Applicability of partial duty exemption under subheading9802.00.50, HTSUS, to certain apparel articles exported fromthe U.S. to Canada for dyeing; alterations; 19CFR 181.64; NAFTA.

HQ 560324 May 8, 1997 CLA-2 RR:TC:SM 560324 JML CATEGORY: Classification TARIFF NO: 9802.00.50 Mr. Pierre Dumas Production Manager The Dye House 888 Bradford Street Winnipeg, Manitoba Canada R3H ON5 RE: Applicability of partial duty exemption under subheading 9802.00.50, HTSUS, to certain apparel articles exported from the U.S. to Canada for dyeing; alterations; 19 CFR 181.64; NAFTA. Dear Sir: This is in response to your letter dated January 31, 1997, in which you requested a binding ruling regarding the eligibility for duty-free treatment of certain apparel products exported from the United States ("U.S.") to Canada for dyeing before return to the U.S. FACTS: According to the facts provided, your company, The Dye House, intends to import certain leisure apparel from the U.S. into Canada for dyeing and subsequent return. The subject apparel will consist of either knit or woven T-shirts, sweatshirts, sweatpants, shorts, skirts and dresses, and be made of 100% cotton, cotton/lycra blend, or cotton/polyester blend. Upon importation of the apparel into Canada, it will be in an undyed, natural color or half-bleached color. In addition to the dyeing processes, you stated in a telephone conversation with a member of my staff on May 1, 1997, that the apparel may be subject to a softening process as well as the application of an anti-piling agent. ISSUE: Whether the apparel, upon its return to the U.S., will be eligible for a partial duty exemption pursuant to subheading 9802.00.50, Harmonized Tariff Schedule of the United States ("HTSUS"). LAW AND ANALYSIS: Articles returned to the U.S. after having been exported to be advanced in value or improved in condition by repairs or alterations may qualify for the complete or partial duty exemption under subheading 9802.00.50, HTSUS, provided the foreign operation does not destroy the identity of the exported articles or create new or commercially different articles through a process of manufacture. 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 Industries Corp. v. United States, 3 CIT 9 (1982). Accordingly, entitlement to this tariff treatment is 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. Dolliff & Company, Inc. v. United States, 455 F. Supp. 618 (CIT 1978), aff'd, 559 F.2d 1015 (Fed. Cir. 1979). Articles entitled to this partial duty exemption are dutiable only upon the cost or value of the foreign repairs or alterations when returned to the U.S. from Canada, provided the documentary requirements of section 181.64, Customs Regulations (19 CFR 181.64), are satisfied. Section 181.64(b), Customs Regulations (19 CFR 181.64(b)) provides that: (B) Goods not eligible for duty-free or reduced duty-treatment after repair or alteration. The duty free or reduced-duty treatment referred to in paragraph (a) of this section shall not apply to goods which, in their imported condition as exported from the United States to Canada or Mexico, are incomplete for their intended use and for which the processing operation performed in Canada or Mexico constitutes an operation that is performed as a matter of course in the preparation or manufacture of finished goods. "Repairs or alterations," as that term is used for purposes of 19 CFR 181.64 is defined in paragraph (a) as "restoration, addition, renovation, redyeing, cleaning, resterilizing, or other treatment which does not destroy the essential characteristics of, or create a new or commercially different good from, the good exported from the United States." In Dolliff & Company, Inc v. U.S., 66 CCPA 77, C.A.D. 1225 (1979), the court found that the processing steps performed on exported greige goods were undertaken to produce the finished fabric and could not be considered as alterations. At issue was the question of whether certain Dacron polyester fabrics, which were manufactured in the U.S., and exported to Canada for heat-setting, chemical-scouring, dyeing, and treating with chemicals were eligible for the partial duty exemption available under item 806.20, Tariff Schedules of the United States (TSUS) (the precursor to HTSUS subheading 9802.00.50), when returned to the U.S. Specifically, the U.S. Court of Customs and Patent Appeals stated that: ...repairs and alterations are made to completed articles and do not include intermediate processing operations which are performed as a matter of course in the preparation or manufacture of finished articles. In the instant situation, the operations performed in Canada comprise further processing steps which are performed on unfinished goods and which lead to completed articles, i.e., the finished fabrics, and, therefore, the processing cannot be considered alterations. Indeed, Congress did not intend to permit incomplete articles to be exported and made into finished products in the foreign country and when returned to be subject to duties only on the cost of the so-called alterations. U.S. v. J.D. Richardson Co., 36 CCPA 15, C.A.D. 390 (1948). In this regard, Customs has consistently held that the initial dyeing of goods constitutes a finishing operation--a step in the manufacture of finished goods-which exceeds the meaning of the term "alteration" under this tariff provision. In Headquarters Ruling Letter ("HRL") 559283, dated January 18, 1996, Customs held that U.S.-origin fabric exported to Canada for dyeing and finishing operations was not eligible for the partial duty exemption provided under subheading 9802.00.50, HTSUS, as the dyeing operation undertaken in Canada exceeded an "alteration" within the meaning of the term under this tariff provision. Customs stated that the dyeing and finishing operations performed in Canada to the U.S.-origin fabric constituted "intermediate processing operations which are performed as a matter of course in the preparation or the manufacture" of the desired end product, and thus the fabric was an incomplete article when exported from the U.S. to Canada. Similarly, in HRL 559207, dated February 2, 1996, Customs determined that U.S.-origin greige fabric sent to Canada for bleaching and dyeing constituted a step in the manufacture of a finished textile good and thus exceeded an "alteration" for purposes of subheading 9802.00.50, HTSUS. See also HRL 555510, dated January 30, 1990 (initial dyeing of carpet tiles exceeds an alteration). Consistent with the court cases and rulings cited above, we find that the dyeing operations performed in Canada to the U.S.-origin apparel constitute "intermediate processing operations which are performed as a matter of course in the preparation or the manufacture" of the desired end product (dyed apparel). Thus, the dyeing operation exceeds an "alteration" within the meaning of subheading 9802.00.50, HTSUS, and the dyed apparel returned to the U.S. from Canada is not eligible for the partial duty exemption provided under this tariff provision. HOLDING: On the basis of the information submitted, we find that the dyeing operations performed to the U.S.-origin apparel in Canada constitute a step in the manufacture of finished apparel and thus, exceed an "alteration" within the meaning of subheading 9802.00.50, HTSUS. Accordingly, the dyed apparel returned to the U.S. from Canada is not eligible for the partial duty exemption provided under subheading 9802.00.50, HTSUS. A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is 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