CLA-2 OT:RR:CTF:TCM H024750 RM

Scott L. Johnson, Esq.
Givens & Johnson, PLLC
950 Echo Lane, Suite 360
Houston, TX 77024-2788

RE: Revocation of HQ 966618; Classification of the “OnTrak System”

Dear Mr. Johnson:

This is in reference to Headquarters Ruling Letter (“HQ”) 966618, dated January 16, 2004, issued to you on behalf of Baker Hughes INTEQ. In that ruling, U.S. Customs and Border Protection (“CBP”) determined that the OnTrak System (“OnTrak”) was classified under heading 8543 the Harmonized Tariff Schedule of the United States (“HTSUS”), which provides in part for: “Electrical machines and apparatus, having individual functions, not specified or included elsewhere in [Chapter 85].” We have reviewed the ruling and found this classification to be incorrect.

FACTS:

The OnTrak is a tool used in the course of measuring-while-drilling (also known as “directional drilling”) for oil to monitor, in real time, the inclination, resistivity, annular pressure, stick-slip vibration, and azimuth (the compass direction) of the borehole (the rock face that bounds a drilled hole). The data gathered by the OnTrak enables the drilling operator to change the trajectory of the well if desired.

The OnTrak, pictured below, is comprised of two main subassemblies: (1) the Sensor Sub, which gathers geological formation data – including an image of the borehole – during the drilling operation, and (2) the Bi-directional Communication and Power Module (“BCPM”), which communicates the data gathered by the Sensor Sub to the surface operator via mud-pulse telemetry (i.e., increasing or decreasing pressure pulses which are transmitted through the mud). The BCPM also provides the electrical energy required to power the OnTrak. The complete unit is installed into the drilling machine’s collar and is attached to a steering unit (not at issue in this ruling) that is connected to the drill bit.



ISSUE:

Is the OnTrak classified under heading 9015, HTSUS, as a geophysical instrument, or under heading 8543, HTSUS, as an electrical machine, having individual functions, not specified or included elsewhere in Chapter 85, HTSUS?

LAW AND ANALYSIS:

Classification under the HTSUS is made in accordance with the General Rules of Interpretation (“GRIs”). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative section or chapter notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs 2 through 6 may then be applied in order.

The 2010 HTSUS headings under consideration are the following:

8543 Electrical machines and apparatus, having individual functions, not specified or included elsewhere in this chapter; parts thereof: 8543.70 Other machines and apparatus: Other: Other: 8543.70.96 Other …

* * *

9015 Surveying (including photogrammetrical surveying), hydrographic, oceanographic, hydrological, meteorological or geophysical instruments and appliances, excluding compasses; rangefinders; parts and accessories thereof: 9015.80 Other instruments and appliances: Other: 9015.80.80 Other …

* * *

Note 4 to Section XVI (which includes Chapter 85, HTSUS) provides:

Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables, or by other devices) intended to contribute together to perform a clearly defined function covered by one of the headings in chapter 84 or chapter 85, then the whole falls to be classified in the heading appropriate to that function. Note 3 to Section XVII (which includes Chapter 90, HTSUS) provides that “[t]he provisions of notes 3 and 4 to Section XVI apply also to this chapter.”

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 nor dispositive, the ENs provide a commentary on the scope of each heading of the HTSUS and are generally indicative of the proper interpretation of these headings. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (August 23, 1989).

EN 85.43 provides, in relevant part:

This heading covers all electrical appliances and apparatus, not falling in any other heading of this Chapter, nor covered more specifically by heading of any other Chapter of the Nomenclature, nor excluded by operation of a Legal Note to Section XVI or to this Chapter. The principal electrical goods covered more specifically by other Chapters are electrical machinery of Chapter 84 and certain instruments and apparatus of Chapter 90.

EN 90.15 provides, in relevant part:

(VI) GEOPHYSICAL INSTRUMENTS

The following remain in this heading: …

(2) Magnetic or gravimetric geophysical instruments used in prospecting for ores, oil, etc. These highly sensitive instruments include magnetic balances, magnetometers, magnetic theodolites and gravimeters, torsion balances.



(5) Apparatus for measuring the inclination of a borehole.

Note 3 to Section XVII (which incorporates Note 4 to Section XVI into Chapter 90, HTSUS) directs that, when a combination of machines contribute together to perform a clearly defined function covered by one of the headings in Chapter 90, HTSUS, they are to be classified in the heading appropriate to that function.

Heading 9015, HTSUS, provides in part for “Geophysical instruments.” The term “geophysical” is not defined in the HTSUS. When a tariff term is not defined by the HTSUS or its legislative history, “the term’s correct meaning is its common meaning.” See Mita Copystar Am. v. United States, 21 F.3d 1079, 1082 (Fed. Cir. 1994). The common meaning of a term used in commerce is presumed to be the same as its commercial meaning. Simod Am. Corp. v. United States, 872 F.2d 1572, 1576 (Fed. Cir. 1989). To ascertain the common meaning of a term, a court may consult “dictionaries, scientific authorities, and other reliable information sources” and “lexicographic and other materials.” C.J. Tower & Sons v. United States, 673 F.2d 1268, 1271 (CCPA 1982); Simod, 872 F.2d at 1576.

Schlumberger’s Oilfield Glossary defines the term “geophysics” as “[t]he study of the physics of the earth, especially its electrical, gravitational and magnetic fields and propagation of elastic (seismic) waves within it.” The OnTrak is a machine comprised of two subassemblies which work together to gather down-hole data (e.g., the inclination, resistivity, pressure and azimuth of the drilled borehole) and transmit it to the surface for purposes of oil and gas exploration. Insofar as this function is “geophysical,” we conclude that the machine is classified as a functional unit of heading 9015, HTSUS.

Our conclusion is in keeping with EN 90.15(VI) which indicates that “apparatus for measuring the inclination of a borehole” and “magnetic geophysical instruments used in prospecting for oil” are classified under heading 9015, HTSUS, as geophysical instruments. See EN 90.15 (VI)(2),(5). See also HQ W968458, dated May 8, 2009 (sonic imaging tool used to examine the condition of subsurface geological formations for purposes of oil exploration classified under heading 9015, HTSUS, as a geophysical instrument). As the OnTrak is covered more specifically in heading 9015, HTSUS, than in heading 8543, HTSUS, it is precluded from classification under heading 8543, HTSUS. See EN 85.43.

HOLDING:

By application of GRI 1 (Note 3 to Section XVII, HTSUS), the OnTrak is classified under heading 9015, HTSUS, specifically in subheading 9015.80.80 which provides for: “Geophysical instruments: Other instruments and appliances: Other: Other.” The 2010 column one, general rate of duty is Free.

Duty rates are provided for convenience only 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.

EFFECT ON OTHER RULINGS:

This ruling revokes HQ 966618, dated January 16, 2004.


Sincerely,

Myles B. Harmon, Director
Commercial and Trade Facilitation Division