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HQ 559795




September 13, 1996

CLA-2 RR:TC:SM 559795 DEC

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

Mr. Robert Noell
Cain Customs Brokers
Texano Industrial Park
415 South Industrial
Hidalgo, Texas 78557

RE: Applicability of partial duty exemption under subheading 9802.00.50, HTSUS, to cotton linters exported to Mexico for processing and returned to the U.S.; alterations; 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); Dolliff & Company, Inc. v. United States, 455 F. Supp.
618 (CIT 1978), aff'd, 559 F.2d 1015 (Fed. Cir. 1979); HRL 559207;
HRL 559283; HRL 543869; HRL 554834; HRL 557794; HRL 555385; Article 509

Dear Mr. Noell:

This is in response to your letter dated April 9, 1996, on behalf of Alfa Trading Company, Incorporated (Alfa Trading) requesting a ruling concerning the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to cotton linters exported to Mexico for processing and then returned to the United States. Samples were submitted for our review.

FACTS:

You state that Alfa Trading has been importing cotton linters from Mexico and now seeks a ruling on whether the cotton linters qualify for entry pursuant to subheading 9802.00.50, HTSUS, and 19 CFR 181.64. You state that the cotton linters sent to Mexico are the after-product of the ginning of cotton. You state that after the cotton is harvested in the U.S., cotton seeds are removed as the cotton fibers are pulled through a grid by a series of circular saws. The clean fibers are carried off the saws using air blasts or suction. The clean fibers are carried to a condenser and then to a balling apparatus. Cotton linters are the short fibers that cling to cotton seeds after the first ginning. A second ginning, through a linter machine, removes the short fibers from the cotton seeds.

The cotton linters are then shipped to Mexico where they are subjected to the following operations:

1. The linters are graded and separated according to ultimate end use.
2. The linters are run through a picker or breaker that chops the linters into bits.
3. The linters are then cleaned mechanically to remove foreign material and impurities.
4. The linters are then cleaned chemically to further purify the linters (caustic soda and sulfuric acid). This cleaning operation also includes the use of heat and pressure (360 degrees Fahrenheit and 150 pounds per square inch).

You contend that the imported articles are eligible for entry pursuant to subheading 9802.0.50, HTSUS, since the cotton linters are merely cleaned abroad which does not result in a change in tariff classification of the articles.

ISSUE:

Whether the processing of the cotton linters as described above in Mexico in the manner described above constitutes an alteration, thereby entitling the returned products to duty-free treatment under subheading 9802.00.50, HTSUS.

LAW AND ANALYSIS:

Articles returned to the United States after having been exported to Mexico to be advanced in value or improved in condition by repairs or alterations may qualify for duty-free treatment 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 exported to be repaired or altered in Mexico are entitled to duty-free treatment 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 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 cotton linters maintain their essential identity throughout the processing in Mexico and that the foreign processing only removes impurities from the cotton linters. You cite the Explanatory Notes to the HTSUS which state that the cotton linters are classified in the same tariff provision whether they are raw, cleaned, bleached, etc. We disagree with your conclusion that the processing constitutes a qualifying alteration.

In Dolliff & Company, Inc. v. United States, 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 United States, 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 subheading 9802.00.50, HTSUS), when returned to the United States. 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. United States 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. HRL 559207, dated February 2, 1996.

In HRL 559283, dated 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. Customs stated that the dyeing and finishing operations performed in Canada to the U.S.-origin fabric constituted "intermediate processing operations which were 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 United States to Canada.

In HRL 543869, dated January 19, 1987, we determined the cracking and separating of various parts of eggs consisted of operations which exceeded the meaning of the term "alterations." In that case, we found that the returned processed egg yolks constituted new and commercially different articles than the exported whole eggs and that this process was an intermediate step in the preparation of the finished product which could not be characterized as an alteration. In HRL 554834, dated May 25, 1988, Customs found that shelling of pecans was an operation which exceeded a repair or alteration. Customs found the pecan pieces to be "commercially different" and that the pecan pieces were "incomplete for their intended use and require a further step in preparation of the finished meat product." See also HRL 557794, dated May 23, 1994 (U.S. origin chili sent to Mexico in a chopped, dehydrated state to be cleaned, selected (refined) and coarsely ground before being returned to the U.S. was not eligible for a partial duty exemption under subheading 9802.00.50, HTSUS, since it was deemed to be incomplete for its intended use prior to the foreign operations) and HRL 555385, dated August 6, 1990 (the removal of caffeine from raw coffee was deemed to be an intermediate step in making a finished product which defeated the importer's claim that the operation was an alteration pursuant to subheading 9802.00.50, HTSUS).

The Court of Customs and Patent Appeals has addressed the issue of whether an exported article that is sent abroad to be processed and then subsequently imported under the same tariff classification qualifies for the partial duty exemption afforded to repairs or alterations. In A.F. Burstrom the court stated the following:

Appellant attempts to distinguish the instant case from United States v. The J.D. Richardson Company, 36 C.C.P.A. (Customs) 15, C.A.D. 390. The court there held that unflanged rims or flat bands exported from this country and reimported after being flanged by three pressing operations, had been changed to new articles and had not merely been altered. Here the foreign processing has likewise created new articles and the law of the Richardson case applies. Appellant argues that the fact that the exported ingots and the imported slabs, in the instant case, would be dutiable under the same paragraph distinguishes this case from the Richardson case where the exported and imported wares were subject to different duties. This difference is immaterial where the foreign processing has created a new article.

Consequently, regardless of whether the exported cotton linters have the same classification as the articles that are subsequently imported after the processing is performed in Mexico, the important inquiry for purposes of eligibility under subheading 9802.00.50, HTSUS, is whether the cotton linters, in their condition as exported from the U.S., are completed articles suitable for their intended use. Upon examination of the sample of the article before the processing in Mexico and the sample article as imported into the United States and a review of the documentary evidence, it is readily apparent that the cotton linters that are exported to Mexico are not completed articles. Similar to the rulings and case law cited above, we find that the operations to be performed in Mexico constitute intermediate processing operations which need to be performed in the preparation of the desired end product, and thus the cotton linters are an incomplete article when exported from the United States to Mexico. Therefore, the processing to be performed in Mexico exceeds the scope of the term "alteration."

HOLDING:

On the basis of the information submitted, we find that the processing of the cotton linters in Mexico as described above constitutes an intermediate step in the manufacture of a finished article and thus, exceeds an "alteration" within the meaning of subheading 9802.00.50, HTSUS. Accordingly, the cotton linters returned to the United States from Mexico are ineligible for duty-free treatment 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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