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HQ 560445




December 8, 1997

CLA-2 RR:TC:SM 560445 JML

CATEGORY: CLASSIFICATION

TARIFF NO: 9802.00.80

Mr. Laurence Lasoff, Esq.
Mr. John Brew, Esq.
Collier, Shannon, Rill & Scott, PLLC
3050 K Street, N.W.
Suite 400
Washington, D.C. 20007

RE: Eligibility of fur coats assembled abroad for a partial duty exemption under subheading 9802.00.80, HTSUS; fabricated components; E. Dillingham, Inc., v. United States, 67 Cust.Ct. 226, C.D. 4278 (1971), modified, 60 CCPA 39, C.A.D. 1078, 470 F.2d 629 (1972); Samsonite Corp. v. United States, 12 CIT 1146; 702 F. Supp 908 (1988); substantial transformation; further fabrication.

Dear Sirs:

This is in response to your letter of March 26, 1997, to the Director, National Commodity Specialist Division, United States Customs Service ("Customs"), requesting a binding ruling on fur coats assembled abroad for a partial duty exemption under subheading 9802.00.80, Harmonized Tariff Schedule of the United States ("HTSUS"). That ruling request was submitted on behalf of your client, the N.Y. Fur Place, Inc., a garment importer and wholesaler. That request was forwarded to our office for consideration and issuance of a final determination. On October 21, 1997, you met with Customs to discuss the case. Samples of the furskins were submitted for examination.

FACTS:

N.Y. Fur Place, Inc. ("N.Y.") intends to export furskins abroad for assembly into fur coats. The furskins used would be primarily from fox, minks and beavers. The furskins would be imported into the United States from various Scandinavian countries after the animal has been killed and the meat has been removed so that all that is remaining is the whole skin. The heads, tails and paws of the furskins would be left intact. In the United States the furskins would be "dressed," a process you describe as chemical treatment to make the skins soft and clean.

Once dressed the furskins would be shipped abroad, primarily to China, for assembly into fur coats. Before assembly, the furskins would be laid out and flattened. The heads, tails and paws are then removed. (Through an additional submission, you ask Customs to consider a scenario in which the heads, tails and paws of the furskins are removed in the United States prior to export.) The furskins would be dipped in a wetting solution and in some cases sliced diagonally or "let out" to enable stretching of the skins to meet a specific pattern. The furskins would then be nailed side-by-side on a board in accordance with the pattern. Once dry, the individual furskins would be sewn together to form the coat shell, to which a precut cloth liner (cut to the shape of the coat) is attached. The fur coats would then be exported to the United States. You contend that the imported fur coats are eligible for a partial duty reduction under subheading 9802.00.80, HTSUS, for the cost or value of the furskins.

In support of your position, you argue that dressing the furskins in the United States transforms them into U.S. fabricated components exported in condition ready for assembly. Accordingly, you assert that the foreign operations -- cutting off the heads, tails and paws (in some situations "letting out" the furskins as well), wetting them, stretching them to the pattern of the coat, nailing them side-by side in accordance with that pattern, and sewing them together along with a precut liner are either acceptable forms of assembly or operations incidental thereto.

ISSUE:

Whether the assembled fur coats, upon their importation into the U.S., are eligible for a partial duty exemption under subheading 9802.00.80, HTSUS.

LAW AND ANALYSIS:

Subheading 9802.00.80, HTSUS, 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 subheading 9802.00.80, HTSUS, 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 the assembly operation performed abroad may consist of any method used to join or fit together solid components, such as welding, soldering, riveting, force fitting, gluing, laminating, sewing, or the use of fasteners.

Operations incidental to the assembly process are not considered further fabrication operations, as they are of a minor nature and cannot always be provided for in advance of the assembly operations. Such operations are performed on components which are fully formed and fabricated upon exportation. However, any significant process, operation or treatment whose primary purpose is the fabrication, completion, physical or chemical improvement of a component precludes the application of the exemption under subheading 9802.00.80, HTSUS, to that component. See 19 CFR 10.16(c)

For purposes of this ruling, to the extent you describe the production process of the coats abroad as involving the sewing together of the components, we assume the sewing alone qualifies as an acceptable form of assembly. See 19 CFR 10.16(a) Rather, our inquiry focuses on whether the furskins qualify as fabricated components, the product of the United States, exported in condition ready for assembly as required by subheading 9802.00.80, HTSUS.

A. Product of the United States

As stated above, the furskins in this case are imported into the United States where they are "dressed," or chemically treated to make them soft and clean. We further note, from information you provided at the October 21, 1997 meeting, that undressed furskins are not suitable for use in manufacturing fur garments. Dressing furskins aims at the creation of a soft, pliable pelt. In addition to chemical treatment, dressing generally involves wetting the furskins, removing any flesh or membranes that remain, and oiling or greasing the fur. Any excess oil or grease is then removed by tumbling the furskins in sawdust.

Section 10.12(e), Customs Regulations (19 CFR 10.12(e)), provides that foreign material may be a "product of the United States" if it is "substantially transformed" by a process of manufacture in the United States into a new and different article, or is merged into a new and different article. Section 10.14(b) provides that a "substantial transformation" occurs when, as a result of manufacturing processes, a new and different article emerges, having a distinctive name, character and use, which is different from that originally possessed by the article or material before being subject to the manufacturing process. If the manufacturing or combining process is merely a minor one which leaves the identity of the article intact, a substantial transformation has not occurred. See Belcrest Linens v. United States, 573 F. Supp. 1149 (CIT 1983), 741 F.2d 1368 (1984). A "fabricated component" is defined in section 10.12(d), Customs Regulations (19 CFR 10.12(d)) as a manufactured article ready for assembly in the condition exported.

Customs Headquarters has addressed only once, in part, the legal effect of dressing furskins. In Headquarters Ruling Letter ("HRL") 559623, dated February 1, 1996, Customs held that foreign sourced beaver and coyote pelts were substantially transformed in the U.S. into detachable hood trim by operations which included dressing, soaking, stretching, cutting to size and sewing a grosgrain ribbon onto the strips and adding polyfill. In that case, Customs found that the finished products had a character and commercial identity distinct from the raw material from which they were produced, and had been substantially transformed by the processing into U.S. fabricated components ready for assembly. By contrast, in New York Ruling Letter ("NY") A87782, dated October 23, 1996, Customs considered whether U.S.-origin furskins dressed abroad qualified for duty free treatment under subheading 9802.00.40, HTSUS. In holding that the skins did not qualify for tariff treatment under that provision, Customs found that the dressing operations exceeded "repairs or alterations" as those terms are used under subheading 9802.00.40, HTSUS. Customs concluded that dressing furskins resulted in a substantial transformation of the furskins into "fabricated product[s] of the country where the dressing operations took place."

HRL 559623 is distinguishable from the present case as the processing involved in HRL 559623 exceeded merely dressing the furskins, but included cutting to size and sewing. Therefore, HRL 559623 is of limited precedential value to the facts of the present case.

However, we agree with NY A87782, to the extent that it holds dressing furskins substantially transforms them into a product of the country where the dressing operations take place. Based upon the information and samples submitted, we are of the opinion that the dressing operations change the character of the raw furskins into that of a soft, pliable furskin capable for use in the manufacturing of garments. We therefore hold that dressing raw furskins is an operation which substantially transforms them into products of the country where the dressing operations are performed.

We note that NY A87782 stated that the dressing process transformed the good into a product "ready to be assembled with other components to create a garment." As the issue of subheading 9802.00.80, HTSUS, eligibility was neither raised nor discussed in that ruling, we decline to interpret the above-quoted language as indicating that dressed furskins satisfy any or all of the three conditions of this tariff provision set forth in clauses (a) through (c). A determination of whether U.S.-origin components are "exported in condition ready for assembly without further fabrication," as required by the statute, cannot be made until the nature of the foreign operations are considered.

B. Fabricated Components Exported in Condition Ready for Assembly

Once abroad, the information you provided indicates that the heads, paws and tails of the furskins will be cut off, and in some instances the furskins will be "let out." You argue that such cutting operations are operations incidental to assembly which do not disqualify the furskins from subheading 9802.00.80, HTSUS, treatment. In support you cite section 10.16(b)(4), Customs Regulations (19 CFR 10.16(b)(4)), which expressly provides that trimming, filing or cutting off of small amounts of excess materials is an operation incidental to assembly.

The correct starting point for the application of subheading 9802.00.80, HTSUS, is the components as "exported," in the condition in which they leave the United States. See E. Dillingham, Inc., v. United States, 67 Cust.Ct. 226, C.D. 4278 (1971), modified, 60 CCPA 39, C.A.D. 1078, 470 F.2d 629 (1972) In other words, the first hurdle to clear in qualifying an article for subheading 9802.00.80, HTSUS, treatment is to determine whether the U.S. components exported are ready for assembly as required by clause (a) of that provision. In this regard, section 10.14(a), Customs Regulations (19 CFR 10.14(a)), provides, 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. (Emphasis supplied).

As there is no one, all-embracing definition of what steps or processes constitute "further fabrication" within the meaning of this statutory provision, whether a particular foreign process constitutes a "further fabrication" depends upon the facts of the particular case. See Zwicker Knitting Mills v. United States, C.D. 4786, 82 Cust.Ct. 34, 469 F.Supp. 727 (1979), aff'd, C.A.D. 1240, 67 CCPA 37, 613 F.2d 295 (1980).

In Dillingham, fiber and fabric were exported to be assembled into papermaker's felts. However, before the fibers were needled into the fabric, they were subjected to certain preparatory processing steps. Stating that "the correct starting point for the application of item 807.00 (the precursor tariff provision to subheading 9802.00.80, HTSUS) must be the components as exported,' in the condition in which they leave the United States," the court found the opening, oiling, and carding operations performed on fiber exported in bulk, baled form before it met up with the fabric component constituted "further fabrication" of the fiber within clause (a) of TSUS item 807.00, for without the performance of these operations, the en masse fiber component was not ready for assembly. Accordingly, the duty exemption was denied to the fiber.

In Samsonite Corp. v. United States, 12 C.I.T. 1146, 702 F. Supp.908 (1988), aff'd, 898 F.2d 1074 (1989) (involving item 807.00), U.S.-origin strips of steel were exported to be incorporated into luggage as the frame. Before assembly, the steel strips were bent into a square-sided letter "C". The facts also reflected that this bending process had at one time been performed in the United States before assembly abroad. The Court of International Trade held that because the bending created the component to be assembled, the essence of which was its configuration, the process was one of fabrication and not of mere assembly. In rejecting Samsonite's argument that the bending of the strips was a minor operation in terms of time and cost (the bending process constituted approximately 1.5% of the value of the frame, and 1.4% of the time required for the assembly process), the court stated "[t]he magnitude of a particular process in terms of time and cost does not make that process any less one of fabrication, nor does it make the result thereof any less significant." In affirming the lower court, the Court of Customs and Patent Appeals noted that the steel strips underwent a complete change in shape in Mexico, which configuration was necessary before the strip could serve its ultimate function as part of the frame of the luggage. The court emphasized that the critical question in determining whether fabrication rather than an operation incidental to assembly took place is not the amount of processing that occurs, but its nature.

In HRL 559756, dated August 7, 1996, Customs determined that chicken feathers used to make fishing flies, which were plucked from U.S.-origin chicken capes and saddles (i.e. skin) abroad, were not components "exported in condition ready for assembly without further fabrication" as required by subheading 9802.00.80, HTSUS. Customs found that plucking the chicken feathers from the skin was a process whose primary purpose was to complete the production of the feather components. As such the finished articles were not granted a duty allowance for the cost or value of the chicken feathers.

Customs is of the opinion that cutting the tails, paws and heads off of the furskins abroad is a significant operation whose primary purpose is completion of the furskin components. The exported components in this case are the furskins with the heads, tails and paws intact. The reason the heads, tails and paws are removed is because in their condition as exported the furskins are not useable for their ultimate function as components of furcoats -- the heads, tails and paws must be removed to create the component to be assembled. Thus, in Customs' view the cutting is a step which not only separates the heads, tails and paws from the furskin but creates the component itself. Accordingly, Customs is of the opinion that these cutting operations performed abroad constitute further fabrication of the exported U.S.-origin furskins. As a result a duty allowance under subheading 9802.00.80, HTSUS for the cost or value of the furskins will not be allowed.

In addition, you supplemented your original ruling request with a submission dated November 13, 1997. In that submission you asked Customs to consider a manufacturing scenario where the heads, tails and paws of the furskins are removed in the United States prior to exportation of the furskins abroad. Once abroad, the furskins will be subjected to the same operations as proposed in the above scenario -- in some cases they will be "let out," they will be dipped in a wetting solution, stretched to meet the outline of a specific pattern and then sewn together. You contend that removing the heads, paws and tails of the furskins in the United States renders the furskins "exported in condition ready for assembly without further fabrication" and therefore eligible for subheading 9802.00.80, HTSUS, treatment. Thus, the relevant inquiry focuses on whether the foreign operations qualify under the terms of that provision.

Customs declines to rule on the permissibility of such operations within the context of subheading 9802.00.80, HTSUS, as there is insufficient evidence on the record to make such a determination. To obtain a ruling on these matters, you should submit an additional ruling request detailing the operations involved (namely the nature of the furskin both before and after it has been stretched to meet the outline of the fur coat, the exact patterns to which the furskins are stretched, and the cutting involved to "let out" a furskin).

HOLDING:

Based upon the information submitted, dressing foreign furskins in the United States substantially transforms those furskins into products of the United States. However, those furskins which are exported abroad and trimmed of their heads, tails and paws are further fabricated and not eligible for a duty exemption under subheading 9802.00.80, HTSUS. Without more detailed information regarding the nature of the furskins when stretched, the pattern to which they are stretched and the processes involved in "letting out" certain furskins, Customs cannot make a determination of whether those operations are acceptable forms of assembly or operations incidental thereto under subheading 9802.00.80, HTSUS.

A copy of this ruling letter should be attached to the entry documents filed at the time the goods are 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
Commercial Rulings Division

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