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HQ 555708

September 21, 1990

CLA-2 CO:R:C:V 555708 KCC


TARIFF NO.: 9802.00.50 - 9801.00.10

David C. Williams, Esq.
Neville, Peterson & Williams
39 Broadway
New York, New York 10006

RE: Tariff treatment of thread and yarn wound around spools, cut to length and packaged in a variety of colors. Alteration; 555411; 078034; C.I.E. 1113/65; packaging; 731806

Dear Mr. Williams:

This is in response to your letter dated August 3, 1990, and telephone call on September 19, 1990, on behalf of Coats & Clark, requesting a ruling concerning the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to thread and yarn imported into the U.S.


Coats & Clark will ship U.S.-origin thread and yarn which is wound on "dye tubes" to Taiwan. In the U.S., the thread and yarn are dyed to the proper color, are given the proper twist and tension, and are lubricated for handling purposes. In Taiwan, the tubes of thread and yarn will be placed on machinery which will despool the thread and yarn from the tubes and rewind the thread and yarn onto small plastic spools. The spools may or may not be products of the U.S. Once the plastic spool is full, the thread is cut and a new spool is inserted for the despooling and rewinding operations.

After the despooling and rewinding operations are complete, a number of spools in a variety of colors will be packaged in a blister pack to be marked as a sewing thread assortment. The blister packaging material may be of Taiwanese or U.S. origin. Thereafter, the packaged sewing thread assortment will be imported into the U.S.


Whether the thread and yarn will be eligible for the partial duty exemption under subheading 9802.00.50, HTSUS, when imported into the U.S.


HTSUS subheading 9802.00.50 provides for the assessment of duty on the value of repairs or alterations performed on articles returned to the U.S. after having been exported for that purpose. However, the application of this tariff provision is precluded in circumstances where the operations performed abroad destroy the identity of the articles or create new or commercially different articles. See, A.F. Burstrom v. United States, 44 CPU 27, C.A.D. 631 (1956), aff'd, C.D. 1752, 36 Cust.Ct. 46 (1956); Guardian Industries Corporation v. United States, 3 CIT 9 (1982), Slip Op. 82-4 (Jan. 5, 1982). Subheading 9802.00.50, HTSUS, treatment is also precluded where 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. Dolliff & Company, Inc. v. United States, 81 Cust.Ct. 1, C.D. 4755, 455 F.Supp. 618 (1978), aff'd, 66 CPU 77, C.A.D. 1225, 599 F.2d 1015 (1979).

We have previously held in Headquarters Ruling Letter (HRL) 555411 dated August 11, 1989, that cutting to length rolls of U.S. wire and placing it on spools was an alteration and entitled the returned wire to the partial duty exemption available under subheading 9802.00.50, HTSUS. See also, C.I.E. 1113/65 dated August 3, 1965 (T.D. 56448) (American yarn wound on large spools and sent abroad to be rewound onto small wooden rolls was an alteration); and HRL 078034 dated September 9, 1986 (fabric sent abroad in rolls and rewound into smaller rolls of the same width after being cut into shorter lengths had merely been altered).

In the instant case, despooling, cutting to length, and rewinding the U.S.-origin thread and yarn from the tubes onto small plastic spools is considered an alteration under subheading 9802.00.50.

Subheading 9801.00.10, HTSUS, provides for the free entry of products of the U.S. that are exported and returned without having been advanced in value or improved in condition by any process of manufacture or other means while abroad, provided the documentary requirements of section 10.1, Customs Regulations (19 CFR 10.1), are met. Only the materials of U.S.-origin used in packaging the thread and yarn will be entitled to free entry under subheading 9801.00.10, HTSUS, if they are returned without having been advanced in value or improved in condition while abroad. See, HRL 731806 dated November 18, 1988 (duty-free treatment provided by subheading 9801.00.10, HTSUS, extends to an American-made container which is exported and then reimported with its contents, provided that it meets all of the criteria for classification within that subheading).


On the basis of the information submitted, it is our opinion that the operations performed abroad are considered alterations. Therefore, the imported thread and yarn may be entered under subheading 9802.00.50, HTSUS, with duty only on the value of the foreign processing, upon compliance with the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8).

Additionally, packaging material of U.S.-origin may be accorded duty-free treatment under subheading 9801.00.10, HTSUS, upon compliance with the documentary requirements of 19 CFR 10.1.


John Durant, Director
Commercial Rulings Division

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