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HQ 559673




October 9, 1996

CLA-2 RR:TC:SM 559673 KKV

CATEGORY: CLASSIFICATION

TARIFF NO.: 9002.00.50

Mr. Samuel Zekser
Sobel Shipping Company, Inc.
170 Broadway
Suite 1501
New York, NY 10038-4184

RE: Applicability of HTSUS 9802.00.50 to imported Korean wool fabric exported to England for coating and returned to U.S.; stain-resistant; water-repellant; coating; Teflon; textile product; alterations; HRL 555463; new and commercially different product; performance characteristics; specialized use

Dear Mr. Zekser:

This is in response to your letter dated January 11, 1996, on behalf of HMS International Fabrics Corporation, which requests a ruling regarding the dutiability and quota/visa requirements of wool fabric of Korean origin which is imported into the United States, duty paid, and subsequently exported to England for coating operations which render the fabric stain resistant and water repellant. Specifically, you inquire whether the merchandise will be eligible for the partial duty exemption provided under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), upon the return of the merchandise to the U.S. No sample of the merchandise was submitted for examination.

FACTS:

We are informed that HML International Fabrics Corporation (hereinafter "HML") imports certain wool fabric from Korea into the United States, upon which the appropriate duties are paid. HML proposes to export the fabric to England for further
finishing operations which consist of the application of certain transparent coatings which render the fabric stain resistant and water repellant. Three different agents, consisting of a Teflon coating as well as anti-static and wetting agents, are applied to the cloth by means of a continuous pad application. The coatings are then heat set at 170 degrees centigrade. Upon completion of the coating operation, the fabric is returned to the U.S.

ISSUE:

Whether Korean wool fabric, exported from the U.S. to England for chemical treatment operations which render the fabric stain resistant and water repellant, is 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 (1956), aff'd C.D. 1752, 36 Cust.Ct. 46 (1956) and Guardian Industries Corp. v. United States, 3 CIT 9 (1982), Slip Op. 82-4 (January 5, 1982). The duty partial exemption provided by subheading 9802.00.50, HTSUS, is also precluded where the exported articles are incomplete for their intended use and foreign operation constitutes an intermediate processing operation, which is performed as a matter of course in the preparation or the manufacture of finished articles. See 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).

The criteria to be examined in determining whether an operation performed abroad creates a new or commercially different article for purposes of subheading 9802.00.50, HTSUS, has been discussed in several court cases. In Burstrom v. United States, supra, the court held that where steel ingots were exported to Canada and converted into steel slabs, the imported slabs were not the same articles as the ingots, in that they differed in name, value, appearance, size, shape, and use. Thus, the operations performed abroad were not considered to be alterations within the meaning of paragraph 1615(g), Tariff Act of 1930, as amended, the precursor provision to item 806.20, TSUS.

In C.J. Tower & Sons of Niagara, Inc. v. United States, C.D. 2208, 45 Cust.Ct. 111 (1960), cotton drills - greige goods - were exported and subjected to multiple operations, including dyeing and finishing. Among the factors the court considered in determining that the finished cloth backing was a new or different article, thus precluding its eligibility for the partial duty exemption, was the fact that it had a specialized and more limited use than the griege goods, i.e., it was peculiarly adapted for use in the manufacture of coated abrasives.

In Dolliff & Company, Inc., v. United States, supra, a heat setting treatment performed abroad resulted in a permanent adherence of certain finishing chemicals to treated fabric, which had been exported as griege goods and returned as finished fabric suitable for manufacture into curtains. The griege goods and finished fabric were offered for sale and sold in different markets to different classes of buyers. The court held that where "foreign processing produces such changes in the performance characteristics of the exported article as to alter its subsequent handling and uses over that which earlier prevailed, the resultant product is of necessity a new and different article." 81 Cust. Ct. at 5, 455 F. Supp. at 622.

In Guardian Industries, supra, flat annealed glass produced in the United States was exported to Canada for tempering. The tempering made the glass suitable for its intended use as a patio door, because this additional process was required for the glass to meet safety requirements. The fact that the annealed glass without tempering could be used for a variety of purposes and thus, could have been considered finished for those uses did not deter the Court from ruling that, "the exported article is incomplete for its intended use and therefore requires a manufacturing process to make it complete, that process is not an alteration."

In Amity Fabrics, Inc. v. United States, 43 Cust.Ct. 64, C.D. 2104, 305 F.Supp. 4 (1959), unmarketable pumpkin-colored cotton twill-back velveteen was exported to be redyed a black color. The court found that the merchandise was advanced in value and improved in condition commercially by the dyeing operation and that such change constituted an alteration. The court further found that "the identity of the goods was not lost or destroyed by the dying process; no new article was created; there was no change in the character, quality, texture, or use of the merchandise; it was merely changed in color."

In Royal Bead Novelty Co. v. United States, 68 Cust.Ct. 154, C.D. 4353, 342 F.Supp. 1394 (1972), uncoated glass beads were exported so that they could be half-coated with an Aurora Borealis finish which imparted a rainbow-like luster to the half-coated beads. The court found that the identity of the beads was not lost or destroyed in the coating process and no new article was created. Moreover, there was no change in the beads' size, shape, or manner of use in making articles of jewelry (plaintiff testified that both uncoated and half-coated beads were used interchangeably). Accordingly, the court concluded that the application of the Aurora Borealis finish constituted an alteration within the meaning of item 806.20 and 19 CFR 10.8.

In Headquarters Ruling Letter (HRL) 555463, dated September 11, 1990, Customs considered pre-stained wooden spindles, otherwise ready for use, which were exported to Canada to be pressure treated with a preservative for the purpose of enhancing their marketability. Because of the protection afforded by the preservative, its application had the effect of substantially enhancing the durability and longevity of the wooden spindles. Lacking a sample of the untreated spindles, Customs stated, "although it is not clear whether the spindles, as exported, are considered to be incomplete articles within the meaning of Dolliff and Guardian Industries, it is apparent that the pressure-treatment process performed in Canada results in a commercially different product with new performance characteristics and a specialized use" and held that the articles were ineligible for the partial duty exemption provided under subheading 9802.00.50, HTSUS.

Specifically with regard to coating operations, Customs held in HRL 554883, dated June 16, 1989, that coating polypropylene film with acrylic or saran creates a new article with a different use, thereby precluding eligibility for the duty exemption available under subheading 9802.00.50. Likewise, in HRL 555766, dated April 2, 1991, Customs considered fabric exported to Canada for a variety of acrylic coating and cutting operations. Customs held that such operations exceeded "alterations" where the coating operation changed the characteristics and use of the fabric by making it stronger and more durable, suitable for use in furniture upholstery and vertical blinds. Additionally, in HRL 555143, dated May 19, 1989, the chemical treatment of greige cotton fabric with chemicals so as to render it fire-retardant was not an "alteration" but constitutes mere intermediate processing of unfinished goods where the fabric was not otherwise suitable for use in draperies or upholstery.

In HRL 555124, dated November 11, 1988, Customs considered a brushing operation performed on fabric used in the making of women's raincoats and found that while the brushing process imparted a slightly different appearance to the fabric, it did not appear to significantly change the quality, texture or character of the fabric. Accordingly, we held that the brushing operation constituted an "alteration" for purposes of subheading 9802.00.50, HTSUS.

Additionally, in HRL 554945, dated June 14, 1988, we held that the process of "crushing" fabric abroad constituted an "alteration" within the meaning of item 806.20, TSUS. In that case, fabric was exported to France where it was subjected to a processing operation designed to impart a permanent "crushed" or wrinkled look to the fabric, before being returned to the U.S. for use in producing women's swimsuits. Customs held that the identity of the fabric was not lost or destroyed by the "crushing" operation and this process did not result in the creation of a new and different commercial article. The "crushing" process also did not appear to result in any significant change in the quality, texture, or character of the fabric.

In HRL 554192, dated September 5, 1986, Customs held that treating shakes and shingles with fire retardant chemicals in Canada qualified as an alteration eligible for purposes of 806.20, TSUS, because the products were completed articles ready for their intended use, were regularly so used in their untreated condition, and appeared to be preferred over the more expensive treated product by the vast majority of customers. We also stated that they did not lose their identity in the fire-retardant process.

With regard to the case under consideration, because the ruling request did not include a sample of either the treated or untreated fabric, we contacted a representative of the importer. We were informed, telephonically, that the wool fabric is sold as suiting in its untreated condition and can be used as such after undergoing chemical coating operations in England. We note, however, that the importer is merely a seller of the fabric and does not use the article in manufacturing operations.

The present case may be distinguished from Royal Bead, where the coating of glass beads with a lustrous rainbow finish was held to be an acceptable "alteration" within the meaning of subheading 9802.00.50, HTSUS. There, the coating of the beads did not affect their manner of use, as both the coated and uncoated beads could be used interchangeably. In the case before us, however, the chemical treatment of the fabric, which renders it stain resistant and water repellant, is not cosmetic in nature, but affects the manner of use of the treated fabric. Stain-resistant, water-repellant fabric, by virtue of its chemical treatment, is more suitable for use as outerwear and upholstery. The effect of the chemical treatment on the wool fabric is similar to the pressure treatment of the wooden spindles in HRL 555463, dated September 11, 1990, discussed above. Like the spindles, the foreign operations performed on the wool fabric alter the performance capability of the treated merchandise, resulting in the creation of a commercially different product with new performance characteristics and a more specialized use.

Upon review, we are of the opinion that the operations performed in England, which render the fabric stain resistant and water repellant , resulting in a new and commercially different article with materially different characteristics and a specialized use, are beyond the scope of "alterations," as that term is used subheading 9802.00.50, HTSUS. Accordingly, the fabric is ineligible for the partial duty exemption provided by subheading 9802.00.50, HTSUS, upon its return to the United States.

With regard to your inquiry regarding the quota/visa requirements of the subject merchandise, we note that the international bilateral agreements concerning textile articles are subject to frequent renegotiations and changes. Therefore, to obtain the most current information available, we suggest that, close to the time of shipment, you check the Status Report on Current Import Quotas (Restraint Levels), an issuance of the Customs Service, which is updated weekly and is available at your local Customs office.
HOLDING:

On the basis of the information presented, it is our opinion that coating operations performed abroad, which render wool fabric stain resistant and water repellant, resulting in a new and commercially different article with materially different performance characteristics and a specialized use, are beyond the scope of "alterations." Accordingly, the fabric is ineligible for the partial duty exemption provided by subheading 9802.00.50, HTSUS, upon its return to the U.S.

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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