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 > 2001 HQ Rulings > HQ 561687 - HQ 562036 > HQ 561782

Previous Ruling Next Ruling
HQ 561782




September 19, 2000

CLA-2 RR:CR:SM 561782 CW

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

Mr. T.A. Schofield
A.N. Deringer, Inc.
R.D. #1 - Box W-432
Alexandria Bay, New York 13607-9798

RE: Revocation of HRLs 071770 and 555510; dyeing of carpet tiles abroad; alteration; Amity Fabrics

Dear Mr. Schofield:

This is in reference to Headquarters Ruling Letter (HRL) 071770 dated February 24, 1984, and HRL 555510 dated January 30, 1990, which were issued to you on behalf of Milliken Industries of Canada Ltd. concerning the eligibility of carpet tiles which are dyed in Canada and returned to the U.S. for a partial duty exemption under item 806.20, Tariff Schedules of the United States (TSUS), and its successor provision, subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS). We have reviewed HRLs 071770 and 555510 and have determined that their conclusion that the returned dyed carpet tiles are ineligible for reduced duty treatment under item 806.20, TSUS, or subheading 9802.00.50, HTSUS, is incorrect. Therefore, HRLs 071770 and 555510 are revoked for the reasons set forth below.

FACTS:

Milliken Industries manufactures carpet tiles at its plant in LaGrange, Georgia. The “basic color” carpet tiles are shipped to the Milliken plant in Deseronto, Ontario, Canada, where they are unpacked and run through a machine which applies a dye to the carpet tile in a selected design and color. The decorated carpet tile is then washed, dried and repackaged for shipment to the U.S. You state that the exported “basic color” carpet tiles are sold to consumers in that condition and, in support of that contention, you cite the P 3000 and P 3020 carpet tiles as examples. The P 3000 basic carpet tile is exported to Canada for processing into the P 3020 dyed carpet tile. As evidenced by the

1988/1989 Milliken Pattern Listing pamphlet, both carpet tiles are marketed and sold to consumers as separate products.

In HRL 071770, Customs determined that applying a dye to the carpet tiles in a selected design and color was an operation which exceeded the scope of a repair or alteration under item 806.20, TSUS. It was stated that only repairs or alterations performed abroad on completed goods qualify under the statute. Thus, Customs held that, as the foreign dyeing operation amounted to a continuation of the manufacture of the carpet tiles, the returned articles were ineligible for item 806.20, TSUS, treatment. HRL 555510, which reconsidered HRL 071770, similarly held that the dyeing operation constituted a finishing operation rather than a qualifying alteration under subheading 9802.00.50, HTSUS. Thus, HRL 555510 affirmed the holding in HRL 071770.

ISSUE:

Whether the operations performed on the U.S. carpet tiles in Canada qualify as a repair or alteration under subheading 9802.00.50, HTSUS.

LAW & ANALYSIS:

Subheading 9802.00.50, HTSUS, provides a partial or complete duty exemption for articles exported from and returned to the United States after having been advanced in value or improved in condition abroad by repairs or alterations, provided the documentary requirements of section 181.64 (for articles returned from Canada or Mexico) or section 10.8 (for articles returned from any other country), Customs Regulations (19 CFR 181.64 and 10.8), are satisfied.

Section 181.64(a), Customs Regulations, states that:

‘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.

Court cases considering the applicability of subheading 9802.00.50, HTSUS, and its precursor provisions (item 806.20, Tariff Schedules of the United States (TSUS), and, before that, paragraph 1615(g), Tariff Act of 1930), have held that this tariff provision is inapplicable where: (1) 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; or (2) the operations performed abroad destroy the identity of the exported articles or create new or commercially different articles through a process of manufacture.

In Guardian Industries v. United States, 3 CIT 9 (1982), the Court of International Trade stated that, in construing “the tariff provision for repairs and alterations performed abroad, the focus is upon whether the exported article is ‘incomplete’ or ‘unsuitable for its intended use’ prior to the foreign processing.” At issue in Guardian Industries was the question of whether subjecting U.S.-produced annealed glass to a tempering process in Canada to create glass for sliding glass patio doors qualifies as an “alteration” under item 806.20, TSUS. The court noted that glass must be tempered (i.e., strengthened) for practical safety use reasons and to conform to U.S. federal regulations before it may be marketed for use in sliding glass patio doors. In concluding that the tempering process was not an “alteration”, the court stated that “the exported articles of raw annealed glass were not ‘completed articles’ since they were entirely unsuitable for their intended use” as sliding glass patio doors and required a manufacturing process to make them complete. The court further concluded that, because the tempering of the annealed glass transformed the glass in name, use, performance characteristics and tariff classification, the operation created a new and different commercial article.

Similarly, in 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), the issue presented was whether certain U.S.-origin Dacron polyester fabrics which were exported to Canada as griege goods for heatsetting, chemicalscouring, dyeing, and treating with chemicals, were eligible for the partial duty exemption available under item 806.20, TSUS, when returned to the United States. The U.S. Court of Customs and Patent Appeals found that the processing steps performed on the exported greige goods were undertaken to produce finished fabric and could not be considered as alterations. The court stated (66 CCPA at 82) 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 Amity Fabrics, Inc. v. United States, 43 Cust. Ct. 64, C.D. 2104 (1959), "pumpkin" colored fabrics were exported to Italy to be redyed black since the pumpkin color had gone out of fashion and black was a consistently good seller. The court held that the identity of the goods was not lost or destroyed by the dyeing process, that no new article was created since there was no change in the character, quality, texture, or use of the merchandise; it was merely changed in color. The court found that such change constituted an alteration for purposes of paragraph 1615(g) of the Tariff Act of 1930.

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 halfcoated with an Aurora Borealis finish which imparted a rainbowlike luster to the halfcoated 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 (evidence was presented which indicated that both uncoated and halfcoated 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, TSUS.

In HRL 557161, dated June 28, 1993, Customs considered whether wooden interior shutters exported to Mexico for certain operations, including the application of several coats of paint or stain, were eligible for subheading 9802.00.50, HTSUS, treatment when returned to the U.S. The manufacturer also sold shutters in an “unfinished” condition; that is, without any paint or stain applied. Customs found that the shutters in their condition as exported from the U.S. (unfinished) were complete for their intended use to control light, ventilation, and to provide privacy, and that the painting or staining was not a necessary step in the production of the shutters. Therefore, Customs determined that the returned shutters were eligible for the partial duty exemption under subheading 9802.00.50, HTSUS. In making that determination, Customs also modified a past ruling, HRL 555093, dated April 26, 1989, to the extent that it disallowed subheading 9802.00.50, HTSUS, treatment for wooden furniture kits also sold in an unfinished condition and sent abroad for staining and lacquering.

Although Customs issued a notice in the September 6, 1995, Customs Bulletin (Volume 29, Number 36) proposing to modify HRL 557161 to reflect that the painting or staining abroad of unfinished interior shutters, and the staining and lacquering abroad of furniture kits under HRL 555093, would not be considered alterations under subheading 9802.00.50, HTSUS, this proposed action was withdrawn in a notice published on December 17, 1997, in the Customs Bulletin, Volume 31, Number 51. Thus, it remains Customs position that the painting or staining of the shutters in HRL 557161 and the staining and lacquering of the wooden furniture kits in HRL 555093 constitute permissible alterations under subheading 9802.00.50, HTSUS.

HRL 560325 dated January 27, 1998, concerned the eligibility for subheading 9802.00.50, HTSUS, treatment of U.S.-origin glass stemware which was decorated by a silkscreening process with a pictorial winter scene abroad and returned. The stemware was offered for sale both in its decorated and undecorated state. In holding that the decorating process constituted an alteration, Customs stated that:

. . . 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.

In HRL 555744 dated January 28, 1991, Customs considered whether tipping, flagging and/or dyeing operations performed abroad on bunches of nylon bristles (for paint brushes) qualified as an alteration under subheading 9802.00.50, HTSUS. According to the facts in that ruling, the foreign processing consisted of tipping, which caused the ends of the bristles to become more pointed, or flagging, which caused the ends to split. Sometimes the bristles were also dyed. The ruling stated that the operations were performed on the bristles “ostensibly to give them the appearance of natural hog bristles so as to enhance their marketability.” The facts also indicated that the bristles as exported from the U.S. were ready to be incorporated into finished paint brushes, and that both the “altered” and “unaltered” bristles were used in the manufacture of paint brushes.

Customs determined in HRL 555744 that the foreign processing constituted acceptable alterations. Specifically in regard to the dyeing of the bristles, we stated that this operation is distinguishable from the dyeing of the greige fabric involved in the Dolliff case because fabric in the greige is, by definition, unfinished merchandise requiring processing to render it suitable for its purpose, while the bristles in HRL 555744 were suitable for their intended use (incorporation into paint brushes) in their condition as exported and, in fact, were so used. Additionally, we stated that the dyeing did not affect the quality, texture, character or performance characteristics of the bristles.

Finally, HRL 561383 dated June 15, 1999, concerned whether certain imported Egyptian yarns, which are exported to Canada for dyeing, may receive subheading 9802.00.50, HTSUS, treatment when returned to the U.S. Information submitted by the requestor indicated that many customers use the same Egyptian yarns for knitting, weaving or sewing in their undyed condition, and that only in situations where the yarns are to be knit or woven to create patterned or jacquard fabrics is it necessary to dye the yarns to color first. Customs found that the dyeing operation was not an “intermediate processing operation which is performed as a matter of course in the preparation or manufacture of finished” yarns. Further, we stated that the dyeing clearly does not destroy the identity of the exported yarns or create a new or different article of commerce. Thus, it was determined that the dyeing operation qualified as an alteration.

We believe that the holdings in HRLs 557161, 560325, 555744 and 561383 are controlling with respect to the facts in the instant case. “Basic color” carpet tiles are exported to Canada for dyeing in selected designs and colors. The facts submitted in the case indicated that both the carpet tiles in their condition as exported to Canada and the returned decorated tiles are marketed and sold to consumers as separate products for the same use. We view this as persuasive evidence that the “basic color” carpet tiles are complete for their intended use as floor coverings and that, therefore, the foreign dyeing/decorating operation is not a necessary step in the preparation or manufacture of finished tiles. Moreover, while the application of dyed designs and colors to the carpet tiles in Canada clearly imparts new decorative characteristics to the articles, this change in the appearance of the articles does not result in the loss of the goods’ identity or the creation of new articles with a different commercial use. The foreign processing does not significantly change the quality, character or performance characteristics of the tiles. Therefore, we find that the foreign processing operation performed on the carpet tiles in Canada constitutes an alteration within the meaning of subheading 9802.00.50, HTSUS.

HOLDING:

On the basis of the information presented, we find that the foreign dyeing operation, as described above, performed abroad on exported carpet tiles qualifies as an alteration under subheading 9802.00.50, HSTSUS. Therefore, the returned decorated carpet tiles are entitled to the partial duty exemption under this tariff provision, provided the documentation requirements of 19 CFR 181.64 are met.

Consistent with this ruling, HRLs 071770 and 555510 are hereby revoked. In accordance with 19 U.S.C. 1625(c), this ruling will become effective 60 days after its publication in the CUSTOMS BULLETIN.

Sincerely,

John Durant, Director

Previous Ruling Next Ruling

See also: