Tariff treatment and country of origin requirements of fabric cut to length and width in Canada. Alteration; 554736; 074389/808702; 555055; 071100; 058960; 19 CFR 12.130(c); advanced in value; improved in condition; Canada

HQ 555782 April 22, 1991 CLA-2 CO:R:C:S 555782 KCC CATEGORY: Classification TARIFF NO.: 9802.00.50 Ms. Anne M. Williams A. N. Deringer, Inc. 30 West Service Road Champlain, New York 12919-9703 RE: Tariff treatment and country of origin requirements of fabric cut to length and width in Canada. Alteration; 554736; 074389/808702; 555055; 071100; 058960; 19 CFR 12.130(c); advanced in value; improved in condition; Canada Dear Ms. Williams: This is in response to your letter dated July 13, 1990, on behalf of Lenrod Industries Ltd., requesting a ruling on the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to, and the country of origin of, fabric cut to length and width in Canada. We regret the delay in responding. FACTS: Lenrod intends to ship U.S.-manufactured fabric in rolls to Canada. In Canada, the foreign operations consist of: 1) cutting fabric 36 inches in width by 2000 meters in length to shorter lengths (500 meter length rolls) and re-rolling the fabric; or 2) cutting fabric 100 inches in width by 2000 meters in length to length and width (50 inches wide by 500 meters long) and re-rolling the fabric. Upon completion of the foreign operations, the fabric will be imported into the U.S. In the U.S., the fabric rolls will be utilized in the production of products such as furniture and bedding. ISSUE: I. Whether the fabric is eligible for the partial duty exemption available under subheading 9802.00.50, HTSUS, when imported into the U.S. II. Whether the operations performed in Canada affect the country of origin of the fabric. LAW AND ANALYSIS: I. Applicability of subheading 9802.00.50, HTSUS Subheading 9802.00.50, HTSUS, 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 27, C.A.D. 631 (1956), aff'd, C.D. 1752, 36 Cust.Ct. 46 (1956); and Guardian Industries Corporation v. United States, 3 CIT 9 (1982), Slip Op. 82-4 (Jan. 5, 1982). Subheading 9802.00.50, HTSUS, treatment is also 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. See, Dolliff & Company, Inc. v. United States, 81 Cust.Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), aff'd, 66 CCPA 77, C.A.D. 1225, 599 F.2d 1015 (1979). We have previously ruled that, under certain circumstances, cutting material to length can be considered an alteration within the meaning of subheading 9802.00.50, HTSUS. However, in situations where rolls of material-length merchandise are exported and finished goods are returned merely by cutting to length, this cutting constitutes a finishing step in the manufacture of the goods. The conversion from material lengths to finished products exceeds the meaning of the term "alterations" under this tariff provision. See, Headquarters Ruling Letter (HRL) 554736 dated February 16, 1988 (cutting rolls of facial tissue paper into individual sheets is a finishing operation producing the article suitable for its intended use and is not an alteration). However, the cutting of merchandise from a long material length to a shorter material length without manufacturing a finished good does fall within the meaning of "alterations" in subheading 9802.00.50, HTSUS. See, HRL 074389/808702 dated July 25, 1984 (the foreign operations of cutting yarn from long material lengths into shorter material lengths and then packaging for retail sale are considered alterations); and HRL 555055 dated April 26, 1989 (cutting large paper rolls to smaller lengths does not create a new or commercially different article, only a shorter version of the same product. However, slitting the rolls to various widths and/or lengths which constitutes a necessary step in finishing the product for a particular use and completes the manufacturing process of the merchandise is not an alteration). Previous rulings concerning the slitting of material to smaller widths have held that this operation exceeds an alteration under this tariff provision. See, HRL 071100 dated December 29, 1982 (slitting a one-inch wide roll of tape to 1/16 or 1/8 of an inch width to create tape used in rear window defogger kits is not an alteration); HRL 058960 dated April 25, 1979 (cutting 38 inch width rolls of paper into 8, 10 and 20 inch width rolls creates a new and different article and constitutes a finishing step in the manufacture process); HRL 555241 dated July 3, 1989 (cutting labels to length and width constitutes a finishing step in the manufacture of the completed product); and HRL 555055 dated April 26, 1989. In each of these cases, the cutting of the material to smaller widths resulted in a new or different article suitable for its intended use. In regard to the facts of this case, we are of the opinion that cutting the rolls of fabric into shorter material lengths is considered an acceptable alteration within the meaning of this tariff provision. We are also of the opinion that cutting the fabric to shorter lengths and smaller widths will constitute an alteration within the meaning of subheading 9802.00.50, HTSUS. The foreign cutting operations produce shorter length bolts of fabric or shorter length and smaller width bolts of the same fabric which will be imported into the U.S. for use primarily in the furniture and bedding industries. Under the circumstances of this case, cutting the fabric into smaller material widths is no different than cutting the fabric into shorter material lengths. Cutting the fabric to length and width essentially converts the fabric from a large material bolt into a smaller material bolt and does not result in a finished good. When received by a furniture or bedding manufacturer, the fabric must still be cut to smaller sizes to render it suitable for its intended use. Moreover, the cutting operations do not destroy the identity of the fabric nor do they create a new or commercially different article. Therefore, the U.S. fabric cut into a shorter material length, as well as the fabric cut into a shorter material length and a smaller material width will be entitled to the partial duty exemption available under subheading 9802.00.50, HTSUS. II. Country of Origin Section 12.130, Customs Regulations (19 CFR 12.130), provides country of origin requirements for textiles and textile products. According to 19 CFR 12.130(c): Chapter 98, Subchapter II, Note 2, HTSUS, provides that any product of the U.S. which is returned after having been advanced in value or improved in condition abroad, or assembled abroad, shall be a foreign article for purposes of the Tariff Act of 1930, as amended ... merchandise which falls within the purview of Note 2 may not, upon its return to the U.S. be considered a product of the U.S. In the present case, the U.S. manufactured fabric will be advanced in value and improved in condition by the Canadian cutting operations as discussed above. The U.S. fabric exported to Canada is in bulk form (36 inches by 2000 meters and 100 inches by 2000 meters). In Canada, the fabric is cut to shorter lengths and, in some cases, to smaller widths to produce smaller rolls of fabric (36 inches by 500 meters and 50 inches by 500 meters) which are sold primarily in the furniture and bedding industries. The Canadian operations produce salable fabric, thereby advancing it in value and improving it in condition. Therefore, the country of origin of the imported fabric is Canada. HOLDING: On the basis of the information submitted, it is our opinion that the operations performed abroad are considered alterations. Therefore, the imported fabric may be entered under subheading 9802.00.50, HTSUS, with duty only on the cost or value of the foreign cutting operations, upon compliance with the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8). The cutting operation performed abroad on the U.S. manufactured fabric advances it in value and improves it in condition. Therefore, upon reimportation, the fabric is considered a product of Canada pursuant to 19 CFR 12.130(c). Sincerely, John Durant, Director Commercial Rulings Division