Applicability of partial duty exemption under HTSUSA subheading 9802.00.50 to U.S.-origin wool; washing, combing, dyeing, and spinning in Mexico.

HQ 557088 April 2, 1993 CLA-2 CO:R:C:S 557088 MLR CATEGORY: Classification TARIFF NO.: 9802.00.50 Mr. Michael E. Shomer Vice President Spilke Company 104 West 40th Street New York, NY 10018 RE: Applicability of partial duty exemption under HTSUSA subheading 9802.00.50 to U.S.-origin wool; washing, combing, dyeing, and spinning in Mexico. Dear Mr. Shomer: This is in reference to your letter of January 12, 1993, requesting a ruling regarding the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States Annotated (HTSUSA), to wool processed in Mexico. FACTS: Spilke Company plans to ship U.S.-origin grease wool in trailer load lots to CIA Lanera de Mexico, where one or more processing operations will be performed. The first operation consists of washing and combing the wool, after which it will be re-baled and returned to Spilke's yarn spinning plant in Maine, where in turn, the yarn will be woven into cloth at Spilke's plant in Virginia. The second operation consists of washing, combing, and dyeing the wool black in Mexico. The black wool will then be shipped to Maine, where it is blended with white wool to create Heather Grey yarn which is then woven into cloth in Virginia. The third operation involves washing, combing, and spinning the wool into yarn in Mexico, and shipping the yarn to Virginia where it is woven into cloth. No foreign wool or foreign or domestic synthetic materials will be added in any of the three operations. ISSUES: I. Whether U.S.-origin wool exported to Mexico to be washed and combed, and then re-baled is eligible for a partial duty exemption under subheading 9802.00.50, HTSUSA, when returned to the United States. II. Whether U.S.-origin wool exported to Mexico for dyeing is eligible for a partial duty exemption under subheading 9802.00.50, HTSUSA, when returned to the United States. III. Whether U.S.-origin wool exported to Mexico for spinning is entitled to a partial duty exemption under subheading 9802.00.50, HTSUSA, when returned to the United States. LAW AND ANALYSIS: Subheading 9802.00.50, HTSUSA, provides a partial duty exemption for articles returned to the United States after having been exported to be advanced in value or improved in condition by repairs or alterations. Such articles are dutiable only upon the cost or value of the foreign repairs or alterations, provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8) are satisfied. However, entitlement to this tariff treatment is precluded in circumstances where the operations performed abroad destroy the identity of the exported articles or create new or commercially different articles. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff'g C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Tariff treatment under subheading 9802.00.50, HTSUSA, is also precluded where the exported articles are incomplete for their intended purpose prior to the foreign processing. Guardian; Dolliff & Company, Inc. v. United States, 455 F. Supp. 618 (CIT 1978), aff'd, 599 F.2d 1015 (Fed. Cir. 1979). I. Washing & Combing Customs has consistently held that mere cleaning operations are considered repairs or alterations for purposes of subheading 9802.00.50, HTSUSA. Spilke has submitted with its ruling request a copy of Headquarters Ruling Letter (HRL) 556227 dated December 23, 1991, which held that U.S.-origin sheep wool exported to Mexico for scouring, drying, and baling, constitutes a repair or alteration within the meaning of subheading 9802.00.50, HTSUSA. Accordingly, we find, consistent with HRL 556227, that the first operation of washing and combing the wool in Mexico is entitled to a partial duty exemption under subheading 9802.00.50, HTSUSA. II. Washing, Combing, & Dyeing In Dolliff supra, certain dacron polyester fabric goods were subjected to multiple operations abroad, including dyeing, heat- setting, chemical-scouring and treating with chemicals. The finished fabric that was returned to the U.S. was denied the partial duty exemption for alterations abroad because it was determined that the dyeing and numerous other processing steps were all necessarily undertaken to produce the finished fabric. In an earlier alterations case, C.J. Tower & Sons of Niagara, Inc. v. United States, C.D. 2208, 45 Cust.Ct. 111 (1960), cotton drills were exported and subjected to multiple operations, including dyeing and finishing. The cotton cloth that was returned to the U.S. was similarly denied the partial duty exemption under 9802.00.50, HTSUSA, because it was determined that the merchandise exported was changed in color, width, length, porosity, in the distribution of the threads in the weave, in weight, tensile strength, and suppleness by the foreign processing. In holding that the foreign processing constituted more than an alteration, the court found that the returned merchandise was a new and different article, having materially different characteristics and a more limited and specialized use. Customs has long held that printing and finishing operations exceed the meaning of the term alteration for the purposes of item 806.20, Tariff Schedules of the United States (TSUS) (now subheading 9802.00.50, HTSUSA). In HRL 555478 dated July 23, 1990, linen woven fabric in a greige state was exported to Belgium for dyeing. It was held that the initial dyeing of greige goods constitutes a finishing operation, a step in the manufacture of finished textile goods which exceeds the meaning of the term "alteration" under 9802.00.50. See also T.D. 56462(2), and HRL 554035 dated April 14, 1986. In the instant case, dyeing the wool in Mexico exceeds an alteration because it is a step in the manufacture of finished yarn which is ready to be spun in the United States. Accordingly, the dyed wool will not be entitled to a partial duty exemption under subheading 9802.00.50, HTSUSA, upon importation into the United States. III. Washing, Combing & Spinning Additionally, spinning the wool into yarn exceeds an alteration. The wool is incomplete for its intended use (as yarn for weaving into fabric) prior to the foreign processing and a new and commercially different article is created as a result of that processing. See Doliff, supra. See also HRL 556617 June 19, 1992 (U.S. fiber exported to Switzerland to be spun into yarn and then imported to the United States for weaving into fabric was not eligible for a partial duty exemption under subheading 9802.00.50, HTSUSA). HOLDING: On the basis of the information submitted, washing and combing the wool in Mexico constitutes an alteration within the meaning of subheading 9802.00.50, HTSUSA; however, the operations of dyeing and spinning the wool in Mexico create a new or commercially different article and complete the wool for its intended use, thereby precluding it from receiving a partial duty exemption under 9802.00.50, HTSUSA. Sincerely, John Durant, Director