CLA-2 OT:RR:CTF:TCM H268214 NCD
Port Director
Port of Anchorage
U.S. Customs & Border Protection
605 W. 4th Ave.
Suite 230
Anchorage, AK 99501
RE: Internal advice request; Classification of modules for installation at natural gas production facility
Dear Port Director:
This is in response to a June 23, 2016 message by the Port of Anchorage (“the Port”) seeking internal advice from our office as to the proper classification, under the Harmonized Tariff Schedule of the United States (HTSUS), of five separate modules for installation at a natural gas production facility, all of which were entered at the Port within a 15-day period. Descriptions of the subject modules were provided in various submissions, email exchanges, and telephonic conferences on behalf of UTC Overseas, Inc. (“UTC”). Our determination as to the correct classification of the modules is set forth below.
FACTS:
The subject merchandise consists of five prefabricated modules designed for installation at a facility for the production of natural gas. The facility sits upon an underground reservoir of natural gas and contains several interspersed wells that either direct multi-phase (i.e., solid, liquid, and gas) wellstreams from the reservoir to the facility’s surface for processing (i.e., “production wells”) or inject residual gas and other materials back into the wells following processing (i.e., “reinjection wells” or “disposal wells”). The modules at issue, in which the processing of natural gas is conducted, powered, controlled, or otherwise supported, are connected by a series of pipelines and cables. These modules include a “separation/dehydration” module, a “compressor” module, a “utility” module, a “power generation/waste heat recovery” module, and a “control” module, each of which is discussed in turn below.
The separation/dehydration module is connected directly to the production wellhead and houses equipment used to separate liquid condensate from gas and solids in the natural gas wellstream received from the wellhead. After separation, the natural gas condensate is exported from the facility via pipeline for downstream sale. The separation process is described as follows:
The condensate is separated from the multiphase wellstream through a purification process that includes a bulk-fluid in-line cyclone, three stages of separation, (each stage of separation is followed by pressure step down), followed by filtration, dehydration, and stabilization of the purified condensate (for export). The condensate is then pressurized for exportation through the pipeline.
In the 1st stage of separation, the multi-phase well stream flows first through a bulk liquid in-line cyclone, and then through a two-phase separator, which separates liquids and solids from gas. The in-line cyclone, uses the rotational movement of the fluid (via gravity) to increase separation efficiency by separating the gas from the solids and liquids. Separation efficiency is then further increased as the condensate passes through stationary diverters, which slows the velocity of the condensate, allowing the solids to collect toward the bottom of the separator.
The separation of the liquid and gas occurs during retention time in the separator as gravity causes the heavier liquids and solids to traverse through the bottom portion of the separator while the lighter gas rises to the top where it collects and is transferred via a valve to other parts of the plant. Once separation has occurred in the first phase separator, the gas is released to a pressure valve that is used to step down the pressure of the condensate as it passes through to the 2nd stage separator.
In the 2nd stage separator, the gas-liquid separation process is repeated in a similar manner as the liquid and gas mixture is subjected to additional stationary diverters which again slow the velocity of the stream, thus allowing the force of gravity to act on the liquids and sediment. Again, liquid and sediment traverse through the bottom of the separator while the gas is allowed to rise to the top of the separator where it collects and is transferred through a valve to other parts of the plant for further processing, reinjection into the well, and use in the generators.
In the final 3rd stage separator, a 3-phase separation process occurs wherein the low pressure condensate is passed through a filter coalescer. First, the condensate is passed through a filter which captures the sediment. The water is then removed from the remaining condensate through a process called coalescence (i.e., the bulk liquid moves through coalescers with progressively larger pores that allow the water droplets to merge or coalesce). The water is then removed, as it is denser than the condensate, and is taken out of the bottom of the separator. The condensate floats above the water and passes over a weir or upright barrier and is removed from the separator. During this process, gas is again allowed to rise to the top of the separator where it collects and is transferred through a valve to other parts of the plant for further processing and use.
After the 3rd stage, the purified condensate flows to the LP Fuel Gas/Stripping Gas Dehydrator/Stabilizer to remove any remaining water from the condensate to prevent freezing during pipeline transportation. It is then pressurized for exportation through the pipeline.
The injection compressor module houses various equipment, including two reciprocating compressors and various heat exchanges and valves, used to recompress 96 percent of the residual fuel gas remaining following the above-described separation process. The compressors are both stationary and are each powered by a separate 7,460 kilowatt motor. The gas compressed in the module is delivered to the reinjection well and inserted back into the wellstream, where it will be stored for future export and downstream sale.
The utility module provides “temperature management” for the separation/dehydration module, compressor module, and the other modules at issue. Specifically, its surge drums and circulation pumps produce heated liquids for delivery to the generators in the power generation module and the equipment in the separation/dehydration module, as well as cooled liquids for delivery to the compression module. It also contains equipment for the production of nitrogen used to reduce the risk of explosion in other modules by removing oxygen, instrument air used to actuate control and safety valves, and water mist used to suppress fires in other modules.
The power generation/waste heat recovery module contains four gas turbine generators, two waste heat recovery units, and various other equipment that, in conjunction, generate power and provides waste heat recovery for the entire facility. In powering the facility, the gas turbines consume 4 percent of the residual fuel gas resulting from the separation process, while the remaining 96 percent of this fuel gas is recompressed and reinjected into the well, as discussed above.
The control module contains various equipment, such as an integrated control and safety system and telecommunication servers, which are used to collect data and send data, monitor processes and safety conditions, and control activity within the other modules and throughout the facility. Described as the “brain of the facility,” it is specifically used to, among other things, open and adjust valves, activate and deactivate pumps, restrict or open cooling mediums, and detect the onset of unsafe conditions within the other subject modules. Upon detection of such conditions, the control and safety system automatically opens and closes valves, deactivates equipment, and trips power as needed to bring the affected area to a safe state.
ISSUE:
Whether the subject modules are classified as gas compressors in heading 8414, HTSUS, as filtering or purifying machinery in heading 8421, HTSUS, as electric generating sets in heading 8502, HTSUS, as automatic regulating or controlling instruments in heading 9032, HTSUS, or as prefabricated buildings of heading 9406, HTSUS.
LAW AND ANALYSIS:
Merchandise imported into the United States is classified under the HTSUS. Tariff classification is governed by the principles set forth in the General Rules of Interpretation (GRIs) and, in the absence of special language or context which requires otherwise, by the Additional U.S. Rules of Interpretation. The GRIs and Additional U.S. Rules of Interpretation are part of the HTSUS and are to be considered statutory provisions of law for all purposes.
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. 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 may then be applied.
In understanding the language of the HTSUS, the Explanatory Notes (ENs) of the Harmonized Commodity Description and Coding System, which constitute the official interpretation of the Harmonized System at the international level, may be utilized. The ENs, although not dispositive or legally binding, provide a commentary on the scope of each heading, and are generally indicative of the proper interpretation of the HTSUS. See T.D. 89-80, 54 Fed. Reg. 35127 (August 23, 1989).
The following provisions of the 2016 HTSUS are under consideration:
8414 Air or vacuum pumps, air or other gas compressors and fans; ventilating or recycling hoods incorporating a fan, whether or not fitted with filters; parts thereof:
8421 Centrifuges, including centrifugal dryers; filtering or purifying machinery and apparatus, for liquids or gases; parts thereof:
8502 Electric generating sets and rotary converters
9032 Automatic regulating or controlling instruments and apparatus; parts and accessories thereof
9406 Prefabricated buildings
Heading 8421, HTSUS, provides, inter alia, for “filtering or purifying machinery and apparatus.” The heading is governed by Note 4 to Section XVI, which provides as follows:
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.
With regard to Note 4 to Section XVI, the EN to Section XVI provides, in pertinent part, as follows:
(VII) FUNCTIONAL UNITS
(Section Note 4)
This Note applies when a machine (including a combination of machines) consists of separate components which are intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or, more frequently, Chapter 85. The whole then falls to be classified in the heading appropriate to that function, whether the various components (for convenience or other reasons) remain separate or are interconnected by piping (carrying air, compressed gas, oil, etc.), by devices used to transmit power, by electric cables or by other devices.
For the purposes of this Note, the expression “intended to contribute together to a clearly defined function” covers only machines and combinations of machines essential to the performance of the function specific to the functional unit as a whole, and thus excludes machines or appliances fulfilling auxiliary functions and which do not contribute to the function of the whole.
The following are examples of functional units of this type within the meaning of Note 4 to this Section:
***
Brewhouse machinery comprising, inter alia, sprouting or germination machines, malt crushing machines, mashing vats, straining vats (heading 84.38). Auxiliary appliances (e.g., bottling machines, label-printing machines), are however not included and should be classified in their own appropriate heading.
Letter sorting systems consisting essentially of coding desks, pre-sorting channel systems, intermediate sorters and final sorters, the whole being controlled by an automatic data processing machine (heading 84.72).
***
Welding equipment consisting of the welding head or tongs, with a transformer, generator or rectifier to supply the current (heading 85.15).
EN 84.21 provides, in relevant part, as follows:
This heading covers:
***
Filtering or purifying machinery and apparatus for liquids or gases, other than, e.g., filter funnels, milk strainers, strainers for filtering paints (generally Chapter 73).
***
(II) FILTERING OR PURIFYING MACHINERY AND APPARATUS, FOR LIQUIDS OR GASES
Much of the filtration or purification plant of this heading is purely static equipment with no moving parts. The heading covers filters and purifiers of all types (physical or mechanical, chemical, magnetic, electro magnetic, electrostatic, etc.). The heading covers not only large industrial plant, but also filters for internal combustion engines and small domestic appliances. The heading does not, however, include filter funnels, milk strainers, vessels, tanks, etc., simply equipped with metallic gauze or other straining material, nor general purpose vessels, tanks, etc., even if intended for use as filters after insertion of a layer of gravel, sand, charcoal, etc.
In general, filtering machinery and plant of this heading is of two distinct types according to whether it is intended for liquids or gases.
***
Filtering or purifying machinery, etc., for gases
These gas filters and purifiers are used to separate solid or liquid particles from gases, either to recover products of value (e.g., coal dust, metallic particles, etc., recovered from furnace flue gases), or to eliminate harmful materials (e.g., dust extraction, removal of tar, etc., from gases or smoke fumes, removal of oil from steam engine vapours).
As explained in the above-cited excerpt of EN 84.21, heading 8421, HTSUS, applies to machinery and apparatus whose function is the filtration or purification, i.e., multiphase separation, of gases and liquids to “recover products of value.” Accordingly, pursuant to Note 4 to Section XVI, articles that would normally fall into other headings are classified in heading 8421 if they are “intended to contribute” to the filtration or purification of liquids and gases. As explained in the EN to Section XVI, an item is intended to contribute to a clearly defined function if, and only if, it is “essential” to the performance of the function. See Dell Prods. LP v. United States, 714 F. Supp. 2d 1252, 1258-59, aff’d 642 F.3d 1055 (Fed. Cir. 2011) (applying EN to Section XVI in determining that secondary computer batteries cannot be classified as “automatic data processing machines” pursuant to Note 4 to Section XVI because they are not essential to the functioning of the computers). Per the exemplars set forth in the EN, “essential” items include generators and automatic data processing machines that, respectively, power and control equipment used directly for a particular function. See id. (noting that an article's primary power source is classifiable under the heading appropriate to the article’s clearly defined function); see also Headquarters Ruling Letter (HQ) H245902, dated January 28, 2015 (classifying mobile phone battery as telephone handset in heading 8517, HTSUS, by application of Note 4 to Section XVI); and HQ H062209, dated August 10, 2009 (similarly applying Note 4 to Section XVI in classifying a plant control system for gas purification equipment as a rectifying plant in heading 8419, HTSUS). In contrast, an item that does not contribute to this “clearly defined function” and instead performs only auxiliary functions, such as bottling and label-printing machines vis-à-vis brewing equipment, cannot be classified in the heading appropriate to the clearly defined function. See EN to Section XVI; Dell Prods., 714 F. Supp. 2d at 1258-59; and HQ 967823, dated December 30, 2005 (determining that convection oven could not be classified with other articles in heading 8438, HTSUS, as machinery for the preparation of food). Notably, those items that do qualify as “essential” to a clearly defined function may be connected with piping and cables for purposes of Note 4 to Section XVI.
Here, the separation/dehydration module houses various machinery, including a cyclone, stationary diverters, and filter coalescer, that is designed to separate natural gas condensate from the multiphase wellstream delivered from the production well. The condensate produced in this manner is in turn shipped by pipeline downstream for retail sale. The machinery in the separation/dehydration module is powered by the power generation/waste heat recovery module, heated as needed by the utility module, and monitored and controlled from within the control module. Because the continual, safe extraction and purification of the natural gas from the wellstream is dependent upon the operations conducted within these four modules, the modules are all essential to the filtration and purification of natural gas condensate for purposes of Note 4 to Section XVI. As such, they can be described as “intended to contribute together to a clearly defined function” covered by heading 8421, HTSUS, and are properly classified there. This result is consistent both with the exemplars set forth the ENs and with CBP precedent supporting treatment of power sources and plant components, including control systems, as functional units for classification purposes. See HQ H245902, supra, and HQ H062209, supra.
However, unlike the other four modules, the injection compressor module does not contribute to the multiphase separation process insofar as it merely recompresses residual gas from this process for reinjection into the wellstream. Once reinjected, the gas is stored for future downstream delivery rather than recycled through the separation process. In effect, the recompression of the residual gas is completely auxiliary to the multiphase separation process. Accordingly, as with the convection oven in HQ 967832, supra, the injection compressor module cannot be classified there.
We therefore consider heading 8414, HTSUS, which provides, inter alia, for gas compressors. EN 84.14 states, in pertinent part, as follows:
This heading covers machines and appliances, hand-operated or power driven, for the compression of air or other gases, or for creating a vacuum, and also machines for circulating air or other gases.
(A) PUMPS AND COMPRESSORS
***
There are several types of compressors, for example, reciprocating piston, centrifugal, axial and rotary compressors…
As explained in the above-cited excerpt of 84.14, heading 8414, HTSUS, applies to power-driven machines used to compress gases, including reciprocating, i.e., piston, compressors. See HQ 951196, dated May 29, 1992 (classifying natural gas compressor assemblies in heading 8414, HTSUS). Here, the injection compressor module houses two motorized reciprocating compressors used to compress residual natural gas from the separation process. Accordingly, the injection compressor module is properly classified in heading 8414, HTSUS.
Lastly, we note that the separation/dehydration module, generation/waste heat recovery, utility module, and control module, when entered individually, would be respectively classified in headings 8421, 8502, 9032, and 9406, HTSUS. Because they qualify as a single entry, however, they are classified as purifying machinery of heading 8421, HTSUS, by application of Note 4 to Section XVI.
HOLDING:
By operation of GRI 1, the subject separation/dehydration module, generation/waste heat recovery, utility module, and control module are classified in heading 8421, HTSUS. They are specifically classified in subheading 8421.29.0065 HTSUSA (Annotated), which provides for: “Centrifuges, including centrifugal dryers; filtering or purifying machinery and apparatus, for liquids or gases; parts thereof: Filtering or purifying machinery and apparatus for liquids: Other: Other: Other: Other.” The 2016 general column one rate of duty for subheading 8421.29.0065, HTSUSA, is free.
By operation of GRI 1, the subject injection compressor module is classified in heading 8414, HTSUS. It is specifically classified in subheading 8414.80.2075, HTSUSA (Annotated), which provides for: “Air or vacuum pumps, air or other gas compressors and fans; ventilating or recycling hoods incorporating a fan, whether or not fitted with filters; parts thereof: Other, except parts: Other compressors: Other: Other, including reciprocating and rotary: Exceeding 746 kW.” The 2016 general column one rate of duty for subheading 8414.80.2075, HTSUSA, is free.
Duty rates are provided for the internal advice applicant’s convenience and are 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.
A copy of this decision should be filed with the port of entry at the time of entry.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division