Application for Further Review of Protest No. 1704-93-00148; Applicability of partial duty exemption to woven wool fabric

HQ 557349 September 10, 1993 CLA-2 CO:R:C:S 557349 RAH CATEGORY: Classification TARIFF NO.: 9802.00.50 District Director U.S. Customs Service U.S. Customhouse 1 East Bay Street Savannah, Georgia 31401 RE: Application for Further Review of Protest No. 1704-93-00148; Applicability of partial duty exemption to woven wool fabric Dear Sir: This is in response to the above referenced matter which was forwarded to our office for review. FACTS: The fabric in question was made in the U.S. by Milliken & Company from yarn made in the U.S. The fabric was shipped to a Milliken plant in England on December 18, 1992. The fabric was processed by a procedure called felting or fulling. This process is a mechanized consolidation of the fibre. It permanently shrinks the wool fibre and makes it thicker. The fabric was then returned to the U.S. to a Milliken plant where it was dyed and finished, after which it was sent to Milliken's customer to make tennis balls. The protestant contends that the returned fabric is entitled to classification under subheading 9802.00.50, HTSUS, with duty assessed only on the value of the foreign labor. ISSUE: Whether the fabric is a completed product when exported from the U.S., and, therefore, eligible for the partial duty exemption under subheading 9802.00.50, HTSUS, when returned to the U.S. LAW AND ANALYSIS: Subheading 9802.00.50, HTSUS, provides a partial duty exemption for articles returned to the United States 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, is also precluded where the exported articles are incomplete for their intended use prior to the foreign processing. Guardian; 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, 82, 599 F.2d 1015, 119 (1979). Fulling operations are considered finishing operations. See 19 CFR 12.130(e)(2)(iv). Customs has long held that the duty exemption under subheading 9802.00.50, HTSUS, is inapplicable to incomplete goods exported for finishing operations. Headquarters Ruling Letter (HRL) 555478 dated July 23, 1990, and HRLs cited therein. In the instant case, the operations performed in England exceed an alteration. The fulling operation changes the characteristics of the surface of the fabric and creates a thicker, bulkier fabric. It is one step in the finishing of the fabric to prepare it for its use in making tennis balls. Therefore, we find that the woven wool fabric is not entitled to the partial duty exemption under subheading 9802.00.50, HTSUS. HOLDING: Wool fabric exported to England where it is subjected to a fulling or felting process is not entitled to the partial duty exemption under subheading 9802.00.50, HTSUS, as that processing exceeds an alteration. A copy of this decision should be attached to the Form 19, Notice of Action, to be sent to the protestant. Sincerely, John Durant, Director Commercial Rulings Division