CLA-2 CO:R:C:S 556034 DSN
Mr. Charles Cooper
Manager, Tuftex Ind. & Malibu
Ave. Dr. Samuel Ocana
Y Calle De La Industria
Parque Industrial
San Luis R.C., Son., Mexico
RE: Applicability of 9802.00.50 to certain carpets from Mexico;
555443; 19 CFR 10.8; Burstrom; Dolliff; Guardian; 071475;
554736; 555241
Dear Mr. Cooper:
This is in response to your letter of April 23, 1991,
requesting a ruling on the applicability of subheading
9802.00.50, Harmonized Tariff Schedule of the United States
(HTSUS), to certain broadloom carpets imported from Mexico.
FACTS:
Tuftex Industries manufactures broadloom carpets
domestically from U.S.-origin yarn. During the manufacturing
process, certain errors may occur resulting in the finished
carpets being considered "off-quality/seconds". Rather than sell
the "seconds" at substantially reduced prices, they are restored
to their full value by a specific department of Tuftex located in
Mexico.
According to your submissions, rolls of broadloom carpet
(e.g., 12 by 400 feet) are sent to Mexico where the carpet is cut
to length and width per customers' orders and, if required, it is
beveled (carved and grooved). You state that customers request
"seconds" of the appropriate texture and color from inventory in
the Mexican facility. If "seconds" are not available in a
particular size or color, then first grade carpet is used. These
carpets are sent from the U.S. to Mexico for this specific
purpose.
Designs are created to obscure the defects and/or the carpet
defects are cut out depending on the customers' preference.
Textured color replacement pieces are re-inserted by glue,
followed by tape which is placed over the seams. If the carpet
is to be used as an area rug, additional backing is required for
stability and to hide the repairs, and binding tape is applied
around the edges to prevent unraveling.
ISSUE:
Whether the operations performed on the U.S. broadloom
carpets in Mexico will entitle the merchandise to the partial
duty exemption under subheading 9802.00.50, HTSUS, when returned
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
repairs or alterations. Such articles are dutiable only upon the
value of the foreign repairs or alterations when returned to the
U.S., provided the documentary requirements of section 10.8,
Customs Regulations (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 to create a new and different article.
Press Wireless, Inc. v. United States, 6 Cust. Ct. 102, C.D. 438
(1941); 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 held that where rolls of material length merchandise
are exported and cut to length and width as part of a finishing
operation to make the article suitable for its intended use, the
cutting operation exceeds the meaning of the term "repairs or
alterations" under subheading 9802.00.50, HTSUS. See
Headquarters Ruling Letter (HRL) 071475 of September 20, 1983;
HRL 554736 of February 16, 1988; and HRL 555241 of July 3, 1989.
We conclude that the operations performed in Mexico are necessary
finishing steps in the manufacture of carpeting which conforms to
each customer's specifications. When exported, the carpets are
in material lengths and, after being cut to length and width,
repaired, and, if required, beveled and bound, they are then
considered finished customized carpets. Under these
circumstances, we believe that the carpets would not be entitled
to subheading 9802.00.50, HTSUS, treatment.
HOLDING:
On the basis of the information presented, we find that the
operations performed on the carpet "seconds" in Mexico
constitute finishing operations, and therefore, the carpets
would be ineligible for the partial duty exemption under
subheading 9802.00.50, HTSUS.
Sincerely,
John Durant, Director
Commercial Rulings Division