Applicability of partial duty exemption under subheading 9802.00.50, HTSUS, to fabric exported to Canada for pleating

HQ 555430 July 3, 1990 CLA-2 CO:R:C:V 555430 LS CATEGORY: Classification TARIFF NO.: 9802.00.50 Mr. William J. LeClair Trans-Border Customs Services One Trans-Border Drive P.O. Box 800 Champlain, New York 12919 RE: Applicability of partial duty exemption under subheading 9802.00.50, HTSUS, to fabric exported to Canada for pleating Dear Mr. LeClair: This is in response to your letter of May 25, 1989, to our Customs office in Champlain, New York, on behalf of Unique Lamp Shade, Ltd., requesting a ruling on the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to pleated fabric imported from Canada for use in the manufacture of lamp shades. Your letter was referred through the National Import Specialist in New York to this office for preparation of a response. We regret the delay in responding. FACTS: Unique Lamp Shade, Ltd. exports U.S.-made polyester/cotton blend fabric in rolls to Canada where the fabric is pleated by means of a heat processing operation. During the pleating operation, paper is placed between the fabric and heat press to prevent damage to the fabric. The fabric with 1/4 inch pleats is then placed on rolls and returned to the U.S. When the fabric is used in the U.S. in the manufacture of lamp shades, the paper backing is removed. You state that the fabric will not be cut or subjected to any operation in Canada except for pleating. You contend that the pleating operation constitutes an alteration for purposes of subheading 9802.00.50, HTSUS. ISSUE: Whether fabric which is exported to Canada for a pleating operation will be entitled to the partial duty exemption under subheading 9802.00.50, HTSUS, when returned to the U.S. for use in making lamp shades. - 2 - 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 repairs or alterations. Such articles are dutiable only upon the value of the foreign repairs or alterations, provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8), are satisfied. However, entitlement to this tariff treatment 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 (1956); Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Tariff treatment under subheading 9802.00.50, HTSUS, also is precluded where the exported articles are incomplete for their intended use prior to the foreign processing. Guardian. As stated in Dolliff & Company, Inc. v. United States, 81 Cust. Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), aff'd, 66 CCPA 77, 82, C.A.D. 1225, 599 F.2d 1015, 1019 (1979), "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 the manufacture of finished articles." Applying these principles to the pleating operation performed in Canada, we find that the operation exceeds an alteration and constitutes a manufacturing process. The fabric, in its condition as exported, is not a completed article since it is not suitable for its intended use as lamp shade fabric. Instead, it is suitable for a multitude of uses. The pleating operation is a necessary intermediate manufacturing process which makes the fabric suitable for use in the production of lamp shades. Upon return to the U.S., the fabric undergoes further processing, including cutting operations and removal of the backing paper. HOLDING: On the basis of the information submitted, it is our opinion that the foreign operation constitutes a process of manufacture and not an alteration, within the meaning of subheading 9802.00.50, HTSUS. Accordingly, the pleated fabric will not be eligible for the partial duty exemption available under this tariff provision when returned to the U.S. Sincerely, John Durant, Director Commercial Rulings Division