CLA-2 CO:R:C:V 554883 GRV
District Director of Customs
Detroit, Michigan 48226-2568
RE: Application for Further Review of Protest No. 3801-7-000703,
protesting denial of TSUS item 806.20 treatment to variously
coated polypropylene film imported from Canada
Dear Sir:
The above-referenced protest contests your denial of the
partial duty exemption under item 806.20, Tariff Schedules of the
United States (TSUS), to polypropylene film coated abroad with
either an acrylic or saran material. Protestant submitted
samples of the subject merchandise in its untreated and treated
form for examination.
FACTS:
Protestant manufactures polypropylene film in the U.S. In
its untreated form, the film is a useable article of commerce,
which is marketed and sold in the U.S. as packaging material for
such uses as brick-wrapping of bulk products, transparent windows
in other packaging, dry laminations, box overwrapping, garment
packaging and various shrink-wrapping applications.
Protestant exported rolls of uncoated polypropylene film to
Canada where the film was coated with clear plastic (acrylic or
saran) material of U.S. origin. While both the acrylic and saran
improve the heat-sealability of the film, the acrylic coating
improves the machinability and optical qualities of the film and
serves as an aroma barrier, whereas the saran coating enhances
the moisture and oxygen barrier properties of the film. Once
abroad, the rolls of film are unwound and passed through a
machine as a web in which the coatings are applied. The first
stage involves the ionization of the film's surface with an
electrostatic device to prepare it for a primer coat which is
then deposited on the film. Acrylic or saran material is then
deposited on the film in liquid form, after which the film is
dried, re-rolled and returned to the U.S.
Counsel for protestant states that the foreign processing
operation increases the value of the film by 54% and that both
the coated and uncoated film are classifiable under TSUS item
771.4316. Counsel further claims that the end use of the product
remains basically the same, but admits that the coatings do
impart some new capabilities and uses to the exported film. In
support of his position that the coating process constitutes an
alteration, counsel relies heavily upon the reasoning set forth
in Headquarters Ruling Letter 067376 (April 9, 1982) and contends
that this ruling represents a change in Customs interpretation of
the term "alteration" by expanding the degree to which an article
may be changed.
On return to the U.S., the polypropylene film was denied the
partial duty exemption under TSUS item 806.20 by your office
based on the determination that the coating of the film added new
uses and properties. Although you note that the uncoated film
has many uses in the U.S., you believe that the "film would not
be useable as a wrapping for moisture and oxygen barrier, and
improved heat-sealability if it was not coated." Therefore, you
indicate that the coating process performed in Canada goes beyond
the contemplated scope of TSUS item 806.20.
ISSUE:
Whether the coating of the exported polypropylene film
constitutes an acceptable "alteration" within the meaning of TSUS
item 806.20, thereby qualifying the returned polypropylene film
for the partial duty exemption provided for under this tariff
provision.
LAW & 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 TSUS
item 806.20 (now subheadings 9802.00.40 and 9802.00.50, Harmo-
nized Tariff Schedule of the United States (HTSUS)), provided the
operations do not destroy the identity of the exported articles
or create new or different articles. Articles entitled to this
partial duty exemption are dutiable only upon the cost or value
of the foreign repairs or alterations, provided the documentary
requirements of section 10.8, Customs Regulations (19 CFR 10.8),
are satisfied.
In Dolliff & Company, Inc., v. United States, 66 CCPA 77,
C.A.D. 1225, 599 F.2d 1015, 1019 (1979), the court considered the
scope of the term "alterations," as used in TSUS item 806.20, and
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
the manufacture of finished articles. (Court's emphasis).
Moreover, in A.F. Burstrom v. United States, 44 CCPA 27,
C.A.D. 631 (1956) (a case decided under paragraph 1615(g), the
precursor tariff provision to TSUS item 806.20), the court
indicated that where the article imported differs in name, value,
appearance, size, shape, and use from the article exported, a
conversion of the exported article into a new article is
signaled.
In Amity Fabrics, Inc. v. United States, 43 Cust.Ct. 64,
C.D. 2104, 305 F.Supp. 4 (1959), unmarketable Pumpkin-colored
cotton twill-back velveteen was exported to be redyed a black
color. 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. 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. The court found that the identity of the beads was
not lost or destroyed in the coating process and no new article
was created. Moreover, there was no change in the beads' size,
shape, or manner of use in making articles of jewelry (plaintiff
testified that both uncoated and half-coated beads were used
interchangeably). Accordingly, the court concluded that the
application of the Aurora Borealis finish constituted an altera-
tion within the meaning of item 806.20 and 19 CFR 10.8.
Common to these judicial decisions is a consideration of
whether the use(s) of the returned article is the same as that of
the exported article. We believe that this consideration is
important in this case, for if it is determined that the foreign
coating operation produced such changes in the performance char-
acteristics of the exported article as to alter its subsequent
handling and uses over that which earlier prevailed, this would
indicate that the exported article was incomplete for its
intended purpose, and that the foreign processing created a new
and different article.
Comparing the physical properties of the uncoated and coated
polypropylene film samples submitted, we are of the opin- ion
that the foreign coating operation significantly altered the
performance characteristics of the exported plastic film. Be-
cause of the relatively high melting point of the uncoated
polypropylene, the film tends to pucker and shrink before it
reaches its sealing temperature or melting point (Plastic Films
and Packaging (1975), Oswin, C.R. (John Wiley & Sons, pp. 42-
43)). This would tend to eliminate the film's usage in many food
applications. Coating the film with polymers having a lower
melting point, i.e., saran or acrylic, lowers the seal tempera-
ture of the product considerably, allowing the product to be used
in applications where food must be sealed tightly within its
packaging.
Reviewing the barrier properties of saran, acrylic and
polypropylene (Encyclopedia of Chemical Technology, Kirk and
Othmer, Volume 3, pp. 488-491), we note that polypropylene is
comparatively porous to water vapor and gaseous materials. For
example, saran's oxygen permeation resistance is more than 1,000
times greater than polypropylene, its carbon dioxide resistance
is 1,700 times greater, and water vapor resistance is 2.5 times
greater. Acrylic's oxygen permeation resistance is 10 times
greater than polypropylene's and its carbon dioxide resistance is
1,000 times greater. In effect, the resistance of the coated
polypropylene film to air (gas) and water vapor helps retard
spoilage, preserve "freshness," prevent sogginess and prevent
drying out. All of these properties are essential to food
storage and are essentially absent in the uncoated polypropylene
films.
It is clear from an analysis of the samples submitted and
the information you have provided that the uncoated polypropylene
film is essentially used for non-food wrapping purposes, e.g.,
shrink-wrapping applications, while the coated film is primarily
intended for use as food wrapping. As the performance charac-
teristics and uses of the imported article differ substantially
from those of the exported article, it is our opinion that the
foreign coating operation resulted in the creation of a new and
different commercial article. Moreover, it is apparent that the
polypropylene film, in its condition as exported, was unsuitable
for its intended use as food wrapping.
Regarding counsel's argument that the exported and imported
product are classifiable under the same tariff provision, the
appellate court in both the Burstrom and Dolliff cases stated
that such common classification is irrelevant in determining
whether certain foreign processing operations comprise altera-
tions under TSUS item 806.20.
Headquarters Ruling Letter 067376, dated April 9, 1982,
which counsel contends is controlling in regard to the facts of
the instant case, held that the application in Canada of a
protective plastic coating to domestically-produced steel pipe
qualified as an alteration under TSUS item 806.20. Counsel
maintains that the coating process described in that ruling is
analogous to the coating process in this case. However, the
determination in ruling 067376 that the coating of the pipe
constituted an alteration was predicated on the finding that the
coated and uncoated pipes were used in identical applications.
As has been shown, such identical uses are not present here.
HOLDING:
On the basis of the record presented in this matter, it is
our opinion that the coating of the polypropylene film with
acrylic or saran material in Canada exceeds the meaning of the
term "alteration" under TSUS item 806.20. Accordingly, the
returned polypropylene film is not entitled to the partial duty
exemption under that tariff provision. You are directed to deny
the protest in full. Please provide a copy of this ruling to the
protestant.
Sincerely,
John Durant, Director
Commercial Rulings Division