Application for Further Review of Protest No. 1601-08-100583; Super Washing of Wool Top; Alteration; Subheading 9802.00.50, HTSUS

HQ H045856 April 17, 2009 OT:RR:CTF:VS H045856 RSD CATEGORY: Classification TARIFF NO.: 9802.0050 Port Director United States Customs and Border Protection 200 East Bay StreetCharleston, SC 29401 RE: Application for Further Review of Protest No. 1601-08-100583; Super Washing of Wool Top; Alteration; Subheading 9802.00.50, HTSUS Dear Port Director: This is in reference to a protest and application for further review (Protest No. 1601-08-100583) filed by Chargeurs Wool (USA), Inc. (hereinafter "Chargeurs"), contesting the denial of the partial duty exemption under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to wool top imported from China. Samples of superwashed wool and non-superwashed wool were submitted for our consideration.FACTS: The Protestant, Chargeurs, is a subdivision of a larger, publicly traded French company also named Chargeurs. It produces approximately 9 million pounds of wool top yearly, and 90 percent of the company’s customers are located in the United States. Chargeurs’ customers are spinners who purchase wool top and spin it into yarn. Initially, Chargeurs purchases U.S. origin greasy wool or imports the greasy wool from Australia or New Zealand. However, the majority of the greasy wool (approximately 80 percent) that Chargeurs processes is of U.S. origin. After scouring (washing) the greasy wool to eliminate the impurities, the greasy wool is carded and combed into top or large slivers of wool sold to spinners. After these processes are performed, the wool is referred to as wool top. Wool top is a semi-processed product made from raw wool. The process of making wool top requires that the wool be scoured, combed, and sorted. The longer fibers resulting from the process are called tops, and are in a form ready for spinning. Chargeurs finishes its wool top in the United States. All of Chargeurs’ wool products are produced (sorted, washed, dried carded and combed) at its facility in Jamestown, South Carolina. Approximately 15 percent of the wool top that Chargeurs produces is exported from the United States to China for “superwashing operations”. After undergoing the superwashing operations in China, the wool top is returned to the United States and sold to customers who spin it into yarn. The yarn is in turn used for making various garments. The protested entries involve wool top imported from China that Chargeurs sought to enter under the tariff provision 9802.00.50, HTSUS. Superwashing is a process by which wool is treated so that the finished product exhibits a higher level of resistance to shrinkage and felting. Protestant explains that wool generally shrinks and felts when it is subject to a combination of moisture, and a sudden change in temperature and friction. As a result of friction and changes in temperature, microscopic scales within the wool open and then entangle in response to the exposure to the moisture and heat. Superwashing involves treating the finished wool top with chlorine to alter the wool scales so that they are less prone to entangling (a resin coating is also sometimes applied to further decrease the likelihood that the wool top will shrink or felt.) In particular, superwashing is used to treat wool top that will be used to produce articles of apparel that are more resistant to shrinkage and felting. Protestant points out however, that wool yarn spun from superwashed and non-superwashed wool top can often be used interchangeably to produce the same garments. Chargeurs sends its finished wool top to China for superwashing because there is no facility for superwashing wool top in the United States. The superwashed wool top is sold to the very same Chargeurs’ customers who purchase finished wool top that has not been superwashed. In fact, some of Chargeurs’ customers purchase both types of wool top. ISSUE: Whether the wool top exported from the United States to China for superwashing operations, which renders the wool top shrink and felt resistant, is eligible for the partial duty exemption under subheading 9802.0050, HTSUS, when it is returned to the United States? 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 means of a repair or alteration and duty is assessed only on the cost or value of the repair or alteration abroad. However, the application of this tariff provision is precluded in circumstances where the operations performed abroad destroy the identity of the articles 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) and Guardian Industries Corp. v. United States, 3 CIT 9 (1982). The duty partial exemption provided by subheading 9802.00.50, HTSUS, is also precluded where the exported articles are incomplete for their intended use and foreign operation constitutes an intermediate processing operation, which is performed as a matter of course in the preparation or the manufacture of finished articles. See 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, 1019 (1979). It is well settled that Congress did not intend to permit incomplete articles to be exported and made into finished products in the foreign country and when returned to subject to duties only on the cost of the so-called alterations. United States v. J.D. Richardson Company, 36 CCPA 15 C.A.D. 390 (1948) cert. denied 336 U.S. 936 (1949). In Dolliff & Company, Inc., v. United States, supra, a heat setting treatment performed abroad resulted in a permanent adherence of certain finishing chemicals to treated fabric, which had been exported as griege goods and returned as finished fabric suitable for manufacture into curtains. The griege goods and finished fabric were offered for sale and sold in different markets to different classes of buyers. The court held that where "foreign processing produces such changes in the performance characteristics of the exported article as to alter its subsequent handling and uses over that which earlier prevailed, the resultant product is of necessity a new and different article." 81 Cust. Ct. at 5, 455 F. Supp. at 622. However, in Amity Fabrics, Inc. v. United States, 43 Cust.Ct. 64, C.D. 2104, 305 F.Supp. 4 (1959), unmarketable pumpkin-colored cotton twill-back velveteen was exported to be redyed a black color. The court found that the merchandise was advanced in value and improved in condition commercially by the dyeing operation and that such change constituted an alteration. The court further found that "the identity of the goods was not lost or destroyed by the dying process; no new article was created; there was no change in the character, quality, texture, or use of the merchandise; it was merely changed in color." In HQ 559673 dated October 9, 1996, CBP determined that operations performed in England which rendered wool fabric stain and water repellant, resulted in the creation of a commercially different product with new performance characteristics and a more specialized use. It was noted that stain–resistant, water repellant fabric was more suitable for used as outerwear and upholstery. The ruling took note of the decision in Royal Bead Novelty Co. v. U.S. 68 Cust.CT. 154, C.D. 4353, 342 F. Supp. 1394 (1972), where uncoated glass beads were exported so that they could be half-coated with an Aurora Borealis finish which imparted a rainbow-like luster to the half-coated 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 (plaintiff testified that both uncoated and half-coated 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 and 19 CFR 10.8. Turning to the case at hand, according to the website “About.com”, superwashed wool, is a special wool product that has been treated or processed in a way that allows it to be machine washable. Because wool shrinks so easily, superwashed wool is used so that a garment does not need to be hand washed. Superwashed wool can be made using an acid bath that removes the "scales" from the fiber, or it can be made by coating the fiber with a polymer that basically keeps the scales from being able to join together and cause shrinkage. Based on the information presented, it is our view that the superwashed wool top and non-superwashed wool top may be used for the same purpose. The product exported to China was wool top and remained wool top after it underwent the superwashing process in China. We note that the superwashing process is not a necessary step for production of the wool yarn from the wool top. The superwashing operation is an optional process performed so that the wool yarn made from the wool top will resist shrinkage and felting. Both superwashed wool top and non-superwashed wool can be used to make wool yarn for production of the same kind of garments, such as socks, jackets, sweaters, etc. Garments made from superwashed wool top and non-superwashed wool top will be indistinguishable except that the superwashed wool garments will resist shrinkage so that they may be machine washed, whereas non-superwashed wool garments must either be hand washed or dry cleaned. While machine washability is an added feature of the garments made from superwashed wool, we do not believe that it is a significant enough characteristic to change the fundamental nature of the product into a commercially different article. Accordingly, we conclude that the superwashing of the wool top resulted in an improvement in the product’s condition as a result of an alteration. Therefore, we find that the superwashed wool top was eligible for the partial duty exemption under subheading 9802.00.50, HTSUS, when it was returned to the United States from China. HOLDING: On the basis of the information provided, it is our opinion that the superwashing of the wool top in China constitutes an "alteration" within the meaning of subheading 9802.00.50, HTSUS. Accordingly, the protest is granted. In accordance with the Protest/Petition Processing Handbook (CIS HB, December 2007), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.                               Sincerely, Myles B. Harmon, Director Commercial Rulings Division