United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 1998 HQ Rulings > HQ 560135 - HQ 560470 > HQ 560325

Previous Ruling Next Ruling
HQ 560325




January 27, 1998

CLA-2 RR:TC:SM 560325 KKV

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

Port Director
U.S. Customs Service
477 Michigan Avenue,
Suite 200
Detroit, MI 48226

RE: Application for Further Review of Protest No. 3801-96-10246, concerning denial of partial duty exemption to white wine glass stemware silkscreened abroad and returned to the U.S.; subheading 9802.00.50, HTSUS; Royal Bead Novelty Co. v. United States; HRL 557161; stemware sold in undecorated state; article complete for intended use upon exportation

Dear Sir or Madam:

The above-referenced protest, timely filed on behalf of Libbey Glass, Inc., concerns the eligibility of decorated U.S.-origin white wine glass stemware for duty-free treatment under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS). Protestant contends that the article at issue is eligible for a partial duty exemption as an article returned to the U.S. after having been exported for repairs or alterations.

FACTS:

We are informed that Libbey Glass, Inc., manufactures white wine stemware in the United States. As part of the manufacturing process, the stemware is annealed to remove the stresses created in the forming process of the glassware. The annealing process is performed when the glassware is originally formed. The glassware enter the forming annealing lehr at approximately 1000ø Fahrenheit. The temperature is raised to 1050ø Fahrenheit, then slowly cooled to room temperature. We are told that, upon completion of this process, the stemware is a finished article and is offered for sale by Libbey Glass,

Inc. in its food service catalog and sold to customers, including restaurant chains, in its undecorated state.

The glassware subject to this protest was exported to Canada where it was further processed by decoration with a pictorial winter scene. The decorative process involves the application of hot enamels to stemware by a silkscreen process. The undecorated stemware enters the decorating lehr at room temperature. It is heated to 1100ø Fahrenheit to fire the ceramic enamel and slowly cooled to room temperature. We are informed that the annealing performed as part of the decorative process does not change the physical properties of the glassware and that the resistance to thermal shock and mechanical impact of the articles are unchanged as a result of the second annealing. The breaking pattern of the glass remains the same after the decoration process. The second annealing does not add or reduce stress, but serves only to bond the enamel decoration to the glassware.

On April 2, 1996, Customs issued a Notice of Action which classified the merchandise under subheading CA7013.29.2000, HTSUS, and assessed a rate of 9 percent of the invoice value for imports from Canada.

ISSUE:

Whether U.S. glass stemware, exported to Canada for decorative silk-screening, is entitled to a partial duty exemption under subheading
9802.00.50, HTSUS, upon its return to the U.S.

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, provided that the documentary requirements of section 181.64(c), Customs Regulations (19 CFR 181.64(c)), are met. 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 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. 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).

Section 181.64(a) defines "repairs or alterations" for purposes of the North American Free Trade Agreement (NAFTA) as follows:

For purposes of this section, "repairs or alterations" means restoration, addition, renovation, redyeing, cleaning, resterilizing, or other treatment which does not destroy the essential characteristics of, or create a new or commercially different good from, the good exported from the United States.

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), cert. denied, 336 U.S. 936 (1949). 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).

In Amity Fabrics, Inc. v. United States, 43 Cust.Ct. 64, C.D. 2104, 305 F.Supp. 4 (1959), unfashionable "pumpkin" colored cotton twill-back velveteen was exported to be redyed a black color, which was more marketable. 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 under paragraph 1615(g) of the Tariff Act of 1930 (the precursor to item 806.20, TSUS, which is, in turn, the precursor of subheading 9802.00.50, HTSUS). 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. Although both the coated and uncoated beads were used interchangeably in making costume jewelry, the "rainbow" finish of the coated beads was currently in fashion while there was a lack of demand for the uncoated beads. In relying of the rationale in Amity Fabrics, supra, the court stated:

The identity of the articles in question was not lost or destroyed in the coating process and no new articles were created; beads came out and beads came back.
Moreover, there was no change in the size, shape, or manner of use in making articles of jewelry. The sole change was in the finish in that the imported beads now possessed a rainbow-like luster.
This did not change their quality, texture or character.

Accordingly, the court concluded that the application of the Aurora Borealis finish constituted an alteration within the meaning of item 806.20, TSUS and 19 CFR 10.8.

In Headquarters Ruling Letter (HRL) 557161, dated June 28, 1993, Customs considered interior wood shutters exported for staining, lacquering and packaging. Customs found that the use of the shutters - to provide privacy, light and ventilation - was unchanged regardless of whether the articles were painted or unpainted. Noting that the shutters were sold both in their painted and unpainted condition, Customs determined that the articles were complete for their intended use upon exportation and, using the analysis set forth in Amity Fabrics, supra, and Royal Bead, supra, held that the stained and lacquered shutters were entitled to the partial duty exemption provided by subheading 9802.00.50, HTSUS.

Although Customs published a notice in the Customs Bulletin, Volume 29, Number 36, on September 6, 1995, proposing to modify HRL 557161, supra, to reflect that the painting and staining abroad of unpainted interior shutters would not be considered to be alterations under subheading 9802.00.50, HTSUS, this proposed action was withdrawn in a notice published in the Customs Bulletin, Volume 31, Number 51, on December 17, 1997. Accordingly, it remains Customs position that the painting or staining abroad of exported wooden interior shutters is not a necessary step in the production of the shutters and in such an instance, these operations qualify as alterations for purposes of the partial duty exemption under subheading 9802.00.50, HTSUS.

In the instant case, undecorated U.S.-origin glass stemware is exported to Canada where it undergoes decorating operations consisting of the application of hot ceramic enamel images to the stemware surface by a silk screen and heating sufficient to fire the ceramic enamel image. Initially, we note that the use of the stemware, as a drinking vessel without handles, is unchanged whether the stemware is decorated or undecorated. Thus, the articles are complete for their intended use when exported to Canada. As in Royal Bead, supra, the processing abroad results only in a change to the appearance of the stemware, and does not alter the function, character or identity of the exported articles. The merchandise sent is finished white wine stemware, marketable in the condition exported, and what is returned is the same merchandise, available to the same class of customers, albeit enhanced in appearance by a decorative winter scene. Therefore, it is our determination that the decorative silkscreening operation performed on the finished white wine stemware in Canada constitutes an "alteration" within the meaning of subheading 9802.00.50, HTSUS. Therefore, the decorated, U.S.-origin white wine glass stemware is eligible for the partial duty exemption provided by subheading 9802.00.50, HTSUS.

HOLDING:

On the basis of the information provided, we find that the decorative silkscreening operation performed in Canada to the white wine glass stemware as described above constitutes a qualifying alteration. Thus, the returned stemware is entitled to the partial duty exemption under subheading 9802.00.50, HTSUS. Accordingly, the protest should be granted in full.

In accordance with Section 3A(11)(b) of Customs Directive 099-3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to customs
personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director
Commercial Rulings Division

Previous Ruling Next Ruling

See also: