Application of partial duty exemption pursuant to9802.00.50, HTSUS, to greasy wool exported from the U.S. andprocessed in China by washing, carding and combing it intowool tops and wool yarn; alterations.

HQ 560296 Feb. 28, 1997 CLA-2 RR:TC:SM 560296 JML CATEGORY: Classification TARIFF NO: 9802.00.50 Mr. Bill Blackwell Rt. 2 Box 51 Goldwaite, Texas 76844 RE: Application of partial duty exemption pursuant to 9802.00.50, HTSUS, to greasy wool exported from the U.S. and processed in China by washing, carding and combing it into wool tops and wool yarn; alterations. Dear Mr. Blackwell: This is in response to your letter dated January 27, 1997, concerning the exportation of United States ("U.S.") origin greasy wool to China for processing and subsequent importation into the U.S. for sale into the wholesale market. Specifically, you ask whether or not the processed wool will be subject to duty upon return to the U.S. FACTS: The information you provided indicates that you are interested in sending U.S.-origin greasy wool to China for processing where the wool will be washed, carded and combed into wool tops. You state that some of the wool tops will be spun into wool yarn, but that some will remain as wool tops. Upon completion of the processing operations in China, the wool tops and wool yarn will be returned to the U.S. for sale into the wholesale market. ISSUE: Whether the wool tops and wool yarn, when returned to the U.S., will be eligible for the partial duty exemption provided for in subheading 9802.00.50, HTSUS. LAW AND ANALYSIS: U.S. Note 2(a), subchapter II, Chapter 98, Harmonized Tariff Schedule of the United States ("HTSUS"), provides that any product of the U.S. which is returned after having been advanced in value or improved in condition abroad by any process of manufacture or other means shall be treated as a foreign article for duty purposes and shall be dutiable, unless exempt therefrom under a specific HTSUS provision. Subheading 9802.00.50, HTSUS, provides a partial duty exemption for articles that are returned after having been exported to be advanced in value or improved in condition by means of repairs or alterations, provided that the documentary requirements of Customs Regulations section 10.8 (19 CFR 10.8), are met. For qualifying articles, duty is assessed only on the cost or value of the foreign processing. However, in circumstances where the operations abroad destroy the identity of the exported article or create a new or commercially different article, entitlement to subheading 9802.00.50, HTSUS, treatment is precluded. 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); Guardian Enterprises Corporation v. United States, 3 CIT 9 (1982), Slip Op. 82-4 (January 5, 1982). Additionally, entitlement to this tariff treatment is not available where the exported articles are incomplete for their intended purposes prior to the foreign processing and the foreign processing is a necessary step in the preparation or manufacture of the finished articles. Dolliff & Company, Inc. v. United States, 455 F. Supp. 618 (CIT 1978), aff'd, 599 F.2d 1015 (Fed. Cir. 1979). Customs generally considers the processing operations you describe -- washing, carding and combing greasy wool into wool tops more than repairs or alterations for purposes of subheading 9802.00.50, HTSUS. In Headquarters Ruling Letter (HRL) 559037, dated June 14, 1995, Customs concluded that similar processing of greasy wool abroad into wool tops creates a new and different article of commerce. Aside from a change in the commercial name of the article from greasy wool to wool tops, Customs noted a change in the use of the article because greasy wool and wool tops are recognized in the trade as separate and distinct articles of commerce sold in separate markets. Furthermore, while greasy wool is a raw material which is sheared directly from sheep, Customs determined that wool top is a textile article containing only wool fibers which are aligned in a parallel arrangement, and may be used in the production of, among other things, wool yarn. See HRL 955476, dated September 20, 1994. In this case, to the extent the greasy wool exported to China for processing and returned to the U.S. is washed, carded, and combed into wool tops, it will not be entitled to a partial duty exemption under subheading 9802.00.50, HTSUS, as a new and commercially different article is produced as a result of the foreign processing. A similar rationale applies to the additional processing which results in wool yarn. The facts you provided indicate that some of the wool tops will be "spun" into wool yarn. Customs is of the opinion that the further processing of the wool tops into wool yarn also creates a new and different commercial article which is ineligible for subheading 9802.00.50, HTSUS, treatment. In HRL 557088, dated April 2, 1993, Customs considered U.S.-origin greasy wool exported to Mexico for processing into yarn for a subheading 9802.00.50, HTSUS, partial duty exemption. In that case, Customs held that processing the greasy wool into yarn exceeds an alteration, and precludes the yarn from subheading 9802.00.50, HTSUS, treatment. In support of its conclusion, Customs determined that exported greasy wool is incomplete for its intended use (as wool yarn used for weaving fabrics) prior to the foreign processing, and a new and commercially different article is created when it is spun into yarn. See also HRL 556617, dated June 19, 1992. HOLDING: On the basis of the information submitted, U.S.-origin greasy wool exported to China for washing, carding and combing into wool top and wool yarn, becomes a new and commercially different article as a result of the foreign processing. Accordingly, the wool top and wool yarn will not qualify for a partial duty exemption under subheading 9802.00.50, HTSUS, upon its return to the U.S. 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 Tariff Classification Appeals Division