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HQ 559037

June 14, 1995

CLA-2 CO:R:C:S 559037 MLR


TARIFF NO.: 9802.00.50; 9801.00.10

Mr. V. T. Whitlock
One Up Enterprises, Inc.
P.O. Box 581009
Salt Lake City, Utah 84158

RE: Applicability of partial duty exemption under HTSUS subheading 9802.00.50 and duty exemption under 9801.00.10 to U.S.-origin wool; grease wool; wool top; scouring; carding; combing; HRL 955476

Dear Mr. Whitlock:

This is in reference to your letter of February 10, 1995, requesting reconsideration of New York Ruling Letter (NYRL) 805566 dated January 5, 1995, concerning the application of one of the Chapter 98, Harmonized Tariff Schedule of the United States (HTSUS), provisions to wool processed abroad. Samples of domestic grease wool and wool top were submitted with your request.


One Up Enterprises, Inc. plans to ship U.S.-origin grease wool to foreign combing plants for scouring, carding, and combing. These processes clean and straighten the fibers in preparation for the spinning process. After these processes, the wool, referred to as wool top, is returned to the U.S.


Whether U.S.-origin grease wool exported abroad for scouring, carding, and combing is eligible for a partial duty exemption under subheading 9802.00.50, HTSUS, or for duty-free treatment under subheading 9801.00.10, HTSUS, when returned to the U.S.


Subheading 9801.00.10, HTSUS, provides for the free entry of products of the U.S. that have been 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 satisfied. While some change in the condition of the product while it is abroad is permissible, operations which either advance the value or improve the condition of the exported product render it ineligible for duty-free entry upon return to the U.S. Border Brokerage Company, Inc. v. United States, 314 F. Supp. 788 (1970), appeal dismissed, 58 CCPA 165 (1970). In determining whether an advancement in value or improvement in condition exists at the time of importation, the overall value and condition of the article at the time it was exported from the U.S. shall be compared with its overall value and condition at the time of return to the U.S. However, each case must be decided on its own facts. Clearly, in this case, the scouring, carding, and combing processes improve the condition of the exported grease wool; accordingly, the returned wool top will not be eligible for subheading 9801.00.10, HTSUS, treatment.

Subheading 9802.00.50, HTSUS, provides a partial duty exemption for articles returned to the U.S. after having been exported to be advanced in value or improved in condition by repairs or alterations, 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'g 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, 599 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., provided the documentary requirements of 19 CFR 10.8 are satisfied.

In Headquarters Ruling Letter (HRL) 557088 dated April 2, 1993, Customs held that wool returned to the U.S. after having been washed, combed, and re-baled, qualified for subheading 9802.00.50, HTSUS, treatment. As support, HRL 557088 relied on HRL 556227 dated December 23, 1991, which stated that mere cleaning operations are considered repairs or alterations for purposes of subheading 9802.00.50, HTSUS, and, therefore, held that U.S.-origin sheep wool exported to Mexico for scouring, drying, and baling constituted a repair or alteration.

However, in HRL 955476 dated September 20, 1994, Customs considered wool tops from Israel for a reduced rate of duty under the U.S.-Israel Free Trade Area Implementation Act, and found that they were products of Israel. See General Note 8, HTSUS. In that case, Australian greasy wool, consisting of approximately 65 percent wool fiber, 16 percent wool grease (lanolin), and 19 percent foreign matter (dirt, sweat, and vegetable impurities), was imported into Israel, where it was first sorted into batches according to fiber length and thickness. Next, the wool was scoured to remove the wool grease and as much foreign matter as possible. Scouring is performed either by using organic solvents to dissolve the wool grease, or by emulsifying the grease in heated aqueous solution. After scouring, the wool was washed and steam-dried, and then carded by being passed through a series of wired rollers moving at different speeds which disentangled the wool fibers. It was also stated that wool intended for "woolen" production may be spun into yarn after carding; whereas wool intended for "worsted" production, first, has to undergo "combing" in which shorter fibers are removed, the remaining longer fibers are straightened and aligned, and remaining impurities are removed. The combing process was described as drawing the wool through a series of pinned rollers or beds, so that it emerged in the form of long slivers. After combing, the wool was drafted, gilled, and then wound into a ball, and was then referred to as a "wool top."

The protestant claimed that processing scoured/carded wool into wool top dedicated the wool for use in spinning worsted yarn. Based upon this claim, HRL 955476 found that the greasy wool in its exported condition was not dedicated for a particular end use because it could either be used in the production of either "felt" or "wollen yarn," or it could undergo a combing operation and be used to produce "worsted yarn." Therefore, HRL 955476 held that the processing of the greasy wool into wool tops constituted much more than a sorting or a cleaning operation, but created a new and different article of commerce. The name of the material changed from "greasy wool" to "wool tops." A change in use was demonstrated because greasy wool and wool tops are recognized in the trade as separate and distinct articles of commerce which are sold in separate markets. Furthermore, while the greasy wool is a raw material which is sheared directly from the sheep, wool top is a textile article containing only long or very long wool fibers which are aligned in a parallel arrangement, and may be used in the production of worsted yarn. Lastly, a change in character was evidenced by the fact that greasy wool is not covered by any categories used by the U.S. to monitor imports of textile products under various multilateral and bilateral agreements; whereas wool tops are categorized and monitored under these agreements in U.S. Textile and Apparel Category Number 400 -- the same category that covers wool yarn. Accordingly, the processing operations performed in Israel to the raw greasy wool constituted a substantial transformation of the greasy wool into a "product of" Israel.

Accordingly, inasmuch as HRL 955476 held that the greasy wool was substantially transformed in Israel into a new and different article of commerce, namely wool top, so that it could be used in the production of worsted yarn, as opposed to felted or woollen yarn, we find that in this case, the wool top will not qualify for entry under subheading 9802.00.50, HTSUS, because 9802.00.50 treatment is not afforded to articles which acquire a new commercial identity as a result of foreign processing. While it may appear that the finding in HRL 557088 regarding the washing and combing is in conflict with HRL 955476, in HRL 557088 the returned wool was re-baled and not wound into the form of a ball, otherwise known as a "wool top," and, therefore, was not considered a new and different article of commerce. See Explanatory Note 51.05, HTSUS, which explains carding and combing processes ("combed sliver is then drafted and gilled to ensure a complete mixing of the fibres of various lengths, and the resulting sliver is wound into the form of a ball, known as a ‘top'").


On the basis of the information submitted, the exported grease wool becomes a new and commerically different article, namely wool top, as a result of foreign processing. Accordingly, the wool top will not qualify for entry under subheading 9802.00.50, HTSUS.

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.


John Durant, Director

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