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HQ 560277




May 29, 1997

CLA-2 RR:TC:SM 560277 KBR

CATEGORY: CLASSIFICATION

TARIFF NO.: 9801.00.10; 9802.00.50.

Patricia A. Johnson
Import Manager
C.H. Powell Company
6 Northway Ct. - Eastway Business Park
P.O. Box 270
Greer, SC 29652

RE: Yarn; 9801.00.10, HTSUS; 9802.00.50, HTSUS

Dear Ms. Johnson:

This is in response to your letter dated December 10, 1996, to the U.S. Customs Service, New York, and subsequently forwarded to this office, on behalf of Milliken & Co., concerning the eligibility of yarn for duty-free treatment under subheading 9802.00.50, Harmonized Tariff Schedule of the United States ("HTSUS") and 9801.00.10, HTSUS.

FACTS:

You state that Milliken & Co. will purchase 100% polyester yarn which was manufactured in the U.S. Milliken will then ship the yarn to Spain where the yarn will be dyed to give the yarn a "multicolored/space dye effect." Then the yarn will be imported to the U.S. Although your letter referenced the possible applicability of subheading 9801.00.80, HTSUS, to the returned yarn, we assume that you meant to refer to subheading 9801.00.10, HTSUS.

ISSUES:

1. Does the yarn qualify for duty-free treatment pursuant to 9801.00.10, HTSUS?

2. Does the yarn qualify for a partial duty exemption pursuant to 9802.00.50, HTSUS?

3. What are the country of origin marking requirements applicable to the yarn?

LAW AND ANALYSIS:

9801.00.10

Subheading 9801.00.10, HTSUS, provides for the free entry of products of the U.S. that have been exported and returned without having been advanced in value or improved in condition by any process of manufacture or other means while abroad, provided the documentary requirements of section 10.1, Customs Regulations are satisfied. While some change in the condition of the product while it is abroad is permissible, operations which either advance the value or improve the condition of the exported product render it ineligible for duty-free entry upon return to the U.S. Border Brokerage Company, Inc. v. United States, 314 F. Supp. 788 (1970), appeal dismissed, 58 CCPA 165 (1970).

The pertinent documents required by 19 CFR ?10.1, are a declaration from the foreign shipper that the articles were exported from the U.S. and that they are returned without having been advanced in value or improved in condition, and a declaration from the owner, importer, consignee, or agent that the articles were manufactured in the U.S. and that the articles were exported from the U.S. without benefit of drawback.

In this instance, the yarn is dyed, which is an advancement in value and an improvement in condition. Therefore, the yarn does not qualify for duty-free treatment under 9801.00.10, HTSUS.

9802.00.50, HTSUS

Subheading 9802.00.50, HTSUS, provides a partial or complete duty exemption for articles exported from and returned to the U.S. after having been advanced in value or improved in condition by repairs or alterations, provided the documentary requirements of section 10.8, Customs Regulations (19 CFR ?10.8), are satisfied. However, entitlement to this tariff treatment is precluded in circumstances where the operations performed abroad 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'g C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian Industries Corporation v. United States, 3 CIT 9 (1982). Subheading 9802.00.50, HTSUS, treatment is also precluded where the exported articles are incomplete for their intended use and the foreign processing operation is a necessary step in the preparation or 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 (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.

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 Company, 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 HQ 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, HTSUS, as the operations undertaken in Italy went beyond an "alteration" within the meaning of the term under this tariff provision. See also, HQ 555478 (dated July 23, 1990), HQ 555535, (dated March 15, 1990), HQ 039311 (dated April 11, 1985) and HQ 071501 (dated November 2, 1983).

In the instant case, U.S. yarn which is uncolored is exported to Spain where it is space-dyed. We find that this dying of the yarn is analogous to the dyeing of the greige goods as discussed above, and goes beyond the allowed repairs and alterations. Further, you state that in the U.S. the yarn undergoes a "special texturing process that facilitates processing ... in Spain." This indicates that the yarn is incomplete in its current condition, and that the yarn is being processed in the U.S. specifically to prepare it for another required operation. Therefore, we are of the opinion that the dying of the yarn in Spain constitutes an intermediate processing operation which is performed as a matter of course in the preparation or the manufacture of the desired end product. Accordingly, the U.S. yarn is an incomplete article when exported from the U.S. to Spain and is ineligible for the partial duty exemption under subheading 9802.00.50, HTSUS, upon its return to the U.S.

Country of Origin

On December 8, 1994, the President signed into law the Uruguay Round Agreements Act. Section 334 of that Act provides new rules of origin for textiles and apparel entered, or withdrawn from warehouse, for consumption, on and after July 1, 1996. On September 5, 1995, Customs published Treasury Decision (T.D.) 95-69, establishing Section 102.21, Customs Regulations, in the Federal Register, implementing Section 334 (60 FR 46188).

Thus, effective July 1, 1996, the country of origin of a textile or apparel product is determined by sequential application of the general rules set forth in paragraphs (c)(1) through (5) of section 102.21.

Paragraph (c)(1) states that "The country of origin of a textile or apparel product is the single country, territory, or insular possession in which the good was wholly obtained or produced." As the yarn is not wholly obtained or produced in a single country, territory or insular possession, paragraph (c)(1) of section 102.21 is inapplicable.

Paragraph (c)(2) states that "Where the country of origin of a textile or apparel product cannot be determined under paragraph (c)(1) of this section, the country of origin of the good is the single country, territory, or insular possession in which each of the foreign material incorporated in that good underwent an applicable change in tariff classification, and/or met any other requirement, specified for the good in paragraph (e) of this section:".

We have determined that the proper classification of the yarn is within subheading 5402.33.3000, Harmonized Tariff Schedule of the United States (HTSUS). The applicable rule for the change in tariff classification is found at 19 CFR through 5406 from any other heading, provided that the change is the result of an extrusion process." The extrusion process that created the yarn occurred in the United States.

However, T.D. 95-69, which established ?102.21(c)(3), did not amend section 12.130(c)(1) which states the following:

Applicability to U.S. articles sent abroad. Chapter 98, Subchapter II, Note 2, Harmonized Tariff Schedule of the United States, provides that any product of the U.S. which is returned after having been advanced in value or improved in condition abroad, or assembled abroad, shall be a foreign article for the purposes of the Tariff Act of 1930, as amended. In order to have a single definition of the term "product of" and, therefore, a single country of origin for a textile or textile product, notwithstanding paragraph (b), merchandise which falls within the purview of Chapter 98, Subchapter II, Note 2, Harmonized Tariff
Schedule of the United States, may not, upon its return to the U.S., be considered a product of the U.S.

Pursuant to T.D. 90-17, published in the Federal Register on March 1, 1990 (55 FR 7303), Customs extended the principles of country of origin for textiles and textile products contained in 19 CFR ?12.130 to such merchandise for all Customs purposes, including duty and marking. The dying operation performed on the yarn in Spain constitutes an advancement in value or improvement in condition. Therefore, the country of origin of the yarn is Spain, for quota, marking, and duty purposes pursuant to T.D. 90-17 and section 12.130(c).

Please be advised that Customs may propose to modify T.D. 90-17 to provide that section 12.130(c) would not apply for Customs marking purposes.

HOLDING:

The yarn does not qualify for full or partial duty-free treatment pursuant to subheading 9802.00.50, HTSUS, or subheading 9801.00.10, HTSUS. The country of origin of the yarn is Spain pursuant to T.D. 90-17 and 19 CFR ?12.130(c).

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.

The designated textile and apparel category may be subdivided into parts. If so, visa and quota requirements applicable to the subject merchandise may be affected. Since part categories are the result of international bilateral agreements which are subject to frequent renegotiations and changes, to obtain the most current information available, we suggest you check, close to the time of shipment, the Status Report on Current Import Quotas (Restraint Levels), an internal issuance of the U.S. Customs Service which is updated weekly and is available for inspection at the local Customs office.

Due to the changeable nature of the statistical annotation (the ninth and tenth digits of the classification) and the restraint (quota/visa) categories, you should contact the local Customs office prior to importation of this merchandise to determine the current status of any import restraints or requirements.

The holding set forth above applies only to the specific factual situation and merchandise identified in the ruling request. This position is clearly set forth in Section 177.9(b)(1), Customs Regulations (19 CFR ?177.9(b)(1)). This section states that a ruling letter is issued on the assumption that all of the information furnished in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect.

Should it be subsequently determined that the information furnished is not complete and does not comply with 19 CFR revocation. In the event there is a change in the facts previously furnished this may affect the determination of country of origin. Accordingly, it is recommended that a new ruling request be submitted in accordance with Section 177.2, Customs Regulations (19 CFR ?177.2).

Sincerely,

John Durant, Director
Tariff Classification Appeals

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