Request for Internal Advice No. 49/92; Paper shopping bags with top serrated edge folded over; Alterations; 19 CFR 10.8; Royalty Bead Novelty; HRL 555740; Bags of paper, other

HQ 556865 October 30, 1992 CLA-2 CO:R:C:S 556865 BLS CATEGORY: Classification TARIFF NO.: 9802.00.50, 4819.40.0040 District Director of Customs Lincoln Juarez Bridge, Building 2 P.O. Box 3130 Laredo, TX 78044-3130 Re: Request for Internal Advice No. 49/92; Paper shopping bags with top serrated edge folded over; Alterations; 19 CFR 10.8; Royalty Bead Novelty; HRL 555740; Bags of paper, other Dear Sir: This is in response to the request from the Acting District Director dated July 9, 1992, forwarding a letter from Roser Customs Service, Inc., on behalf of Equitable Bag Co. Inc., concerning the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to shopping bags of paper to be imported from Mexico. The classification of the imported bags is also requested. Samples of the bags before and after the processing in Mexico were submitted for examination. FACTS: The sample bags are constructed in the general format known as a "shopping bag". They are made of strong paper and are capable of transporting merchandise, and have plastic handles. The bags are reinforced at the bottom by a configuration of additional paper lending support to the paper structure. The front and back of each bag is covered by a centered design with the configuration of a closed belt and the name "The Pocketbook Man" within the perimeter of the enclosed design. Prior to exportation to Mexico, the bags have a raw, partially serrated paper edge around the bag opening. In Mexico, this top edge will be folded over about 3/4 of an inch into the interior of the bag. The bags will then be imported for the U.S. market. The concerned import specialist advises that these types of shopping bags with the serrated edge are sold in that condition at a local store in Laredo. A visual inspection of the bags reveals that with the exception of the serrated edge, the - 2 - "Before" and "After" bags are identical. The serrated edge of the "Before" bag is neither sharp nor uncomfortable to the touch. Mr. Ralph Yarosh, a representative of the importer, has telephonically advised that the further processing provides a more aesthetically pleasing product, with the intention to increase marketability. ISSUE: 1) Whether the paper bags will be entitled to the partial duty exemption available under subheading 9802.00.50, HTSUS, when imported into the United States. 2) What is the correct classification of the imported paper bags? LAW AND ANALYSIS 1) 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). Additionally, the operations performed abroad will not be considered alterations if the foreign processing is a step in the manufacture needed to finish the article for its intended use. Alterations are made only to completed articles and do not include intermediate operations which are performed in the 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). However, the operations abroad will be considered an alteration within the intendment of the statute if the processing abroad does not create a new or different article and the identity of the exported item is retained. See, Royal Bead Novelty Co., Inc. v. United States, C.D. 4353, 68 Customs Court 154, 342 F. Supp. 1394 (1972). In Royal Bead, glass beads used in making costume jewelry were exported to Austria for a coating that imparted an "Aurora Borealis" finish. The court pointed out that while the value of the beads increased due to the coating, the identity of the goods -3 - was not lost or destroyed in the process and no new articles were created; beads went out and beads came back. There was no change in the size, shape, or manner of use of the beads. The sole change was in the finish, which did not change the beads' character, quality or texture. Accordingly, the processing qualified as an alteration within the meaning of Item 806.20, TSUS (precursor to subheading 9802.00,50). See, also Amity Fabrics, Inc. v. United States, 43 Customs Court 64, C.D. 2104 (1959), (velveteen fabric sent abroad for redyeing only). In Headquarters Ruling Letter (HRL) 555740, dated May 28, 1991, a herbicide was exported to France where it was subjected to processes of formulation and granulation, which made the product more marketable and "user friendly". A market existed within the United States for the product as exported. We found that the product in its exported condition was complete for its intended use as a herbicide, and that the additional processing abroad did not appear to result in a significant change in the quality or character of the product. Accordingly, we held that the foreign processing constituted an alteration within the meaning of Subheading 9802.00.50. These authorities are in point in this case. The shopping bag has not lost its identity as a result of the foreign processing, nor has a new product emerged. The "After" bag retains the identical function as the "Before" bag, albeit the imported article is, presumably, more marketable, and "user- friendly". Accordingly, we find that the processing abroad qualifies as an alteration within the meaning of subheading 9802.00.50, HTSUS. The facts in this matter are distinguishable from HRL 555800, dated April 5, 1991, and HRL 555055, dated April 26, 1989, cited in the opinion of the National Import Specialist. In HRL 555055, large paper and paperboard in rolls were sent to Canada where they were slit by machine into new shapes of smaller dimensions or specific size sheets. We held in that case that the foreign processing went beyond mere cutting to length and created a new character, name and use of the exported product. Similarly, in HRL 555800, we held that solid sheets of plywood were transformed into a new product, microcrystalline cellulose, after being subjected abroad to chemical processing and other treatment. In the instant case, the shopping bag is a finished product appropriate for a specific use when exported; that use remains unchanged in its altered form upon importation. The foreign processing has not changed the identity of the bag. - 4 - 2) Classification of the Paper Bags The paper bags are classifiable in HTSUS subheading 4819.40.0040, which provides for: Other (than certain enumerated bags and sacks, of paper). HOLDING: The folding-over of the upper, serrated edge of the shopping bag constitutes an alteration within the meaning of subheading 9802.00.50, HTSUS. Therefore, the shopping bag will be entitled to classification under this tariff provision with duty only on the value of the foreign processing upon compliance with the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8) Further, the bags are classifiable in HTSUS subheading 4819.40.0040, which provides for: Other (than certain enumerated bags and sacks, of paper). Sincerely, John Durant, Director Commercial Rulings Division