CLA-2-48:OT:RR:NC:4:234
Mr. Fernando Siman
Lucca Towel and Tissue LLC
4050 SW 145th Terrace
Miramar, FL 33027
RE: The applicability of subheadings 9802.00.50 or 9802.00.80 to paper products returned from Mexico
Dear Mr. Siman:
In your letter, dated December 5, 2016, you requested a classification ruling. The ruling was returned to you for additional information, which was received by this office on February 1, 2017. The ruling was requested on toilet paper and paper towels used in the janitorial industry. Specifically you requested a ruling on whether paper stock exported from the United States to undergo operations in Mexico before re-importation into the United States qualifies for treatment under special subheadings 9802.00.50 or 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS). You further inquired, should the two proposed provisions be inapplicable, whether any other chapter 98 provision would apply. Descriptive literature was submitted for our review.
You presented three scenarios of proposed operations to be performed in Mexico, as summarized here:
Scenario 1: A “parent roll” of tissue measuring 102” wide by 1,000’ long will be exported to Mexico. In Mexico the roll will undergo slitting, which involves cutting the parent roll lengthwise into narrower width strips and rewinding into smaller rolls on cardboard tubes, the finished product being multiple two-ply rolls of tissue measuring 3.5” wide and 1,000’ long. This represents its final, commercially usable state.
Scenario 2: A parent roll of 48” wide paper towel stock is exported to Mexico where it will be slit to reduce by width, cut to length into sheets, and folded to create the finished “kraft multifold towels,” packaged in sleeves of 250 sheeted interfolded towels, ready for their intended use.
Scenario 3: A parent roll of bleached hardwound paper towel stock measuring 97” wide by 800’ long will be exported to Mexico where it will undergo slitting and rewinding into smaller rolls on cardboard tubes. The finished rolls of paper towels will measure 7.9” wide and 800’ long, in a condition ready for their intended use.
First we will consider applicability of subheading 9802.00.50, HTSUS.
Subheading 9802.00.50, HTSUS, provides for a partial or complete duty exemption for, “Articles returned to the United States after having been exported to be advanced in value or improved in condition by any process of manufacture or other means: Articles exported for repairs or alterations.”
Section 181.64(a), Customs and Border Protection (CBP) Regulations, (19 CFR 181.64(a)), defines the term “repairs or alterations” as it applies to goods returning from Canada or Mexico under subheading 9802.00.50, HTSUS:
“‘Repairs or alterations’ means restoration, addition, renovation, redyeing, cleaning, resterilizing, or other treatment which does not destroy the essential characteristics of, or create a new and commercially different good from, the good exported from the United States.”
19 CFR 181.64(b) provides additional parameters for applicability:
“The duty-free or reduced-duty treatment referred to in paragraph (a) of this section shall not apply to goods which, in their condition as exported from the United States to Canada or Mexico, are incomplete for their intended use and for which the processing operation performed in Canada or Mexico constitutes an operation that is performed as a matter of course in the preparation or manufacture of finished goods.”
Court cases considering the applicability of subheading 9802.00.50, HTSUS, have held that this tariff provision is inapplicable where: (1) 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; or (2) the operations performed abroad destroy the identity of the exported articles or create new or commercially different articles through a process of manufacture.
To determine applicability of the instant merchandise we must consider whether the industrial-sized parent rolls of paper are in a form incomplete for their intended use when exported to Mexico. Are slitting, cutting to length, and folding merely alterations, or are they necessary steps in completing the manufacturing process which creates a new or commercially different article?
Slitting operations have been previously addressed by CBP Headquarters (HQ). Reference HQ ruling HQ 55055, dated April 26, 1989, a ruling on bulk rolls of paper converted via slitting, which holds that, “Slitting to shape of paper products abroad is a foreign processing which exceeds an alteration under subheading 9802.00.50, HTSUS, as it is a necessary step in finishing the product for a particular use in the U.S. and completes the manufacture of the merchandise.”
Regarding the instant case, in all three scenarios the paper undergoes slitting in Mexico. At time of export the industrial-sized rolls of paper stock are not in a complete manufactured state ready for their intended use by the public. Rather, in Mexico, the final, necessary manufacturing steps take place to complete the articles. This also creates a new or commercially different article through a process of manufacture.
It is our opinion that the processes carried out in Mexico constitute finishing steps in the manufacture of the completed toilet paper and paper towels, thereby precluding application of subheading 9802.00.50, HTSUS, to the returned merchandise.
We will now consider the applicability of subheading 9802.00.80, HTSUS.
Subheading 9802.00.80, HTSUS, provides for, “Articles, except goods of heading 9802.00.90 and goods imported under provisions of subchapter XIX of this chapter and goods imported under provisions of subchapter XX, assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape or otherwise, and (c) have not been advanced in condition abroad except by being assembled and except by processes incidental to the assembly process such as cleaning, lubricating and painting.”
Note that this provision requires the fabricated components exported for foreign assembly to be products of the United States. In your ruling submission you state that although the entirety of your towel stock is manufactured in the United States, some of your tissue is manufactured in Asia (country not specified). The paper made in Asia is disqualified from consideration under subheading 9802.00.80, HTSUS by virtue of its foreign country of origin. The remainder of this ruling analysis regarding subheading 9802.00.80, HTSUS, will only apply to the U.S.-made paper.
All three requirements of subheading 9802.00.80, HTSUS, as spelled out in (a) (b) (c) above, must be satisfied before a returning good may receive a duty allowance. The definition of “fabricated components” as applicable to 9802.00.80, HTSUS, can be found in 19 CFR 10.14(a). This regulation specifies that, “the components must be in condition ready for assembly without further fabrication at time of their exportation from the United States to qualify for the exemption.”
In this case, the exported parent rolls fail to meet the first requirement and the definition of fabricated components. The parent rolls are not in a state ready for assembly and undergo further fabrication in Mexico to complete the articles. HQ 555601, dated October 29, 1990, states that, “…any significant process, operation, or treatment whose primary purpose is the fabrication, completion, or physical or chemical improvement of a component precludes the application of the exemption under subheading 9802.00.80, HTSUS.” We need not determine whether the second and third requirements are met.
Accordingly, the scenarios presented for sending industrial paper rolls to Mexico for further manufacturing processes fails to meet the requirements for treatment under subheading 9802.00.80, HTSUS.
Further, chapter 98, HTSUS, does not contain any additional subheadings which would be applicable to the proposed scenarios.
You contend that, should the chapter 98 provisions not apply, the correct classification for the finished toilet paper and paper towels at time of importation into the United States remains the same as at time of exportation to Mexico, subheading 4803.00.4000, HTSUS. We disagree. In Mexico the manufacturing operations create a commercially different article more specifically provided for in heading 4818, HTSUS.
The applicable subheading for the toilet paper will be 4818.10.0000, HTSUS, which provides for Toilet paper and similar paper, cellulose wadding or webs of cellulose fibers, of a kind used for household or sanitary purposes, in rolls of a width not exceeding 36 cm, or cut to size or shape; handkerchiefs, cleansing tissues, towels, tablecloths, table napkins, bed sheets and similar household, sanitary or hospital articles, articles of apparel or clothing accessories, of paper pulp, paper, cellulose wadding or webs of cellulose fibers: Toilet paper. The rate of duty will be free.
The applicable subheading for the paper towels will be 4818.20.0020, HTSUS, which provides for Toilet paper and similar paper, cellulose wadding or webs of cellulose fibers, of a kind used for household or sanitary purposes, in rolls of a width not exceeding 36 cm, or cut to size or shape; handkerchiefs, cleansing tissues, towels, tablecloths, table napkins, bed sheets and similar household, sanitary or hospital articles, articles of apparel or clothing accessories, of paper pulp, paper, cellulose wadding or webs of cellulose fibers: Handkerchiefs, cleansing or facial tissues and towels: Towels. The rate of duty will be free.
Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on the World Wide Web at https://hts.usitc.gov/current.
This ruling is being issued under the provisions of Part 177 of the Customs Regulations (19 C.F.R. 177).
A copy of the ruling or the control number indicated above should be provided with the entry documents filed at the time this merchandise is imported.
If you have any questions regarding the ruling, contact National Import Specialist Charlene Miller at [email protected].
Sincerely,
Steven A. Mack
Director
National Commodity Specialist Division