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HQ 556617


June 19, 1992

CLA-2 CO:R:C:S 556617 RAH

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

Mr. Meade G. Stone, Jr.
W.M. Stone & Co., Inc.
P.O. Box 3160
838 Granby Street
Norfolk, VA 23510

RE: Applicability of partial duty exemption to yarn and fabric exported for foreign processing; Dyeing; Bleaching; Printing; Spinning; Country of Origin; Substantial Transformation; 19 CFR 12.130; 19 CFR Part 134

Dear Mr. Meade:

This is in response to your letter of March 27, 1992, on behalf of Fieldcrest Cannon, Inc., regarding the classification, dutiability and country of origin of yarn and fabric.

FACTS:

Fieldcrest Cannon, Inc., plans to export fabric woven in the United States from U.S yarn to Italy for bleaching, dyeing and printing. Alternatively, it intends to export U.S. fiber to Switzerland to be spun into yarn and then import it into the United States for weaving into fabric. Thereafter, the fabric will be exported to Italy for the bleaching, dyeing and printing operations. Following the processing in Italy, the fabric will be imported into the United States.

Your client plans to register the goods on exportation to the foreign country and pay duty on the processing performed in that country, upon importation into the United States [a procedure under section 10.8. Customs Regulations (19 CFR 10.8) whereby a Certificate of Registration is filed before exporting articles which are subject on return to the United States to duty on the value of the repairs or alterations under subheading 9802.00.50, Harmonized Tariff Schedule of the United States

ISSUES:

(1) Whether U.S. fiber exported to Switzerland to be spun into yarn is eligible for a partial duty exemption under subheading 9802.00.50, HTSUS, when returned to the United States.

(2) Whether U.S.-origin fabric exported to Italy for dyeing, bleaching and printing is eligible for a partial duty exemption under subheading 9802.00.50, HTSUS, when returned to the United States.

(3) What is the country of origin of the yarn which is spun in Switzerland and the fabric which is dyed, bleached and printed in Italy?

LAW AND ANALYSIS:

ALTERATIONS

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. See, A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956); 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, heat-setting, chemical-scouring and treating with chemicals. 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 under this tariff provision 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 the instant case, the operations performed in Italy exceed an alteration. The fabric is exported to Italy in greige (gray) goods condition. The dyeing, printing and bleaching operations in Italy create finished fabric which is ready to be cut and sewn in the United States. Customs has long held that printing and finishing operations exceed the meaning of the term alteration for the purposes of item 806.20, Tariff Schedules of the United States (TSUS) (the predecessor to subheading 9802.00.50, HTSUS). Headquarters Ruling Letter (HRL) 039311 dated April 11, 1985 (fabrics in greige goods condition exported to Germany for printing and finishing clearly exceed the term alteration for tariff purposes). Dolliff and C.J. Tower, supra. Accordingly, the fabric will not be entitled to a partial duty exemption under subheading 9802.00.50, HTSUS, upon importation into the United States. Additionally, spinning U.S. fiber into yarn exceeds an alteration. The fiber is incomplete for its intended use (as yarn for weaving into fabric) prior to the foreign processing and a new and commercially different article is created as a result of that processing. See, HRL 075063 dated December 21, 1984 (spinning yarn results in a substantial transformation).

Briefly, you should be aware that under the facts presented, the yarn and fabric do not qualify for treatment under other subheadings of Chapter 98, HTSUS. 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. The foreign processing in Switzerland and Italy will advance the value of the merchandise and improve its condition. Subheading 9802.00.80, HTSUS, is not applicable as it only applies to articles assembled abroad in whole or in part of U.S.-fabricated components.

COUNTRY OF ORIGIN

You also inquire as to the country of origin of the merchandise on each importation into the United States. Section 12.130, Customs Regulations (19 CFR 12.130), sets forth the principles for country of origin determinations for textile and
textile products. 19 CFR 12.130(b), provides that a textile product that is processed in more than one country or territory shall be a product of that country or territory where it last underwent a substantial transformation. A textile product will be considered to have undergone a substantial transformation if it has been transformed by means of substantial manufacturing or processing operations into a new and different article of commerce. However, an exception to this rule for U.S. textile articles sent abroad for processing is set forth in 19 CFR 12.130(c), which provides as follows:

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 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.

In the instant case, the U.S. fiber that is spun into yarn in Switzerland clearly is advanced in value and improved in condition within the meaning of 19 CFR 12.130(c). Therefore, the country of origin of the yarn in question is Switzerland.

After the Swiss-made yarn is imported into the United States, it is woven into fabric. According to 19 CFR 12.130(e)(iii), an article or material usually will be a product of a particular country when it has undergone "weaving, knitting or otherwise forming fabric" in that country. See, HRL 700752 dated January 17, 1973. Therefore, the fabric when woven in the United States, is considered to be a product of the United States. The U.S.-fabric is then exported to Italy for dyeing, bleaching and printing. Those operations undoubtedly advance the value and improve the condition of the fabric within the meaning of 19 CFR 12.130(c). Accordingly, the country of origin of the fabric when returned to the United States is Italy.

Your request for tariff classification of the yarn and fabric should be directed to the appropriate Area/District Director of Customs, and should include a full and complete description of the article, a sample of the article, information as to the article's chief use in the United States, its commercial, common, or technical designation, and if composed of two or more materials, the relative quantity (by weight and by volume) and the value of each.

HOLDINGS:

U.S. fiber exported to Switzerland to be spun into yarn and U.S. fabric exported to Italy for dyeing, bleaching and printing are not eligible for a partial duty exemption under subheading 9802.00.50, HTSUS, upon importation into the United States. Pursuant to 19 CFR 12.130(c), the country of origin of the yarn is Switzerland, and the country of origin of the bleached, dyed and printed fabric is Italy.

Sincerely,

John Durant, Director
Commercial Rulings Division

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