Applicability of partial duty exemption under subheading 9802.00.50, HTSUS, to textured yarn; texturing

HQ 557228 November 28, 1993 CLA-2 CO:R:C:S 557228 BLS CATEGORY: Classification TARIFF NO.: 9802.00.50 Meade G. Stone, Jr. W.M. Stone & Co. 838 Granby Street Norfolk, Virginia 23510 RE: Applicability of partial duty exemption under subheading 9802.00.50, HTSUS, to textured yarn; texturing Dear Mr. Stone: This is in response to your letter dated March 29, 1993, on behalf of John Teare Textiles, requesting a ruling regarding the applicability of subheading 9802.00.50, Harmonized Tariff Schedules of the United States (HTSUS), to certain yarn sent abroad for the process described as "texturing." FACTS: U.S.-origin yarn is sent to Finland where it is mounted in a creel and fed into a texturing machine. During the ensuing "air- jet" process, the yarn is drawn about 50%, then is mixed with air until it becomes a bulky textured material. The product is then wound onto tubes. ISSUE: Whether the textured yarn is eligible for the partial duty exemption under subheading 9802.00.50, HTSUS, upon return to the U.S. from abroad. LAW AND ANALYSIS: Subheading 9802.00.50, HTSUS, provides a partial duty exemption for articles returned to the U.S. 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 provision is precluded in circumstances where the operations performed abroad destroy the identity of the exported articles - 2 - or create new or commercially different articles. 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); Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Tariff treatment under subheading 9802.00.50, HTSUS, is also precluded where the exported articles are incomplete for their intended use 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). 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 alteration case, C.J Tower & Sons of Niagra, Inc. v. United States, C.D. 2208, 45 Cust. Ct. 111 (1960), cotton drills were exported and subjected to stretching, dyeing, and sizing operations. The cotton cloth that was returned to the U.S. was similarly denied the partial duty exemption under item 806.20, Tariff Schedules of the United States (TSUS) (now subheading 9802.00.50, HTSUS), 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 a mere 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. In general, texturing changes the dimensions of the yarn and may make it softer or give it greater elasticity. We understand that the air jet process involves feeding continuous filament yarn through an air jet onto take-up rollers which draw off the yarn at a lower speed than the speed at which it is fed into the jet, causing the formation of numerous random loops. See Headquarters Ruling Letter (HRL) 073917 dated September 29, 1985. Customs has long held that texturing operations exceed the meaning of the term alteration for the purposes of item 806.20, TSUS. See DB 474.5 dated February 24, 1964, which held that the texturing process that gave the yarn twist and resulted in greater elasticity exceeded an alteration; TC 511.4 dated July 30, 1963; and SP 511.1 dated June 11, 1963. Therefore, in the instant case, we find that texturing the yarn in Finland exceeds an alteration because it is a step in the manufacture of finished yarn. Accordingly, the textured yarn will not be entitled to a partial duty exemption under subheading 9802.00.50, HTSUS, upon importation into the U.S. - 3 - HOLDING: The texturing of yarn creates a new or commercially different article than the untextured yarn sent abroad, and completes the yarn for its intended use. Therefore, the article is not entitled to the partial duty exemption under subheading 9802.00.50, upon its return from abroad. Sincerely, John Durant, Director Commercial Rulings Division