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HQ 555766

April 2, 1991

CLA-2 CO:R:C:S 555766 KCC

CATEGORY: CLASSIFICATION

TARIFF NO.: 9801.00.10 - 9802.00.50 - 9802.00.80

Ms. Ann Williams
A.N. Deringer, Inc.
30 West Service Road
Champlain, New York 12919-9703

RE: Fabric from Canada.Coating; cutting; advanced in value; improved in condition; alteration; 554883; assembly; 555499; 554357; 554416; 554577; 067533

Dear Ms. Williams:

This is in response to your letter dated October 18, 1990, on behalf of Victor Woolen Mills, requesting a ruling concerning the tariff classification and applicability of subheading 9801.00.10, subheading 9802.00.50 or subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), to fabric imported from Canada. Samples of the fabric were submitted for examination. Your request for the tariff classification of the fabric will be answered by the Textile Classification Branch under separate cover.

FACTS:

Victor Woolen intends to ship fabric to Canada which is woven in the U.S. from filament yarn and spun yarn purchased in the U.S. The fabric to be exported to Canada may have an acrylic coating on one side for use as upholstery fabric, an acrylic coating on both sides for eventual use as vertical blinds, or with no coating. Four variations of the fabric will be returned to the U.S. They are:

(1) coated or uncoated fabric will be returned in the same condition as exported to Canada;
(2) uncoated fabric exported to Canada will be coated on one side with acrylic and returned to the U.S.; (3) uncoated fabric exported to Canada will be coated with acrylic on both sides, cut into 3 1/2 inch strips for vertical blinds, and returned to the U.S.; and (4) fabric exported to Canada with acrylic coating on both sides will be cut into 3 1/2 inch strips and returned to the U.S.

ISSUE:

Whether the fabric is eligible for the duty exemption available under subheading 9801.00.10, 9802.00.50 or 9802.00.80, HTSUS, when imported into the U.S.

LAW AND ANALYSIS:

Fabric which is woven in the U.S. is considered a product of the U.S. See, section 12.130(e)(1)(ii), Customs Regulations (19 CFR 12.130(e)(1)(ii)), which states that an article or material usually will be a product of a particular country when it has undergone weaving, knitting or other operation which form fabric.

Subheading 9801.00.10, HTSUS, provides for duty free entry of U.S. products that are exported and returned without having been advanced in value or improved in condition by any means while abroad. Articles satisfying the above conditions of the statute will be afforded duty free treatment, provided the documentary requirements of section 10.1, Customs Regulations (19 CFR 10.1), are met.

We are of the opinion that the fabric which has not undergone any foreign processing, but is returned to the U.S in the same condition as originally exported will be eligible for duty free treatment under subheading 9801.00.10, HTSUS. However, fabric which has been advanced in value and improved in condition by the coating and/or cutting operations will not be entitled to duty-free treatment under this tariff provision.

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). Articles entitled to this partial duty exemption are dutiable only upon the cost or value of the foreign repairs or alterations, provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8), are satisfied.

We have previously held that coating operations which create a new or different article exceed an alteration. See, Headquarters Ruling Letter (HRL) 554883 dated June 16, 1989, which held that coating polypropylene film with acrylic or saran creates a new article with a different use, thereby precluding eligibility for the duty exemption available under subheading 9802.00.50, HTSUS.

In this case, the foreign coating and cutting operations do not constitute alterations within the meaning of subheading 9802.00.50, HTSUS. Coating the fabric changes its characteristics and use. The coated fabric, which is stronger and more durable than uncoated fabric, is intended for use in furniture upholstery and in vertical blinds. Furthermore, the fabric is not complete for its intended use but is subjected to acrylic coating and/or cutting processes in Canada which are necessary to produce the required product utilized in the upholstery and the vertical blind industries. Therefore, the fabric subjected to coating and/or cutting operations will not be entitled to the duty exemption available under subheading 9802.00.50, HTSUS.

Subheading 9802.00.80, HTSUS, provides a partial duty exemption for:

[a]rticles 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 value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process, such as cleaning, lubrication, and painting.

All three requirements of subheading 9802.00.80, HTSUS, must be satisfied before a component may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full cost or value of the imported assembled article, less the cost or value of the U.S. components assembled therein, upon compliance with the documentary requirements of section 10.24, Customs Regulations (19 CFR 10.24).

Section 10.16(a), Customs Regulations (19 CFR 10.16(a)), provides that the assembly operation performed abroad may consist of any method used to join or fit together solid components, such as welding, soldering, riveting, force fitting, gluing, laminating, sewing, or the use of fasteners. However, the mixing or combining of liquids, gases, chemicals, food ingredients, and amorphous solids with each other or with solid components is not regarded as an assembly.

We have previously held that coating operations are not acceptable assembly operations. See, HRL 555499 dated June 6, 1990 (extruding xanthate cellulose solution over U.S. origin paper which regenerates into a cellulose coating is not an acceptable assembly operation, but is actually a mere coating operation); HRL 554357 dated December 3, 1986, HRL 554416 dated March 6, 1987, and HRL 554577 dated June 25, 1987 (merely coating wire with plastic cannot be characterized as an acceptable assembly or joinder of separate solid components); and HRL 067533 dated October 30, 1981 (coating a glove liner with latex is not an acceptable assembly of solid components).

In the instant case, we find that acrylic coating of the fabric does not constitute an acceptable assembly operation for the purposes of subheading 9802.00.80, HTSUS. The application of the acrylic does not involve the joinder of two solid components, but actually involves the application of the liquid acrylic by spraying onto the solid fabric or dipping the fabric into a bath of liquid acrylic.

HOLDING:

Based on the information and samples submitted, we are of the opinion that the fabric returned in the same condition as originally exported has not been advanced in value or improved in condition, and therefore, will be entitled to the duty exemption available under subheading 9801.00.10, HTSUS, upon compliance with the documentary requirements of 19 CFR 10.1.

However, the fabric subjected to coating and/or cutting operations has been advanced in value and improved in condition by operations which exceed an alteration and are not acceptable assembly operations. Therefore, this fabric is not entitled to the partial duty exemption available under subheading 9802.00.50 or subheading 9802.00.80, HTSUS, but is dutiable on its full value.

Sincerely,

John Durant, Director
Commercial Rulings Division

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