Applicability of subheading 9802.00.50, HTSUS, to grey cotton fabric shipped to Canada to be treated with a fire retardant chemical

HQ 555143 May 19, 1989 CLA-2 CO:R:C:V 555143 DBI CATEGORY: Classification TARIFF NO.: 9802.00.50, HTSUS Mr. S. Fattal S. Fattal Cotton Inc. 200 Edgehill Road Montreal, Canada H3Y 1E9 RE: Applicability of subheading 9802.00.50, HTSUS, to grey cotton fabric shipped to Canada to be treated with a fire retardant chemical Dear Mr. Fattal: This is in response to your letter of February 9, 1987, to the Area Director of Customs, New York Seaport, in which you request a ruling concerning the applicability of item 806.20, Tariff Schedules of the United States (TSUS) (now subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS)), to cotton grey fabric which is shipped from the U.S. to Canada to be treated with fire retardant chemicals and returned. Your letter was referred to this office for a response. We regret the delay in replying to your inquiry. FACTS: You advise that greige woven cotton fabric of U.S. origin will be shipped to Canada to be treated with a solution to render the fabric fire retardant. The fabric is described as a grey cotton osnaburg which is generally a plain woven, coarse yarn, medium to heavy weight fabric of low construction. Following the chemical treatment, the goods will be returned to the U.S. You have not provided any information on the intended use of the fabric or the processes that will be performed in the U.S. after the fabric's return to make it suitable for its intended use. We understand, however, that such chemical treatment often is performed on fabrics used for upholstery and draperies. No sample was provided. -2- ISSUE: Whether the described cotton fabric, when returned to the U.S., will be eligible for the partial exemption from duty provided for in subheading 9802.00.50, HTSUS. LAW AND ANALYSIS: As you are probably aware, the HTSUS replaced the TSUS, on January 1, 1989. Item 806.20, TSUS, was carried over into the HTSUS as subheadings 9802.00.40 (repairs or alterations made pursuant to warranty) and 9802.00.50 (other repairs or alterations). These provisions provide for the assessment of duty on the value of repairs or alterations performed on articles returned to the U.S. after having been exported for that purpose. However, the application of these tariff provisions 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 (1957); Guardian Industries Corporation v. United States, 3 CIT 9, Slip Op. 82-4 (Jan. 5, 1982). Treatment under subheadings 9802.00.40 and 9802.00.50, HTSUS, also is precluded where the exported articles are incomplete for their intended use and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles. Dolliff and Company, Inc. v. United States, 66 CCPA 77, C.A.D. 1225, 599 F.2d 1015 (1979). We have previously held in a ruling dated May 13, 1987 (HQ 554541), that item 806.20, TSUS, treatment was precluded where fabric, intended to be used as window coverings, was exported to Holland to be treated with a special resin chemical to make it more receptive to pleating. Following the chemical treatment, the fabric was squeezed, dried and returned to the U.S. for completion by the pleating process. We reasoned that while unpleated fabric may be used as a window covering, the fabric was exported not as fabric to be pleated abroad, but as fabric exported for a chemical treatment that would prepare the fabric for the pleating process upon return. This was considered an intermediate processing of unfinished goods and a continuation of the total goods-in-process manufacture that would produce pleated goods. -3- In ruling 554541 we distinguished the facts in that case from those in an earlier case where red cedar shakes and shingles were exported to Canada to be treated with fire retardant chemicals (Headquarters Ruling Letter 554192 dated September 5, 1986). In ruling 554192, we held that the shakes and shingles were entitled to item 806.20, TSUS, treatment because they were completed articles ready for their intended use, were regularly so used in their untreated condition, and appeared to be preferred over the more expensive treated product by the vast majority of customers. We also stated that they did not lose their identity in the fire-retardant process. In the present case, although you have not provided any information regarding the intended uses of the fabric, we presume that since the fabric constitutes greige goods, it is unfinished for its intended use when exported to Canada. To the extent that the goods are sent to Canada, treated with the chemicals, and then returned to the U.S. for further processing into finished fabric, the returned fabric would not be entitled to subheading 9802.00.50, HTSUS, treatment. The foreign processing would be merely an intermediate processing of unfinished goods to prepare the fabric for manufacture into finished fabric. HOLDING: The information submitted indicates that when the greige fabric is returned to the U.S., it will be further processed into finished fabric for possible use as draperies or upholstery. Under these circumstances, the foreign chemical treatment may not be considered an alteration as that term is used in subheading 9802.00.50, HTSUS, and, therefore, the returned fabric would not be entitled to the benefits of this tariff provision. Sincerely, John Durant Director, Commercial Rulings Division