CLA-2 RR:TC:SM 560277 KBR
Patricia A. Johnson
Import Manager
C.H. Powell Company
6 Northway Ct. - Eastway Business Park
P.O. Box 270
Greer, SC 29652
RE: Yarn; 9801.00.10, HTSUS; 9802.00.50, HTSUS
Dear Ms. Johnson:
This is in response to your letter dated December 10, 1996,
to the U.S. Customs Service, New York, and subsequently forwarded
to this office, on behalf of Milliken & Co., concerning the
eligibility of yarn for duty-free treatment under subheading
9802.00.50, Harmonized Tariff Schedule of the United States
("HTSUS") and 9801.00.10, HTSUS.
FACTS:
You state that Milliken & Co. will purchase 100% polyester
yarn which was manufactured in the U.S. Milliken will then ship
the yarn to Spain where the yarn will be dyed to give the yarn a
"multicolored/space dye effect." Then the yarn will be imported
to the U.S. Although your letter referenced the possible
applicability of subheading 9801.00.80, HTSUS, to the returned
yarn, we assume that you meant to refer to subheading 9801.00.10,
HTSUS.
ISSUES:
1. Does the yarn qualify for duty-free treatment
pursuant to 9801.00.10, HTSUS?
2. Does the yarn qualify for a partial duty exemption
pursuant to 9802.00.50, HTSUS?
3. What are the country of origin marking requirements
applicable to the yarn?
LAW AND ANALYSIS:
9801.00.10
Subheading 9801.00.10, HTSUS, provides for the free entry of
products of the U.S. that have been exported and returned without
having been advanced in value or improved in condition by any
process of manufacture or other means while abroad, provided the
documentary requirements of section 10.1, Customs Regulations are
satisfied. While some change in the condition of the product
while it is abroad is permissible, operations which either
advance the value or improve the condition of the exported
product render it ineligible for duty-free entry upon return to
the U.S. Border Brokerage Company, Inc. v. United States, 314 F.
Supp. 788 (1970), appeal dismissed, 58 CCPA 165 (1970).
The pertinent documents required by 19 CFR 10.1, are a
declaration from the foreign shipper that the articles were
exported from the U.S. and that they are returned without having
been advanced in value or improved in condition, and a
declaration from the owner, importer, consignee, or agent that
the articles were manufactured in the U.S. and that the articles
were exported from the U.S. without benefit of drawback.
In this instance, the yarn is dyed, which is an advancement
in value and an improvement in condition. Therefore, the yarn
does not qualify for duty-free treatment under 9801.00.10, HTSUS.
9802.00.50, HTSUS
Subheading 9802.00.50, HTSUS, provides a partial or complete
duty exemption for articles exported from and returned to the
U.S. after having been advanced in value or improved in condition
by 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 exported articles or create new or
commercially different articles through a process of manufacture.
See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631
(1956), aff'g C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian
Industries Corporation v. United States, 3 CIT 9 (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. 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).
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).
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 under this tariff provision because it was
determined that the merchandise 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
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.
Thus, intermediate processing operations which are performed in
the preparation of finished articles do not come within the scope
of the term "alterations."
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). Customs has consistently held that the initial
dyeing of greige goods constitutes a finishing operation--a step
in the manufacture of finished textile goods--which exceeds the
meaning of the term "alteration" under this tariff provision. In
HQ 556617 (dated June 19, 1992), Customs held that U.S.-origin
greige fabric exported to Italy for dyeing, bleaching and
printing was not eligible for the partial duty exemption provided
by subheading 9802.00.50, HTSUS, as the operations undertaken in
Italy went beyond an "alteration" within the meaning of the term
under this tariff provision. See also, HQ 555478 (dated July 23,
1990), HQ 555535, (dated March 15, 1990), HQ 039311 (dated April
11, 1985) and HQ 071501 (dated November 2, 1983).
In the instant case, U.S. yarn which is uncolored is
exported to Spain where it is space-dyed. We find that this
dying of the yarn is analogous to the dyeing of the greige goods
as discussed above, and goes beyond the allowed repairs and
alterations. Further, you state that in the U.S. the yarn
undergoes a "special texturing process that facilitates
processing ... in Spain." This indicates that the yarn is
incomplete in its current condition, and that the yarn is being
processed in the U.S. specifically to prepare it for another
required operation. Therefore, we are of the opinion that the
dying of the yarn in Spain constitutes an intermediate processing
operation which is performed as a matter of course in the
preparation or the manufacture of the desired end product.
Accordingly, the U.S. yarn is an incomplete article when exported
from the U.S. to Spain and is ineligible for the partial duty
exemption under subheading 9802.00.50, HTSUS, upon its return to
the U.S.
Country of Origin
On December 8, 1994, the President signed into law the
Uruguay Round Agreements Act. Section 334 of that Act provides
new rules of origin for textiles and apparel entered, or
withdrawn from warehouse, for consumption, on and after July 1,
1996. On September 5, 1995, Customs published Treasury Decision
(T.D.) 95-69, establishing Section 102.21, Customs Regulations,
in the Federal Register, implementing Section 334 (60 FR 46188).
Thus, effective July 1, 1996, the country of origin of a
textile or apparel product is determined by sequential
application of the general rules set forth in paragraphs (c)(1)
through (5) of section 102.21.
Paragraph (c)(1) states that "The country of origin of a
textile or apparel product is the single country, territory, or
insular possession in which the good was wholly obtained or
produced." As the yarn is not wholly obtained or produced in a
single country, territory or insular possession, paragraph (c)(1)
of section 102.21 is inapplicable.
Paragraph (c)(2) states that "Where the country of origin of
a textile or apparel product cannot be determined under paragraph
(c)(1) of this section, the country of origin of the good is the
single country, territory, or insular possession in which each of
the foreign material incorporated in that good underwent an
applicable change in tariff classification, and/or met any other
requirement, specified for the good in paragraph (e) of this
section:".
We have determined that the proper classification of the
yarn is within subheading 5402.33.3000, Harmonized Tariff
Schedule of the United States (HTSUS). The applicable rule for
the change in tariff classification is found at 19 CFR
102.21(e), 5401-5406, which requires "A change to heading 5401
through 5406 from any other heading, provided that the change is
the result of an extrusion process." The extrusion process that
created the yarn occurred in the United States.
However, T.D. 95-69, which established 102.21(c)(3), did
not amend section 12.130(c)(1) which states the following:
Applicability to U.S. articles sent abroad.
Chapter 98, Subchapter II, Note 2, Harmonized
Tariff Schedule of the United States, 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 the purposes of the
Tariff Act of 1930, as amended. In order to
have a single definition of the term "product
of" and, therefore, a single country of origin
for a textile or textile product,
notwithstanding paragraph (b), merchandise
which falls within the purview of Chapter 98,
Subchapter II, Note 2, Harmonized Tariff
Schedule of the United States, may not, upon
its return to the U.S., be considered a product
of the U.S.
Pursuant to T.D. 90-17, published in the Federal Register on
March 1, 1990 (55 FR 7303), Customs extended the principles of
country of origin for textiles and textile products contained in
19 CFR 12.130 to such merchandise for all Customs purposes,
including duty and marking. The dying operation performed on the
yarn in Spain constitutes an advancement in value or improvement
in condition. Therefore, the country of origin of the yarn is
Spain, for quota, marking, and duty purposes pursuant to T.D.
90-17 and section 12.130(c).
Please be advised that Customs may propose to modify T.D.
90-17 to provide that section 12.130(c) would not apply for
Customs marking purposes.
HOLDING:
The yarn does not qualify for full or partial duty-free
treatment pursuant to subheading 9802.00.50, HTSUS, or subheading
9801.00.10, HTSUS. The country of origin of the yarn is Spain
pursuant to T.D. 90-17 and 19 CFR 12.130(c).
A copy of this ruling letter should be attached to the entry
documents filed at the time this merchandise is entered. If the
documents have been filed without a copy, this ruling should be
brought to the attention of the Customs officer handling the
transaction.
The designated textile and apparel category may be
subdivided into parts. If so, visa and quota requirements
applicable to the subject merchandise may be affected. Since
part categories are the result of international bilateral
agreements which are subject to frequent renegotiations and
changes, to obtain the most current information available, we
suggest you check, close to the time of shipment, the Status
Report on Current Import Quotas (Restraint Levels), an internal
issuance of the U.S. Customs Service which is updated weekly and
is available for inspection at the local Customs office.
Due to the changeable nature of the statistical annotation
(the ninth and tenth digits of the classification) and the
restraint (quota/visa) categories, you should contact the local
Customs office prior to importation of this merchandise to
determine the current status of any import restraints or
requirements.
The holding set forth above applies only to the specific
factual situation and merchandise identified in the ruling
request. This position is clearly set forth in Section
177.9(b)(1), Customs Regulations (19 CFR 177.9(b)(1)). This
section states that a ruling letter is issued on the assumption
that all of the information furnished in the ruling letter,
either directly, by reference, or by implication, is accurate and
complete in every material respect.
Should it be subsequently determined that the information
furnished is not complete and does not comply with 19 CFR
177.9(b)(1), the ruling will be subject to modification or
revocation. In the event there is a change in the facts
previously furnished this may affect the determination of country
of origin. Accordingly, it is recommended that a new ruling
request be submitted in accordance with Section 177.2, Customs
Regulations (19 CFR 177.2).
Sincerely,
John Durant, Director
Tariff Classification Appeals
Division