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HQ 558916





November 2, 1995

CLA-2 R:C:S 558916 AT

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80

Port Director of Customs
Los Angeles, California 90731

RE: Application for Further Review of Protest 2704-94-101947; Denial of partial duty exemption under HTSUS subheading 9802.00.80 to leather jackets; substantial transformation

Dear Sir:

This is in reference to the above-referenced Application for Further Review of Protest filed by J.C. Penny Purchasing Corp. ("J.C. Penny"), concerning the eligibility of leather jackets with fur collars from Korea for a partial duty exemption under subheading 9802.00.80, Harmonized Tariff Schedule of the United States ("HTSUS") which were entered at Los Angeles, California, during the period of June 27, 1993 - July 28, 1993.

FACTS:

Timely protest is made with respect to the liquidation of six entries covering leather jackets with fur collars from Korea which were classified under subheading 4203.10.4060, HTSUS, at the full duty rate of 6 percent ad valorem. Protestant claims that a duty allowance should be granted for the cost or value of the fur collar portion of the leather jackets in question under subheading 9802.00.80, HTSUS. Additional information describing the U.S. operations involved in making the fur collars and samples of the fur collars in various stages of production were submitted on October 24, 1995.

Protestant states that it imports furskins (tails) from Finland into the U.S. to be further processed into fur collars. The U.S. processes which the imported tails undergo to make the fur collars are wetting, stretching, cutting, sewing, taping, closing and ironing. In addition, the tails may be tanned or dyed in the U.S. After the U.S. processing is completed, the fur collars are then exported to Korea to be sewn and assembled into the leather jackets. The finished leather jackets with fur collars are then returned to the U.S.

Protestant contends that the foreign tails which are further processed in the U.S. into fur collars are substantially transformed as a result of the U.S. operations, and thus the fur collars are of U.S. origin when exported to Korea. Accordingly, Protestant is seeking a duty allowance under subheading 9802.00.80, HTSUS, for the value of the fur collars, a component of the imported jackets.

ISSUE:

Whether the foreign-origin tails are substantially transformed into U.S. fabricated components before they are exported to Korea for assembly into leather jackets.

LAW AND ANALYSIS:

Subheading 9802.00.80, HTSUS, provides a partial duty exemption for:

[a]rticles assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape, or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process, such as cleaning, lubricating and painting.

All three requirements of subheading 9802.00.80, HTSUS, must be satisfied before a component may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full value of the imported assembled article, less the cost or value of qualifying U.S. components assembled therein, provided there has been compliance with the documentation requirements of 19 CFR 10.24.

Section 10.12(e), Customs Regulations (19 CFR 10.12(e)), provides generally that an article wholly or partially of foreign components or materials, may be a "product of the United States" if such components or materials are "substantially transformed" by a process of manufacture into a new and different article, or are merged into a new and different article. Section 10.14(b) provides that a "substantial transformation" occurs when, as a result of manufacturing processes, a new and different article emerges, having a distinctive name, character or use, which is different than that originally possessed by the article or material before being subject to the manufacturing process. If the manufacturing or combining process is merely a minor one which leaves the identity of the article intact, a substantial transformation has not occurred. See, Belcrest Linens v. United States, 573 F. Supp. 1149 (CIT 1983), 741 F. 2d 1368 (1984).

Since, in this case, the fur collars are made in the U.S. from Finnish origin tails we must determine whether the foreign tails are substantially transformed as a result of the wetting, stretching, cutting, sewing, taping, closing and ironing processes performed in the U.S. to make the fur collars.

In HQ 557194 (September 9, 1993), Customs considered whether foreign fox tails which were processed in the U.S. by dying, soaking in a solution to make the leather soft and pliable, stretching to the desired length, splitting and sewing into fur collars which were then exported to the Dominican Republic to be assembled into anorak jackets were products of the U.S. for purposes of eligibility under 9802.00.80, HTSUS. Customs held that the foreign origin tails were substantially transformed as a result of the U.S. operations and the fur collars were products of the U.S. for purposes of determining eligibility for the partial duty exemption under subheading 9802.00.80, HTSUS. Customs stated that the name, character and use of the foreign tails changed as a result of the U.S. operations.

Similarly, in this case, we find that the foreign tails are substantially transformed as a result of the U.S. operations performed to make the fur collars. As the fox tails in HQ 557194, the foreign tail's name, character and use changes as a result of the U.S. operations. As imported, the foreign tails are just fur skins which could be used in a variety of ways, whereas after being processed into fur collars they become essential components of a finished leather jacket. Thus, the fur collars which are exported to Korea are considered to be fabricated products of the U.S., for purposes of subheading 9802.00.80, HTSUS. We also find that the processing performed in Korea (sewing the fur collar into the leather jacket) constitutes an acceptable assembly operation pursuant to this provision. HOLDING:

Foreign sourced tails which are processed in the U.S. into fur collars by operations which include wetting, stretching, cutting, sewing, taping, closing and ironing are substantially transformed as a result of the U.S. operations. As a result, the exported fur collars are considered fabricated products of the U.S. Since the processing abroad constitutes an acceptable assembly operation, the imported leather jackets from Korea are entitled to allowances in duty for the cost or value of the U.S. origin fur collars under subheading 9802.00.80, HTSUS. Accordingly, the protest should be granted 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

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