OT:RR:CTF:EMAIN H319171 MFT
Center Director, Machinery C.E.E.
U.S. Customs and Border Protection
Service Port of Seattle
7 South Nevada Street, Suite 100
Seattle, WA 98134
Attn: Courtney Collins, Import Specialist; Sanith S. Kimchrea, Supervisory Import Specialist
Re: Application for Further Review of Protest No. 3029-21-100294; Classification of Stop Collars and Centralizers from the United Kingdom
Dear Center Director:
This letter is our decision on the Application for Further Review (AFR) of Protest No. 3029-21-100294, which was filed on March 29, 2021, on behalf of Halliburton Energy Services, Inc. This protest pertains to U.S. Customs and Border Protection’s (CBP’s) classification under the Harmonized Tariff Schedule of the United States (HTSUS) of certain stop collars and centralizers for offshore oil rigs. No samples were provided for examination. The AFR was forwarded to this office for consideration.
In reaching this decision, we considered information included with the protest submission; information discussed during the meeting with the protestant and protestant’s counsel on Thursday, November 16, 2023; and supplemental information in response to certain CBP inquiries submitted on Wednesday, November 22, 2023.
FACTS:
The subject articles are stop collars and centralizers used in offshore oil and natural gas drilling. They are imported from the United Kingdom. To illustrate their uses, we briefly describe the offshore drilling operations in which the merchandise is employed.
After a well is dug, a steel pipe (i.e., casing) is inserted into the hole. The casing supports the structure of the well by preventing the well from imploding and keeping rock debris (i.e., formation debris) from entering the well. The space between the wall of the casing and the surrounding formation is called the “annulus.” After the casing is inserted into the well, a cement slurry is pumped down through the casing and pushed back up the annulus. After hardening, the cement brings several benefits to the drilling process. For example, the cement can seal off the well from fluids known as “formation fluids,” which naturally occur within the pores of rock. These formation fluids are ubiquitous in deep wells and can be highly pressurized. In another example, for deep drilling operations, the cement supports intermediate casing (also known as protective casing) that prevents outside materials contaminating a special drill bit lubricant (known as drilling mud) and from interfering with drilling machinery.
The subject centralizers are designed to center the casing string within the wellbore, guide the casing into the proper position, and facilitate the even distribution of cement through the annulus. Evenly distributing cement helps support the structure of the casing and, thus, the opportunity for continued drilling. This even distribution of cement also keeps the high-pressure formation fluids in deep wells from blowing out and delaying, if not outright terminating, the possibility for further extraction of oil and gas. Moreover, the centralizers are structurally engineered to operate under heavy loadbearing and high hydrostatic pressure environments, keeping the well from collapsing and preserving future drilling prospects. Further, the administrative record suggests that due to cost and engineering requirements, the subject centralizers have not been used in the past for other applications, such as infrastructure projects or public works.
The subjects stop collars also attach to the casing. The purpose of the stop collars is to bookend the centralizers and prevent the centralizers (and other casing attachments) from moving along the casing string.
The subject merchandise was entered on February 16, 2020, under heading 8431, HTSUS, which provides for “[p]arts suitable for use solely or principally with the machinery of headings 8425 to 8430.” CBP liquidated the subject merchandise under heading 7326, HTSUS, which provides for “[o]ther articles of iron or steel,” on September 11, 2020. On March 9, 2021, the protestant filed the instant Protest and Application for Further Review. The protestant argues that in New York Ruling Letter (NY) N254796, dated July 24, 2014, CBP classified substantially similar stop collars under heading 8431, HTSUS. The protestant also points to CBP’s classification of “float collars and float shoes” in Headquarters Ruling Letter (HQ) H243821 (dated December 23, 2015) as justification for classifying the subject merchandise under heading 8431, HTSUS.
ISSUE:
Whether the subject stop collars and centralizers are classified under 8431, HTSUS, as parts suitable for use solely or principally with the machinery of heading 8430, HTSUS, or under heading 7326, HTSUS, as other articles of iron or steel.
LAW AND ANALYSIS:
A decision on classification and the rate and amount of duties chargeable is a protestable matter under 19 U.S.C. § 1514(a)(2). The subject protest was timely filed on March 9, 2021, within 180 days of liquidation of the first entry, pursuant to 19 U.S.C. § 1514(c)(3). Further review of Protest No. 3029-21-100294 is properly accorded pursuant to 19 CFR § 174.24(a), as the decision against which the protest was filed is alleged to be inconsistent with a CBP ruling or decision with respect to the same or substantially similar merchandise.
Classification under the HTSUS is in accordance with the General Rules of Interpretation (GRIs). GRI 1 provides that the classification of goods will 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. In understanding the language of the HTSUS, the Harmonized Commodity Description and Coding System Explanatory Notes (ENs) may be utilized. The ENs, though not dispositive or legally binding, provide commentary on the scope of each heading of the HTSUS, and are the official interpretation of the Harmonized System at the international level.
The HTSUS headings under consideration are as follows:
7326 Other articles of iron or steel:
* * * * *
8430 Other moving, grading, leveling, scraping, excavating, tamping, compacting, extracting or boring machinery, for earth, minerals or ores; pile-drivers and pile-extractors; snowplows and snowblowers:
* * * * *
8431 Parts suitable for use solely or principally with the machinery of headings 8425 to 8430:
Note 1(f) to Section XV, HTSUS, which includes articles of heading 7326, HTSUS, provides that the Section XV does not cover articles of Section XVI, HTSUS (i.e., machinery, mechanical appliances, and electrical goods). Therefore, if the subject merchandise is classifiable under Section XVI which includes heading 8431, HTSUS, it is not covered under Section XV.
Note 2(b) to Section XVI, HTSUS, provides as follows:
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, 8546 or 8547) are to be classified according to the following rules:
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 deciding question, then, is whether the subject stop collars and centralizers constitute “parts” that are “suitable for use solely or principally with a particular kind of machine,” namely “extracting or boring machinery, for earth, minerals or ores” of heading 8430, HTSUS.
The term “part” is not defined in the HTSUS. The courts have considered the nature of “parts” under the HTSUS and two distinct, though not inconsistent, tests have resulted. The first, articulated in United States v. Willoughby Camera Stores, Inc., 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.” The second, set forth in United States v. Pompeo, states that “where an article at the time of importation is dedicated to a specific use, the question of whether the article is a part must be determined from the nature of the article as it is applied to that use.” Pompeo also requires that “the claimed part, when applied to its intended use with that article, meets the definition of a ‘part’ established in Willoughby.” Under either line of cases, an imported item is not a part if it is a “distinct and separate commercial entity.”
The EN to heading 8431, HTSUS, provides as follows, in relevant part:
Subject to the general provisions regarding the classification of parts (see the General Explanatory Note to Section XVI), this heading covers parts for use solely or principally with the machinery of headings 84.25 to 84.30. [. . .]
This heading includes: [. . .]
Rotary tables, swivels, kellies, kelly drive bushings, tool joints, drill collars, subs, drill pipe guides, stop collars, spider bowls, split bushing slips, beams, swivel sockets, and drilling jars, for well drilling machines (rotary or percussion).
We addressed the classification of certain stop collars in NY N254796. The merchandise in that ruling was described as follows:
The stop-collar is described as a steel ring that keeps centralizers and other casing attachments in place while casing and cementing an oil or gas well. Casing and cementing the wellbore are steps in the well drilling process. The article is made from oil country tubular goods (“OCTH”) coupling stock. The stop-collar is affixed to the outside of casing pipe by a series of set screws located along the collar’s circumference, locking pins, or a bolt assembly, depending on the model. The stop-collar is imported with the locking pins, set screws or a bolt assembly, depending on the model.
We ultimately determined that the stop collars in NY N254796 were classified under heading 8431, HTSUS, specifically under subheading 8431.43.80, HTSUS, as other parts suitable for use solely or principally with oil and gas field machinery.
In HQ H243821, we reviewed a protest involving the classification of float collars and float shoes, which we described as “devices used in down-hole drilling” that “help guide an oil well casing into a wellbore.” At issue was whether the float collars and float shoes were “valves” of heading 8481, HTSUS, or parts suitable for use solely or principally with boring or sinking machinery under heading 8431, HTSUS. We further characterized the merchandise as follows, looking to definitions from the Occupational Safety and Health Administration (OSHA):
A float collar is a coupling device inserted above the bottom of a casing string that contains a check valve that permits fluid to pass downward but not upward through the casing. Couplings are used to connect shafts together at their ends for the purpose of transmitting power. Float collars are also guides for the casing and they lessen the load from the drilling derrick or mast. The float collar prevents drilling mud from entering the casing while it is in use, which permits the casing line to “float.” A float shoe is a cylindrical steel part with a rounded bottom that is attached to the bottom of the casing string. It contains a check valve to prevent fluid from entering the casing. It also serves as a guide shoe for the casing. In addition to functioning as a valve, the float shoe also guides the casing toward the center of the hole and allows the casing to float, relieving the derrick or mast from the entirety of the load.
The provided literature for the subject merchandise submitted by CTE Industries shows that the instant float collar and float shoe are in line with the above OSHA definition. [. . .] The float collar helps guide an oil well casing into a wellbore. The float collar also functions as a coupling and are used to connect shafts together at their ends for the purpose of transmitting power. The float collar lessens the load from the derrick or mast because it permits the casing line to float. For the float shoe, in addition to functioning as a valve, it also guides the casing toward the center of the hole and allows the casing to float, relieving the derrick or mast from some of the load. [. . .] Our research has not provided any evidence that a float collar or float shoe are used in any applications other than in drilling.
After considering the characteristics of the merchandise, we found that “[t]he primary function of the float collar and float shoe [was] to guide an oil well casing into a wellbore,” as opposed to primarily functioning as a valve. We noted that in prior CBP rulings, we classified other devices used in drilling equipment under heading 8431, HTSUS, including a “head assembly for a mineral bit fitted on a drilling rig” and “various parts used in down-hole drilling.” Additionally, we pointed out that the EN to heading 8431, HTSUS, stated that the heading covers, inter alia, “drill pipe guides [. . .] for well drilling machines.” We reasoned that the float collar and float shoe’s utility for guiding the casing into a wellbore tracked the EN’s guidance. Given these facts, we classified the float collar and float shoe under heading 8431, HTSUS, by operation of GRI 1.
GRI 1 requires that the subject stop collars and centralizers meet the terms of heading 8431, HTSUS, to be classifiable therein. As such, we first must determine whether the subject merchandise satisfy the courts’ criteria for “parts” under the Willoughby and Pompeo tests. We find that those criteria are met.
Under the Pompeo test, if the subject stop collars and centralizers are “dedicated solely for use” with drilling machinery, then when applied to that use, the merchandise must meet the definition of a “part” established in Willoughby. The facts indicate that the subject stop collars and centralizers are designed specifically for use with oil and gas drilling machinery. The stop collars and centralizers are designed to withstand the high-pressure and heavy loadbearing conditions present in offshore oil and natural gas production. In particular, the centralizers are designed to be durable enough to maintain integrity under hydrostatic pressure and significant loads in deep drilling environments. The facts also demonstrate that the subject centralizers have not been used in the past for other applications, such as infrastructure projects or public works, due to cost and engineering requirements. As such, we find that the subject merchandise is “dedicated solely for use” with drilling machinery.
We also find that when the subject merchandise is applied for use with drilling machinery, it meets the definition of a “part” under Willoughby. The Willoughby test requires that the stop collars and centralizers be “integral, constituent, or component” parts, without which the drilling machinery cannot function. As far as casing, cementing, and drilling operations are concerned, the subject stop collars and centralizers are indispensable. First, the centralizers keep the casing string centered within the wellbore for the even distribution of cement, thereby preventing various detrimental consequences to drilling operations. For example, deep wells almost always encounter high-pressure formation fluids. These formation fluids must be sealed off by evenly distributed cement. If the cement does not properly seal off the formation fluids, they can blow out and hinder (if not thwart) further drilling operations. In another example, for deeper drilling conditions, intermediate casing is necessary to prevent materials from contaminating the drilling mud and interfering with the drilling machinery. To isolate the drilling machinery, the intermediate casing (also known as protective casing) must be centered in the wellbore using the subject centralizers. This isolation therefore contributes to the functioning of the drilling machinery.
Second, these centralizers are engineered to maintain their structural integrity under heavy loadbearing, high-pressure conditions. If the subject centralizers fail under these conditions, the well can collapse, and the drilling machinery cannot perform its functions. Because of the integral role the centralizers play in the drilling machinery’s functioning, they meet the definition of a “part” under the Willoughby test.
As for the subject stop collars, their purpose is to keep the centralizers in place and limit the movement of the centralizers (and other casing attachments) along the casing string. Securing the placement of the centralizers directly facilitates the even distribution of cement, which in turn prevents the negative ramifications outlined above. We find, then, that the subject stop collars are also “integral, constituent, component” parts of the drilling machinery under Willoughby and, similar to our findings in NY N254796, are classifiable under heading 8431, HTSUS. Additionally, though it in no way constrains this analysis, the EN to heading 8431, HTSUS, notably includes “stop-collars” as an article covered under the heading, which lends additional weight to considering the subject stop collars as “parts” of extracting or boring machinery.
We further note that like the float collars and float shoes at issue in HQ H243821, the subject merchandise is similarly designed for guiding the casing into the wellbore. That ruling expressly pointed to the inclusion of “drill pipe guides” in the EN to heading 8431, HTSUS, and reasoned that this provision covered the float collars and float shoes at issue. Here, the centralizers and stop collars are designed to keep the oil well casing centered as it is placed in the wellbore. This “centering” function exhibited by the subject merchandise is a way of “guiding” the casing string in the hole, and the subject merchandise may thus be considered “drill pipe guides” as suggested by the EN.
We hold that the subject merchandise is properly classified under heading 8431, HTSUS, as “parts” dedicated solely for use with “extracting or boring machinery, for earth, minerals or ores” of heading 8430, HTSUS.
HOLDING:
By application of GRI 1, the subject merchandise is classified under heading 8431, HTSUS, specifically under subheading 8431.43.80, HTSUS, which provides for, “Parts suitable for use with the machinery of headings 8425 to 8430: Of machinery of heading 8426, 8429 or 8430: Parts for boring or sinking machinery of subheading 8430.41 or 8430.49: Of offshore oil and natural gas drilling and production platforms.” The general column one rate of duty is free.
You are instructed to GRANT the Protest.
In accordance with Sections IV and VI of the CBP Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing the decision.
Sixty days from the date of the decision, the Office of Trade, Regulations and Rulings, will make the decision available to CBP personnel, and to the public on the CBP website at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Yuliya A. Gulis, Director
Commercial and Trade Facilitation Division