CLA-2 RR:CR:GC 967291 JAS
Mr. Aaron Gothelf
BP America, Inc.
Canterra III – Mail Code 2W
4101 Winfield Road
Warrenville, IL 60555
RE: Umbilicals for Controlling Subsea Oil and Gas Well Production Apparatus
Dear Mr. Gothelf:
Your letter, dated May 7, 2004, to the Director of Customs and Border Protection’s National Commodity Specialist Division, New York, inquiring as to the classification, under the Harmonized Tariff Schedule of the United States (HTSUS), of certain subsea umbilicals, has been referred to this office for reply. Exhibits, illustrations and posters were a part of your submission. Additional facts and legal arguments were presented during two teleconferences between yourself, BP personnel and a member of my staff on September 9 and 21, 2004. These were confirmed in your emails, dated September 13, 21 and 23, 2004.
You describe the umbilicals at issue as somewhat resembling several
inch-thick coaxial cables that permit personnel located on an offshore oil and gas production platform to control and operate multiple wells called trees located on the ocean floor. Each umbilical services approximately a half dozen trees. Umbilicals act as conduits and consist of combinations of electric conductor cables, fiber optic telecommunications cables for transmitting downhole pressure and temperature control signals to the subsea tree and manifold systems on the ocean floor for the purpose of reading pressure and temperature in the wellbore in deciding whether to adjust the valve openings, and pressure-rated stainless steel tubes that transmit both hydraulic fluids for opening and closing the valves on the wellheads and chemical inhibitors that prevent corrosive buildup within the valves.
- 2 -
Four (4) types of umbilicals are the subject of this ruling request. They are
the TH ST-1, TH EOH-2, TH SA-3 and the TH SFL. The ST-1 is a chemical injection umbilical consisting of approximately a half dozen stainless steel tubes of less than one inch inside diameter and approximately a dozen stainless steel tubes of less than one inch inside diameter. Its function is to provide chemicals that inhibit the formation of scale, corrosion or naturally forming blockages in the valves and oil and gas pipeline flow-streams. The EOH-2 is an electrical, optical and hydraulic umbilical. It incorporates approximately a half dozen stainless steel tubes of less than one inch inside diameter for conveying hydraulic fluids to actuate directional control valves on the wellhead, less than a dozen electrical quads with electrical conductors in each quad and multi-mode fibers in tubes to provide fiber optic communications for optical sensors. The SA-3, designated the satellite umbilical, contains approximately a dozen stainless steel tubes of less than one inch inside diameter, electrical quads and a tube containing single-mode and multi-mode fibers. Its function is to provide chemical, electrical, optical and hydraulic capability, as described above, to the subsea wells. Finally, the SFL, designated the steel-tube flying lead, consists of less than a dozen stainless steel tubes, approximately a half dozen, less than one inch inner diameter tubes for hydraulic fluids and approximately a half dozen less than one inch inner diameter tubes to provide chemicals to the subsea pipelines. Depending on applied dynamic loads from wave action and currents, some or all of these umbilicals may be equipped with steel armouring to provide strength and rigidity.
The HTSUS provisions under consideration are as follows:
Other articles of iron or steel:
* * * *
8431 Parts suitable for use solely or principally with the machinery of
headings 8425 to 8430:
8431.39.00 Of lifting, handling, loading or unloading machinery for oil
and gas field machinery
8431.43.40 Of boring or sinking machinery for offshore oil and natural
gas drilling and production platforms
- 3 -
* * * *
Insulated…wire, cable…and other insulated electric conductors,
whether or not filled with connectors…:
8544.60 Other electric conductors, for a voltage exceeding 1,000 V:
8544.70.00 Optical fiber cables
* * * *
[o]ptical fiber cables other than those of heading 8544:
9001.10.00 Optical fibers, optical fiber bundles and cables
Whether the four (4) umbilicals, or any of them, are parts provided for in heading 8431.
LAW AND ANALYSIS:
Under General Rule of Interpretation (GRI) 1, Harmonized Tariff Schedule of the United States (HTSUS), goods are to be classified according to the terms of the headings and any relative section or chapter notes, and provided the headings or notes do not require otherwise, according to GRIs 2 through 6. GRI 3, HTSUS, states, in relevant part, that “composite goods” include those with different components which are attached to each other to form a practically inseparable whole. Under GRI 3(a), two or more headings, each describing part only of the good, are deemed to be equally specific in relation to the good. Under GRI 3(b), the good shall be classified as if consisting only of that component that imparts the essential character to the whole. Under GRI 3(c), where classification cannot be accomplished under Rule 3(a) or (b), the good is classifiable in the heading which occurs last in numerical order from among those which equally merit consideration.
The Harmonized Commodity Description and Coding System Explanatory Notes (ENs) constitute the official interpretation of the Harmonized System at the international level. While not legally binding, the ENs provide a commentary on the scope of each heading of the HTSUS and are thus useful in ascertaining the classification of merchandise under the System. Customs believes the ENs should always be consulted. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (Aug. 23, 1989).
- 4 -
Your primary claim under subheading 8431.39.00, HTSUS, is that the umbilicals are parts of the oil or gas production platform. As imported, these umbilicals are ready for use, and require no cutting, alterations, or post-importation processing. Noting Section XVI, Note 2(b), HTSUS, you argue that the umbilicals are unique products, custom-designed exclusively for use with offshore oil and gas production platforms of heading 8430, that these platforms and the wells they service are wholly dependent on and cannot operate without the multifunctional inputs these umbilicals provide. You maintain that the umbilicals are not classifiable under GRI 1, HTSUS, as there is no single heading that describes them. For example, the provisions for tubes and pipes of iron or steel, in headings 7304, 7305 and 7306, HTSUS, do not cover components of these umbilicals because their function of conveying hydraulic fluids and electrical inputs is not adequately covered by these headings. Likewise, heading 8544, HTSUS, does not describe the umbilicals because the transmission of hydraulic fluids and chemicals, in your opinion, is equally, if not more important, than electric power transmission. You acknowledge that the platform of which the umbilicals are claimed to be parts is a floating or submersible drilling or production-type platform classifiable in subheading 8905.20.00, HTSUS. See HQ 966175, dated January 30, 2003. But, heading 8905 has no “parts” proviso; hence you contend that under the authority of
GRI 4, HTSUS, the umbilicals are most akin to articles classifiable in subheading 8431.39.00, HTSUS, as parts suitable for use solely or principally with other lifting, handling, loading or unloading machinery for gas and oil fields, of heading 8428 or, in the alternative, in subheading 8431.43.40, HTSUS, as parts of boring or sinking machinery for offshore oil and natural gas drilling and production platforms. You also cite HQ 965525, dated September 12, 2002, which classified subsea umbilicals substantially similar to certain of the ones at issue here in subheading 8544.60.40, HTSUS, as other insulated electric conductors. However, you contend that this ruling is incorrect in part, at least, because the facts were incomplete and the classification expressed in that ruling does not adequately consider the multiple functions of the good. You maintain that umbilicals are an integral and necessary piece of equipment and that no oil company would purchase an existing subsea oil field without them. Finally, you make a third alternative claim that the umbilicals are parts of the valves on the wellhead, classifiable in subheading 8481.90.90, HTSUS, because the valves rely on the umbilicals to open and close properly.
You concede that the umbilicals consist of components potentially classifiable in different headings, yet you conclude that GRI 3, HTSUS, is not an adequate basis for classifying these goods, because it is all the components together, and not any one of them, which imparts the essential character to the whole. You argue that under Additional U.S. Rule of Interpretation 1(c), HTSUS, as there is no specific provision for umbilicals, the appropriate parts provision in heading 8431 represents the correct classification.
- 5 -
For tariff purposes, parts are integral, constituent or component parts, without which the article to which it is joined cannot function as such article. See United States v. The J.D. Richardson Company 36 CCPA 15, CAD. 390 (1948), and related cases. There is no set rule or principle for determining what constitutes a “part” for tariff purposes. The merchandise itself must be examined as well as its function and purpose in relation to the article with which it is used. See Gallagher & Ascher Company v. United States, 52 CCPA 11, CAD 849 (1964), and related cases. But, not every article used with another article is necessarily a part of that article for tariff purposes; an article which is not essential to the operation of an article for its intended purpose is not a part of that article. See United States v. Cody Manufacturing Co., Inc., 44 CCPA 67, CAD. 639 (1956).
It is evident by their design and intended end use service application that the umbilicals are principally if not solely for use on or with offshore oil and gas production platforms or sub-sea production equipment. However, this, alone, does not make an article a “part” for tariff purposes. Initially, we are aware of no case, nor has any been cited to us, in which cables substantially similar in function and design to the umbilicals at issue were held to be parts of a larger machine. Notwithstanding this, we will independently examine your parts claims. Concerning your alternative claims under heading 8431, fixed platforms used for the discovery or exploitation of off-shore deposits of oil or natural gas, which are neither floating nor submersible, are provided for in heading 8430. See EN 89.05. You contend that these umbilicals are capable of use interchangeably both with floating platforms of heading 8905 and with fixed platforms of heading 8430. However, heading 8905 has no “parts” proviso and heading 8431 only provides for parts that are suitable for use solely or principally with machinery of headings 8425 to 8430. The evidence of record does not allow use to determine principal use. Further, there is no evidence that the umbilicals perform any function related to that of machinery described in heading 8428. The first alternative claim under heading 8431, as parts of extracting or boring machinery, is difficult to sustain because of the umbilicals’ stated function of providing various inputs that permit the opening, closing and regulating of valves on the wellheads. There is no clear nexus with a boring, drilling or extraction function performed by well sinking or boring machines of heading 8430.
Your second alternative claim as parts of valves, in heading 8481, is likewise difficult to sustain. Three of the four umbilicals, the ST-1, SA-3 and the SFK, in part at least, convey chemical inhibitors that retard corrosive buildup on the valves. There is no functional relationship to the proper operation of valves, and this function does not qualify these umbilicals as integral, constituent “parts” of the valves. Further, three of the valves, the EOH-2, SA-3 and SFL, in part convey hydraulic fluid which you state is used to actuate the valves. However, this is only one of the functions they perform and, in fact, the hydraulic fluid is used to power actuators. The actuators, in turn, control the operation of the valves. Moreover, the EOH-2 and SA-3 umbilicals consist in part of
- 6 -
electric conductor cables and fiber optic telecommunications cables for transmitting downhole signals that permit pressure and temperature readings in the wellbore. These provide data from which decisions concerning adjustment of the valve openings can be made. These functions do not proximately control the operation of the valves and preclude consideration of the umbilicals as parts of valves.
HQ 965525, dated September 12, 2002, specifically addressed subsea umbilicals substantially similar to two of those at issue here, TH EOH-2 and TH SA-3, and classified them in subheading 8544.60.40, HTSUS. Your alternative claims under heading 8431 are based on GRI 4, that the umbilicals are most akin to goods provided for in subheading 8431.39.00 or 8431.43.30, HTSUS. However, we need not address this claim as the classification in HQ 965525 was based on GRI 3. Because the rationale on which HQ 965525 was based has not been adequately negated, we find that decision controls the classification of umbilicals TH EOH-2 and TH SA-3 and the contents of that decision are incorporated by reference herein. We note that heading 9001 provides in part for optical fiber cables other than those of heading 8544, i.e., those cables not made up of individually sheathed fibers. The record before us does not indicate whether the fibers of these umbilicals are individually sheathed.
Umbilicals TH ST-1 and TH SFL, consist of multiple stainless steel tubes bundled together with solid plastic rods to maintain roundness and to provide stability, the inner tubes bound with plastic tape to maintain the circular shape. Headings 7304, 7305 and 7306, HTSUS, provide for tubes and pipes of iron or steel. However, the ENs exclude from these headings such pipes and tubes made up into specific identifiable articles, and refer them to various headings which most specifically describe them. At least some of these headings include iron or steel articles assembled with non-ferrous materials. The ENs to heading 7326, HTSUS, other articles of iron or steel, include among other things, all iron or steel articles obtained by processes such as assembling, which are not more specifically covered by other provisions of the HTSUS. Lacking persuasive evidence of a more specific classification, we find that umbilicals TH ST-1 and TH SFL are provided for in heading 7326, HTSUS.
Under the authority of GRI 1, HTSUS, sub-sea umbilicals TH ST-1 and TH SFL are provided for in heading 7326. They are classifiable in subheading 7326.90.8587, Harmonized Tariff Schedule of the United States Annotated (HTSUSA), dutiable at the rate of 2.9 percent ad valorem. Under the authority of GRI 3(c), umbilicals TH EOH-2 and TH SA-3 are provided for in headings 8544 or 9001. They are classifiable in subheadings 8544.70.0000, HTSUSA, optical fiber cables, free of duty, or in subheading 9001.10.0085, HTSUSA, optical fibers, optical fiber bundles and cables, dutiable at the rate of 6.7 percent ad valorem . HQ 965525, dated September 12, 2002, is affirmed.
- 7 -
Duty rates are provided for your convenience and are subject to change.
The text of the most recent HTSUS and the accompanying duty rates are
provided on the World Wide Web at www.usitc.gov.
Myles B. Harmon, Director
Commercial Rulings Division