened abroad and returned to the U.S.;
subheading 9802.00.50, HTSUS; Royal Bead Novelty
Co. v. United States; HRL 557161; stemware sold in
undecorated state; article complete for intended
use upon exportation
Dear Sir or Madam:
The above-referenced protest, timely filed on behalf of
Libbey Glass, Inc., concerns the eligibility of decorated
U.S.-origin white wine glass stemware for duty-free
treatment under subheading 9802.00.50, Harmonized Tariff
Schedule of the United States (HTSUS). Protestant contends
that the article at issue is eligible for a partial duty
exemption as an article returned to the U.S. after having
been exported for repairs or alterations.
FACTS:
We are informed that Libbey Glass, Inc., manufactures
white wine stemware in the United States. As part of the
manufacturing process, the stemware is annealed to remove
the stresses created in the forming process of the
glassware. The annealing process is performed when the
glassware is originally formed. The glassware enter the
forming annealing lehr at approximately 1000ø Fahrenheit.
The temperature is raised to 1050ø Fahrenheit, then slowly
cooled to room temperature. We are told that, upon
completion
of this process, the stemware is a finished article and is
offered for sale by Libbey Glass,
Inc. in its food service catalog and sold to customers,
including restaurant chains, in its undecorated state.
The glassware subject to this protest was exported to
Canada where it was further processed by decoration with a
pictorial winter scene. The decorative process involves the
application of hot enamels to stemware by a silkscreen
process. The undecorated stemware enters the decorating
lehr at room temperature. It is heated to 1100ø Fahrenheit
to fire the ceramic enamel and slowly cooled to room
temperature. We are informed that the annealing performed
as part of the decorative process does not change the
physical properties of the glassware and that the resistance
to thermal shock and mechanical impact of the articles are
unchanged as a result of the second annealing. The breaking
pattern of the glass remains the same after the decoration
process. The second annealing does not add or reduce
stress, but serves only to bond the enamel decoration to the
glassware.
On April 2, 1996, Customs issued a Notice of Action
which classified the merchandise under subheading
CA7013.29.2000, HTSUS, and assessed a rate of 9 percent of
the invoice value for imports from Canada.
ISSUE:
Whether U.S. glass stemware, exported to Canada
for decorative silk-screening, is entitled to a
partial duty exemption under subheading
9802.00.50, HTSUS, upon its return to the U.S.
LAW AND ANALYSIS:
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 means of a repair or alteration and duty is
assessed only on the cost or value of the repair or
alteration abroad, provided that the documentary
requirements of section 181.64(c), Customs Regulations (19
CFR 181.64(c)), are met. 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 Corp. v. United States, 3 CIT 9 (1982),
Slip Op. 82-4 (January 5, 1982). The partial duty exemption
provided by subheading 9802.00.50, HTSUS, is also precluded
where the exported articles are incomplete for their
intended use and 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. 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, 1019 (1979).
Section 181.64(a) defines "repairs or alterations" for
purposes of the North American Free Trade Agreement (NAFTA)
as follows:
For purposes of this section, "repairs or
alterations" means restoration, addition,
renovation, redyeing, cleaning,
resterilizing, or other treatment which
does not destroy the essential
characteristics of, or create a new or
commercially
different good from, the good exported
from the United States.
In Dolliff & Company, Inc. v. U.S., supra, the court
found that the processing steps performed on exported greige
goods were undertaken to produce the finished fabric and
could not be considered as alterations. At issue in Dolliff
was the question of whether certain Dacron polyester
fabrics, which were manufactured in the U.S., and exported
to Canada for heat-setting, chemical-scouring, dyeing, and
treating with chemicals were eligible for the partial duty
exemption available under item 806.20, Tariff Schedules of
the United States (TSUS) (the precursor to HTSUS subheading
9802.00.50), when returned to the U.S. Specifically, the
U.S. Court of Customs and Patent Appeals stated that:
. . . repairs and alterations are made to
completed articles and do not include
intermediate processing operations which
are performed as a matter of course in
the preparation or manufacture of
finished articles. In the instant
situation, the operations performed in
Canada comprise further processing steps
which are performed on unfinished goods
and which lead to completed articles,
i.e., the finished fabrics, and,
therefore, the processing cannot be
considered alterations.
Congress did not intend to permit uncompleted articles
to be exported and made into finished products in the
foreign country and when returned to be subject to duties
only on the cost of the so-called alterations. U.S. v. J.D.
Richardson Company, 36 CCPA 15, C.A.D. 390 (1948), cert.
denied, 336 U.S. 936 (1949). Therefore, the focus is upon
whether the exported article is "incomplete" or "unsuitable
for its intended use" prior to the foreign processing.
Guardian Industries Corp. v. United States, 3 CIT 9 (1982).
In Amity Fabrics, Inc. v. United States, 43 Cust.Ct.
64, C.D. 2104, 305 F.Supp. 4 (1959), unfashionable "pumpkin"
colored cotton twill-back velveteen was exported to be
redyed a black color, which was more marketable. The court
found that the merchandise was advanced in value and
improved in condition commercially by the dyeing operation
and that such change constituted an alteration under
paragraph 1615(g) of the Tariff Act of 1930 (the precursor
to item 806.20, TSUS, which is, in turn, the precursor of
subheading 9802.00.50, HTSUS). The court further found that
"the identity of the goods was not lost or destroyed by the
dying 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, 68 Cust.Ct.
154, C.D. 4353, 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. Although both the coated
and uncoated beads were used interchangeably in making
costume jewelry, the "rainbow" finish of the coated beads
was currently in fashion while there was a lack of demand
for the uncoated beads. In relying of the rationale in
Amity Fabrics, supra, the court stated:
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 concluded that the application of the
Aurora Borealis finish constituted an alteration within the
meaning of item 806.20, TSUS and 19 CFR 10.8.
In Headquarters Ruling Letter (HRL) 557161, dated June
28, 1993, Customs considered interior wood shutters exported
for staining, lacquering and packaging. Customs found that
the use of the shutters - to provide privacy, light and
ventilation -
was unchanged regardless of whether the articles were
painted or unpainted. Noting that the shutters were sold
both in their painted and unpainted condition, Customs
determined that the articles were complete for their
intended use upon exportation and, using the analysis set
forth in Amity Fabrics, supra, and Royal Bead, supra, held
that the stained and lacquered shutters were entitled to the
partial duty exemption provided by subheading 9802.00.50,
HTSUS.
Although Customs published a notice in the Customs
Bulletin, Volume 29, Number 36, on September 6, 1995,
proposing to modify HRL 557161, supra, to reflect that the
painting and staining abroad of unpainted interior shutters
would not be considered to be alterations under subheading
9802.00.50, HTSUS, this proposed action was withdrawn in a
notice published in the Customs Bulletin, Volume 31, Number
51, on December 17, 1997. Accordingly, it remains Customs
position that the painting or staining abroad of exported
wooden interior shutters is not a necessary step in the
production of the shutters and in such an instance, these
operations qualify as alterations for purposes of the
partial duty exemption under subheading 9802.00.50, HTSUS.
In the instant case, undecorated U.S.-origin glass
stemware is exported to Canada where it undergoes decorating
operations consisting of the application of hot ceramic
enamel images to the stemware surface by a silk screen and
heating sufficient to fire the ceramic enamel image.
Initially, we note that the use of the stemware, as a
drinking vessel without handles, is unchanged whether the
stemware is decorated or undecorated. Thus, the articles
are complete for their intended use when exported to Canada.
As in Royal Bead, supra, the processing abroad results only
in a change to the appearance of the stemware, and does not
alter the function, character or identity of the exported
articles. The merchandise sent is finished white wine
stemware, marketable in the condition exported, and what is
returned is the same merchandise, available to the same
class of customers, albeit enhanced in appearance by a
decorative winter scene. Therefore, it is our determination
that the decorative silkscreening operation performed on the
finished white wine stemware in Canada constitutes an
"alteration" within the meaning of subheading 9802.00.50,
HTSUS. Therefore, the decorated, U.S.-origin white wine
glass stemware is eligible for the partial duty exemption
provided by subheading 9802.00.50, HTSUS.
HOLDING:
On the basis of the information provided, we find that
the decorative silkscreening operation performed in Canada
to the white wine glass stemware as described above
constitutes a qualifying alteration. Thus, the returned
stemware is entitled to the partial duty exemption under
subheading 9802.00.50, HTSUS. Accordingly, the protest
should be granted in full.
In accordance with Section 3A(11)(b) of Customs
Directive 099-3550-065, dated August 4, 1993, Subject:
Revised Protest Directive, this decision should be mailed by
your office to the protestant no later than 60 days from the
date of this letter. Any reliquidation of the entry in
accordance with the decision must be accomplished prior to
mailing of the decision. Sixty days from the date of the
decision the Office of Regulations and Rulings will take
steps to make the decision available to customs
personnel via the Customs Rulings Module in ACS and the
public via the Diskette Subscription Service, Freedom of
Information Act and other public access channels.
Sincerely,
John Durant, Director
Commercial Rulings Division