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HQ 559283





January 18, 1996

CLA-2 RR:TC:SM 559283 KKV

CATEGORY: CLASSIFICATION

TARIFF NO.: 9002.00.50

Mr. Richard W. Zuckerman
Doubletex
9785 Rue Jeanne-Mance St.
Montreal, Quebec H3L 3B6
CANADA

RE: Applicability of HTSUS 9802.00.50 to U.S. greige fabric exported to Canada for dyeing and finishing and returned to U.S; textile product; alterations; incomplete; intermediate processing;

Dear Mr. Zuckerman:

This is in response to your letter dated June 21, 1995, which requests a ruling regarding the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS) to U.S. greige fabric exported to Canada for dyeing and finishing before its return to the United States. We regret the delay in processing. No sample of the merchandise was submitted for examination.

FACTS:

We are informed that Doubletex is a Canadian firm which converts greige fabric for sale to apparel and home furnishing industries. Specifically, U.S. greige fabric is sent to Canada where the fabric undergoes dyeing and other finishing operations before its return to the United States. Upon entry into the U.S., duty is currently being paid upon the total value of the shipment, including the value of the U.S. greige fabric.

ISSUE:

Whether the greige fabric is a completed product when exported from the U.S., and therefore eligible for the partial duty exemption under subheading 9802.00.50, HTSUS, when returned to the United States.

LAW AND ANALYSIS:

Subheading 9802.00.50, 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 a repair or alteration and duty is assessed only on the cost or value of the repair or alteration abroad. 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. Tariff treatment under subheading 9802.00.50 is also 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), or where the foreign operation constitutes an intermediate processing operation, which is performed as a matter of course in the preparation or the 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, 1019 (1979).

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 an earlier alterations case, C.J. Tower & Sons of Niagara, Inc. v. United States, C.D. 2208, 45 Cust.Ct. 111 (1960), cotton drills were exported and subjected to multiple operations, including dyeing and finishing. The cotton cloth that was returned to the U.S. was similarly denied the partial duty exemption under this tariff provision because it was determined that the
merchandise was changed in color, width, length, porosity, in the distribution of the threads in the weave, in weight, tensile strength, and suppleness by the foreign processing. In holding that the foreign processing constituted more than an alteration, the court found that the returned merchandise was a new and different article, having materially different characteristics and a more limited and specialized use. Thus, intermediate processing operations which are performed in the preparation of finished articles do not come within the scope of the term "alterations."

Therefore, the focus is upon whether the exported article is "incomplete" or "unsuitable for its intended use" prior to the foreign processing. Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Customs has consistently held that the initial dyeing 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 Headquarters Ruling Letter (HRL) 556617 (dated June 19, 1992), Customs held that U.S.-origin greige fabric exported to Italy for dyeing, bleaching and printing was not eligible for the partial duty exemption provided by subheading 9802.00.50 as the operations undertaken in Italy went beyond an "alteration" within the meaning of the term under this tariff provision. See also, HRL 555478 (dated July 23, 1990), HRL 555535, (dated March 15, 1990), HRL 039311 (dated April 11, 1985) and HRL 071501 (dated November 2, 1983).

In the instant case, we are of the opinion that the dyeing and finishing operations performed in Canada to the U.S.-origin goods constitute "intermediate processing operations which are performed as a matter of course in the preparation or the manufacture" of the desired end product. Accordingly, we find in this case that the greige fabric is an incomplete article when exported from the U.S. to Canada, and, therefore, is ineligible for the partial duty exemption under HTSUS subheading 9802.00.50.

HOLDING:

On the basis of the information presented and our consistent position that the initial dyeing of greige fabric constitutes a step in the manufacture of finished textile goods, it is our opinion that the greige fabric exported to Canada for dyeing and finishing operations is not a finished product. Therefore, the returned fabric is ineligible for the partial duty exemption under HTSUS subheading 9802.00.50.

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,


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