CLA-2 OT:RR:CTF:EMAIN H310170 ALS
H. Michael Leightman
Ernst & Young LLP
5 Houston Center, Suite 1200
1401 McKinney Street
Houston, Texas 77010
RE: Tariff classification of Liquefied Natural Gas Plant
Dear Mr. Leightman:
This letter is in reply to your request for a ruling on the tariff classification, under the Harmonized Tariff Schedule of the United States (“HTSUS”), of a Liquefied Natural Gas (LNG) Plant on behalf of Port Arthur LNG LLC. Our decision is set forth below.
FACTS:
The LNG Plant consists of the following main components:
Gas Inlet Receiving Unit- meters, controls, and conditions natural gas;
Mercury Removal Unit- removes mercury from the feed gas due to its corrosive effect on the machinery in the liquefaction unit;
Acid Gas Removal Unit- removes the acidic gases to avoid corrosion, freezing, and plugging problems.
Dehydration Unit- dehydration of the gas feeds helps minimize corrosion, removes water and prevents the hydrate formation of clogs at the pipelines when the materials are under cryogenic conditions;
Natural Gas Liquids Fractionation Unit- removes the natural gas liquid condensate and benzene from the feed gas to prevent freeze-out in the liquefaction unit.
Stages of Processing
Pre-Cooling Stage: Accepts warmed natural gas from the Heavy Hydrocarbon Unit and processes the natural gas through heat exchangers, where it interacts with liquid propane to extract heat from the natural gas. When the natural gas reaches 35 degrees Celsius, it flows into the Main Cryogenic Heat Exchanger (MCHE). At this point, the propane flows into a compressor which increases the pressure and temperature of the propane. An air-cooled condenser then cools and condenses the propane back into a warm, high pressure liquid, which is then expanded across a valve to further cool it. The cooled low-pressure propane is then sent back into the MCHE to cool more natural gas. This process is a continuous cycle.
Sub-Cooling and Liquefaction Stage: Similar to the Pre-Cooling Stage, except for the following—1) the MCHE has a coil-wound design, as opposed to the kettle-type design in the Pre-Cooling Stage; 2) three (3) sets of coiled tubes wrap around each other in a spiral; 3) as the natural gas flows through the MCHE coils, its remaining heat energy is cross-exchanged with the refrigerant passing through the other coils, which cools the natural gas to its dew point, -162 degrees Celsius; 4) the LNG then passes across an expansion valve to reduce its pressure. At this point, some of the LNG vaporizes and is sent back to fuel the turbines that drive the compressors. This process is also a continuous cycle.
The natural gas is transported to and through the LNG Plant via pipelines.
ISSUE:
Is the Liquefied Natural Gas Plant properly classified under HTSUS heading 8418, which provides for “Refrigerators, freezers and other refrigerating or freezing equipment, electric or other; heat pumps, other than the air conditioning machines of heading 8415; parts thereof”, or under HTSUS heading 8419, which provides for “Machinery, plant or laboratory equipment, whether or not electrically heated (excluding furnaces, ovens and other equipment of heading 8514), for the treatment of materials by a process involving a change of temperature such as heating, cooking, roasting, distilling, rectifying, sterilizing, pasteurizing, steaming, drying, evaporating, vaporizing, condensing or cooling, other than machinery or plant of a kind used for domestic purposes; instantaneous or storage water heaters, nonelectric; parts thereof”?
LAW AND ANALYSIS:
Classification under the HTSUS is determined in accordance with the General Rules of Interpretation. GRI 1 provides that the classification of goods shall be “determined according to the terms of the headings 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, GRIs 2 through 6 may be applied in order.
The following headings and subheadings of the HTSUS are under consideration in this case:
8418 Refrigerators, freezers and other refrigerating or freezing equipment, electric or other; heat pumps, other than the air conditioning machines of heading 8415; parts thereof:
Other refrigerating or freezing equipment; heat pumps:
8418.69.01 Other...
* * *
8419 Machinery, plant or laboratory equipment, whether or not electrically heated (excluding furnaces, ovens and other equipment of heading 8514), for the treatment of materials by a process involving a change of temperature such as heating, cooking, roasting, distilling, rectifying, sterilizing, pasteurizing, steaming, drying, evaporating, vaporizing, condensing or cooling, other than machinery or plant of a kind used for domestic purposes; instantaneous or storage water heaters,
nonelectric; parts thereof:
8419.60 Machinery for liquefying air or other gases:
8419.60.50 Other...
Note 4 to Section XVI, HTSUS, which contains Chapter 84 and thus headings 8418 and 8419, provides the following:
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 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.
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 HS and are thus useful in ascertaining the proper classification of merchandise. See T.D. 89-90, 54 Fed. Reg. 35127 (August 23, 1989). The EN for heading 8418 provides the following under Section (I) Refrigerators, Freezers, and Other Refrigerating or Freezing Equipment, Subsection (A) Compression Type Refrigerators in relevant part:
Their essential elements are:
The compressor which receives expanded gas from the evaporator and delivers it under pressure to
The condenser or liquefier where the gas is cooled and liquefied, and
The evaporator, the active cooling element, consisting of a tubular system in which the condensed refrigerant, released through an expansive valve, evaporates rapidly with the absorption of heat from the surrounding air, or, in the case of large cooling installations, from brine or a solution of calcium chloride kept in circulation around the evaporator coils.
[Emphasis in original.]
The EN for heading 8419 provides the following in relevant part:
It should be noted that this heading does not include:
* * *
(h) Refrigerating machinery and heat pumps of heading 84.18.
[Emphasis in original.]
The LNG Plant’s compressor, condenser, and evaporator functions are described above in the Pre-Cooling Stage. As such, the LNG Plant contains the essential elements of a refrigerator. And while some of the components undoubtedly would be classified outside of heading 8418, HTSUS, if imported separately, the components that make up the LNG Plant, configured as described, contribute together to perform the function of refrigerating the natural gas to produce liquified natural gas. With the EN to heading 8419 excluding refrigerating machinery of heading 8418, we conclude that the LNG Plant is a refrigerator that is properly classified under heading 8418, HTSUS.
Specifically, the LNG Plant is properly classified under subheading 8418.69.01, HTSUS, which provides for “Refrigerators, freezers and other refrigerating or freezing equipment, electric or other; heat pumps, other than the air conditioning machines of heading 8415; parts thereof: Other refrigerating or freezing equipment; heat pumps: Other...”
HOLDING:
By application of GRIs 1 (Note 4 to Section XVI) and 6, the Liquefied Natural Gas Plant is properly classified under heading 8418, HTSUS. Specifically, it is classified under subheading 8418.69.01, HTSUS. The general column one rate of duty, for merchandise classified in this subheading is Free.
Pursuant to U.S. Note 20 to Subchapter III, Chapter 99, HTSUS, products of China classified under subheading 8418.69.01, HTSUS, unless specifically excluded, are subject to an additional 25 percent ad valorem rate of duty. At the time of importation, if the subject merchandise is of Chinese origin, you must report the Chapter 99 subheading, i.e., 9903.88.01, in addition to subheading 8418.69.01, HTSUS, listed above.
The HTSUS is subject to periodic amendment, so you should exercise reasonable care in monitoring the status of goods covered by the Note cited above and the applicable Chapter 99 subheading. For background information regarding the trade remedy initiated pursuant to Section 301 of the Trade Act of 1974, including information on exclusions and their effective dates, you may refer to the relevant parts of the USTR and CBP websites, which are available at https://ustr.gov/issue-areas/enforcement/section-301-investigations/tariff-actions and https://www.cbp.gov/trade/remedies/301-certain-products-china respectively.
Duty rates are provided for your convenience and 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.
Please note that this ruling letter is “issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect.” 19 CFR 177.9(b)(1). The application of this ruling letter “is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.” See id. CBP therefore reserves the right to verify all facts as noted herein. Furthermore, this ruling letter will be “applied only with respect to transactions involving articles identical to the sample submitted with the ruling request or to articles whose description is identical to the description set forth in the ruling letter.” 19 CFR 177.9(b)(2).
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 CBP officer handling the transaction.
Sincerely,
Gregory S. Connor, Chief
Electronics, Machinery, Automotive, and
International Nomenclature Branch