CLA-2 RR:CR:GC 965525 JAS
Robert H. Nicholas, Jr., Esq.
Baker & Hostetler LLP
1000 Louisiana, Suite 2000
Houston, TX 77002-5009
RE: Sub-Sea Umbilicals
Dear: Mr. Nicholas:
In a letter to the Director of Customs National Commodity Specialist Division, New York, dated February 11, 2002, on behalf of Kerr-McGee Oil & Gas Corporation, you inquire as to the classification, under the Harmonized Tariff Schedule of the United States (HTSUS), of sub-sea umbilicals. Your letter has been referred to this office for reply.
In issuing this ruling, consideration was given to information you provided during a teleconference with a member of my staff on July 31, 2002. You confirmed this discussion and provided additional facts and legal arguments in a letter, dated August 13, 2002, accompanied by a sample umbilical section.
FACTS:
The articles at issue here are identified as production control umbilicals and jumper umbilicals. These are cables for use in supplying electric power, hydraulic fluids and chemicals from the hydraulic power unit, master control station and chemical injection unit of an oil and natural gas production platform anchored offshore to the electro/hydraulic multiplexed control system of sub-sea satellite wells drilled in the seabed and related sub-sea production equipment, the whole serviced by the production platform. The production control umbilical runs from the production platform to an umbilical termination assembly. From that location, the jumper umbilical runs along the seabed to the well’s sub-sea control system.
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The production control umbilical is over 20,000 feet long and consists of two four-conductor electrical cables for transmitting power and control signals, surrounded concentrically by eleven stainless steel tubes. Four of the steel tubes convey hydraulic fluids while the remaining seven tubes convey corrosion and scale-inhibiting chemicals and methanol. Alloy steel rods positioned between the electric cables and the stainless steel tubes provide strength and rigidity. Additional strength is provided by a double row of smaller iron or steel rods which ring the circumference of the umbilical. An outer sheath of synthetic fiber braiding then encases the whole. The jumper umbilical is less than half as long but is substantially identical in composition, except that it consists of six stainless steel tubes and two four-conductor electrical cables. Combined, the production control umbilical and the jumper umbilical weigh nearly several hundred tons.
The HTSUS provisions under consideration are as follows:
Other…excavating…extracting or boring machinery for
earth, minerals or ores…:
Parts suitable for use solely or principally with the machinery of
headings 8425 to 8430:
Of lifting, handling, loading or unloading machinery for oil and
gas field machinery
Of boring or sinking machinery for offshore oil and natural gas
drilling and production platforms
* * * *
Insulated…wire, cable…and other insulated electric conductors,
whether or not filled with connectors…:
8544.60 Other electric conductors, for a voltage exceeding 1,000 V:
8544.60.60 Other
ISSUE:
Whether the umbilicals are parts for tariff purposes; whether they are composite goods classifiable under GRI 3.
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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. For purposes of GRI 3, HTSUS, “composite goods” include those with different components which are attached to each other to form a practically inseparable whole. Under GRI 3(a), two or more headings, each describing part only of the good, are deemed to be equally specific in relation to the good. Under GRI 3(b), the good shall be classified as if consisting only of that component that imparts the essential character to the whole. Under GRI 3(c), where classification cannot be accomplished under Rule 3(a) or (b), the good is classifiable in the heading which occurs last in numerical order from among those which equally merit consideration.
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 HTSUS and are thus useful in ascertaining the classification of merchandise under the System. Customs believes the ENs should always be consulted. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (Aug. 23, 1989).
You contend that the umbilicals are not classifiable under GRI 1, HTSUS, as there is no single heading that describes them. You concede that the umbilicals consist of components potentially classifiable in different headings, and note that they are complete, finished articles, not capable of being separated or sold as individual components. Nevertheless, you conclude that GRI 3, HTSUS, is not an adequate basis for classifying these goods, because it is all the components together, and not any one of them, which imparts the essential character to the whole. You argue that the umbilicals are unique products, custom-designed exclusively for use with offshore oil and gas production platforms, and that these platforms and the wells they service are wholly dependent on and cannot operate without the multifunctional inputs these umbilicals provide. As imported, these umbilicals are ready for use, and require no cutting, alterations, or post-importation processing. You maintain that the umbilicals qualify as “parts” for tariff purposes as they are integral, constituent or component parts of another article without which that article could not function in the manner for which it is intended. As such, under the authority of GRI 4, HTSUS, the umbilicals are most akin to articles classifiable in subheading 8431.39.00, HTSUS, as parts of oil and gas field machinery, or in subheading 8431.43.40, HTSUS, as parts of boring or sinking machinery for offshore oil and natural gas drilling and production platforms. You cite
Section XVI, Note 2(b), HTSUS, as further authority for the classification of umbilicals as
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parts suitable for use solely or principally with oil or natural gas production platforms of heading 8430. You argue that under Additional U.S. Rule of Interpretation 1(c), HTSUS, as there is no specific provision for umbilicals, the appropriate parts provision is the appropriate classification. Finally, you cite an administrative ruling which classified umbilicals in heading 8544, HTSUS, as insulated electric conductors. However, you contend that this ruling is not authority in this case because the classification expressed in that ruling does not adequately consider the multiple functions of the good.
Your parts claim under heading 8431 raises two issues. First, fixed platforms used for the discovery or exploitation of off-shore deposits of oil or natural gas, which are neither floating nor submersible, are provided for in heading 8430. See EN89.05. Heading 8430 covers extracting, cutting or drilling machinery, among other types. However, the 8430 ENs state that the heading covers only drilling machines as such. Other quite distinct machines normally used therewith are excluded even if presented with the drilling machines, e.g., pumps and compressors to force mud, stone, etc., out (heading 84.13 or 84.14) (All emphasis original). It is apparent that the subject umbilicals provide hydraulic fluids and electric power to operate components of the
sub-sea production equipment which may not be provided for in heading 8430 and, in fact, may be expressly excluded. This would make any parts claim under that heading difficult to sustain. Second, assuming, by way of argument, that a parts claim is viable, you restate the rule in Clipper Belt Lacer Co., Inc. v. United States, 14 CIT 146 (1990), that to be a part for tariff purposes a good must be an integral, constituent or component part, necessary to the completion of the article with which it is used, and without which that article could not function in the manner for which it was intended. The Court in Clipper Belt deemed It appropriate to consider the nature, function and purpose of a good in relation to the article to which it is attached or is designed to serve. From the definition of the term “umbilical” in the various technical dictionaries you cite, it is evident that by their design and intended end use service application the umbilicals are principally if not solely for use on or with offshore oil and gas production platforms or sub-sea production equipment. However, this, alone, does not make an article a “part” for tariff purposes. In our opinion, the umbilicals do not satisfy the rule in Clipper Belt because they are not integral to or constituent components of a production platform or sub-sea production equipment. They do not rely on the umbilicals for their completeness. Such platforms, and the sub-sea production equipment are complete and fully functional in and of themselves. Although they depend on the inputs from the umbilicals to operate, there is no evidence that production platforms or sub-sea production equipment are commonly bought and sold with umbilicals. You cite numerous judicial decisions in which the court found that articles satisfy one particular parts criteria or another. However, we are aware of no case, nor has any been cited to
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us, in which cables substantially similar in function and design to the umbilicals at issue
were held to be parts of a larger machine. We conclude that the available evidence does not support a claim for parts under heading 8431. We conclude further that the umbilicals cannot be classified under GRI 1.
Insulated electrical cables of heading 8544 generally consist of conductors wholly of one metal or of different metals, one or more coverings of insulating materials, to prevent leakage of electric current or to protect it against damage, in some cases a metal sheath as a protective covering for the insulating material, or a metal armoring for underground or submarine cable. Telecommunications wires and cables and data transmission cables are included in heading 8544. The ruling you cite, NY D87409, dated March 3, 1999, classified umbilical cables for use with offshore pipe laying operations in subheading 8544.60.40, HTSUS, as insulated electrical conductors. Though lacking detailed analysis, the umbilicals in this ruling were considered composite goods under GRI 3(b), HTSUS, that were prima facie classifiable in different provisions: as articles of plastics, in provisions of Chapter 39, in headings 7214 or 7215, HTSUS, as bars and rods of nonalloy steel, in heading 7306, HTSUS, as pipes and tubes of iron or steel, and in heading 8544, HTSUS, as insulated electrical conductors. Because of the function and design of the umbilicals, headings 7306 and 8544 were found to be the two headings which equally merited consideration. As the transmitting of hydraulic fluids, chemicals and electric power were found to be equally significant functions, with no one clearly predominating over the other two, classification under heading 8544 obtained under GRI 3 (c), HTSUS. NY D87409 is authority for classifying the merchandise at issue. As such, reference to GRI 4 is unnecessary.
HOLDING:
Under the authority of GRI 3(c), the production control umbilical and the jumper umbilical at issue here are provided for in heading 8544. They are classifiable in subheading 8544.60.60, HTSUS.
Sincerely,
Myles B. Harmon, Acting Director
Commercial Rulings Division