CLA-2 RR:CR:GC 966618 JAS
Scott L. Johnston, Esq.
Givens & Johnston, PLLC
950 Echo Lane, Suite 360
Houston, TX 77024-2788
RE: OnTrak™ Formation Evaluation Subassembly; NY I81299 Affirmed
Dear Mr. Johnston:
In a letter dated July 22, 2003, on behalf of Baker Hughes INTEQ, you request reconsideration of a ruling to INTEQ concerning the classification, under the Harmonized Tariff Schedule of the United States (HTSUS), of OnTrak,™ a
component used in measuring-while-drilling systems for subterranean oil exploration, as well as the five individual components that comprise it. At our request, you made a supplemental submission on December 11, 2003, which included a CD-ROM which we viewed. You presented additional factual and legal arguments during a teleconference with a member of my staff on January 14, 2003, which you confirmed in a facsimile transmittal on January 15, 2004.
In NY I81299, which the Director of Customs National Commodity Specialist Division, New York, issued to you on May 29, 2002, on behalf of INTEQ, OnTrak™ was held to be classifiable in subheading 8543.89.96, HTSUS, as other electrical machines and apparatus, not specified or included elsewhere in [chapter 85]. The five components that make up OnTrak™ were found to be separately classifiable. These are the Sensor Sub Assembly referred to as the navigation sub; the Bi-Directional Communications and Power Module (BCPM), a down-hole power source which creates electrical energy to operate the OnTrak™ and which functions primarily as a communications system with the surface; a surface cabin on skids with data processing and mud pulse telemetry communications systems and related electronic equipment, all built in; the Sensor Sub, a housing containing drill collar sections modified to house navigation and (oil) formation evaluation electronics, but without the electronics; and,
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the BCPM Electronics Sub, a drill collar housing modified to incorporate power generation equipment and communications electronics, but without the equipment and electronics. You contend that heading 8430, HTSUS, other boring or sinking machinery or, in the alternative, heading 8431, HTSUS, parts of such machinery, represents the correct classification.
FACTS:
OnTrak™ is identified in submitted literature as a “formation evaluation subassembly.” At p. 4 of the July 22, 2003, submission, you describe it as a “multi-function boring and sinking machinery control system.” (Emphasis added). OnTrak™ is used with the AutoTrak rotary closed loop drilling system. Together, they permit the drilling of multiple horizontal wells from a single vertical well up to five miles from the drill rig and up to one mile beneath the ocean floor. This process is said to yield up to 20 times more oil than conventional vertical drilling.
Geophysical surveys identify beforehand the general location of oil deposits in the seabed. Typically, rock formations containing oil, and similar formations containing salt water are found in close proximity. But, they possess different densities and exhibit different electrical properties and thus have different “resistivities.” Utilizing sensors and both transmitting and receiving antennae, the Sensor Sub component of OnTrak™ transmits an electro-magnetic signal into a formation and measures the resistance to the flow of that signal. Gamma ray detection is one feature ascribed to the Sensor Sub. See the July 22, 2003, submission, p. 3. These measurements are transmitted to data processing apparatus in the Surface Cabin where they are compared with known features of oil deposits. The boring and sinking machinery operator uses this information to select and follow the optimal drilling path. See July 22 submission, p. 6. Neither OnTrak™ nor any of its components automatically control the movement of the drill bit in relation to a particular formation. The above-ground operator sends instructions to OnTrak™ through the BCMP and OnTrak™ in turn sends a corresponding signal instructing AutoTrak to change the direction of the drill bit.
The HTSUS provisions under consideration are as follows:
8430 [E]xtracting or boring machinery
* * * *
Parts suitable for use solely or principally with the machinery
of headings 8425 to 8430
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* * * *
8543 Electrical machines and apparatus, having individual
functions, not specified or included elsewhere in [chapter 85]
* * * *
[I]nstruments and apparatus for measuring or detecting other
ionizing radiations
ISSUE:
Whether OnTrak™ is a good of heading 8430, or a part of 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.
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 believes the ENs should always be consulted. See T.D. 89-80. 54 Fed. Reg. 35127, 35128 (Aug. 23, 1989).
You state that OnTrak™ consists of heavy steel drill collar sections inserted into the drill stem immediately above the drill bit, but modified with the addition of proprietary electronic, mechanical and hydraulic apparatus which, you maintain, controls the direction and placement of the boring/drilling. As such, you contend the OnTrak™ is a good included in heading 8430, HTSUS, as boring or sinking machinery, under Section XVI, Note 2(a), HTSUS. You assert that OnTrak™ qualifies as rotary well sinking machinery as described in the 8430 ENs because it functions within the drill collar section of a traditional surface driven rotary well or it may be used in a drill string where the bit is rotated by a drilling motor, or both. Alternatively, for those components not described by heading 8430, you contend the appropriate classification is as parts, in heading 8431, HTSUS, as required by Section XVI, Note 2(b), HTSUS. You maintain that heading 8543 is not an appropriate classification because OnTrak™ and its components are specified or included either in heading 8430 or in heading 8431. Lastly, you maintain that several Customs Court and Court of International Trade decisions support the claimed classification(s).
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As to your claim under heading 8430, the relevant ENs state the heading covers machinery for “attacking” the Earth’s crust (e.g., for earth excavation, digging, drilling, etc.) (Emphasis original). OnTrak™ does not meet this description. Likewise, we do not agree with your contention that OnTrak™ is rotary well sinking machinery described in the ENs. Such machinery incorporates a derrick fitted with pulley tackle, a hoist drum with transmission and control gear, a swivel and a rotary table or gear-wheel, none of which OnTrak™ possesses. In The Servco Company v. United States, C.D. 4341, aff’d. C.A.D. 1098 (1973), a case you cite, the court found that certain stainless steel tubes constituted unfinished drill collars (heavy-walled steel tubes incorporated in the drill string of boring machines), solely or chiefly used with boring or sinking machinery, whose primary function is to add weight to the drill bit. A drill string is the column or string of drill pipe with attached tool joints that transmits hydraulic fluid and rotational power to the drill collars and bit. Notwithstanding OnTrak™ may function “within” the drill collar section of a rotary well or may be used “in” a drill string where the bit is rotated by a drilling motor, or both, it does not function in the manner ascribed by the Servco court to a drill collar. OnTrak™ is a formation evaluation sub(assembly) whose function is to measure or detect resistivity measurements, data which enables the drilling machine operator to reposition the drill bit on the AutoTrak relative to the desired formation. The second case you cite, Nissho Iwai American Corp. v. United States,
8 CIT 264 (1984), referred to by the court as a sequel to Servco, specially constructed pipe fittings called tool joints were found to be classifiable as parts of boring machinery and not pipe fittings. For the reasons stated above, this case does not control. The OnTrak™ is not classifiable in heading 8430.
As to the claim under heading 8431, for tariff purposes a “part” is an integral, constituent component of another article necessary to the completion of the article with which it is used, and which enables that article to function in the manner for which it was designed. You have stated that the AutoTrak cannot operate on its own, but must be attached to OnTrak™ or some other control system. That fact does not qualify the OnTrak™ as a part for tariff purposes. Without a control system, the AutoTrak would lack direction-changing capability but, on the facts presented, its function as a drilling machine remains intact. OnTrak™ is not classifiable in heading 8431.
NY I81299 classified the Sensor Sub component of OnTrak™ as instruments and apparatus for measuring or detecting ionizing radiations. You cite HQ 950196, January 8, 1992, which classified a device used to indicate the direction and temperature of a drill, but not to change the direction of the drill, in subheading 9031.80.00, HTSUS, as other measuring or checking instruments, appliances or machines. You maintain that Customs erroneously classified the device in heading 9031 without considering headings 8430 and 8431. Heading 9031 covers measuring or checking instruments, appliances or machines not specified or included elsewhere in the HTSUS. The provision for instruments and apparatus for measuring or detecting ionizing radiations
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(of which gamma rays are one type) was found to more accurately describe the function of the Sensor Sub. But, because the Sensor Sub is only one of five components in OnTrak,™ evidence that OnTrak™ itself is provided for in heading 9030, heading 9031, or any other provision of chapter 90 is inconclusive. As you have noted, Section XVI, Note 1(m), HTSUS, precludes classification of OnTrak™ or any of its components in heading 8543 if they are provided for in a heading of chapter 90.
HOLDING:
Under the authority of GRI 1, OnTrak™ is provided for in heading 8543. It is classifiable in subheading 8543.89.96, HTSUS. The Sensor Sub Assembly or navigation sub is provided for in heading 9030. It is classifiable in subheading 9030.10.00, HTSUS. As no alternative claims for the four remaining components of OnTrak™ are asserted, they remain classifiable in subheading 8543.90.88, HTSUS. NY I81299, dated May 29, 2002, is affirmed.
Sincerely,
Myles B. Harmon, Director
Commercial Rulings Division