Applicability of partial duty exemption under HTSUS subheading 9802.00.50 to fabric (tire cord LMCE54); cutting; fibers

HQ 558974 January 19, 1995 CLA-2 CO:R:C:S 558974 MLR CATEGORY: Classification TARIFF NO.: 9802.00.50 Mr. Michael K. Rafferty Nippon Express U.S.A., Inc. 410 Airpark Center Drive Nashville, TN 37217 RE: Applicability of partial duty exemption under HTSUS subheading 9802.00.50 to fabric (tire cord LMCE54); cutting; fibers Dear Mr. Rafferty: This is in response to your letter of November 22, 1994, to the District Director of Customs, New Orleans, Louisiana, requesting a ruling on behalf of Bando Manufacturing of America, Inc. ("Bando"), regarding the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to tire cord fabric. A sample of the uncut tire cord fabric and cut fibers are submitted with your request. FACTS: Bando exports a U.S.-origin article referred to as fabric (tire cord LMCE54) to Japan for cutting. An illustration indicates that the tire cord is shipped to Japan in 48 inch wide rolls, where it will be cut into fibers ranging in size from 2.5 to 3.5 millimeters. It is stated that the tire cord is sent to Japan for cutting because specially designed equipment needed to cut the tire cord to the specific size necessary is not available in the U.S. After the cutting process, the fibers, referred to by Bando as CFN 3000 and by the industry as cut fibers, will be imported into the U.S. These cut fibers are used as a rubber composite reinforcement material in the production of automotive belts. ISSUES: I. How is this merchandise classified under the HTSUS? II. Whether the Japanese cutting operation qualifies as an alteration, thereby allowing the cut fibers to be eligible for the partial duty exemption under subheading 9802.00.50, HTSUS, when returned to the U.S. LAW AND ANALYSIS: I. Classification Classification of goods under the HTSUS is governed by the General Rules of Interpretation (GRIs). GRI 1 provides that "classification shall be determined according to the terms of the headings and any relative section or chapter notes and, provided such headings or notes do not otherwise require, according to [the remaining GRIs taken in order]." The goods at issue are identified as CFN 3000 and you indicate they are referred to industry wide as "cut fibers". For tariff purposes, Customs does not believe the goods, in their condition as imported, are classifiable as "fibers" as they have been processed beyond the fiber stage by being spun into yarn prior to the cutting process. Headquarters Ruling Letter (HRL) 087677 of November 21, 1990, classified "dipped cotton, short cut fibers". The goods at issue therein are similar to the "cut fibers" at issue here. In HRL 087677, Customs dismissed classification of the merchandise as "fibers" for the same reason it is dismissed here. In addition, Customs did not consider the "cut fibers" classifiable as "yarn" because the "fibers" were no longer continuous strands suitable for weaving, knitting, or otherwise intertwining "as would be expected of a yarn under the HTSUSA." Classification as "flock" was dismissed in HRL 087677 based on the description in the Explanatory Notes to the Harmonized Commodity Description and Coding System which describes flock as being composed of pieces measuring 5 mm or less. The merchandise at issue in HRL 087677 ranged in size from 1 to 8 mm. In this case, the "cut fibers" range in size from 2.5 to 3.5 mm. Although the merchandise is in the appropriate size range for flock, Customs does not consider it properly classifiable as flock because flock is described in the Explanatory Notes and, more importantly, in the heading as "textile fibers, not exceeding 5 mm in length". As the merchandise is not considered classifiable as "fibers", it follows it cannot be classifiable as flock. Customs concluded in HRL 087677 that the merchandise at issue was classifiable as "articles of yarn" of heading 5609, HTSUS. In reaching this decision, Customs stated: While the instant merchandise are not now of sufficient length to be considered yarn, the facts indicate that it was yarn from which these pieces were cut. The pieces may properly be considered to be articles specifically created from the treated yarns. By application of GRI 1 therefore, the terms "articles of yarns" under heading 4906, HTSUSA, (sic) serve to classify this merchandise. Following HRL 087677, the goods at issue herein are classifiable as articles of yarn in heading 5609, HTSUS. II. Subheading 9802.00.50, HTSUS 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 repairs or alterations. Such articles are dutiable only upon the cost or value of the foreign repairs or alterations, provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8) are satisfied. See 59 Fed. Reg. 25563 (May 17, 1994), for amendments to 19 CFR 10.8. However, entitlement to this tariff treatment is precluded in circumstances where the operations performed abroad destroy the identity of the exported articles or create new or commercially different articles. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff'g C.D. 1752, 36 Cust. Ct. 46 (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 purpose prior to the foreign processing and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles. Guardian; Dolliff & Company, Inc. v. United States, 455 F. Supp. 618 (CIT 1978), aff'd, 599 F.2d 1015 (Fed. Cir. 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 as a result of having been merely cut to length, this cutting constitutes a finishing step in the manufacture of the goods, and exceeds the meaning of the term "alterations." See HRL 555174 dated April 25, 1989 (decorative banners, bearing repetitive holiday greetings, cut at a right angle, were incomplete products as they were unsuitable for their intended use in the continuous lengths in which they were exported); HRL 555343 dated May 30, 1989 (jumbo rolls of multistrike coated film 34 inches in width and 20,000 feet long slit into ribbon material for use in plastic cartridges for data processing machines constituted an intermediate step in the manufacture of the computer tape which is essential to render it suitable for its intended use); HRL 555766 dated April 2, 1991 (fabric coated with acrylic and cut into 3 1/2 inch strips for vertical blinds was not complete for its intended use but required cutting for use as vertical blinds); and HRL 557162 dated May 12, 1993 (wiping towels shipped in 30 inch diameter rolls to Canada, where the material was folded, perforated, cut-to-length, and placed in dispensing boxes, and returned to the U.S. constituted "intermediate processing operations which are performed as a matter of course in the preparation or the manufacture" of the desired end product). In each of these cases, the cutting of rolls of material to smaller lengths resulted in a new or different article suitable for its intended use. Applying these principles to the cutting operation performed in Japan, we are of the opinion that cutting the tire cord fabric from rolls into small fibers is not considered an acceptable alteration within the meaning of subheading 9802.00.50, HTSUS, but is rather a necessary operation in order to make it useful as a rubber composite reinforcement material in the production of automotive belts. HOLDING: On the basis of the information submitted, the "cut fibers" imported into the United States from Japan are classifiable as articles of yarn of man-made fibers in subheading 5609.00.3000, HTSUSA. Goods classified herein are dutiable at 8.6 percent ad valorem. Due to the changeable nature of the statistical annotation (the ninth and tenth digits of the classification) and the restraint (quota/visa) categories, you should contact your local Customs office prior to importation of this merchandise to determine the current status of any import restraints or requirements. Furthermore, cutting the tire cord fabric into small cut fibers amounts to a step in the work necessary to finish the final product and constitutes a processing which exceeds an alteration within the scope of subheading 9802.00.50, HTSUS. A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction. Sincerely, John Durant, Director Commercial Rulings Division