Request for a prospective ruling on the dutiability of yarn exported from the U.S. for dyeing

HQ H287693 July 5, 2017 OT:RR:CTF:VS H287693 CMR CATEGORY: Classification TARIFF NO.: 9802.00.50 Chris Guo FiberOption Yarn Co., Inc. 16 Wenwood Drive Brookville, New York 11545 RE: Request for a prospective ruling on the dutiability of yarn exported from the U.S. for dyeing Dear Mr. Guo: This is in response to your request of April 12, 2017, for a prospective ruling on the dutiability of yarn imported into the United States and subsequently exported for dyeing and re-imported into the U.S. FACTS: In your submission, you indicate that the yarn at issue is 100 percent cotton yarn that is produced in Egypt in a Qualified Industrial Zone (QIZ). The yarn is imported into the U.S. in greige condition. After importation into the U.S., the yarn is exported to Taiwan for dyeing. You state that no additional manufacturing procedures are performed on the yarn; it is only dyed. The dyed yarn is exported to the U.S. on cones for use in apparel manufacturing. Specifically, you indicate that the dyed yarn are used to produce knit sweaters to be sold either to retail stores or directly to consumers. ISSUE: Whether the dyed yarn is eligible for a partial duty exemption under subheading 9802.00.50, HTSUS, or is fully dutiable upon re-importation into the U.S. 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. Duty is assessed only on the cost or value of the repair or alteration abroad, provided that the documentary requirements of 19 CFR §10.8 are met. Classification under subheading 9802.00.50, HTSUS, is precluded where the operations performed abroad destroy the identity of the exported articles or create new or commercially different articles through a process of manufacture. See A.F. Burstrom v. United States, 36 Cust. Ct. 46, C.D. 1752, aff’d 44 CCPA 27, C.A.D. 631 (1956), and Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Tariff treatment under this provision is also precluded where the exported articles are incomplete for their intended use and the foreign operation constitutes an intermediate processing operation performed as a matter of course in the preparation or manufacture of finished articles. See Dolliff & Company, Inc. v. United States, 81 Cust. Ct. 1, C.D. 4755 (1978), aff’d, 66 CCPA 77, C.A.D. 1225 (1979). In the referenced Dolliff case, certain Dacron polyester fabrics (greige goods) were exported and subjected to multiple processing operations abroad, including heat-setting, chemical scouring and dyeing. 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 other processing steps were all necessarily undertaken to produce the finished fabric. The court stated (66 CCPA at 82) that: . . . repairs and alterations are made to completed articles and do not include intermediate processing operations which are performed as a matter of course in the preparation or manufacture of finished articles. In the instant situation, the operations performed in Canada comprise further processing steps which are performed on unfinished goods and which lead to completed articles, i.e., the finished fabrics, and, therefore, the processing cannot be considered alterations. In C.J. Tower & Sons of Niagara, Inc. v. United States, C.D. 2208, 45 Cust. Ct. 111 (1960), cotton drills (greige goods) 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 for alterations abroad 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. However, in Amity Fabrics, Inc. v. United States, C.D. 2104, 43 Cust. Ct. 64 (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. Customs and Border Protection (CBP) “has consistently 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 [subheading 9802.00.50].” See HQ 560277, dated May 29, 1997; But c.f., HQ 561383, dated June 1999, wherein CBP determined yarns exported to be dyed and re-imported were not subjected to an intermediate processing operation as many of the importer’s customers utilized the yarns in their greige condition. See also, HQ 556523, dated May 29, 1992 (dyeing and finishing of sewing thread constitutes an alteration); and, HQ 556617, dated June 19, 1992 (dyeing, printing and bleaching of greige fabric more than an alteration); and HQ 557088, dated April 2, 1993 (dyed wool more than an alteration; citing HQ 555478, dated July 1990, wherein 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 subheading 9802.00.50, HTSUS.). Although the yarn may have originally entered as a good eligible for a duty-allowance under the QIZ program, as the exportation of the yarn from the U.S. is for dyeing in Taiwan, the yarn is no longer eligible for a duty-allowance under the QIZ program upon re-importation after dyeing. In this case, you indicate that that dyed yarn is used in the production of knit sweaters. The dyed yarn is an intermediate material used in the production of knit sweaters and, therefore, it is fully dutiable upon re-importation into the U.S. HOLDING: The yarn at issue is not eligible for a partial duty exemption under subheading 9802.00.50, HTSUS. It is fully dutiable upon importation into the U.S. after dyeing in Taiwan. 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, Robert Dinerstein, Acting Chief Valuation and Special Programs Branch