Applicability of alterations or American goods returned provisions to patches cut out and trimmed from sheets of patches exported to Mexico

HQ W555481 October 24, 1989 CLA 2-CO:R:C W555481 RA CATEGORY: Classification TARIFF NOS.: 9801.00.10, 9802.00.50, and 5810.92.0040, HTSUS Mr. Alfred Roser P. 0. Box 48 Brownsville, Texas 78520 RE: Applicability of alterations or American goods returned provisions to patches cut out and trimmed from sheets of patches exported to Mexico Dear Mr. Roser: This is in response to your letter of August 24, 1989, regarding the allowances in duty, if any, applicable to individual patches which have been cut out of sheets and trimmed of loose threads using hand scissors in Mexico. FACTS: Sheets of embroidered patches containing emblems are exported to Mexico where they are cut into individual patches and trimmed of loose threads. The embroidery work is performed in the United States and the individual patches need only to be cut out of the sheets of patches and trimmed before being ready for use. ISSUE: Can the separated patches be accorded free entry as American goods returned or can the processing be treated as an alteration? - 2 - LAW AND ANALYSIS: Subheading 9801.00.10, Harmonized Tariff Schedule of the United States (HTSUS), provides for the free entry of U.S. products exported and returned without having been advanced in value or improved in condition by any process of manufacture or other means while abroad. The separation of the patches from the rest of the sheet and the trimming of threads clearly results in an advancement in value and an improvement in condition of the merchandise. Therefore, free entry under this provision is precluded. Subheading 9802.00.50, HTSUS, provides for a duty only on the cost or value of alterations made on articles returned to the U.S. after having been exported for that purpose. However, the application of this tariff provision is precluded where the operations performed abroad result in articles with new and different uses or where the processing constitutes a part of the manufacturing process begun in the U.S. Dolliff & Company v. United States, 66 CCPA 77, C.A.D. 1225 (1979). Alterations can be made only to completed articles and the term does not include intermediate operations performed in the manufacture of finished articles. Congress did not intend to permit uncompleted articles to be exported abroad and there made into finished products and when returned to be subject to duties only on the cost of the so­ called alterations. United States v. J.D. Richardson Co., 36 CCPA 15, C.A.D. 390 (1948). In our ruling of April 25, 1989 (HQ 555174), copy enclosed, we held that the separation of decorative banners bearing holiday greetings and completing them for retail sale constituted more than an alteration. We are of the opinion that the separation of the individual patches by cutting and the trimming of loose threads amount to operations which exceed an alteration, as they serve to finish a manufacturing process begun in the U.S. Therefore, tariff treatment under subheading 9802.00.50, HTSUS, is precluded and the returned embroidered emblems would be classified in subheading 5810.92.0040, HTSUS, at the rate of 8.4 percent ad valorem, if made of man-made fibers. - 3 - HOLDING: The processing abroad of U.S.-made sheets of embroidered patches by cutting out the individual patches and trimming loose threads precludes treatment of the returned patches as American goods returned under subheading 9801.00.10, HTSUS, or as articles exported for alterations and returned under subheading 9802.00.50, HTSUS. The patches are classifiable under subheading 5810.92.0040, HTSUS. Sincerely, I John Durant, Director Commercial Rulings Division Enclosure