HQ 555055: Applicability of the alterations provision of subheading 9802.00.50, HTSUS, to paper exported in rolls and returned in smaller rolls and sheets

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                             HQ 555055

                          April 26, 1989


CLA-2-CO:R:C  555055 RA

CATEGORY: Classification

TARIFF NO.:  9802.00.50, HTSUS

Gerald T. Walsh, Esq.
Kavinoky & Cook
120 Delaware Avenue
Buffalo, New York 14202

RE:  Applicability of the alterations provision of subheading 
      9802.00.50, HTSUS, to paper exported in rolls and 
      returned in smaller rolls and sheets

Dear Mr. Walsh:

      This is in response to your letters of June 13 and November 
2, 1988, on behalf of Niagara Paper Co., Inc. requesting a review 
of a ruling by the Area Director of Customs, New Yerk Seaport, 
dated February 26, 1988  (827641), regarding the classification of 
certain paper, to be exported to Canada in rolls and cut into 
smaller rolls or sheets and returned. 

FACTS:

      In response to a request from your client dated December 31,
1987, the Area Director, New York Seaport, ruled that cutting the 
paper to specification from exported raw material bulk rolls 
amounts to the final step in the manufacturing process of the 
paper that prepares the paper for final sale and use and cannot 
be considered under the repair or alterations provision of item 
806.20, Tariff Schedule of the United States (TSUS).  Your client 
proposes to export to Canada paper and paperboard in-rolls in 
widths of from 8 inches to 120-inches and in lengths of from 800 
lineal feet to 50,000 lineal feet which will be cut into smaller 
rolls or sheets and returned for sale in the U.S.   The finished 
product is plain, bleached paper or paperboard in many different 
sizes.  The large rolls are slit by machine into rolls or sheets 
of smaller dimensions, and are not merely cut to shorter lengths.
No additional coating, finishing, or other processing related to 
the composition of the paper is performed in Canada.
                               - 2 -

ISSUE:

     Do the operations to be performed in Canada constitute
alterations under the provizions of subheading 9802.00.50, 
Harmonized Tariff Schedule of the U.S. (HTSUS), which replaced, 
in part, item 806.20, TSUS, so that duty will be assessed only on
the cost of the foreign processing?

LAW AND ANALYSIS:

     Subheading 9802.00.50, HTSUS, provides for a duty only on 
the cost or value of alterations made on articles returned to the 
U.S. after having been exported for that purpose.  However, the 
application of this tariff provision is precluded where the 
operations performed abroad result in articles with new and 
different uses or characteristics, or where the foreign 
operations constitute a part of a manufacturing 
process begun in the U.S.   In the instant case, in accordance 
with numerous previous rulings, the Area Director determined that 
changing the large rolls of paper products in Canada into 
narrower rolls or sheets of specific sizes amounts to a finishing 
step of a manufacturing process begun in the U.S.  As stated by 
the appellate court in Dolliff & Company inc. v. U.S., 66 CCPA 
77, C.A.D. 1225 (1979), alterations are made only to completed 
articles and do not include intermediate operations which are 
performed in the manufacture of finished articles.  If the 
foreign processing is a step in the manufacture needed to finish 
the article for its intended use, the statutory provision for 
alterations will not be applicable.  Guardian Industries  
Corporation v. U.S., 3 CIT 9 (1982).  Congress did not intend to 
permit uncompleted articles to be exported abroad and there made 
into finished products 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 support of your contention that the foreign processing of 
the paper products constitutes an alteration, you cite Amity
Fabrics, Inc. v. U.S., C.D. 2104, 43 Cust. Ct. 64  (1959), and 
Wilbur G. Hallauer v. U.S., C.A.D. 518, 40 CCPA 197 (1953).
However, these cases concerned the redyeing of shirts and 
cleaning of apples, respectively, and did not involve any cutting
to shape or the completion of a finishing process as in your
case.  Also the rolls of bleached muslin and percale sheeting
which were the subject of T.D. 70-76(1) (1970), did not concern
cutting.
                                  - 3 -


     As previously held, we are of the opinion that the slitting 
of the exported rolls of paper products to obtain new shapes of 
smaller dimensions or specific size sheets constitutes a step in 
the manufacture which is essential to obtain the desired end 
product.  This processing goes beyond mere cutting to length 
which does not effect a new character, name, or use but rather
only a shorter version of the same product.   See rulings 058960 
dated April 25, 1979, 065398 dated November 10, 1980, and 554736 
dated February 16, 1988.

HOLDING:

     The slitting to shape of paper products abroad is a 
foreign processing which exceeds an alteration under subheading
9802.00.50, HTSUS, as it is a necessary step in finishing the 
product for a particular use in the U.S. and completes the 
manufacture of the merchandise.  This renders the alterations 
provision inapplicable to the returned paper products.

                               Sincerely,


                               John Durant, Director
                               Commercial Rulings Division