Applicability of subheading 9802.00.50, HTSUS, to jeans returned from Mexico; hand-sanding

HQ 563077 September 3, 2004 CLA-02 RR:CR:SM 563077 EAC CATEGORY: Classification TARIFF NO.: 9802.00.50 Mr. S. Richard Shostak Mr. Bruce N. Shulman Stein, Shostak, Shostak & O’Hara Suite 1200 515 South Figueroa Street Los Angeles, CA 90071-3329 RE: Applicability of subheading 9802.00.50, HTSUS, to jeans returned from Mexico; hand-sanding Dear Messrs. Shostak and Shulman: This is in response to your letter, dated July 20, 2004, requesting a ruling on behalf of Caitac Garment Processing, Inc. (hereinafter “Caitac”), pertaining to the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (“HTSUS”), to processed jeans that are exported to Mexico for “hand-sanding” operations and subsequently returned to the United States. FACTS: It is stated that Caitac distributes various styles of jeans that are processed within the United States and Mexico. The jeans under consideration in this particular case are finished within the United States and exported to Mexico where they are “hand-sanded.” The hand-sanding procedure is performed only on certain portions of the finished jeans so as to remove some of the blue color from the areas which are sanded. We are advised that the hand-sanding procedure results in the jeans being decorated with a “whiskered” look which is currently popular among purchasers. After hand-sanding, the jeans are imported into the United States where they are washed, pressed or ironed, and packaged for shipment to Caitac’s various customers. We are additionally informed that, in the future, Caitac may also wash, rinse and/or launder the jeans within Mexico prior to returning them to the United States. ISSUE: Whether the jeans mentioned above are eligible for preferential tariff treatment under subheading 9802.00.50, HTSUS, when returned to the United States. LAW AND ANALYSIS: Subheading 9802.00.50, HTSUS, provides a partial or complete duty exemption for articles exported from and returned to the United States after having been advanced in value or improved in condition in Mexico or Canada by repairs or alterations, provided the documentary requirements of section 181.64(c), Customs and Border Protection ("CBP") Regulations (19 CFR 181.64(c)), are satisfied. Section 181.64(a), CBP Regulations, (19 CFR 181.64(a)), states that: “‘Repairs or alterations’ means restoration, addition, renovation, redyeing, cleaning, resterilizing, or other treatment which does not destroy the essential characteristics of, or create a new and commercially different good from, the good exported from the United States.” Court cases considering the applicability of subheading 9802.00.50, HTSUS, and its precursor provisions (item 806.20, Tariff Schedules of the United States ("TSUS"), and, before that, paragraph 1615(g), Tariff Act of 1930), have held that this tariff provision is inapplicable where: (1) the exported articles are incomplete for their intended use and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles; or (2) the operations performed abroad destroy the identity of the exported articles or create new or commercially different articles through a process of manufacture. See, Guardian Indus. v. United States, 3 CIT 9 (1982) (holding that U.S.-origin glass for use in sliding doors exported to Canada for annealing was incomplete for intended use when the glass failed to conform to U.S. federal regulations prior to the Canadian processing), and Dolliff & Co. v. United States, 455 F. Supp. 618 (Cust. Ct. 1978), aff’d, 599 F.2d 1015 (C.C.P.A. 1979) (ruling that foreign heat-setting, chemical-scouring, dyeing, and chemical treatment of U.S.-origin greige fabrics produced finished goods such that the foreign processing could not be considered an alteration for purposes of item 806.20, TSUS).  In Headquarters Ruling Letter (“HRL”) 557327 dated July 26, 1993, Levi jeans and jackets were exported to Mexico where: the garments were pressed, labeled, and restitched; belt loops were replaced or restitched; frayed seams were tucked under and restitched; and, rivets or buttons that had fallen off or become loose were replaced. In consideration of the foregoing, CBP determined that the processing which occurred in Mexico constituted repairs or alterations under subheading 9802.00.50, HTSUS. See also, HRL 562618 dated May 21, 2003 (embroidering polo shirts in Canada is an acceptable alteration within the meaning of subheading 9802.00.50, HTSUS); HRL 562644 dated April 29, 2003 (unwashed denim jeans with snap closures that were exported to El Salvador for enzyme softener washing or rinsing were eligible for preferential treatment under subheading 9802.00.50, HTSUS, upon their return to the United States); and, New York Ruling Letter (“NY”) K81166 dated December 8, 2003 (wet washing and attaching labels to jeans are acceptable processes under subheading 9802.00.50, HTSUS) . Consistent with the rulings set forth above, we find that the operations under consideration in the instant case constitute acceptable "alterations" for purposes of subheading 9802.00.50, HTSUS. In making this determination, we note that the jeans, as exported from the United States, are finished products in that they are suitable for use upon export. Although the operations performed in Mexico alter the appearance of the jeans, such operations do not otherwise enhance the character or performance of the garments. Therefore, upon return to the United States, the jeans mentioned above are entitled to a duty exemption under subheading 9802.00.50, HTSUS, provided the documentary requirements of 19 CFR 181.64(c) are satisfied. HOLDING: Based upon the facts of this case, we find that hand-sanding and laundering operations performed within Mexico qualify as alterations for purposes of subheading 9802.00.50, HTSUS. Therefore, the jeans mentioned above are entitled to duty-free treatment when returned to the United States, provided the documentary requirements of 19 CFR 181.64 are satisfied. 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 CBP officer handling the transaction. Sincerely, Myles B. Harmon, Director Commercial Rulings Division