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HQ 556034


August 26, 1991

CLA-2 CO:R:C:S 556034 DSN

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

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

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