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HQ 559207




February 2, 1996
CLA-2 RR:TC:SM 559207 AT

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

Edith Sanchez Shea, Esq.
Law Offices of Michael P. Maxwell
10100 Santa Monica Boulevard, Suite 300
Los Angeles, California 90067

RE: Applicability of partial duty exemption under HTSUS subheading 9802.00.50 to U.S. greige fabric exported to Canada for bleaching or bleaching and dyeing and returned to the U.S.; textile product; alterations; incomplete; intermediate processing; NAFTA; Article 509

Dear Ms. Shea:

This is in response to your letters dated May 15 and December 12, 1995, and January 17, 1996, on behalf of Vivatex (TRV) Div. De Dominion Textile Inc. ("Vivatex") requesting a ruling concerning the applicability of subheading 9802.00.50, Harmonized Tariff schedule of the United States (HTSUS) to U.S. greige fabric exported to Canada for bleaching and in certain instances dyed before it is returned to the United States. Samples were submitted for our review. We regret the delay in responding.

FACTS:

According to your submission, Vivatex intends to export U.S. origin greige fabrics to Canada. The fabrics involved are U.S. formed sheeting (90" to 120" in width) or narrower width fabrics (40" - 60" in width) and include flannel, twill, duck, oxford, and mesh. You state that the subject fabrics are composed of cotton, as well as cotton/polyester blends in the following ratios: 65%/35%; 57%/43%; and 50%/50%.

The fabrics composed of 50% cotton, 50% polyester are sent to Canada solely for bleaching (this includes twills, flannels, duck, oxford sheeting and mesh). You state that the bleaching operation performed in Canada includes desizing and scouring the fabric, and then applying the actual bleaching as a wash. The other polyester/cotton blend sheeting and other fabrics of various compositions, are both bleached and dyed in Canada. The fabrics which are dyed are dyed in a variety of colors to suit consumer preference. After the bleaching and dyeing operations are performed on the fabrics, they are then returned to the U.S. to be used by U.S. manufacturers to make apparel and home furnishings.

You assert that the bleached and bleached and dyed fabrics which are returned to the U.S. are eligible for a partial duty exemption under 9802.00.50, HTSUS, because the bleaching and dyeing operations performed in Canada are merely alterations of the U.S. fabric. You state that at the time the U.S. fabrics are exported to Canada the fabrics are marketable since all of the manufacturing operations necessary to produce the fabrics have been completed. You contend that fabrics are sent to Canada to enhance their marketability by either bleaching alone, or by bleaching and dyeing, depending on their intended use. You state that while the bleaching and dyeing operations undertaken in Canada make the fabrics more saleable to Vivatex customers, the U.S. fabrics, as exported, can be used in a variety of ways. As exported, the fabrics can be used to make furniture upholstery, sheets, curtains, and comforter covers, as well as to make linings for heavy jackets, light jackets, blazers, shorts and pants.

You argue that while bleaching brightens and softens the fabrics it does not affect the fabrics commercial identity because the quality, weight, thickness and texture of the fabric remain the same before and after bleaching. In support, you have submitted written declarations signed by knowledgeable company officials all stating that bleached and unbleached fabrics compete in the same market, for the same end uses and within similar price ranges.

ISSUE:

Whether the bleaching and dyeing operations performed in Canada to U.S. greige fabric, in the manner described above, constitute an alteration, thereby entitling the returned products to the partial duty exemption under subheading 9802.00.50, HTSUS. 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'd, 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, 559 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 181.64, Customs Regulations (19 CFR 181.64), are satisfied.

Section 181.64(b), Customs Regulations (19 CFR 181.64(b)) provides that

The duty free or reduced-duty treatment referred to in paragraph (a) of this section shall not apply to goods which, in their imported condition as exported from the United States to Canada or Mexico, are incomplete for their intended use and for which the processing operation performed in Canada or Mexico constitutes an operation that is performed as a matter of course in the preparation or manufacture of finished goods.

You argue that the bleaching and dyeing operations performed in Canada to the U.S. greige fabric constitute alterations of the fabric because these operations do not effect the fabric's commercial identity. We disagree for the reasons stated below.

In Dolliff & Company, Inc v. U.S., 66 CCPA 77, C.A.D. 1225 (1979), the court found that the processing steps performed on exported greige goods were undertaken to produce the finished fabric and could not be considered as alterations. At issue in Dolliff was the question of whether certain Dacron polyester fabrics, which were manufactured in the U.S., and exported to Canada for heat-setting, chemical-scouring, dyeing, and treating with chemicals were eligible for the partial duty exemption available under item 806.20, Tariff Schedules of the United States (TSUS) (the precursor to HTSUS subheading 9802.00.50), when returned to the U.S. Specifically, the U.S. Court of Customs and Patent Appeals stated that:

...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 manufacture of finished articles. In the instant situation, the operations performed in Canada comprise further processing steps which are performed on unfinished goods and which lead to completed articles, i.e., the finished fabrics, and, therefore, the processing cannot be considered alterations.

Congress did not intend to permit uncompleted articles to be exported and made into finished products in the foreign country and when returned to be subject to duties only on the cost of the so-called alterations. U.S. v. J.D. Richardson Co., 36 CCPA 15, C.A.D. 390 (1948). In this regard, Customs has consistently held that the initial dyeing or bleaching of greige goods constitutes a finishing operation--a step in the manufacture of finished textile goods-which exceeds the meaning of the term "alteration" under this tariff provision.

In HQ 559283 (January 18, 1996), Customs held that U.S. origin greige fabric exported to Canada for dyeing and finishing operations was not eligible for the partial duty exemption provided under subheading 9802.00.50, HTSUS, as the dyeing operation undertaken in Canada went beyond an "alteration" within the meaning of the term under this tariff provision. Customs stated that the dyeing and finishing operations performed in Canada to the U.S. origin fabric constituted "intermediate processing operations which are performed as a matter of course in the preparation or the manufacture" of the desired end product, and thus the greige fabric was an incomplete article when exported from the U.S. to Canada.

Similarly, with respect to bleaching, Customs held in HQ 556617 (June 19, 1992), that U.S. origin greige fabric exported to Italy for dyeing, bleaching and printing was not eligible for the partial duty exemption provided under 9802.00.50, HTSUS, as the operations undertaken in Italy went beyond an "alteration" within the meaning of the term under this tariff provision. Consistent with the court cases and rulings cited above, we find that the bleaching and/or dyeing operations performed in Canada to the U.S. origin greige fabrics constitute "intermediate processing operations which are performed as a matter of course in the preparation or the manufacture" of the desired end product (bleached or bleached and dyed fabrics). Thus, either a bleaching or a dyeing operation goes beyond an "alteration" within the meaning of subheading 9802.00.50, HTSUS, and the greige fabric is considered to be an incomplete article when exported from the U.S. to Canada. Accordingly, the bleached or bleached and dyed fabrics returned to the U.S. from Canada are not eligible for the partial duty exemption provided under subheading 9802.00.50, HTSUS.

HOLDING:

On the basis of the information submitted, we find that the bleaching and/or dyeing operations performed to the U.S. origin greige fabrics in Canada constitute a step in the manufacture of finished textile goods and thus, exceed an "alteration" within the meaning of subheading 9802.00.50, HTSUS. Accordingly, the bleached or bleached and dyed fabrics returned to the U.S. from Canada are not eligible for the partial duty exemption provided under subheading 9802.00.50, 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 handling the transaction.

Sincerely,

John Durant, Director

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