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HQ H014657





November 8, 2007

CLA-02 OT:RR:CTF:VS H014657 NL

CATEGORY: CLASSIFICATION

Mr. Jason M. Waite
Alston & Bird, LLP
The Atlantic Building
950 F Street NW
Washington, DC 20004-1404

RE: Applicability of subheading 9802.00.50, HTSUS, re-labeled t-shirts; embellishing by screen printing or embroidery; packaging; marking

Dear Mr. Waite:

This is in reply to your request of June 6, 2007, sent to the National Commodity Specialist Division requesting a ruling on behalf of Gildan Activewear SRL (Gildan). Your request inquires whether certain men's t-shirts, exported to China and returned to the United States following re-labeling, silk screening and embroidery, are eligible for tariff treatment under subheading 9802.00.50, Harmonized Tariff Schedule of the United States ("HTSUS"). You included samples with your submission. Your request and the samples have been forwarded to this office for a reply.

FACTS:

The subject t-shirts are Style 5000 garments constructed from 100% cotton fabric that weighs less than 200 grams per square meter. The garment has a rib knit crew neckline, short close-fitting hemmed sleeves, and a straight hemmed bottom. The finished garment will have a small screen printed design and no notable non-t-shirt features.

The shirts will be cut and wholly assembled in Honduras from fabric knit in Honduras from yarns wholly formed in the U.S. Gildan will enter them through the Port of Miami claiming Dominican Republic-Central American Free Trade Agreement (DR-CAFTA) treatment. From there, Gildan will either send the goods to its distribution facility in North Carolina. Alternatively, after DR-CAFTA treatment at entry the goods will be exported via the Port of Long Beach. In both scenarios the t-shirts are sold to customers in China.

Many of the t-shirts exported to China will then be embellished through screen printing or embroidery. Also, Gildan's standard label, bearing its name and the required product information, may be removed and replaced with labels bearing another brand or private name and the required product information, including size, country of origin, Registered Identification Number, fiber content and care instructions. The shirts will be folded and packaged in Chinese-origin disposable retail-style plastic packaging.

Of the embellished and/or relabeled shirts, many will then be returned to the United States and imported by a party unrelated to Gildan. It is planned to enter them under subheading 9802.00.50, HTSUS as articles returned to the U.S. after having been exported for repairs or alterations. Gildan advises that it will assist its customers in meeting the applicable documentary requirements with declarations in substantially the same form as those set out in 19 C.F.R. §10.8.

ISSUES:

1. The tariff classification of the t-shirts; 2. Whether the t-shirts that undergo screen printing, embroidering or re-labeling in China are eligible for tariff treatment pursuant to subheading 9802.00.50, HTSUS; 3. Whether packaging in China precludes tariff treatment under subheading 9802.00.50, HTSUS; 4. Whether the cost or value of ocean freight or packaging materials is included in the cost or value of the repairs or alterations; 5. Whether the marking, "Made in Honduras, Finished in China" is acceptable.

LAW & ANALYSIS:

For purposes of this ruling we are not making a determination regarding the applicability of the claim under DR-CAFTA.

Tariff Classification

The applicable subheading for the Style 5000 t-shirt will be 6109.10.0012, HTSUS, which provides for other men's t-shirts, of cotton. The general rate of duty is 16.5% ad valorem. The garment falls within textile category designation 338 from China.

Although a sample was submitted, it was not an embroidered garment. The presence of embroidery would remove the t-shirts from classification in 6109.10.0012. There are two possible classifications: HTSUS 6109.10.0027 if the embroidery is small, or HTSUS 6110.20.2069 as a pullover, if the embroidery is considered large.

Eligibility for Tariff Treatment under subheading 9802.00.50, HTSUS

Subheading 9802.00.50, HTSUS, provides a full or partial duty exemption for articles returned to the United States after having been exported to be advanced in value or improved in condition by means of repairs or alterations. Articles returned to the United States after having been repaired or altered may be eligible for duty-free treatment, provided the documentary requirements of section 10.8, Customs Regulations, (19 C.F.R. § 10.8), are satisfied. Pursuant to section 10.8, the importer must submit a declaration executed by the person who performed the repairs or alterations, and a declaration of his own containing various attestations. Section 10.8 also authorizes the CBP port director to require such other documentation as may be necessary to prove actual exportation of the articles from the U.S. for repairs or alterations, such as a foreign customs entry, foreign customs invoice, foreign landing certificate, bill or lading or airway bill. Articles eligible under subheading 9802.00.50 are subject to a duty upon the value of the repairs or alterations pursuant to note 3 to subchapter II, Chapter 98, HTSUS.

Classification under subheading 9802.00.50, HTSUS, is precluded where: (1) the exported articles are not complete 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. See Guardian Indus. Corp. v. United States, 3 Ct. Int'l Trade 9 (1982), and Dolliff & Co., Inc., v. United States, 81 Cust. Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), aff'd, 66 C.C.P.A. 77, C.A.D. 1225, 599 F.2d 1015 (1979).

With regard to the t-shirts that undergo re-labeling, CBP has held that marking or affixing a label to a product constitutes an alteration. See HQ 563554 (November 13, 2006) (t-shirts re-labeled in Mexico were entitled to partial duty exemption under subheading 9802.00.50, HTSUS); and HRL 562952 (March 29, 2004) (belted jeans and pants exported for inspection and tagging were entitled to duty-free treatment under subheading 9802.00.50, HTSUS). Therefore, previously-imported U.S. t-shirts that undergo re-labeling operations in China will be entitled to tariff treatment under subheading 9802.00.50, HTSUS, provided the documentary requirements of 19 C.F.R. § 10.8 are satisfied.

With regard to embellishment or decoration of the t-shirts by screen printing or embroidery, CBP considers these to be acceptable alterations for the purposes of 9802.00.50, HTSUS. In a Customs Bulletin notice published pursuant to section 625(c)(1), Tariff Act of 1930, as amended (19 U.S.C. 1625(c)(1)), Customs announced in 2000 a change in its treatment of decorative activities in the context of subheading 9802.00.50, HTSUS. 34 Cust. B & Dec. 40, 40-55, October 4, 2000. The announced change in treatment aligned Customs' approach to decorative processes with several rulings that treated decoration as an acceptable alteration. Customs revoked four ruling letters and modified one ruling letter. 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.

In the instant case, consistent with the prior Customs Bulletin notice described above, we find that the processing of the t-shirts constitutes an acceptable alteration within the meaning of subheading 9802.00.50, HTSUS. The t-shirts shirts are complete for their intended use as wearing apparel prior to being exported to China to undergo the above-described operations. The embroidery operations performed in China do not have the effect of destroying the identity of the shirts or create a new article with a different commercial use. Accordingly, we find that screen printing or embroidery of the t-shirts will be acceptable alterations for purposes of the special tariff treatment afforded under subheading 9802.00.50, HTSUS. See also HQ 562618 (May 21, 2003); NY L87495 (September 16, 2005).

In transmitting the ruling request to this office, the National Commodity Specialist Division requested a review of subheading 9802.00.50 eligibility in view of the fact that Gildan exports the t-shirts for sale in China, but thereafter has no involvement in the alteration activities, nor is Gildan the importer who will claim subheading 9802.00.50 treatment for the portion of the t-shirts re-imported into the U.S. We note that certain other special tariff provisions of Chapter 98, such as subheading 9801.00.20 (articles reimported without advancement in value or improvement in condition after having been exported under lease or similar use provisions), include a requirement that the re-importation be by or for the account of the person who first imported the article into the U.S. and then exported it. By contrast, subheading 9802.00.50, would not require Gildan to be the person re-importing the t-shirts. Nonetheless, §10.8(a) places the requirement on the importer of the repaired or altered goods to present his own declaration of eligibility, including that the repaired or altered articles are the same articles that were exported on the date specified. Section 10.8 also requires a declaration of the person who has performed the repairs or alterations. The regulation provides, at §10.8(b), that the port director may require
such other documentation as is deemed necessary to prove actual exportation of the articles from the United States for repairs or alterations, such as a foreign customs entry, foreign customs invoice, foreign landing certificate bill of lading, or an airway bill.

As noted above, Gildan has stated that it will provide assistance to its customers in meeting these documentary requirements. Additionally, §10.8(d) allows the port director to waive submissions required by 19 C.F.R. 10.8(a). Therefore, provided that the importer of the repaired or altered t-shirts can provide the required declarations and, if requested, can supply such other documentation or proof as the port director may require to demonstrate eligibility, the t-shirts will be eligible for tariff treatment under subheading 9802.00.50, HTSUS.

Consequences of re-packaging under 9802.00.50

As indicated above, for subheading 9802.00.50, HTSUS to apply, the articles must be advanced in value or improved in condition by repair or alteration. It has long been, and continues to be, the position of CBP that the packaging of articles does not advance their value or improve their condition. See, for example, United States v. John V. Carr & Sons, Inc., 69 Cust. Ct. 78, 347 F. Supp. 1390 (1972), aff'd 61 CCPA 52, 496 F.2d 1225 (1974); and HQ 556406 (March 16, 1992). Further, the packaging of articles is not a repair or alteration. Therefore, packaging alone of the t-shirts in China will not result in eligibility for treatment under subheading 9802.00.50, HTSUS, upon their reimportation into the United States. At the same time, an article that is otherwise eligible for treatment under subheading 9802.00.50 will not lose its eligibility by reason of packaging operations. HQ 555180 (December 26, 1989).

Value of Freight and Packaging Materials

The submission on behalf of Gildan also requests confirmation that the imported t-shirts will be dutiable only to the extent of the value of the repairs or alterations, and that the cost of freight for shipment to China and the cost of packaging performed in China would not be part of the dutiable value.

The special tariff treatment provided for under subheading 9802.00.50 is "a duty upon the value of the repairs or alterations (see U.S. Note 3 of this subchapter)". That note provides, in relevant part, that

[T]he value of repairs, alterations processing or other change in condition outside the United States shall be:

(i) the cost to the importer of such change: or (ii) If no charge is made, the value of such change,
as set out in the invoice and entry papers; except that, if the appraiser concludes that the amount so set out does not represent a reasonable cost or value, then the value shall be determined in accordance with section 402 of the Tariff Act of 1930, as amended.

U.S. Note 3 to Subchapter II to Chapter 98 also provides that

[n]o appraisement of the imported article in its changed condition shall be required unless necessary to a determination of the rate or rates of duty applicable to such article.

The submission does not identify the person who would import the t-shirts and therefore present a claim for treatment under subheading 9802.00.50. Nor was any specific cost or value information submitted. However, counsel advises that Gildan will provide such an importer with information needed to prepare the declarations specified in §10.8, CBP Regulations.

Regarding freight costs, both for moving the shirts to China and for shipping them back to the U.S., we note that as an initial matter these freight costs must be separately identified before CBP can consider their dutiability. In C.S.D. 82-150, 16 Cust. B. & Dec. 985 (1982), we held that the costs incurred in transportation of articles to be repaired from the U.S. to Mexico were not dutiable under Item 806.20 (predecessor to subheading 9802.00.50, HTSUS). Moreover, in HQ 544015 (March 20, 1989), Customs stated that transportation costs incurred following a foreign repair or processing operation to transport an article from the foreign facility to the U.S. are not dutiable. In keeping with these rulings and with the broader principle that only costs or values incurred in repairs or alterations are included in dutiable value for purposes of subheading 9802.00.50, we find that the costs of transporting the shirts to China, and of bringing the altered shirts back to the U.S. will not be included in dutiable value. A precondition of such treatment is that such freight costs must be separately identified in the relevant declarations, entry summaries and commercial documentation.

On the other hand, the costs of retail packaging the t-shirts with Chinese materials may not be excluded from the cost or value of the repairs or alterations. In HQ 555708 (September 21, 1990), Customs held that packaging material of U.S. origin could be accorded duty free treatment under subheading 9801.00.10, HTSUS. Other packaging materials of Taiwanese origin were determined not to be excludable. In HQ 555296 (June 16, 1989), a ruling interpreting subheading 9802.00.50, HTSUS, Customs ruled that the cost or value of alterations would include the cost of Canadian-made plastic dispensers for twine that had been cut to length and re-spooled in Canada. We conclude that here, the Chinese retail packaging materials should be treated as part of the dutiable value of the merchandise.

Marking

At stated in the submission, the t-shirts will be marked in the center rear neckline with a label showing country of origin, fiber content, RN number, size and care instructions. The indication of origin will be by the words, "Made in Honduras, Finished in China." Since the t-shirts are actually cut and assembled in Honduras, this wording, if clearly and legibly shown on the center rear neck label of the garment, is acceptable for country of origin marking purposes. We do not believe the words, "Finished in China" will mislead the ultimate purchaser as to the actual country of origin of the goods.

HOLDINGS:

The Style 5000 t-shirt will be classified in subheading 6109.10.0012, HTSUS, which provides for other men's t-shirts, of cotton. The general rate of duty is 16.5% ad valorem. Depending on the extent of embroidery, the shirts may be classifiable in subheading 6109.10.0027 if the embroidery is small, or in subheading 6110.20.2069 if more extensive.

The t-shirts, following screen printing, embroidery and/or re-labeling in China, will be eligible for tariff treatment under subheading 9802.00.50, HTSUS, provided the importer can satisfy the documentary requirements of §10.8, CBP regulations, including such additional documentation or other proof of eligibility as the port director may require.

Packaging operations in China will have no effect on subheading 9802.00.50 eligibility.

The cost of freight to deliver the shirts to China and to return them to the U.S. after alterations will not be included in the cost or value of the alterations. Such costs must be separately identified in the relevant documentation.

The cost of retail packaging for the t-shirts will be included in the cost or value of the alterations.

The proposed marking, "Made in Honduras, Finished in China" is acceptable for purposes of section 304, Tariff Act of 1930, as amended, provided the marking is clearly legible and conspicuously placed in the center of the rear neck label of the garment.

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,

Monika R. Brenner, Chief
Valuation & Special Programs Branch

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