CLA-2 RR:CR:GC 967390 JAS
Susan Kohn Ross, Esq.
Rodriguez, O’Donnell, Ross, Fuerst,
Gonzales & Williams, P.C.
5777 W. Century Blvd., Suite 1500
Los Angeles, CA 90045-5659
RE: Finned Tube Bundles
Dear Ms. Ross:
In a letter to the Director, National Commodity Specialist Division, U.S. Customs and Border Protection (CBP), New York, dated October 6, 2004, on behalf of GEA Power Cooling Systems, Inc. you inquire as to the classification under the Harmonized Tariff Schedule of the United States (HTSUS), of finned tube bundles. Your request has been forwarded to this office for reply.
You have referenced HQ 085422, which CBP Headquarters issued to GEA on October 23, 1989, and in which apparatus described as a steam condenser – and more complex than the apparatus at issue here – was held to be classifiable in subheading 8404.20.00, HTSUS, as condensers for steam or other vapor power units. For reasons that follow, you maintain that the finned tube bundles are parts of steam condensers classifiable as such in subheading 8404.90.00, HTSUS. You have provided additional information with your email transmittal of February 28, 2005, in the form of attachments entitled ACC Erection and FinTubeStats, and in a subsequent email transmittal, dated March 25, 2005, which summarizes a telephone conference involving yourself, GEA personnel and a member of my staff on March 16, 2005.
Process industries, such as electric power plants, generate electricity in part by using steam turbine generators. Heat in the form of exhaust steam from these turbine generators either has no practical commercial use or must otherwise be removed. The
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merchandise at issue, finned tube bundles, is apparatus used for condensing the exhaust steam into water. You describe the tube bundles as consisting of steel tubes
cleaned of rust and other surface imperfections in a series of acid baths, onto which aluminum fins are brazed and separator plates added to create a sandwich-like configuration. You indicate the bundles are then compressed and baked in a special furnace. Complete finned tube bundles typically measure about 33 ft. x12 ft. and weigh as much as 8,000 lbs.
Air cooled condensers usually consist of tubing configurations such as the finned tube bundles under consideration here, plus motor-driven fans with gearbox and drives which generate air flow, all enclosed in a frame, housing or structure of some type. In use, the exhaust steam from the turbine generator passes through ducts into the condenser where it is forced down through the finned tubes. Fans in the bottom of the condenser blow air upwards. This air cross-flows the finned tubes and cools the steam, condensing it back into water which flows through the tubes to a collection tank.
The HTSUS provisions under consideration are as follows:
[C]ondensers for steam or other vapor power units;
Condersers for steam or other vapor power units
Whether the finned tube bundles are incomplete or unfinished condensers; whether they are parts of condensers.
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 2(a) states, in part, that
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incomplete or unfinished articles are to be classified as if complete or finished provided that, as imported, the incomplete or unfinished article has the essential character of the complete or finished article.
The Harmonized Commodity Description and Coding System Explanatory Notes (ENs) constitute the official interpretation of the Harmonized System at the international level. Though not dispositive, the ENs provide a commentary on the scope of each heading of the HTSUS. Customs and Border Protection believes the ENs should always be consulted. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (Aug. 23, 1989).
As a preliminary matter, you maintain that although finned tube bundles involve a type of heat exchange, they are not brazed aluminum plate-fin heat exchangers classifiable in subheading 8419.50.10, HTSUS. We agree. Admittedly, the manner in which a condenser operates, i.e., to extract heat from the exhaust steam, is a type of heat exchange process. But, the 84.19 ENs indicate that heat exchange units of that heading involve a hot fluid or gas and a cold fluid being made to traverse parallel paths, usually in opposite directions, in such a manner that heat is transferred to the cold fluid. The finned tube bundles at issue are not exchange units of heading 8419 because only one fluid traverses the bundles. Also, the ENs exclude from heading 8419 auxiliary plant for steam generating boilers (84.04), among which steam condensers are listed as examples.
You contend that, as imported, the finned tube bundles are not incomplete or unfinished articles for tariff purposes and do not impart the essential character to a complete condenser; rather, they qualify as parts of condensers. Your parts claim under subheading 8404.90.00 is based in part on the structure of the HTSUS itself in which heat exchangers are named in a statistical breakout under subheading 8402.90.00, as parts of steam or other vapor generating boilers, and rotors and blades are designated as parts of steam turbines, in appropriate 8-digit subheadings under subheading 8406.90. In your opinion, this is an indication that heat exchangers and rotors and blades, while critically essential to the completeness and proper functioning of boilers and steam turbines, are not to be regarded as imparting the essential character to complete or finished boilers and steam turbines. By way of analogy, finned tube bundles should be properly characterized as parts, and ought not to be regarded as imparting the essential character to a complete or finished condenser. You also cite
HQ 087981, dated December 21, 1990, and NY J80036, dated January 21, 2003, in which the absence of a significant component without which the completed article could not function in its intended manner, resulted in findings that the imported component did not impart the essential character to the whole.
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As to the structure of the HTSUS, classification of goods under heading 8404 is not dependent on how goods are classified under headings 8402 and 8406 but, rather, on the proper application of the GRIs to the particular good. Also, heat exchangers, for example, are not always classifiable as parts. Heat exchangers which are machinery or plant of heading 8419 are classifiable as heat exchangers in subheadings 8419.50.10 and 8419.50.50, while parts of heat exchangers are provided for in subheading 8419.90.30.
On p. 3 of your October 6, 2004, submission, you cite a series of trade definitions of condensers, and conclude on p. 4 that a condenser consists at least of the finned tube bundles and the air moving equipment (fans, motors and gearbox/drives), both being of equal importance because one component without the other cannot perform the intended function of the whole. You assert that by themselves the finned tube bundles do nothing. In addition, one email attachment, ACC Erection, together with information in your submission, depicts the finned tube bundles being assembled with other components into a condenser for a steam power unit, and is said to demonstrate the substantial amount of steel framing and supports and ducting required of a complete, operational condenser. The second email attachment, FinTubeStats, correlates to the first attachment and purports to establish that in terms of installation man-hours the finned tube bundles represent only 5% of the total for the complete condenser while the steel structure and steam ducting, together, represent 87% of the total, with the air moving equipment constituting the remaining 8%. In addition, the finned tube bundles represent only 19% of the combined supply/installation man-hours for a complete air cooled condenser with a typical 30 fan installation. Finally, in terms of the nearly two-year installation timeline, the finned tube bundles represent the smallest component when compared with the structural steel, the fans, motors and gearboxes, and the headers/ ducting. You note that the finned tube bundles and air moving equipment are very close in terms of size and bulk. The finned tube bundles represent significantly less than 40% of the total weight of a complete condenser, and make up slightly less than 30% of the total cost of the condenser. The air moving equipment, on the other hand, makes up slightly more than 20% of the total cost, while the steel supporting structure makes up about 16% of the total cost.
The 8404 ENs do not support the claim made in your March 25 email transmittal that nearly 90% of the finished goods under heading 8404 are steam surface condensers not air-cooled condensers so that, logically, the intent of the heading is directed more towards the former not the latter. In fact, the ENs evidence no such intent as both surface-condensers and air-cooled condensers [as well as mixing condensers] are listed.
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HQ 966681, dated November 25, 2003, essentially summarizes CBP’s longstanding position that “essential character” is construed as that attribute which strongly marks or serves to distinguish what an article is; that which is indispensable to the structure, core or condition of the article. See also HQ 956538. Factors found to be
relevant in other contexts are the significance of the imported component(s) or their role in relation to the use or overall functioning of the completed article and, to the extent that it validates that comparison, the cost or value of the completed article versus the cost or value of the imported merchandise. EN VIII to GRI 3(b) explains that "[t]he factor which determines essential character will vary as between different kinds of goods. It may, for example, be determined by the nature of the material or component, its bulk, quantity, weight or value, or by the role of the constituent material in relation to the use of the goods."
Recent court decisions on “essential character” for GRI 3(b) purposes are generally in accord, i.e., they have looked primarily to the role of the constituent material, part or component in relation to the use of the goods, or the component that denotes [an article’s] utility, purpose, and accordingly, character. See, e.g., Better Home Plastics Corp. v. U.S., 916 F. Supp. 1265 (CIT 1996), aff’d 119F. 3d 969 (Fed. Cir. 1997) Mita Copystar, Inc. v. U.S., 966 F. Supp. 1245 (CIT 1997), rehear’g denied, 994 F. Supp. 393 (CIT 1998), rev'd on other grounds 160 F. 3d 710 (Fed. Cir. 1998); see also Pillowtex Corp. v. United States, 983 F. Supp. 188 (CIT 1997), aff'd 171 F.3d 1370 (Fed. Cir. 1999). Essential character cases are necessarily fact-specific and no rulings or court cases on merchandise substantially identical to finned tube bundles have been identified. However, HQ 087981, dated December 21, 1990, one ruling you cite, illustrates the significance of the finned tube bundles and their role in relation to the overall functioning of a condenser. HQ 087981 held that the gas generator section of a gas turbine engine, which includes a combuster and gearbox, imported without the power turbine, did not impart the essential character to a gas turbine of heading 8411. Gas turbines of that heading are essentially internal combustion engines which provide power for electrical power generation and for mechanical drives in the oil and gas and petrochemical industries. The rationale for the decision in HQ 087981 was that the power turbine is the component that converts the aerodynamic energy produced by the
gas generator into usable mechanical energy to power other apparatus. This is the function performed by gas turbines of heading 8411. Applying this rationale, we believe the finned tube bundles under consideration are the very components in which the actual function of a condenser is performed, i.e., condensing exhaust steam from a turbine into a liquid. We acknowledge your argument that no condensation can take place without the air moving system but almost every machine, apparatus or piece of equipment imported incomplete or unfinished will be unable to operate without a missing component or part.
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In the present case, the steel structural framework, while substantial, is of little significance here. See HQ 082655, dated July 17, 1989, and HQ 084140, dated July 18, 1989. In addition, the industry definitions you provided do not regard the ducting as part of a complete air-cooled condenser. Also, we view the cost or value information as informative but not controlling. In our opinion, while it is the fans which generate air flow
to initiate condensing, the actual process whereby exhaust steam is cooled and converted to water takes place in the finned tube bundles, with the water then flowing through the tube bundles to a collection tank. As previously stated, the particular
function which the finned tube bundles performs, i.e., reducing a gas to a liquid, warrants the conclusion that the tube bundles are the very essence of a condenser, the component that identifies the article as what it is, a device that condenses. The evidence of record compels the conclusion that the finned tube bundles are incomplete or unfinished condensers for tariff purposes.
Under the authority of GRI 2(a), HTSUS, the finned tube bundles at issue are provided for in heading 8404. They are classifiable in subheading 8404.20.0000, Harmonized Tariff Schedule of the United States Annotated, (HTSUSA). The 2005 rate of duty under this provision is 5.6 percent ad valorem. 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