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HQ 556523


May 29, 1992

CLA-2 CO:R:C:S 556523 RAH

CATEGORY: CLASSIFICATION

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.

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
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

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

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