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HQ 558935




January 31, 1995

CLA-2-05 CO:R:C:S 558935 DEC

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

Mr. Andrew P. Vane
Banes, Richardson & Colburn
475 Park Avenue South
New York, New York 10016

RE: Embroidery; Alteration; Reembroidery; HRL 078245; HTSUS 5810.92.0080;
HTSUS 6002.20.1000; Textile quota category 229

Dear Mr. Vane:

This is in response to your letter dated July 26, 1994, on behalf of Asiawealth Apparel Incorporated (Asiawealth), requesting a ruling concerning the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to "reembroidered" lace. Samples of the lace before and after the embroidery operation were submitted for examination.

FACTS:

The lace is made in France and third parties, not related to Asiawealth, import it into the United States. These third parties hire Asiawealth to contract with a Philippine factory to have "rope" (thick thread), or sequins, or beads, or any combination of rope, sequins, and beads, hand embroidered onto the lace. This process is called "reembroidery." The owners of the lace have the fabric "reembroidered" in order to make it more marketable, but maintain that the lace is a totally finished product without the "reembroidery" process and that both the lace and the "reembroidered" lace are sold in the same channels of trade and both are used as ornaments on women's wearing apparel. Asiawealth supplies the rope, sequins, and beads to the Philippine factory where the hand embroidery is performed. The "reembroidered" lace is then exported to the United States and entered under either Harmonized Tariff Schedule of the United States (HTSUS) 5804.21.00 or HTSUS 5804.29.00.

ISSUE:

1. Whether the "reembroidery" operation described above qualifies as a repair or alteration under subheading 9802.00.50, HTSUS.

2. What is the proper tariff classification of the unembroidered and "reembroidered" lace?

LAW AND ANALYSIS:

Subheading 9802.00.50, HTSUS, provides for the assessment of duty on the value of repairs or alterations performed on articles returned to the United States after having been exported for that purpose. However, the application of this tariff provision 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), aff'd, C.D. 1752, 36 Cust.Ct. 46 (1956); Guardian Industries Corporation v. United States, 3 CIT 9 (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. 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 previously held in Headquarters Ruling Letter (HRL) 078245, dated June 17, 1986, that embroidery of U.S. manufactured cotton sheets in China does not constitute a repair or alteration under item 806.20, Tariff Schedules of the United States (TSUS) (the precursor provision to subheading 9802.00.50, HTSUS). In addition, Customs has issued ORR Ruling 75-0151, dated May 10, 1976, and ORR Ruling 76-0029, dated May 26, 1976. Both of these ruling held that embroidering fabric was beyond the meaning of an alteration.

In addition, Customs has also found that U.S. articles subjected to silk screening, hand-painting, and printing operations abroad and then returned to the United States, were not eligible for subheading 9802.00.50, HTSUS, treatment because these operations are more than an alteration. We stated that the silk screening, hand-painting and printing operations created a different article of commerce with unique, specialized appeal and constituted a finishing step in the manufacture of the articles. See, HRL 555021, dated July 1, 1988 (silk screening of U.S. socks is not considered an alteration pursuant to this tariff provision); HRL 555249, dated June 16, 1989 (silk screening and chenilling designs on sweatshirts abroad exceeds an alteration); and HRL 554371, dated December 10, 1986 (hand-painting a design onto sweatshirts abroad exceeds an alteration).

With regard to the facts you have provided and based on the above rulings, we are of the opinion that the foreign "reembroidery" operation constitutes an operation that exceeds an alteration. Although the lace may be used as ornament to woman's apparel whether it has an embroidered design or not, embroidery like printing, silk screening and hand-painting, is considered neither a repair nor an alteration under the provisions of subheading 9802.00.50, HTSUS. A review of the samples submitted reveals that the "reembroidering" process substantially changes the appearance of the lace by imparting significant new characteristics to the lace.

You cite HRL 088565, dated May 23, 1991, in support of your argument that "reembroidery" is not more than an alteration because it does not result in a substantial transformation. This ruling letter addressed the country of origin of a textile product. It does not address the 9802.00.50, HTSUS, issue of whether "reembroidery" is an alteration. It is inappropriate to apply the analysis of HRL 088565 to the facts this case presents. With respect to HRL 557144, dated May 19, 1993 (embossing furniture fabric qualifies as an alteration under subheading 9802.00.80, HTSUS), which you cite in your letter, we believe that the facts in the rulings cited above are closer to the facts presented in this case. Unlike the embossing furniture fabric case where Customs held that the processing did not substantially change the quality or character of the merchandise, we find that the "reembroidering" of the lace imparts significant and unique characteristics that exceed an "alteration."

In addition to your contention that the subject merchandise is eligible for classification in subheading 9802.00.50, HTSUS, you claim that for purposes of determining the duty rate to be applied, the reembroidered lace should be classifiable as a true lace under either subheading 5804.21.0000 or 5804.29.0090, HTSUS, depending on the fiber content. We disagree.

Heading 5810, HTSUS, provides for, inter alia, embroidery in the piece. The Explanatory Notes (EN) to heading 5810, at page 808, define embroidery as that which is "obtained by working with embroidery threads on a pre-existing ground of ... knitted or crocheted fabric, lace... ." An examination of the subject fabric reveals that the ground material is made of multifilament man-made fiber yarn, of a raschel warp knit construction. As the subject merchandise consists of embroidery thread worked onto a pre-existing ground of knitted fabric, classification is proper within heading 5810, HTSUS. Specifically, the subject fabric is classifiable within subheading 5810.92.0080, HTSUS, which provides for, "[E]mbroidery in the piece, in strips or in motifs: other embroidery: of man-made fibers.... other...," dutiable at a rate of 16 percent ad valorem. The applicable textile quota category is 229.

The subject fabric, in its unembroidered state, is precluded from classification within heading 5804, HTSUS. The EN to heading 5804, HTSUS, at page 800, specifically exclude "openwork products of any kind produced by knitting by hand or
machine (Chapter 60)" from this heading. As stated supra, the subject fabric is a raschel warp knit and therefore classification is precluded from heading 5804, HTSUS. The subject fabric, in its unembroidered state, is classifiable under subheading 6002.20.1000, HTSUS, which provides for, "[O]ther knitted or crocheted fabrics: other, of a width not exceeding 30 cm: open-work fabrics, warp knit...," dutiable at a rate of 16 percent ad valorem. The applicable textile quota category is 229.

HOLDING:

On the basis of the information and samples submitted, the foreign "reembroidery" operations are not considered to be alterations. Therefore, tariff treatment of the returned goods under subheading 9802.00.50, HTSUS, is precluded.

The "reembroidered" fabric is classifiable within subheading 5810.92.0080, HTSUS, and the fabric in its unembroidered state is classifiable under subheading 6002.20.1000, HTSUS.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer.

Sincerely,

John Durant

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