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HQ 224933


February 10, 1994

WAR-3-01/02 CO:R:C:E 224933 TLS

CATEGORY: ENTRY

District Director
U.S. Customs Service
1801-K Cross Beam Drive
Charlotte, North Carolina 28217

RE: Request for Internal Advice concerning the establishment of a bonded warehouse.

Dear Sir:

This office has received the above-referenced request for internal advice as provided for under Customs regulations. We have considered the request and have made the following decision.

FACTS:

The importer wishes to import cotton fabric from Pakistan in rolls. The fabric is to be imported to a bonded warehouse for further processing. The processing will consist of either printing the fabric, coating one side of the fabric, or both printing and coating the fabric.

This request for advice concerns whether the processing described above is permissible in a bonded warehouse. The importer proposes two different sitations: The fabric is processed and then withdrawn from the warehouse for exportation under bond, or processed and then entered for consumption into the Customs territory. The fabric will not be processed any further than what is described above.

ISSUE:

Whether the printing, coating, or printing and coating of fabric imported in rolls in a bonded warehouse is considered a manipulation or manufacture.

LAW AND ANALYSIS:

The controlling statute in this case is 19 U.S.C. 1562. The relevant part reads as follows:

...upon permission therefor being granted by the Secretary of the Treasury, and under customs supervision, at the expense of the proprietor, merchandise may be cleaned, sorted, repacked, or otherwise changed in condition, but not manufactured, in bonded warehouses established for that purpose... (Emphasis added.)

The Court of International Trade recently ruled that, for the purposes of 19 U.S.C. 1562, merchandise may be considered "manufactured" even if the processing results in merely a material for further manufacture. Tropicana Products, Inc. v. United States, 789 F. Supp. 1154, 1158 (CIT 1992). The court found that while the processing of orange juice in the case might not have been considered a manufacture under other Customs provisions, its concern focused on whether the merchandise had been transformed for the purposes of section 1562. In finding so, the court noted that the orange juice was not yet fit for market but had been transformed into a product from which another product could be made. Id.

In the present case, the fabric will be printed and/or coated. To present just one example of what might be considered a manufacture a particular instance, we look to a section of the Customs regulations. The regulation establishes, for the purpose of determining whether an article is the product of a particular country or territory, a threshold requirement of dyeing and printing of fabric along with two of several other processes. 19 CFR 12.130(e)(1)(i). Clearly, the requirement is not met in this case. Our analysis does not end there, however, since we are not concerned here with whether the merchandise is the product of a particular country or territory. To emphasize, our focus concerns whether the merchandise has been changed in condition so as to be considered a manufacture for the purposes of 19 U.S.C. 1562.

The Tropicana court stressed that the merchandise must not be "otherwise changed in condition" as stated in the statute. From the description of the coating and printing processes that we received from you, it appears that the merchandise in fact does change in condition. The coating process allows the fabric to be used in the manufacturing of ironing board covers. The transformation from mere fabric to material on which clothes can be ironed. We believe this is a significant change, one which changes the condition of the merchandise as comtemplated under section 1562. The printing evidently serves a decorative purpose. This processing also changes the condition of the article, theoretically making the fabric more attractive and thus more marketable. Again, we find this processing to be the kind of change in condition section 1562 considers. Thus, in accordance with section 1562 and the Tropicana holding, we find that the processing described above would result in a manufacture of the subject merchandise if it took place in a bonded warehouse.

HOLDING:

The printing and coating operations described above are considered a manufacture under 19 U.S.C. 1562 for the purposes of admitting the subject merchandise to a Class 8 bonded warehouse. The fabric is not eligible for admission under these circumstances.

This decision should be mailed by your office to the internal advice requester no later than 60 days from the date of this letter. On that date the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and to the public via the Diskette Subscription Service, Lexis, Freedom of Information Act, and other public access channels.

Sincerely,

John Durant, Director

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