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HQ 557939




August 31, 1994

CLA-2 CO:R:C:S 557939 MLR

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

Area Director
New York Seaport
6 World Trade Center
New York, New York 10048

RE: Internal Advice Request No. 25/94; Applicability of duty exemption under HTSUS subheading 9802.00.50 to serpentine; building stone; stone slabs; cutting; slicing; polishing

Dear Sir:

This is in reference to your memorandum of May 16, 1994, seeking internal advice regarding the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to serpentine.

FACTS:

Vermont Verde Antique ("Verde") (a.k.a. Marble Modes) quarries building stone in the U.S. by using diamond impregnated wire saws and diamond impregnated belt saws. First, the area to be cut is assessed, and the block size desired is determined. Using a diamond impregnated belt saw, precision cuts are made horizontally and vertically into the walls of the quarry. The diamond impregnated wire saw is then inserted at the back of the cuts, enabling the blocks to be cut free from the quarry wall. This step is repeated on the floor of the quarry. The product is a precisely cut rectangular block of stone. These blocks are then shipped to Italy. The record indicates that the exported stone blocks are classifiable in Chapter 25, HTSUS. Their size is approximately 10 x 7 x 5 feet.

In Italy, Verde states that the blocks are sliced. For example, a stone block roughly the size above is cut into 43 slabs of 320 x 142 x 3 millimeters each. Next, the slabs are nominally polished, and bundled for shipment to the U.S. The record indicates that when serpentine is imported in the form of building stone (i.e., slabs, tiles, etc.), it is classifiable in subheading 6802.99, HTSUS. The importer contends that the serpentine is classified in subheading 9802.00.50, HTSUS, as U.S. articles exported for repairs or alterations since the product sent to Italy is the same product returned, only that it has been cut down in size and lightly polished. The importer states that the stone slabs imported into the U.S. are still in a "rough stage" and must be cut to size and highly polished before they may be used for their final purposes, such as table tops, etc.

ISSUE:

Whether the slicing and polishing operations performed in Italy constitute an alteration, thereby entitling the serpentine to the partial duty exemption available under subheading 9802.00.50, HTSUS, when returned to the U.S.

LAW AND ANALYSIS:

Articles returned to the U.S. after having been exported to be advanced in value or improved in condition by repairs or alterations may qualify for the partial duty exemption under subheading 9802.00.50, HTSUS, provided the foreign operation does not destroy the identity of the exported articles or create new or commercially different articles through a process of manufacture. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff'g C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Accordingly, entitlement to this tariff treatment is precluded where the exported articles are incomplete for their intended purpose prior to the foreign processing and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles. Dolliff & Company, Inc. v. United States, 455 F. Supp. 618 (CIT 1978), aff'd, 599 F.2d 1015 (Fed. Cir. 1979). Articles entitled to this partial duty exemption are dutiable only upon the cost or 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. See 59 Fed. Reg. 25563 (May 17, 1994), for recent amendments to 19 CFR 10.8.

In Headquarters Ruling Letter (HRL) 555085 dated September 27, 1988, Customs considered glass rectangles exported to Japan in sheets measuring 36 x 31.2 inches, where they were cut into rectangles measuring 6 x 6 inches, the edges were ground, and the surface was lightly polished. The glass returned was also not ready for use without further processing in the U.S. Customs found that the exported glass was not complete for its intended use and the Japanese operations were necessary steps in the preparation of the finished glass, and that the returned glass was commercially different from the exported glass. Consequently, item 806.20, Tariff Schedules of the United States (TSUS) (now subheading 9802.00.50, HTSUS), treatment was precluded. See also HRL 555343 dated May 30, 1989 (jumbo rolls of multistrike coated film, 34 inches in width and 20,000 feet long, slit into ribbon material was held to amount to more than a mere alteration, since it was a necessary step to finish the final product).

In HRL 555640 dated August 13, 1990, gold jewelry with a tumbled lustre was exported to Mexico where it was polished and a diamond cut lustre was added. The polishing process employed the use of pastes and a rotating polishing wheel to produce a high gloss lustre, different in appearance from the tumbled lustre applied in the U.S. before exportation. The diamond cutting process made small cuts on the jewelry. Recognizing Royal Bead Novelty Co. v. United States, 68 Cust. Ct. 154, C.D. 4353 (1972), which held that glass beads exported for the application of a half coating of "Aurora Borealis" to impart a luster effect were entitled to item 806.20, TSUS, treatment because the application of the coating did not change the "quality, texture, or character" of the beads, Customs held that, in the case of the gold jewelry, the diamond cut imparted a new and different texture to the jewelry by giving it a "diamond-like sparkle", thereby precluding subheading 9802.00.50, HTSUS, treatment.

In HRL 555787 dated October 2, 1991, Customs reconsidered HRL 555640 focusing primarily on the diamond cutting operation. The factors the courts have considered in determining whether a foreign processing operation creates a new or commercially different article were reevaluated, namely, changes in the name, value, appearance, size and shape; subsequent handling and use; performance characteristics; and markets or classes of buyers. See Burstrom; Guardian Industries; and Dolliff. Although HRL 555640 found that the gold jewelry's quality, texture, and character was changed as a result of the diamond cutting operation, HRL 555787 noted that these court decisions also considered changes in characteristics which alter the subsequent commercial use, usually ascertained by a change in the market and class of buyers. Consequently, HRL 555787 noted that while both the polishing and diamond cutting operations enhanced the marketability of the jewelry to potential customers, both the polished and diamond cut jewelry were sold at the same commercial level in the same commercial market as the tumbled lustre jewelry. Furthermore, while the polishing and diamond cutting operations imparted different lustres to the jewelry, they were only alternatives to an already finished article. Therefore, the gold jewelry diamond cut in Mexico was eligible for subheading 9802.00.50, HTSUS, treatment.

With regard to the facts presented and consistent with the cases above, we are of the opinion that the slicing operation is a necessary step in the final use of the serpentine as table tops, etc. The fact that further cutting or polishing is required in the U.S. after importation is not relevant, since subheading 9802.00.50, HTSUS, concerns the condition of the article as imported into the U.S. As in HRL 555085 and unlike HRL 555787, the stone is not complete for its intended use without the slicing operation performed in Italy. Consequently, we find that the serpentine is not entitled to subheading 9802.00.50, HTSUS, treatment.

HOLDING:

On the basis of the information submitted, we find that the stone block exported to Italy is incomplete for its intended use and that the slicing operation is a necessary step in the preparation of the stone as a finished article. Consequently, the serpentine is not entitled to subheading 9802.00.50, HTSUS, treatment.

Sincerely,

John Durant, Director

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