CLA-2 OT:RR:CTF:EMAIN H300198 JDK
TARIFF NO(s).: 8412.90.90
Port Director
U.S. Customs and Border Protest
Otay Mesa Service Port
9777 Via De La Amistad
San Diego, CA 92154
Attn: Ms. Veronica McKnight, Import Specialist
RE: Internal Advice Request; Tariff classification of components of a mud motor
Dear Port Director:
This is in response to a request for Internal Advice, filed by counsel on March 5, 2018 on behalf of National Oilwell DHT. L.P. (NOV) and pertaining to the classification of four products described as components of a mud motor under the Harmonized Tariff Schedule of the United States (HTSUS).
FACTS:
The subject merchandise includes four components of a mud motor (“the components”). The components include:
Fixed Bent Housing – a steel alloy component with a specified/pre-bent angle that cannot be adjusted (unlike adjustable housings). Orients the mud motor and drill bit downhole to allow the mud motor to be used in directional drilling.
Bottom Seal Cap – a steel alloy component cap that locks the seal boot in place. The bottom seal cap and seal boot keep the drive shaft from coming out of the bearing adaptor.
Adjust Ring – a grooved ring made of a steel alloy which allows the mud motor to be set to a desired angle and locked into place for directional drilling. The adjust ring contains marking indicators that line up with marking indicators on the offset housing, permitting the rig operator to adjust the angle of the mud motor.
Offset Housing – a grooved, steel alloy component that allows the mud motor to be set to a desired angle and locked into place for directional drilling. The offset housing contains marking indicators that line up with marking indicators on the adjust ring, permitting the rig operator to adjust the angle of the mud motor.
A mud motor is comprised of a variety of components that are categorized as either stationary or rotating. The rotating components are housed inside of the stationary components during drilling operations. The subject adjust ring, offset housing, and fixed bent housing components are of the stationary category, while the subject bottom seal cap is a component of the rotating category. All the subject components are found between the power section of the mud motor, which consists of the rotor and stator found at the top of the mud motor, and the drill bit to which the mud motor ultimately powers.
This office acknowledges that there are other components of a mud motor between the power section and the drill bit. However, this ruling covers only the four subject components mentioned above.
In the wider scale of a drilling operation, mud motors (or “drill motors”) are specially configured, multi-stage downhole tools that provide power directly to the drill bit at the very bottom of a drill string that bores into the Earth’s crust in directional drilling operations. A mud motor provides rotational power to a drill bit by use of a hydraulic motor. The mud motor itself is powered by harnessing the flow pressure of drilling fluid (or “mud”) that is pumped through it from the rig surface. In other words, when drilling fluid is pumped through the mud motor between all the components from the power section down to the drill bit, the mud motor uses the flow pressure of the drilling fluid to rotate and power the drill bit.
ISSUE:
Whether the components are classified as other articles of iron or steel under heading 7326, HTSUS, or as parts of a motor under heading 8412, HTSUS.
LAW AND ANALYSIS:
Classification of goods under the HTSUS is governed by the General Rules of Interpretation (GRIs). 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 2 through 6 will then be applied in order.
The HTSUS provisions in question are as follows:
7326 Other articles of iron or steel
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8412 Other engines and motors, and parts thereof
Note 2 to section XVI, HTSUS, provides, in relevant part:
Subject to note 1 to this section, note 1 to chapter 84 and to note 1 to chapter 85, parts of machines (not being parts of the articles of heading 8484, 8544, 8545,
8547) are to be classified according to the following rules:
* * *
(b) 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 ….
The courts have considered the nature of “parts” under the HTSUS and two distinct though not inconsistent tests have resulted. See Bauerhin Techs. Ltd. P’ship. v. United States (“Bauerhin”), 110 F. 3d 774 (Fed. Cir. 1997). The first, articulated in United States v. Willoughby Camera Stores, Inc. (“Willoughby”), 21 C.C.P.A. 322, 324 (1933), requires a determination of whether the imported item is an “integral, constituent, or component part, without which the article to which it is to be joined, could not function as such article.” Bauerhin, 110 F.3d at 778 (quoting Willoughby, 21 C.C.P.A. 322 at 324). The second, set forth in United States v. Pompeo (“Pompeo”), 43 C.C.P.A. 9, 14 (1955), states that an “imported item dedicated solely for use with another article is a ‘part’ of that article within the meaning of the HTSUS.” Id. at 779 (citing Pompeo, 43 C.C.P.A. 9 at 13). To satisfy the Pompeo test, two prongs must be satisfied: (1) the article must be solely dedicated for use with the product it claimed to be a part of and, (2) when applied to that use, the article cannot function without the article at issue. Under either line cases, an imported item is not a part if it is “a separate and distinct commercial entity.” Bauerhin, 110 F. 3d at 779.
This office does not dispute that the subject four components are solely for the use in mud motors. Both the Willoughby and Pompeo tests require a showing that without the components, a mud motor cannot function as a mud motor. The question that must be resolved is what do the subject components provide to a mud motor.
The components are designed to channel drilling fluid through the mud motor, thus enabling the mud motor to produce sufficient pressure to power the drilling tool. Specifically, the stationary components of a mud motor keep the drilling fluid from spilling out of the tool so that enough flow pressure is maintained to power the rotating components of the mud motor. The rotating components can then rotate as they harness the drilling fluid’s flow pressure to power the drill bit to rotate and bore into the Earth’s crust. If a stationary subject component is missing from the mud motor, then the drilling fluid will spill out of the tool and not provide enough flow pressure to rotate the rotating components. If a rotating subject component is missing from the mud motor, then the whole rotating section of the tool will be inoperable and unable to rotate the drill bit. Without the subject components, a mud motor cannot function as a mud motor. As a result, the subject components satisfy both the Willoughby and Pompeo tests.
By satisfying both the Willoughby and Pompeo tests, the components are “parts” of a mud motor and are therefore classified under heading 8412, HTSUS, pursuant to Section XVI Note 2(b).
HOLDING:
By application of GRIs 1 (Note 2(b) to Section XVI) and 6, the four components of the adjustable assembly of a mud motor, the fixed bent housing, bottom seal cap, adjust ring, and offset housing, are classified under heading 8412, HTSUS, and specifically provided under subheading 8412.90.90, HTSUS, which provides for, “Other engines and motors, and parts thereof: Parts: Other….” The general column one rate of duty is Free.
Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on the internet at https://hts.usitc.gov/current.
Sixty days from the date of this decision, the Office of Trade, Regulations and Rulings, will make this decision available for CBP personnel, and to the public on the CBP Home Page at http://www.cbp.gov by means of the Freedom of Information Act, and other methods of publication.
Sincerely,
Craig T. Clark, Director
Commercial and Trade Facilitation Division