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HQ 562687




September 5, 2003

CLA-2 RR:CR:SM 562687 CW

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

Ms. Elizabeth Burns
JanSport, Inc.
N850 Cty. Hwy. CB
P.O. Box 1817
Appleton, WI. 54913-1817

RE: Modification of NY I87698; eligibility of sweatshirts embroidered abroad for subheading 9802.00.50, HTSUS, treatment

Dear Ms. Burns:

This is in reference to your letter of January 23, 2003, to our New York office, requesting reconsideration of New York Ruling Letter (“NY”) I87698 dated December 5, 2002, concerning the eligibility of embroidered men’s sweatshirts from Mexico for duty-free treatment under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS). The ruling also addressed the country of origin of the sweatshirts. We have reviewed NYI87698 and believe that its conclusion that subheading 9802.00.50, HTSUS, is inapplicable to the returned embroidered sweatshirts is incorrect. Therefore, we are modifying the portion of NY I87698 relating to that issue for the reasons set forth below.

FACTS:

Men’s sweatshirts (style 55000 for sizes S, M, L, XL and XXL and style 55005 for size XXXL) made in Lesotho from 55 percent cotton and 45 percent polyester will be imported into the U.S. by Jansport. The sweatshirts are then exported to Mexico where they will be machine embroidered with various names or logos on the chest area and returned to the U.S. Jansport’s catalog reflects that the sweatshirts are offered for sale with or without the embroidery.

In NY I87698, Customs held that:

...the embroidery operation creates a different article with unique, specialized appeal and constitutes a finishing step in the manufacture of the embroidered garments. As such, the embroidery operation is considered more than an “alteration” within the meaning of subheading 9802.00.50, HTSUS.

ISSUE:

Whether embroidering the sweatshirts in Mexico as described above qualifies as a repair or alteration under subheading 9802.00.50, HTSUS.

LAW AND ANALYSIS:

Subheading 9802.00.50, HTSUS, provides a full or partial duty exemption for articles that are returned after having been exported to be advanced in value or improved in condition by means of repairs or alterations, provided that the documentary requirements of 19 CFR 181.64 (for articles returned from Canada or Mexico) or 19 CFR 10.8 (for articles returned from any other country) are met.

Section 181.64(a), Customs Regulations, (19 CFR 181.64(a)), states that:

‘Repairs or alterations' means restoration, addition, renovation, redyeing, cleaning, resterilizing, or other treatment which does not destroy the essential character of, or create a new and commercially different good from, the good exported from the United States.

In circumstances where the operations abroad destroy the identity of the exported article or create a new or commercially different article, entitlement to subheading 9802.00.50, HTSUS, is precluded. 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 Corporation v. United States, 3 CIT 9 (1982). Additionally, entitlement to this tariff treatment is not available where the exported articles are incomplete for their intended purposes and the foreign processing is a necessary step in the preparation or manufacture of the finished articles. Dolliff & Company, Inc. v. United States, 455 F. Supp. 618 (Cust. Ct. 1978), aff’d, 599 F.2d 1015 (CCPA 1979).

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 a precursor provision to subheading 9802.00.50, HTSUS (paragraph 1615(g) of the Tariff Act of 1930, as amended).

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, Tariff Schedules of the United States (TSUS)—the precursor to subheading 9802.00.50, HTSUS.

In a notice published in the Customs Bulletin on October 4, 2000, (34 Cust. Bull. 40), Customs revoked four ruling letters and modified one ruling letter pertaining to the applicability of subheading 9802.00.50, HTSUS, to certain articles that were exported for decorating operations and then returned to the U.S. In the notice, it was stated that, upon reconsideration, Customs determined that the decorating operations performed in those cases qualified as acceptable alterations under subheading 9802.00.50, HTSUS, as the merchandise in its condition as exported and returned was marketed and sold to consumers for the same use. Furthermore, Customs found that the operations performed abroad did not result in the loss of the good's identity or create a new article with a different commercial use. The ruling letters concerned: carpet tiles that were dyed abroad and returned; imitation plastic fingernails that were painted with decorative designs abroad; lace fabric "reembroidered" abroad with rope, sequins or beads, or a combination of these items; and decals and paint bands applied to ceramic dinnerware abroad.

The reembroidery case referenced above (Headquarters Ruling Letter (HRL) 561781 dated September 19, 2000), involved foreign lace that was exported to the Philippines to have rope (thick thread), sequins or beads, or any combination of these items, hand embroidered onto the lace. The purpose of the reembroidery was to enhance the marketability of the lace. Customs stated in HRL 561781 that information in the record indicated that both the lace in its condition as exported and the returned reembroidered lace were sold in the same channels of trade for use as ornamentation on women’s wearing apparel. Therefore, Customs concluded that the lace in its condition as exported to the Philippines was complete for its intended use. Customs also determined that the reembroidery process clearly did not result in the loss of the good’s identity or the creation of a new article with a different commercial use. As a result, Customs found that the reembroidery process constituted an alteration within the meaning of subheading 9802.00.50, HTSUS.

A recent case, HRL 562618 dated May 21, 2003, involved previously-imported and duty-paid polo shirts that were exported to Canada where company names or logos were embroidered onto the left chest portion of the shirts. Customs held that the embroidery constituted an acceptable alteration within the meaning of subheading 9802.00.50, HTSUS.

We believe that HRLs 562781 and 562618 are controlling with respect to the instant case. Men’s sweatshirts are exported to Mexico where names or logos are embroidered on the chest area of the apparel. Jansport's catalog reflects that the same sweatshirt is offered for sale either with or without the embroidery. Therefore, we are satisfied that the sweatshirts in their condition as exported to Mexico are complete for their intended use and that the foreign processing is not a necessary step in the production or manufacture of finished articles. While the embroidery imparts new decorative characteristics to the articles, this change in the appearance of the article clearly does not result in the loss of the good’s identity or the creation of a new article with a different commercial use. The embroidery also does not significantly change the quality, character or performance characteristics of the sweatshirts. Therefore, we find that the foreign embroidery operation qualifies as an alteration under subheading 9802.00.50, HTSUS.

HOLDING:

On the basis of the information presented, we find that the foreign embroidery operation described above, performed abroad on exported men’s sweatshirts, constitutes an acceptable alteration under subheading 9802.00.50, HTSUS. Therefore, the returned embroidered sweatshirts are entitled to duty-free treatment under this tariff provision, assuming compliance with the documentation requirements of 19 CFR 181.64.

NY I887698 is hereby modified consistent with the foregoing. In accordance with 19 U.S.C. 1625(c), this ruling will become effective on November 23, 2003 (60 days after its publication in the Customs Bulletin).

Sincerely,

Myles B. Harmon, Director

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