alclark;
In production, yes, you are correct. The key here is the fact that the tank had been in service, and apparently an Operating Certificate or permit is required. The hydrostatic test is typically a default approach that many Jurisdictions use to justify fit for service criteria. I don't necessarily agree with this because there are alternative methods to assure safe operation of a pressure retaining item. In my dealings with Jurisdictions, they are reasonable folks provided you have a game plan ahead of time and tell them what is the situation and your corrective action. If you approach the Jurisdiction and ask them for guidance, they will take the path of least resistance - hydrotest.
In this case, since this is a used tank, the Jurisdiction is probably falling back on using a hydrostatic test to assure adequate design margin in the event the tank has suffered from internal corrosion that would not be detected by spot UT for thickness testing or assuring full penetration welds. Perhaps a visual inspection could be performed using a borescope or other fiber optic camera as is permitted in Part RB of the tank interior, in conjunction with UT of the shell/head thickness and UT of the welds. Also, do we even know if this tank was built to Section VIII, Div 1 was stamped, and the age?