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HQ 559711




October 4, 1996

CLA-2 RR:TC:SM 559711 KKV

CATEGORY: CLASSIFICATION

TARIFF NO.: 9002.00.50 and 9802.00.80

Mr. Larry U. Rose
International Marketing and Sales, Inc.
1301 Highway 407
Suite 201
Lewisville, TX 75067

RE: Applicability of HTSUS 9802.00.50 and 9802.00.80 to U.S. nylon yarn exported for processing abroad and returned; textile product; alterations; incomplete; intermediate processing; new and commercially different product; covered rubber thread; covered spandex thread; advanced in value; acceptable assembly;

Dear Mr. Rose:

This is in response to your letter dated February 20, 1996, and subsequent facsimile dated September 24, 1996, which requests a ruling regarding the eligibility of certain prospective importations of rubber thread and spandex thread for the various duty exemptions provided under heading 9802, Harmonized Tariff Schedule of the United States (HTSUS), upon their return to the U.S. No samples were submitted for examination.

FACTS:

We are informed that International Marketing and Sales, Inc., plans to export U.S.-origin nylon yarn, classified under 5402.51.00, HTSUS, to Venezuela for use in the production of covered thread, which involves mechanically wrapping one or two strands of nylon yarn, from 20 to 80 turns per inch, around a single strand of foreign elastic thread of either rubber or spandex. Upon importation into the U.S., the rubber thread,
intended for use in the production of hosiery and elastic fabrics, will be classified under subheading 5604.10.00, HTSUS. The spandex thread, also intended for use in the production of hosiery and elastic fabrics, will be classified under subheading 5606.00.00, HTSUS. We are informed that the finished products will be significantly different from the components in character and application.

ISSUE:

I. Whether mechanical winding operations performed abroad, which combine U.S.-origin nylon yarn with foreign rubber or spandex thread, qualifies as an alteration, thus rendering the thread eligible for the partial duty exemption provided under subheading 9802.00.50, HTSUS, upon the return of the finished covered thread to the U.S.

II. Whether U.S.-origin nylon yarn which is combined with foreign rubber or spandex thread by means of a mechanical winding operation will be entitled to the partial duty exemption under subheading 9802,00,80, HTSUS, upon importation into the U.S.

LAW AND ANALYSIS:

I. Applicability of subheading 9802.00.50, HTSUS

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 partial duty 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).

In Dolliff & Company, Inc. v. U.S., supra, 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.

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."

In Amity Fabrics, Inc. v. United States, C.D. 2104, 43 Cust.Ct. 64, 305 F.Supp. 4 (1959), the court held that unmarketable, pumpkin colored cotton twill-back velveteen which was exported to be redyed rendered the fabric marketable and that this improvement in the exported fabric advanced its value and improved its condition commercially. As the parties had stipulated that the redyeing in no way changed the quality, texture, or character of the material, the court concluded 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; and that such change constituted an alteration under the statute and Customs Regulations.

In the instant case, we find that the mechanical winding of the U.S.-origin nylon yarn around foreign origin rubber or spandex thread is analogous to situation presented in C.J. Tower & Sons of Niagara, supra, where foreign processing resulted in the creation of a new or commercially different article. Indeed, as indicated in your facsimile, "the finished product will be significantly different from the components in characteristics and application." Accordingly, we find that the winding operation exceeds an "alteration" to the nylon yarn, rendering it ineligible for the partial duty exemption under subheading 9802.00.50, HTSUS, upon importation of the covered thread into the United States.

II. Applicability of 9802.00.80, HTSUS

HTSUS subheading 9802.00.80 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, lubrication, and painting.

All three requirements of HTSUS subheading 9802.00.80 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 such U.S. components, upon compliance with the documentary requirements of section 10.24, Customs Regulations (19 CFR 10.24).

Section 10.14(a), Customs Regulations (19 CFR 10.14(a)), states in part that:

[t]he components must be in condition ready for assembly without further fabrication at the time of their exportation from the United States to qualify for the exemption. Components will not lose their entitlement to the exemption by being subjected to operations incidental to the assembly either before, during, or after their assembly with other components.

Section 10.16(a), Customs Regulations (19 CFR 10.16(a)), provides that assembly operations for purposes of subheading 9802.00.80 encompass any method used to join together solid components such as sewing, welding, soldering, riveting, force fitting, gluing, or the use of fasteners and may be accompanied by operations that are incidental to the assembly as provided in section 10.16(b).

In the case before us, covered thread is assembled by mechanically winding U.S.-origin nylon yarn around foreign rubber or spandex thread. We find this operation to be analogous to the situation presented in Headquarters Ruling Letter (HRL) 555128, dated January 9, 1989, where Customs held that the twisting of yarn on a machine to form twines is an acceptable assembly operation for purposes of 9802.00.80, HTSUS, because it is a method used to combine or join yarns, which are solid components. See also HRL 553593, dated May 16, 1985 and HRL 554531, dated May 29, 1987.

Under the facts presented, nylon yarn, which is ready for assembly without further fabrication, is exported to Venezuela where it is joined to another solid - either foreign rubber or foreign spandex thread - by means of mechanical winding, an assembly process analogous to one which Customs has previously found acceptable for purposes of 9802.00.80, HTSUS. Although the nylon yarn is wound around a foreign material, the nylon yarn does not lose its form or shape as nylon yarn. Moreover, the nylon yarn is advanced in value or improved in condition as a result of its assembly with either rubber or spandex thread, as it results in a new product with different performance characteristics. Accordingly, it is our determination that the covered rubber and spandex thread will be eligible for an allowance in duty under subheading 9802.00.80, HTSUS, for the cost or value of the U.S.-origin nylon yarn, upon compliance with the documentary requirements of 19 CFR 10.24.

HOLDING:

On the basis of the information provided, mechanical winding operations performed abroad, which create a new and commercially different product by combining U.S.-origin nylon yarn with foreign rubber or spandex thread, exceeds an "alteration," within the meaning of subheading 9802.00.50, HTSUS. Accordingly, the finished covered thread is ineligible for the partial duty exemption provided under subheading 9802.00.50, HTSUS, upon importation into the U.S.

On the basis of the information provided, U.S.-origin nylon yarn which is assembled into covered thread by means of a mechanical winding operation will be entitled to a duty allowance under subheading 9802.00.80, HTSUS, upon compliance with the documentary requirements of 19 CFR 10.24.

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,

John Durant, Director

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