Applicability of subheading 9802.00.50, HTSUS, and country of origin marking requirements to sweatshirts subjected to a chenilling process in Haiti

HQ 555249 June 16, 1989 CLA-2 CO:R:C:V 555249 DBI CATEGORY: Classification TARIFF NO.: 9802.00.50, HTSUS David R. Ostheimer, Esq. Lamb and Lerch 233 Broadway New York, New York 10279 RE: Applicability of subheading 9802.00.50, HTSUS, and country of origin marking requirements to sweatshirts subjected to a chenilling process in Haiti Dear Mr. Ostheimer: This is in response to your letter to the Regional Commissioner of Customs, New York, dated August 30, 1988, on behalf of Styletek, Inc., requesting a ruling concerning the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), and country of origin marking requirements to sweatshirts that are shipped to Haiti for certain chenilling operations and returned. Sample sweatshirts have been submitted for our examination. We regret the delay in responding to your request. FACTS: You advise that your client will be exporting U.S.-made sweatshirts to Haiti where they will be subjected to a chenilling process. Certain of the sweatshirts arriving in Haiti will have a pre-printed, silk-screened design already placed on them. Other sweatshirts will be exported to Haiti without a design, and the stencilled design will be placed on the sweatshirt in Haiti prior to the chenilling. The chenilling process consists of the following steps: (1) Buckram or similar material of U.S. origin is used as backing. (2) The area to be chenilled is outlined by a border stitch. (3) The area is chenilled using a drop stitch method on a sewing machine and then ironed to provide a smooth surface. -2- (4) A mounting stitch is placed on the outside of the chenilled area to secure the edge to the buckram. (5) Any excess is removed. Following the processing, the sweatshirts will be sent back to the U.S. to be sold to college and university bookstores and other organizations. ISSUES: (1) Whether the described sweatshirts, when returned to the U.S., will eligible for the partial exemption from duty under subheading 9802.00.50, HTSUS (formerly item 806.20, Tariff Schedules of the United States (TSUS)). (2) Whether, for country of origin marking purposes, the country of origin of the returned sweatshirts will be the U.S. or Haiti. LAW AND ANALYSIS: As you know, the HTSUS replaced the TSUS, on January 1, 1989. Item 806.20, TSUS, was carried over into the HTSUS as subheading 9802.00.50. This provision provides 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 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 C.A.D. 631 (1957); Guardian Industries Corporation v. United States, 3 CIT 9 (1982). Treatment under subheading 9802.00.50, HTSUS, also is precluded where the exported articles are incomplete for their intended use and the foreign processing 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). In a ruling dated July 27, 1988 (HQ 554974), we held that T-shirts that were hand-painted with a design abroad were not eligible for item 806.20, TSUS, treatment. In that case, we reasoned that the hand-painting of the exported T-shirts imparts substantially new and different characteristics to the shirts, resulting in new and different articles of commerce with unique, specialized appeal. -3- In a similar ruling dated December 10, 1986 (HQ 554371), we held that sweatshirts that were design hand-painted abroad were not entitled to item 806.20, TSUS, treatment. We stated that although garments may be worn whether design painted or not, hand-painting, like printing, is considered neither a repair nor an alteration under the provisions of item 806.20, TSUS. A design hand-painted garment is different from an unpainted one and, as such, the foreign hand-painting operations create a different article of commerce. Moreover, we stated that the foreign hand-painting operations constitute a finishing of the garment performed in the course of manufacture -- the last step in the total process of producing hand-painted sweatshirts. We further noted that, depending on customer needs, the garments are not considered finished products until they undergo the final design painting and become ready for marketing and sale. We believe that our holdings in these rulings are controlling with respect to the applicability of subheading 9802.00.50, HTSUS, to the sweatshirts under consideration here. The silk-screening and chenilling operations to be performed in Haiti on the exported plain sweatshirts clearly will impart substantially new and different characteristics to these shirts. The placing of a particular logo on a sweatshirt by these processes gives it specialized appeal, and is a prerequisite to marketing and selling the shirts in the U.S. in the manner desired by your client. Moreover, in regard to both the plain sweatshirts to be exported to Haiti and those that will have the pre-printed, silk-screened design on them when exported, the chenilling operation is the last step in the total process of producing finished sweatshirts bearing specific chenilled designs. With regard to the applicability of country of origin marking requirements to the returned sweatshirts, because the articles in question are textile products subject to section 204 of the Agricultural Act of 1956, as amended (7 U.S.C. 1854), section 12.130(c), Customs Regulations (19 CFR 12.130(c)), provides that any textile or textile product of the U.S. which is sent abroad and advanced in value or improved in condition shall, upon its return to the U.S., be considered a foreign article for the purposes of the Tariff Act of 1930, as amended. -4- In the case at hand, the chenilling operation to be performed in Haiti clearly will advance the value and improve the condition of the sweatshirts and render them suitable for a specific market. Consequently, we find that the chenilling process to be performed in Haiti satisfies the standard set forth in 19 CFR 12.130(c). Therefore, Haiti will be the country of origin and the sweatshirts should be marked accordingly. HOLDING: On the basis of the information submitted, it is our opinion that the chenilled sweatshirts will not be eligible for treatment under subheading 9802.00.50, HTSUS, upon return to the U.S. The chenilling process in Haiti will advance the sweatshirts in value and improve them in condition. Thus, for country of origin marking purposes, according to 19 CFR 12.130(c), the country of origin of the returned sweatshirts will be Haiti, and they must be marked accordingly. Sincerely, John Durant Director, Commercial Rulings Division