OT:RR:CTF:EMAIN H327109 NVF

Mr. H. Michael Leightman
Ernst & Young LLP
5 Houston Center
Suite 1200
1401 McKinney Street
Houston, TX 77010

RE: Tariff classification of a crude distillation plant

Dear Mr. Leightman:

This is in response to your request, dated June 20, 2022, for a binding ruling filed on behalf of your client, Marathon Petroleum Company ("Marathon") concerning the classification under the Harmonized Tariff Schedule of the United States (HTSUS) of a crude distillation plant. In arriving at our determination, consideration was also given to the substance of our teleconference held on February 21, 2023 and additional information submitted on February 22, 2023.

FACTS:

The issue involves the modification of two units within a refinery that is currently operating and located within a foreign trade zone. The units are identified as the Atmospheric Pipestill ("PS3B") unit and the Residue Hydrotreater Unit ("RHU"). Each unit will be upgraded by adding new components and modifying existing components using domestically sourced and imported components. The installation steps for the PS3B unit are described as follows:

The PS3B unit is first taken out of service. The unit is then locked out and tagged out to ensure the machinery is safely shutdown. Scaffold is then erected for the maneuvering of personnel and equipment. New equipment is hoisted to a staging area near its proper location using this scaffolding. Existing obsolete components are mechanically detached and removed through manholes that provide access to the interior of the pipe still vessel. The new upgraded equipment is then maneuvered into the vessel through the manholes, and they are mechanically attached by welding into place. Once installation is complete, temporary scaffolds are removed, the vessel is closed, and the unit is made ready for service.

Marathon states the installation steps for the RHU are substantially similar. Both units will not be withdrawn from the foreign trade zone but will function as production equipment therein. Marathon is seeking the classification of each modified unit.

The PS3B consists of a series of preheat units, towers, drums, strippers, and splitters which process crude oil and separates the oil into intermediate or saleable products. Within the PS3B, crude feed is first preheated in the Preheat Unit, mixed with water to remove contaminants in the Desalter Unit, heated again in another Preheat Unit, then fed into the Pre-Flash Tower. The Pre-Flash Tower separates out some hydrocarbon gases directly into another distillation column, and the remainder is fed into the Crude Tower, which is the primary distillation column.

After crude oil is distilled in the Crude Tower, one stream consisting of lighter oils is drawn out and sent back through the Crude Tower for additional distillation via the Crude Reflux Drum. Other liquid is sent through the Naphtha Stripper which uses varying pressure and temperature to remove naphtha. Depending on its qualities, the naphtha is sent either back into the Reflux, into the bottoms stream of the Gasoline Splitter, or the Naphtha Splitter Tower. The material that enters the Gasoline Splitter is split into gas or heavier "bottoms" products. In the Naphtha Splitter Tower, the naphtha is further distilled into light and heavy naphtha. The separated naphtha is then fed into the Debutanizer where butane is removed, or the Deproanizer Tower where propane is removed.

The other stream emerging from the Crude Tower, which consists of heavier oils, is sent to the Vacuum Tower for further processing. In the vacuum tower, the heavier oils are distilled at lower pressures in order to produce diesel, light vacuum gas-oil, medium vacuum gas-oil, and heavy vacuum gas-oil. The residual product is then fed either into Cokers or the RHU.

Similar to the PS3B unit, the modified RHU consists of subunits that are interconnected to allow intermediate streams to flow from one subunit to the next. The RHU first separates materials from the vacuum tower of the PS3B unit that cannot be separated using distillation into "syncrude," and then further processes the syncrude into usable oil products. The first four subunits of the RHU (i.e., RX1-RX3 Reactors, Flash Gas System, Membrane, and Recycle Compressor) perform the function of creating the syncrude. This process does not rely on distillation but sends the heated stream from the PS3B bottoms through a series of reactors where catalysts, temperature, and pressure cause the molecules to break down into smaller molecules. This process is known as cracking, specifically hydrocracking.[1]

The next component of the RHU, the Atm Tower, is similar to the Crude Tower of the PS3B. It is the main subsystem within the RHU and distills material into five different outputs, depending on the weight and boiling point of each output. One stream is fed into the Amine Contactor column which removes contaminants before feeding the material into the ROD Tower, which recovers ethane and propane for further fractionation.

The final subunits of the RHU, the Debutanizer, Naphtha Splitter, Depropanizer, and Vacuum Tower, all function in a similar manner as their counterparts in the PS3B.

ISSUE:

Are the components at issue classified under subheading 8419.40.00, HTSUS or 8419.89.95, HTSUS?

LAW AND ANALYSIS:

Classification of goods under the HTSUS is governed by the General Rules of Interpretation (GRI). GRI 1 provides that classification shall be determined according to the terms of the headings of the tariff schedule and any relative section or chapter notes.

The HTSUS subheadings under consideration are as follows:

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:

8419.40.00 Distilling or rectifying plant --------------------------------------------------------------

Other machinery, plant or equipment:

8419.89 Other.

Other

8419.89.95 Other

Because there is no disagreement that the PS3B and RHU are classifiable under heading 8419, HTSUS, the instant matter is governed by GRI 6, which states that:

For legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related subheading notes and, mutatis mutandis, to the above rules, on the understanding that only subheadings at the same level are comparable. For the purposes of this rule, the relative section, chapter and subchapter notes also apply, unless the context otherwise requires.

Note 4 to Section XVI of the HTSUS states that:

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.

In your request, you assert that Note 4 applies in classifying the PS3B and RHU and they are both classified under subheading 8419.40.00, HTSUS as distilling plants. Per Note 4, the PS3B and RHU are properly classified together under subheading 8419.40.00, HTSUS, if the components contribute together to perform the clearly defined function of distillation.

The PS3B is classified under subheading 8419.40.00, HTSUS because its components and subunits contribute together to the function of distillation. Although its multiple subunits perform a supportive role in the overall process, the primary subunits are designed as and operate as distillation machinery. A distillation process occurs in the crude tower, naphtha splitter tower, depropanizer, debutanizer, gasoline splitter, and vacuum tower. Supplementary subunits such as the desalter unit (separates contaminants), naphtha stripper (strips sulfur in the presence of a catalyst), pre-flash tower (initial separation of crude), and hotwell (collects and contains condensate), all support a corresponding distillation subunit along the process. Therefore, the various subunits and components of the PS3B work together toward the clearly defined function of distillation.

On the other hand, the subunits of the RHU used for cracking do not contribute toward the clearly defined function of distillation. Rather, these components (RX1-RX3 Reactors, Flash Gas System, Membrane, and Recycle Compressor) work together toward the clearly defined function of hydrocracking, which is a distinct chemical process from distillation and also produces a product that is at a different stage of the oil refinery process than the distillation subunits of the RHU.[2] Unlike distillation which relies primarily on evaporation and condensation (or heating and condensing), hydrocracking utilizes catalysts to achieve the desired result, which is at a different stage of the oil refinery process than distillation. Indeed, the American Petroleum Institute ("API") distinguishes distillation from cracking in its overview of the oil refinery process.[3] The API divides the refinery process into distillation, cracking, reforming, treating, and blending.[4] In light of the foregoing, the subunits of the RHU that are used for cracking do not work together to contribute to the clearly defined function of distillation, therefore they cannot be classified under subheading 8419.40.00, HTSUS, but rather are classified under subheading 8419.89.95, HTSUS.

The remaining subunits of the RHU, however, are classified under subheading 8419.40.00, HTSUS. Its various subunits are either identical to or function much like the subunits of the PS3B. Because they work together toward the clearly defined function of distillation, under Note 4 to Section XVI they are classified under subheading 8419.40.00, HTSUS.

Marathon asserts that every subunit of the RHU contributes to the function of distillation. We disagree; in making this argument, Marathon conflates distillation with the larger process of oil refining. The RHU consists of cracking and distillation machinery that together contributes to the function of oil refining, but not distillation. The subunits that perform hydrocracking process residual material that otherwise is unsuitable for distillation. As Marathon explained in our February 21, 2023 conference, the subunits of the RHU which perform hydrocracking allows Marathon to purchase lower grade crude oil because the hydrocracking is able to further process material that otherwise cannot be used.

In light of the foregoing, the PS3B is classified under subheading 8419.40.00, HTSUS 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: Distilling or rectifying plant."

The RX1-RX3 Reactors, Flash Gas System, Membrane, and Recycle Compressor of the RHU are classified under subheading 8419.89.95, HTSUS 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: Other machinery, plant or equipment: Other: Other: Other."

The remaining components of the RHU are classified under subheading 8419.40.00, HTSUS 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: Distilling or rectifying plant."

HOLDING:

By application of GRIs 1 and 6 (Note 4 to Section XVI), the PS3B is classified under subheading 8419.40.00, HTSUS 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: Distilling or rectifying plant." The column one, general rate of duty is free.

By application of GRIs 1 and 6 (Note 4 to Section XVI), the RX1-RX3 Reactors, Flash Gas System, Membrane, and Recycle Compressor of the RHU are classified under subheading 8419.89.95, HTSUS 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: Other machinery, plant or equipment: Other: Other: Other." The column one, general rate of duty is 4.2 percent ad valorum.

By application of GRIs 1 and 6 (Note 4 to Section XVI), the remaining components of the RHU are classified under subheading 8419.40.00, HTSUS 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: Distilling or rectifying plant." The column one, general rate of duty is free.

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/tata/hts/.

A copy of this ruling letter should be attached to the entry documents filed at the time the goods are 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 Connor, Chief
Electronics, Machinery, Automotive, and
International Nomenclature Branch

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[1] See https://www.eia.gov/todayinenergy/detail.php?id=9650 (last visited March 7, 2023) (discussing the cracking process as part of oil refining).
[2] See, e.g. https://www.eia.gov/todayinenergy/detail.php?id=9150 ("Unlike atmospheric distillation and vacuum distillation, which are physical separation processes, . . . cracking is a chemical process that uses a catalyst to create new, smaller molecules from larger molecules to make gasoline and distillate fuels.") (last visited March 9, 2023).
[3] https://www.api.org/oil-and-natural-gas/wells-to-consumer/fuels-and-refining/refineries/how-refinery-works/refinery-processes (last visited March 7, 2023).
[4] Sources differ in the number of distinct stages they define in the oil refinery process, nonetheless, we observe that other sources also distinguish cracking from distillation. See, e.g. https://www.e-education.psu.edu/eme801/node/470 (last visited March 7, 2023).