CLA-2 CO:R:C:S 556523 RAH
TARIFF NO. 9802.00.50
Mr. Alan Robson
General Manager
Central America and Caribbean
AE de Costa Rica, S.A.
Apartado 20-3006
Zona Franca Metropolitana del Barreal de Heredia
Costa Rica
RE: Applicability of duty exemption under subheading
9802.00.50, HTSUS, to U.S. thread dyed and finished
in Costa Rica
Dear Mr. Robson:
This is in response to your letters of February 17 and April
14, 1992, in which you request a ruling on the dutiability of
U.S. thread which is exported to Costa Rica for dyeing and
finishing and then imported into the United States.
FACTS:
AE de Costa Rica, S.A., is a subsidiary of a U.S. company
that manufactures sewing thread. The fiber used to produce the
thread is made in the United States. The thread is exported to
Costa Rica in disposable plastic centres where it is dyed (with
dye-stuffs made in the U.S.) to match fabric. After dyeing, the
yarn is wound onto a plastic cone to a length of 6000 yards and,
as it is winding, it passes over a surface which contains a
silicon/wax mixture (made in the U.S.) which gives the thread
"sewability." This lubricant keeps the needle cool as the thread
passes through it in sewing operations. You state that the
undyed and unlubricated yarn would not be of use as sewing thread
without these operations. The character of the thread is not
changed by these operations; the porosity, surface and texture
remain the same.
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Your customers in Costa Rica would like to source the
finished thread directly from AE de Costa Rica, S.A. In that
regard, you express concern that if the thread is "not of U.S.
origin" it will be subject to duty upon importation into the
United States.
Issue:
Whether U.S. thread exported to Costa Rica for dyeing and
finishing is eligible for a partial duty exemption under
subheading 9802.00.50, Harmonized Tariff Schedule of the United
States (HTSUS), upon importation into the United States.
LAW AND ANALYSIS:
Subheading 9802.00.50, HTSUS, provides a partial duty
exemption for articles returned to the United States after having
been exported to be advanced in value or improved in condition by
means of repairs or alterations. Such articles are dutiable only
upon the value of the foreign repairs or alterations, provided
the documentary requirements of section 10.8, Customs Regulations
(19 CFR 10.8), are satisfied. However, entitlement to this
tariff treatment is precluded in circumstances where the
operations performed abroad destroy the identity of the articles
or create new or commercially different articles. In A.F.
Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), See,
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 use prior to the foreign processing. Guardian; 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, 82, 599 F.2d
1015, 119 (1979).
In the Dolliff case, certain dacron polyester fabric goods
were exported and subjected to multiple processing operations
abroad, including dyeing. The finished fabric that was returned
to the U.S. was denied the partial duty exemption for alterations
abroad because it was determined that the dyeing and numerous
other processing steps were all necessarily undertaken to produce
the finished fabric.
In an earlier alterations case, C.J. Tower & Sons of
Niagara, Inc. v. United States, C.D. 2208, 45 Cust.Ct. 111
(1960), cotton drills were exported and subjected to multiple
operations, including dyeing and finishing. The cotton cloth
that was returned to the U.S. was similarly denied the partial
duty exemption for alterations abroad because it was determined
that the merchandise exported was changed in color, width,
length, porosity, in the distribution of the threads in the
weave, in weight, tensile strength, and suppleness by the foreign
processing. In holding that the foreign processing constituted
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more than an alteration, the court found that the returned
merchandise was a new and different article, having materially
different characteristics and a more limited and specialized use.
In Amity fabrics, Inc. v. United States, C.D. 2104, 43
Cust.Ct. 64, 305 F.Supp. 4 (1959), the court held that
unmarketable, pumpkin colored cotton twill-back velveteen which
was exported to be redyed rendered the fabric marketable and that
this improvement in the exported fabric advanced its value and
improved its condition commercially. As the parties had
stipulated that the redyeing in no way changed the quality,
texture, or character of the material, the court concluded 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; and that such change constituted an
alteration under the statute and Customs Regulations.
In the instant case, we find that dyeing thread to match
fabric is analogous to the dyeing of fabric in Amity in that the
thread is merely dyed a different color, and there is no change
in the porosity, surface, texture or character of the thread. As
illustrated in Amity, merely changing color does not destroy the
identity of the thread or create a new or commercially different
article. Additionally, we find that lubricating the thread
improves its condition as it keeps the needle cool when the
thread passes through it in sewing operations. Accordingly, we
find that the dying and finishing operations constitute an
alteration to the thread which entitles it to a partial duty
exemption under subheading 9802.00.50, HTSUS, upon importation
into the United States.
Finally, subheading 9801.00.10, HTSUS, provides for the free
entry of U.S.-made products that are exported and returned
without having been advanced in value or improved in condition by
any process of manufacture or other means while abroad. However,
the thread is not entitled to duty-free treatment under this
tariff provision because, as discussed above, it is advanced in
value or improved in condition in Costa Rica.
HOLDING:
U.S. thread exported to Costa Rica for dyeing and finishing
is eligible for a partial duty exemption under subheading
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9802.00.50, HTSUS, upon importation into the United States, as
those operations advance the thread in value and improve its
condition.
Sincerely,
John Durant, Director
Commercial Rulings Division