Applicability of the alterations provision of subheading 9802.00.50, HTSUS, to paper exported in rolls and returned in smaller rolls and sheets

HQ 555055 April 26, 1989 CLA-2-CO:R:C 555055 RA CATEGORY: Classification TARIFF NO.: 9802.00.50, HTSUS Gerald T. Walsh, Esq. Kavinoky & Cook 120 Delaware Avenue Buffalo, New York 14202 RE: Applicability of the alterations provision of subheading 9802.00.50, HTSUS, to paper exported in rolls and returned in smaller rolls and sheets Dear Mr. Walsh: This is in response to your letters of June 13 and November 2, 1988, on behalf of Niagara Paper Co., Inc. requesting a review of a ruling by the Area Director of Customs, New Yerk Seaport, dated February 26, 1988 (827641), regarding the classification of certain paper, to be exported to Canada in rolls and cut into smaller rolls or sheets and returned. FACTS: In response to a request from your client dated December 31, 1987, the Area Director, New York Seaport, ruled that cutting the paper to specification from exported raw material bulk rolls amounts to the final step in the manufacturing process of the paper that prepares the paper for final sale and use and cannot be considered under the repair or alterations provision of item 806.20, Tariff Schedule of the United States (TSUS). Your client proposes to export to Canada paper and paperboard in-rolls in widths of from 8 inches to 120-inches and in lengths of from 800 lineal feet to 50,000 lineal feet which will be cut into smaller rolls or sheets and returned for sale in the U.S. The finished product is plain, bleached paper or paperboard in many different sizes. The large rolls are slit by machine into rolls or sheets of smaller dimensions, and are not merely cut to shorter lengths. No additional coating, finishing, or other processing related to the composition of the paper is performed in Canada. - 2 - ISSUE: Do the operations to be performed in Canada constitute alterations under the provizions of subheading 9802.00.50, Harmonized Tariff Schedule of the U.S. (HTSUS), which replaced, in part, item 806.20, TSUS, so that duty will be assessed only on the cost of the foreign processing? LAW AND ANALYSIS: 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 characteristics, or where the foreign operations constitute a part of a manufacturing process begun in the U.S. In the instant case, in accordance with numerous previous rulings, the Area Director determined that changing the large rolls of paper products in Canada into narrower rolls or sheets of specific sizes amounts to a finishing step of a manufacturing process begun in the U.S. As stated by the appellate court in Dolliff & Company inc. v. U.S., 66 CCPA 77, C.A.D. 1225 (1979), alterations are made only to completed articles and do not include intermediate operations which are performed in the manufacture of finished articles. If the foreign processing is a step in the manufacture needed to finish the article for its intended use, the statutory provision for alterations will not be applicable. Guardian Industries Corporation v. U.S., 3 CIT 9 (1982). 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. U.S. v. J.D. Richardson Co. 36 CCPA 15, C.A.D. 390 (1948). In support of your contention that the foreign processing of the paper products constitutes an alteration, you cite Amity Fabrics, Inc. v. U.S., C.D. 2104, 43 Cust. Ct. 64 (1959), and Wilbur G. Hallauer v. U.S., C.A.D. 518, 40 CCPA 197 (1953). However, these cases concerned the redyeing of shirts and cleaning of apples, respectively, and did not involve any cutting to shape or the completion of a finishing process as in your case. Also the rolls of bleached muslin and percale sheeting which were the subject of T.D. 70-76(1) (1970), did not concern cutting. - 3 - As previously held, we are of the opinion that the slitting of the exported rolls of paper products to obtain new shapes of smaller dimensions or specific size sheets constitutes a step in the manufacture which is essential to obtain the desired end product. This processing goes beyond mere cutting to length which does not effect a new character, name, or use but rather only a shorter version of the same product. See rulings 058960 dated April 25, 1979, 065398 dated November 10, 1980, and 554736 dated February 16, 1988. HOLDING: The slitting to shape of paper products abroad is a foreign processing which exceeds an alteration under subheading 9802.00.50, HTSUS, as it is a necessary step in finishing the product for a particular use in the U.S. and completes the manufacture of the merchandise. This renders the alterations provision inapplicable to the returned paper products. Sincerely, John Durant, Director Commercial Rulings Division