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HQ 558724





June 23, 1995

CLA-2 R:C:S 558724 AT

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.40

District Director of Customs
Charlotte, North Carolina 28217

RE: Application for Further Review of Protest 1512-94-100100; Denial of partial duty exemption under subheading 9802.00.40 to polyethylene sheeting; alteration; planing; complete articles

Dear Sir:

This in reference to the above-referenced Protest timely filed by Roechling Engineered Plastics ("Roechling"), concerning a shipment of polyethylene sheeting imported from Germany on December 13, 1993. The Application for Further Review was forwarded to our office by a transmittal dated August 23, 1994. We regret the delay in responding.

FACTS:

On January 27, 1994, Roechling submitted a protest and application for further review to your District concerning an entry of polyethylene sheets entered at the district under subheading 9802.00.40, Harmonized Tariff Schedule of the United States (HTSUS) on December 13, 1993. A sample and additional information was submitted with the Application for Further Review.

Protestant states that it exported to Germany 5/8 inch polyethylene sheets of U.S. origin which were uneven in that one end of the sheets was thicker than the other. Approximately 40 percent of each sheet was planed off in Germany which left a sheet 3/8" thick. The sheets needed to be planed down because in their uneven condition, they were unmarketable in that they did not meet the industry standard tolerances. After the planing operation was completed, the polyethylene sheets met the industry tolerance level and were considered to be marketable in the industry. The planing operation performed in Germany was pursuant to warranty. Protestant asserts that the planing operation performed in Germany to the U.S. polyethylene sheeting is an alteration and thus the returned sheeting material is eligible for a partial duty exemption under subheading 9802.00.40, HTSUS.

ISSUE:

Whether the returned polyethylene sheets qualify for the partial duty exemption available under subheading 9802.00.40, HTSUS.

LAW AND ANALYSIS:

Subheading 9802.00.40, HTSUS, provides a partial duty exemption for articles returned to the U.S. after having been exported to be advanced in value or improved in condition by means of repairs or alterations pursuant to warranty. Articles entitled to this partial duty exemption are dutiable upon the value of the foreign repairs or alterations, upon compliance with the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8). However, entitlement to this tariff treatment is precluded where the exported articles are incomplete for their intended use prior to the foreign processing, Guardian Industries Corp. v. United States, 3 CIT 9 (1982), as "repairs and alterations are made to completed articles and do not include intermediate processing operations which are performed as a matter of course in the preparation or the manufacture of finished articles." Dolliff & Company, Inc., v. United States, C.D. 4755, 81 Cust. Ct. 1, 455 F.Supp. 618 (1978), aff'd, C.A.D. 1255, 66 CCPA 77, 599 F. 2d 1015 (1979) (Court emphasis). Thus, the focus is upon whether the exported article is 'incomplete' or 'unsuitable for its intended use' prior to the foreign processing." Guardian Industries.

In HQ 555359 (May 14, 1990), Customs considered whether U.S. drill bits which were exported to Mexico for further processing (resharpening by a precision grinding machine and sliding a plastic depth gauge ring onto the drill bit by hand) to bring the bits into industry tolerance standards were eligible for a partial duty exemption under subheading 9802.00.50, HTSUS as a "repair or alteration" when imported into the U.S. In holding that the imported drill bits were not entitled to the partial duty exemption, Customs found that the U.S. manufactured drill bits which were shipped to Mexico for further processing operations were not complete articles when exported. Customs also found that the sharpening operation was not an alteration or repair; rather, it constituted a continuation of the manufacturing process begun in the U.S. and was a necessary step, performed as a matter of course, in producing drill bits which met industry tolerance standards. Customs stated that without the reworking process, the bits could not be used for their intended purpose.

Similarly, in this case, we find that the planing operation performed in Germany is not an "alteration or repair"; rather, it is a continuation of the manufacturing process begun in the U.S. and is a necessary step, performed as a matter of course, in producing polyethylene sheets which meet industry tolerance standards. Like the drill bits in HQ 555359, the exported polyethylene sheets are incomplete articles which cannot be used for their intended purpose until the planing operation is performed. As exported, the sheets are not marketable since they do not meet the industry tolerance standards. Only after the polyethylene sheets are planed can they be considered as marketable. Thus, the returned sheets are not entitled to the partial duty exemption under subheading 9802.00.40, HTSUS. Accordingly, the protest should be denied in full.

HOLDING:

On the basis of the information provided, we find that the planing operation performed in Germany to U.S. origin polyethylene sheets is not an "alteration or repair"; rather, it is a continuation of the manufacturing process begun in the U.S. and is a necessary step, performed as a matter of course, in producing polyethylene sheets which meet industry tolerance standards. Thus, the returned sheets are not entitled to the partial duty exemption under subheading 9802.00.40, HTSUS. Accordingly, the protest should be denied in full.

In accordance with Section 3A(11)(b) of Customs Directive 099-3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision 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 the public via the Diskette Subscription Service, Lexis, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director
Commercial Rulings Division

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