Eligibility of U.S.-origin T-shirts, which are compressed, embossed, and packaged abroad, for reduced or duty-free treatment; HRL 554945

HQ 557020 December 11, 1992 CLA-2 CO:R:C:S 557020 CW CATEGORY: Classification TARIFF NO.: 9801.00.10, 9802.00.50 Mr. Thomas Polich Company Counsel Inter-Global Associates, Ltd. 1801 Wynkoop St., Suite C-7 Denver, Colorado 80202 RE: Eligibility of U.S.-origin T-shirts, which are compressed, embossed, and packaged abroad, for reduced or duty-free treatment; HRL 554945 Dear Sir: This is in response to your letter of October 28, 1992 (your file no. 877807), requesting a ruling on the eligibility of cotton T-shirts of U.S. origin for duty-free treatment under subheading 9801.00.10, Harmonized Tariff Schedule of the United States (HTSUS), or a partial duty exemption under subheading 9802.00.50, HTSUS, after they are compressed, embossed and packaged in Japan. A sample of the product to be imported was provided. FACTS: Inter-Global Associates, Ltd. is planning to ship plain- colored 100% pre-printed cotton T-shirts of U.S. origin to Japan where they will be hand folded, pressure compressed (using a patented technique), packaged and labeled in clear plastic slips. The compressed product's dimensions are approximately 112 mm in length, 72 mm in height and 22 mm in depth. The compression process may also include an embossment, utilizing a reverse-image plate impression. The words embossed upon the sample submitted are "ORIGINAL PRESS T SHIRT." After the above operations are completed, the T-shirts are sorted by size in 36 unit display boxes, palletized, shrink wrapped and returned to the U.S. for distribution. You state that the compression (which severely wrinkles the fabric) and embossment are not permanent, but disappear with the first or second washing. The cost of the compression operation performed in Japan is $1.15, while the cost of the completed T- shirt is $3.09. You advised a member of my staff by telephone that - 2 - the compression operation is primarily designed as a cost-saving measure. For example, more compressed T-shirts can be stored in a warehouse, and fewer packaging materials are required. You further stated that the compressed condition of the shirts may have a certain novelty appeal to consumers, although you indicated that most consumers prefer as smooth and unwrinkled a T-shirt as possible. With respect to the embossing, you explained that this is performed to identify the product since, as a result of the folding and compression, the label is hidden from view. ISSUE: Whether the U.S.-origin T-shirts which are compressed, embossed and packaged in Japan are entitled to duty-free or reduced duty treatment under subheading 9801.00.10 or 9802.00.50, HTSUS, when returned to the U.S. LAW AND ANALYSIS: Subheading 9801.00.10, HTSUS, provides for the duty-free entry of products of the U.S. that have been exported and returned without having been advanced in value or improved in condition by any process of manufacture or other means while abroad, provided the documentation requirements of section 10.1, Customs Regulations (19 CFR 10.1), are met. Absent some alteration or change in the article itself, the mere repackaging of the item, even for the purpose of resale to the ultimate consumer, is not sufficient to preclude the merchandise from receiving duty-free treatment as American goods returned. United States v. John V. Carr & Sons, Inc., 69 Cust. Ct. 78, C.D. 4377 (1972), aff'd 61 CCPA 52, C.A.D. 1118 (1974). The importer must establish that the value of the returned merchandise is no greater and its condition no better than when exported. United States v. Bird, 11 Ct. Cust. Appls. 229, T.D. 38991 (1922). The words "improved in condition" must be taken in a commercial sense and the actual nature of the commercial entity must be considered. Amity Fabrics, Inc. v. United States, 43 Cust. Ct. 64, C.D.2104 (1959). In this case, the operations performed in Japan clearly comprise more than merely repackaging the T-shirts. The folding and compression operations significantly reduce the size of the packaged product, enabling more shirts to be stored in a warehouse, reducing packaging costs, and possibly imparting some novelty appeal to the shirts. Under these circumstances, we believe that, in any common or commercial sense, the compression operation results in an advancement in the shirts' value and an improvement in their condition. We believe this to be true even though the compressed condition of the shirts is only temporary. Therefore, the returned shirts would be ineligible for duty-free treatment under subheading 9801.00.10, HTSUS. - 3 - Subheading 9802.00.50, HTSUS, provides a partial duty exemption for articles that are returned after having been exported for repairs or alterations. However, the application of this tariff provision is precluded 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). This tariff provision also is inapplicable where the exported article is incomplete for its intended use and the foreign processing is a necessary step in the preparation or manufacture of a finished article. See Dolliff & Company, Inc. v. United States, 66 CCPA 77, C.A.D. 1225 (1979). Articles entitled to classification under subheading 9802.00.50, HTSUS, are subject to duty (at the rate applicable to the article) only upon the cost or value of the foreign repairs or alterations, provided the documentation requirements set forth in section 10.8, Customs Regulations (19 CFR 10.8), are satisfied. In Headquarters Ruling Letter (HRL) 554945 dated June 14, 1988, we held that subjecting certain U.S.-made swimsuit material to foreign processing designed to impart a permanent "crushed" or wrinkled look to the fabric constituted an "alteration" under item 806.20, Tariff Schedules of the United States (TSUS) (the precursor to subheading 9802.00.50, HTSUS). We reasoned that the fabric, in its exported condition, was complete for its intended use as material for swimsuits, and that the foreign operation did not destroy the identity of the fabric or create a new or commercially different article. We believe that the conclusion reached in HRL 554945 is also applicable to the facts in the instant case. As was the case with the swimsuit material, the T-shirts, in their condition as exported, are completed articles which are entirely suitable for their intended use. Furthermore, while the compression operation significantly reduces the size of the final packaged product and gives the shirt a very wrinkled appearance, it does not destroy the identity of the shirt or create a new or commercially different article. Plain-colored, pre-printed cotton T-shirts are exported and the same product is returned. With respect to the embossment, we believe that this operation also constitutes an "alteration" under subheading 9802.00.50, HTSUS, based upon our prior rulings. See T.D. 56320(1) dated September 17, 1964 (electrical diodes exported to Mexico for inspection, evaluation, and stamping of their electrical diode characteristics were entitled to treatment under item 806.20, TSUS); HRL 071159 dated March 2, 1983 (zener diodes exported to Mexico for marking and packaging operations were entitled to - 4 - treatment under item 806.20, TSUS, as the printing operation has no more significance than a label for identification purposes); and HRL 554996 dated June 30, 1988 (sunglasses exported for inspection, adjustment, and retagging were eligible for entry under item 806.20, TSUS). HOLDING: On the basis of the information submitted, we find that the compression and embossment operations to be performed in Japan on the U.S.-origin T-shirts constitute "alterations" within the meaning of subheading 9802.00.50, HTSUS. Therefore, the returned T-shirts may be entered under this tariff provision, with duty due only upon the cost or value of the alterations, upon compliance with the documentation requirements of 19 CFR 10.8. Sincerely, John Durant, Director Commercial Rulings Division