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HQ 563525




July 28, 2006

CLA-02 RR:CTF:VS 563130 KSG

CLASSIFICATION: 9801.00.10

Peter J. Fitch, Esq.
Fitch, King and Caffentzis
116 John Street
New York, NY 10038

RE: Eligibility of wooden reels for a duty exemption under HTSUS subheading 9801.00.10

Dear Mr. Fitch:

This is in response to your letter of April 19, 2006, requesting a binding ruling on behalf of General Work Products, regarding the eligibility of wooden reels for duty-free entry under subheading 9801.00.10, of the Harmonized Tariff Schedule of the United States (“HTSUS”).

FACTS:

Wooden reels used to hold rope are manufactured in the U.S. from plywood of Russian-origin. In the U.S., the plywood is cut into circular sections known as “flanges” measuring 32”, 34”, 40”, 44”, or 48”. A circular groove measuring 14” in diameter is then routed into the center of the inner surface of each flange and bolt holes are drilled in the flanges. A fiber tube of U.S. origin, which may be from 20” to 48” in length, is fit into the groove of each set of flanges. Nuts, bolts and washers of Chinese origin are attached through the drilled holes of the flanges to hold the assembly together, finishing the reel.

The wooden reels are exported in a knocked down condition because of freight considerations. The reels are assembled abroad and the foreign-origin rope is wound on the reels. The rope is then imported into the U.S.

ISSUE:

Are the wooden reels described above eligible for duty-free treatment under subheading 9801.00.10, HTSUS, upon importation into the U.S.?

LAW AND ANALYSIS:

Subheading 9801.00.10, HTSUS, provides that products of the United States when returned after having been exported, without having been advanced in value or improved in condition by any process of manufacture or other means while abroad may be entered duty free provided the documentary requirements of 19 CFR 10.1 are satisfied.

The first question presented is whether the wooden reels are considered products of the United States.

Pursuant to 19 CFR 134.1(b), country of origin means the country of manufacture, production, or growth of any article of foreign origin entering the United States. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the “country of origin” within the meaning of this part.

A substantial transformation occurs when a new and different article of commerce emerges from a process with a new name, character or use different from that possessed by the article prior to processing. United States v. Gibson-Thomsen Co., Inc., 27 CCPA 267, C.A.D. 98 (1940).

CBP looks to the extent of the operations performed and whether the parts lose their identity and become an integral part of the new article. CBP has generally held that cutting or bending materials to defined shapes or patterns suitable for use in making finished articles, as opposed to mere cutting to length or width which does not render the article suitable for a particular use, constitutes a substantial transformation. However, the issue of whether a substantial transformation occurs is determined on a case-by-case basis.

CBP ruled in Headquarters Ruling Letter (“HRL”) 555265, dated July 3, 1989, that rolls of imported strip aluminum cut to length and crowned to give it a permanent bow shape making it suitable for use as venetian blind slats were substantially transformed. The basis of this finding was that the cutting and crowning operations permanently altered the physical characteristics of the strip and as a result, the strip could be used in the production of only a limited range of articles. See also HRL 557159, dated January 11, 1994, in which Customs held that extruded aluminum cut to length and bent to shape to form the frame of grilles and louvers was substantially transformed.

This case is similar to HRL 555265 and HRL 557159, since the foreign-origin plywood is cut into flanges in the U.S. The flanges may only be used in the production of a limited range of articles. As a result of the U.S. processing of the plywood into the flanges, a new article with a new name, character and use is created. Therefore, we find that the foreign-origin plywood is substantially transformed in the U.S. The reels, even in the unassembled condition, would be considered of U.S. origin.

The second issue is whether the processing of the unassembled reels abroad constitutes an advancement in value or improvement in condition. 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.

In Headquarters Ruling Letter (“HRL”) 555664, dated August 8, 1990, CBP held that U.S.-origin “knock-down cardboard containers shipped to Canada where the containers were formed by folding and filled with foreign-origin baby strollers were entitled to subheading 9801.00.10, HTSUS treatment. CBP concluded that the act of being filled with its contents is not considered to constitute an advancement in value or improvement in condition. The boxes were shipped to Canada in their flat condition for ease of transportation. CBP concluded that their value was no greater upon return to the U.S. than when exported to Canada. CBP held that forming the box by folding was a change in condition of the box but not an advancement in value or improvement in condition.

In HRL 561449, dated July 27, 1999, CBP held that U.S.-origin display boxes formed and filled abroad were entitled to classification in subheading 9801.00.10, HTSUS. The processing of the boxes abroad included folding along predetermined lines, fastening with self tabs, inserting hooks in holes in the box, filling the box with foreign-origin apparel and accessories and adding cardboard supports to the front and rear of the display box. In HRL 559349, dated December 5, 1995, CBP held that sealing the lids to canned vegetables by a vacuum sealing process did not preclude U.S.-made cans and lids from being entered under subheading 9801.00.10, HTSUS.

We conclude in this case that forming the reels overseas is a change in the condition of the reels but not an advancement in value or improvement in condition. It is similar to forming U.S.-origin boxes and sealing U.S.-origin cans. All the grooves and bolt holes are drilled in the flanges in the U.S. The processing done overseas is similar to folding along predetermined lines and fastening with tabs. The reels are shipped abroad in a knock down condition to save freight space.

Therefore, we find that the assembled reels are eligible for duty-free treatment under subheading 9801.00.10, HTSUS, upon importation into the U.S., provided the applicable documentary requirements are satisfied.

HOLDING:

The reels described above are eligible for duty free entry under subheading 9801.00.10, HTSUS, upon importation into the U.S. provided the documentary requirements of 19 CFR 10.1 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 Customs officer handling the transaction.

Sincerely,

Monika R. Brenner,
Chief, Valuation & Special Programs Branch

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