CLA-2 CO:R:C:S 555782 KCC
Ms. Anne M. Williams
A. N. Deringer, Inc.
30 West Service Road
Champlain, New York 12919-9703
RE: Tariff treatment and country of origin requirements of
fabric cut to length and width in Canada. Alteration;
554736; 074389/808702; 555055; 071100; 058960; 19 CFR
12.130(c); advanced in value; improved in condition; Canada
Dear Ms. Williams:
This is in response to your letter dated July 13, 1990, on
behalf of Lenrod Industries Ltd., requesting a ruling on the
applicability of subheading 9802.00.50, Harmonized Tariff
Schedule of the United States (HTSUS), to, and the country of
origin of, fabric cut to length and width in Canada. We regret
the delay in responding.
FACTS:
Lenrod intends to ship U.S.-manufactured fabric in rolls to
Canada. In Canada, the foreign operations consist of:
1) cutting fabric 36 inches in width by 2000 meters in
length to shorter lengths (500 meter length rolls) and
re-rolling the fabric; or
2) cutting fabric 100 inches in width by 2000 meters in
length to length and width (50 inches wide by 500
meters long) and re-rolling the fabric.
Upon completion of the foreign operations, the fabric will
be imported into the U.S. In the U.S., the fabric rolls will be
utilized in the production of products such as furniture and
bedding.
ISSUE:
I. Whether the fabric is eligible for the partial duty
exemption available under subheading 9802.00.50, HTSUS, when
imported into the U.S.
II. Whether the operations performed in Canada affect the
country of origin of the fabric.
LAW AND ANALYSIS:
I. Applicability of subheading 9802.00.50, HTSUS
Subheading 9802.00.50, HTSUS, provides for the assessment of
duty on the value of repairs or alterations performed on articles
returned to the U.S. after having been exported 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); and
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. 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 (1979).
We have previously ruled that, under certain circumstances,
cutting material to length can be considered an alteration within
the meaning of subheading 9802.00.50, HTSUS. 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. The conversion from material lengths
to finished products exceeds the meaning of the term
"alterations" under this tariff provision. See, Headquarters
Ruling Letter (HRL) 554736 dated February 16, 1988 (cutting rolls
of facial tissue paper into individual sheets is a finishing
operation producing the article suitable for its intended use and
is not an alteration).
However, the cutting of merchandise from a long material
length to a shorter material length without manufacturing a
finished good does fall within the meaning of "alterations" in
subheading 9802.00.50, HTSUS. See, HRL 074389/808702 dated July
25, 1984 (the foreign operations of cutting yarn from long
material lengths into shorter material lengths and then packaging
for retail sale are considered alterations); and HRL 555055 dated
April 26, 1989 (cutting large paper rolls to smaller lengths does
not create a new or commercially different article, only a
shorter version of the same product. However, slitting the rolls
to various widths and/or lengths which constitutes a necessary
step in finishing the product for a particular use and completes
the manufacturing process of the merchandise is not an
alteration).
Previous rulings concerning the slitting of material to
smaller widths have held that this operation exceeds an
alteration under this tariff provision. See, HRL 071100 dated
December 29, 1982 (slitting a one-inch wide roll of tape to 1/16
or 1/8 of an inch width to create tape used in rear window
defogger kits is not an alteration); HRL 058960 dated April 25,
1979 (cutting 38 inch width rolls of paper into 8, 10 and 20 inch
width rolls creates a new and different article and constitutes a
finishing step in the manufacture process); HRL 555241 dated July
3, 1989 (cutting labels to length and width constitutes a
finishing step in the manufacture of the completed product); and
HRL 555055 dated April 26, 1989. In each of these cases, the
cutting of the material to smaller widths resulted in a new or
different article suitable for its intended use.
In regard to the facts of this case, we are of the opinion
that cutting the rolls of fabric into shorter material lengths is
considered an acceptable alteration within the meaning of this
tariff provision. We are also of the opinion that cutting the
fabric to shorter lengths and smaller widths will constitute an
alteration within the meaning of subheading 9802.00.50, HTSUS.
The foreign cutting operations produce shorter length bolts
of fabric or shorter length and smaller width bolts of the same
fabric which will be imported into the U.S. for use primarily in
the furniture and bedding industries. Under the circumstances of
this case, cutting the fabric into smaller material widths is no
different than cutting the fabric into shorter material lengths.
Cutting the fabric to length and width essentially converts the
fabric from a large material bolt into a smaller material bolt
and does not result in a finished good. When received by a
furniture or bedding manufacturer, the fabric must still be cut
to smaller sizes to render it suitable for its intended use.
Moreover, the cutting operations do not destroy the identity of
the fabric nor do they create a new or commercially different
article. Therefore, the U.S. fabric cut into a shorter material
length, as well as the fabric cut into a shorter material length
and a smaller material width will be entitled to the partial duty
exemption available under subheading 9802.00.50, HTSUS.
II. Country of Origin
Section 12.130, Customs Regulations (19 CFR 12.130),
provides country of origin requirements for textiles and textile
products. According to 19 CFR 12.130(c):
Chapter 98, Subchapter II, Note 2, HTSUS, provides that
any product of the U.S. which is returned after having
been advanced in value or improved in condition abroad,
or assembled abroad, shall be a foreign article for
purposes of the Tariff Act of 1930, as amended ...
merchandise which falls within the purview of Note 2
may not, upon its return to the U.S. be considered a
product of the U.S.
In the present case, the U.S. manufactured fabric will be
advanced in value and improved in condition by the Canadian
cutting operations as discussed above. The U.S. fabric exported
to Canada is in bulk form (36 inches by 2000 meters and 100
inches by 2000 meters). In Canada, the fabric is cut to shorter
lengths and, in some cases, to smaller widths to produce smaller
rolls of fabric (36 inches by 500 meters and 50 inches by 500
meters) which are sold primarily in the furniture and bedding
industries. The Canadian operations produce salable fabric,
thereby advancing it in value and improving it in condition.
Therefore, the country of origin of the imported fabric is
Canada.
HOLDING:
On the basis of the information submitted, it is our opinion
that the operations performed abroad are considered alterations.
Therefore, the imported fabric may be entered under subheading
9802.00.50, HTSUS, with duty only on the cost or value of the
foreign cutting operations, upon compliance with the documentary
requirements of section 10.8, Customs Regulations (19 CFR 10.8).
The cutting operation performed abroad on the U.S.
manufactured fabric advances it in value and improves it in
condition. Therefore, upon reimportation, the fabric is
considered a product of Canada pursuant to 19 CFR 12.130(c).
Sincerely,
John Durant, Director
Commercial Rulings Division