CLA-2 OT:RR:CTF:TCM H007677 JER
Port Director
U.S. Customs and Border Protection
7141 Office City Drive
Houston, TX 77087
RE: Internal Advice 08/009; Classification of Blowout Preventers
Dear Port Director:
This is in response to a request for internal advice, dated February 1, 2007, made on behalf of Lariat Services, Inc., made in accordance with U.S. Customs and Border Protection (CBP) Regulations, Part 177 (19 C.F.R. §177). The request pertains to the classification of certain blowout preventers under the Harmonized Tariff Schedule of the United States (HTSUS). The Port in Houston forwarded this request to CBP Headquarters on February 26, 2007.
FACTS:
Counsel states that the purpose of a blowout preventer (“BOP”) is to seal the top of the well, should excess pressure be encountered during drilling or well completion. Blowout preventers are devices used in oil and gas drilling operations and are said to be “well control” mechanisms designed to prevent or shut down a blowout. A blowout is an uncontrolled flow or eruption of formation fluids and gases to the surface resulting from high formation pressure, over pressured gas traps which are greater than the wellbore pressure.
Blowout preventers are described as being vertically assembled into one unit called a “BOP Stack.” The most common blowout preventers are said to be the Ram-type blowout preventer and the Annular-type blowout preventer. Each are described as being operated by hydraulic actuators and have the capacity to seal the well in case of a blowout. The ram-type comes in three different styles: the pipe-ram insert, blind-ram insert and the shear insert. The ram-type has two steel halves or inserts which are hydraulically driven together to meet at the center of the BOP to seal the wellbore. The ram-type consists of ram assemblies, seal assemblies, ram rubbers, ram holders and ram packers. The Annular-type blowout preventer consists of an elastomeric ring which seals over the well hole in the event of a blowout. The Annular-type also consists of a head, piston, a wear plate and opening and closing chambers. Each type of blowout consists of unique closing devices designed to either: 1) grip and hold the drill pipe, 2) sever the drill pipe then seal the open hole; or 3) seal the open hole. In either case, the BOP Stack works in unison to obstruct, seal or otherwise close the top of the well to prevent high pressurized formation liquids and gases from rapidly erupting out of the borehole.
ISSUE:
Whether the subject merchandise is classifiable under heading 8431, HTSUS, or under heading 8481, 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 HTSUS provisions under consideration are as follows:
8431 Parts suitable for use solely or principally with the machinery of headings 8425 to 8430:
Of Machinery of heading 8426, 8429 or 8430:
8431.43 Parts for boring or sinking machinery of subheading 8430.41 or 8430.49:
* * * *
8431.43.80 Other
Of oil and gas field machinery
* * * *
8431.43.8090 Of other boring or sinking machinery
8481 Taps, cocks, valves and similar appliances, for pipes, boiler shells, tanks, vats or the like, including pressure-reducing valves and thermostatically controlled valves: parts thereof:
8481.10.00 Pressure-reducing valves
* * * *
8481.40.0000 Safety or relief valves
8481.80 Other appliances:
8481.80.90 Other
8481.80.9030 With hydraulic actuators
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 (August 23, 1989).
At issue is whether individual blowout preventers, as distinct from an entire blowout preventer control system, are classifiable in heading 8431, HTSUS, as a part for boring or sinking machinery, parts of drilling machinery or whether blowout preventers are properly classified as valves in heading 8481, HTSUS.
First we consider whether the subject blowout preventers are classifiable as a “part” for tariff purposes. Counsel argues that because the blowout preventers are solely or principally used with oil and gas drilling machinery of chapter 84, that blowout preventers are classifiable in heading 8431, HTSUS, as a part suitable for use solely or principally with machinery of chapter 84. Counsel cites, among other cases, Baurehin Technologies Ltd. et al v. United States, 110 F. 2d 774 (CAFC 1997), which found that “where…an imported article is dedicated solely for use with another article and is not a separate and distinct commercial entity…” the article is in fact a part.
Counsel further points out that both the Court of International Trade and CBP have defined a part as being “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, without which the article to which the [part] is joined could not function.” Headquarters Ruling Letter (HQ) 967291, dated November 4, 2004, citing United States v. Cody Manufacturing Co., 44 CCPA 67, CAD 639 (1956); See also, HQ 966618, dated January 16, 2004; United States v. Willoughby Camera Stores, Inc., 21 CCPA 322 (Customs & Patent Appeals 1933). We agree that BOPs are an integral constituent component of oil and gas drilling activity and are in fact “parts” designed for use therein. Accordingly, the subject BOPs are to be classified in accordance with Note 2 to Section XVI.
Section XVI, Note 2 provides in pertinent part as follows:
Subject to note 1 to this section, note 1 to chapter 84 and note 1 to chapter 85, parts of machines (not being parts of the articles of heading 8484, 8544, 8545, 8546 or 8547) are to be classified according to the following rules:
Parts which are goods included in any of the headings of chapter 84 or 85 (other than headings 8409, 8431, 8448, 8466, 8473, 8487, 8503, 8522, 8529, 8538 and 8548) are in all cases to be classified in their respective headings;
Other parts, if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading (including a machine of heading 8479 or 8543) are to be classified with the machines of that kind or in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as appropriate. However, parts which are equally suitable for use principally with the goods of headings 8517 and 8525 to 8528 are to be classified in heading 8517.
Under Section XVI Note 2 (a), parts which are also goods, are in all cases to be classified in their own respective heading. As the ENs to Section XVI explain, the rules governing parts suitable solely or principally with a particular machine or apparatus are inapplicable where a good is covered by heading of this Section. The ENs to Section XVI, Note 2 provide that:
The above rules do not apply to parts which in themselves constitute an article covered by a heading of this Section (other than headings 84.87 and 85.48); these are in all cases classified in their own appropriate heading even if specially designed to work as part of a specific machine. This applies in particular to:
* * * *
(4) Taps, cocks, valves, etc. (heading 84.81).
Even where an article is designed to work solely or principally as a part of a machine, a provision for parts does not prevail over a specific provision for such parts. In Nidec Corporation v. United States, 861 F. Supp. 136, 142, 18 Ct. Int’l Trade 821, aff'd 68 F. 3d 1333 (Fed. Cir. 1995), the Court of International Trade held that:
Note 2(b) provides that other parts, if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading are to be classified with the machines of that kind. The explanatory notes state that parts which are suitable for use solely or principally with particular machines or apparatus are classified in the same heading as those machines or apparatus. This statement, however, does not apply to parts which in themselves constitute an article covered by a heading of this section; these are in all cases classified in their own appropriate heading even if specifically designed to work as part of a specific machine.
According to the decision in Nidec, a part which is also classifiable as a good shall in all instances be classified in its respective heading according to Section XVI 2(a). Because the relevant Section Notes are applied numerically, once classification has been determined according to Note 2(a) there is no need to consider classification under the remaining Section Notes. Furthermore, under Baurehin Technology, where an article is in fact a separate and distinct commercial entity, it cannot be said to be a part of another machine.
Counsel contends that under Mitsubishi Int’l. v. United States, 22 F.3d 1102 (CAFC 1993), despite the fact that a drilling rig could function without the BOP, “the fact that the imported item’s sole purpose is to secure the principal machine’s operation is enough to establish that the component part is integral to the machine.” In Mitsubishi, the court found that a “slag box” although “not per se involved in the casting process,” was a part of the casting machine because it satisfied a specific and integral need in the casting machine’s operation. Id.
The reasoning in neither Mitsubishi nor the present importer’s contention address issues specific to the rules set forth in Section XVI regarding the classification of goods and parts of chapter 84 or 85. Regarding the classification of “parts,” Section XVI contemplates a two-prong test. First, the article must not be classifiable as a good included in any of the headings of Chapter 84 or 85. Secondly, the part must be suitable for use solely or principally with a particular kind of machine classifiable in chapter 84 or 85. Counsel’s primary argument that the BOP is solely or principally used with oil drilling machinery is articulated in Section XVI, Note 2 (b). However, as the Court in Nidec held, Note 2(b) does not apply to parts who themselves constitute an article classifiable in a heading of Section XVI. This is true even if the article, as is the case here, is specifically designed to work as a component of specific machinery.
Next, we consider whether the blowout preventers are in fact valves and therefore classifiable in heading 8481, HTSUS, by application of Note 2(a) to Section XVI. Counsel for the importer argues that the blowout preventer is not a valve. Counsel asserts that BOPs do not merely regulate the flow of gases or liquids but also “grip and hold the drill stem to keep the casing from shooting skyward and to seal off the annulus during a blowout to prevent oil and gas from shooting skyward…” As Counsel points outs, CBP has defined a valve as a device which regulates the flow of gases, liquids, or loose materials through structures such as piping or through apertures by opening, closing or obstructing ports or passageways. See HQ 963219, dated February 5, 2001.
Throughout the oil and gas industry a “Blowout Preventer” is consistently defined as a valve. For instance, the Schlumberger Oilfield Glossary defines a blowout preventer as: “a large valve at the top of a well that may be closed if the drilling crew loses control of the formation fluids. Oilfield Glossary, at www. glossary.oilfield.slb.com. The Lexicon of Oil & Gas Terms, defines blowout preventers as “an assembly of heavy-duty valves attached to the top of the well casing to control pressure.” Maverick Energy, Inc. at www.maverickenergy.com.
Likewise, blowout preventers have also been defined as “hi-pressure valves that seal the high-pressure drill lines and relieve pressure when necessary to prevent a blowout (uncontrolled gush of gas or oil to the surface).” (How Oil Drilling Works, at www.science.howstuffworks.com/oil-drilling. Similarly, OSHA defines blowout preventers as “a large valve, usually installed above the ram preventer that forms a seal in the annular space between the pipe and well bore.” Oil and Gas Well Drilling: Well Control, OSHA, www.osha.gov. In sum, the oil and gas industry widely regards blowout preventers as a system of large valves installed at the wellhead to prevent the explosive eruption of hydrocarbons to the surface.
The ENs to heading 8481 provide in pertinent part that:
This heading covers, taps, cocks, valves and similar appliances, used on or in pipes…to regulate the flow (for supply or discharge, etc.), of fluids (liquids, viscous or gaseous), …[t]he heading includes such devices designed to regulate the pressure or the flow velocity of a liquid or a gas.
Taps, cocks, valves, etc. remain in this heading even if specialized for use on a particular machine or apparatus…
The heading includes inter alia:
(1) Pressure-reducing valves for reducing the pressure of gases and maintaining that reduced pressure at a fairly constant level by means of a plug or stopper…[t]he heading also includes pressure-reducing valves…also mounted at the outlets of pressure containers, of boilers, on connecting feed pipe systems or near the appliances which they serve, to perform the same function on compressed air, steam, water, hydrocarbons, or other fluids [Emphasis added]…
(4) Safety valves, relief valves, etc., whether or not incorporating a warning whistle.
(5) Manifold valves (e.g. three way valves and “Christmas tree” valves).
Counsel’s own description of the BOPs supports classification of the subject merchandise as valves. Counsel explains that “the purpose of the blowout preventer is to seal the top of the well, should excess pressure be encountered during drilling or completion of the well.” Also, in describing the functionality of the Ram-type BOP, counsel explains that “the two opposing rams, when triggered, are hydraulically driven together…to close the top of the well, in such a way that neither liquids, gasses, casing, drill string…can shoot skyward…” Although, BOPs are also designed to grip and close upon pipes in the event of a blowout, their primary purpose is to function as a safety pressure valve to control a sudden gush of formation fluids to the surface and/or “prevent the escape of oil and gas under high pressure through the annulus.”
Essentially, the multi-valve blowout preventer system has similar characteristics, functions and attributes as does the pressure valves, safety valves, relief valves and Christmas tree valves of heading 8481, HTSUS. For instance, the Annular-type BOP has an elastomeric sealing ring which seals the annulus between the kelly and the drill pipe. If no pipe is present, annular BOP closes on the open hole. Annular-type BOPs have been defined as “a large valve to control wellbore fluids. In this type of valve, the sealing element resembles a doughnut that is mechanically squeezed inward to seal on either pipe or open hole.” Oilfield Glossary: Annular bop. The Ram-type BOP has three models. First is the pipe-ram which closes on the pipe in the event of a blowout or closes on the open hole. While the blind-ram uses straight edge rams to close the well hole. The shear-ram are sharp metal inserts which cut through the casing and drill pipe then overlap each other to seal the wellbore. Fundamentally, a BOP circumvents or utilizes the presence of the drill pipe to obstruct or prevent the eruption of subsurface fluids or gases which result from reservoir pressure in oil bearing formations.
The fact that the blowout preventers consists of additional components which grip or shear the drill pipe is ancillary to the principal function of the BOP. The pipe, ram and shear inserts which grip or shear the drill pipe are auxiliary components which assist in performing the principal function of preventing a blowout. As the decision in Nidec found, despite Plaintiff’s argument that goods were more than electric motors, the essence of the good was still that of a motor, not of a spindle. Nidec at 143. In the instant case, despite the additional functions which the importer argues make these devices more than a valve, the essence of the blowout preventers remain to regulate and obstruct the velocity and flow of the discharged fluids or gases. The regulation of pressure or the flow velocity of liquids and gases, i.e., the obstruction and prevention of sudden oil or gas flow are all functions consistent with valves of heading 8481, HTSUS. Therefore, we find that the BOPs are classified as valves under heading 8481, HTSUS. Notwithstanding the fact that the stacked BOPs are devices used principally if not solely in connection with oil and gas drilling activity, the BOPs are classified as goods by application of Note 2(a) to Section XVI. Hence, classification under heading 8431, HTSUS, by application of Note 2 (b) is precluded.
HOLDING:
By application of GRI 1 and Note 2 (a) to Section XVI, the Ram-Type Blowout Preventer is classified in heading 8481, HTSUS. Specifically in subheading 8481.80.9030, HTSUS, which provides for: “Taps, cocks, valves and similar appliances, for pipes, boilers shells, tanks, vats or the like, including pressure-reducing valves and thermostically controlled valves: parts thereof: Pressure-reducing valves.” The 2008 column one, general rate of duty is 2% ad valorem.
By application of GRI 1 and Note 2 (a) to Section XVI, the Annular-Type Blowout Preventer is classified in heading 8481, HTSUS. Specifically in subheading 8481.80.9030, HTSUS, which provides for: “Taps, cocks, valves and similar appliances, for pipes, boilers shells, tanks, vats or the like, including pressure-reducing valves and thermostically controlled valves: parts thereof: Safety or relief valves.” The 2008 column one, general rate of duty is 2% ad valorem.
You should advise the Internal Advice Inquirer of this decision. This decision should be mailed by your office to the internal advice inquirer no later than 60 days from the date of this letter. On that date, Regulations and Rulings of the Office of International Trade, will take steps to make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division