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OTTAWA, December 28, 2011

Dumping case number: AD/1390
Dumping file number: 4214-31

Subsidy case number: CV/127
Subsidy file number: 4218-30

STATEMENT OF REASONS

Concerning the preliminary determinations with respect to the dumping and subsidizing of

CERTAIN PUP JOINTS ORIGINATING IN OR EXPORTED FROM THE PEOPLE'S REPUBLIC OF CHINA

DECISION

Pursuant to subsection 38(1) of the Special Import Measures Act, the President of the Canada Border Services Agency made preliminary determinations of dumping and subsidizing on December 12, 2011, respecting the alleged injurious dumping and subsidizing of oil country tubular goods pup joints, made of carbon or alloy steel, welded or seamless, heat-treated or not heat-treated, regardless of end finish, having an outside diameter from 2 3/8 inches to 4 1/2 inches (60.3 mm to 114.3 mm), in all grades, in lengths from 2 feet to 12 feet (61 cm to 366 cm) originating in or exported from the People's Republic of China.

For a PDF version of the Statement of Reasons, please click on the following link.

This Statement of Reasons is also available in French. Please refer to the "Information" section.

TABLE OF CONTENTS

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SUMMARY OF EVENTS

  1. On July 22, 2011, the Canada Border Services Agency (CBSA) received a written complaint from Alberta Oil Tool (AOT), a division of Dover Corporation (Canada) Limited of Edmonton, Alberta, (hereafter, “the Complainant”) alleging that imports of certain pup joints originating in or exported from the People's Republic of China (China) are being dumped and subsidized and causing injury to the Canadian industry.

  2. On August 12, 2011, pursuant to subsection 32(1) of the Special Import Measures Act (SIMA), the CBSA informed the Complainant that the complaint was properly documented. The CBSA also notified the government of China (GOC) that a properly documented complaint had been received and provided the GOC with the non-confidential version of the subsidy portion of the complaint, which excluded sections dealing with normal value, export price and margin of dumping.

  3. The Complainant provided evidence to support the allegations that certain pup joints from China have been dumped and subsidized. The evidence also disclosed a reasonable indication that the dumping and subsidizing had caused injury and are threatening to cause injury to the Canadian industry producing these goods.

  4. On September 9, 2011, consultations were held with the GOC in Ottawa pursuant to Article 13.1 of the Agreement on Subsidies and Countervailing Measures. During these consultations, China made representations with respect to its views on the evidence presented in the non-confidential version of the subsidy portion of the complaint.

  5. On September 12, 2011, pursuant to subsection 31(1) of SIMA, the President of the CBSA (President) initiated investigations respecting the dumping and subsidizing of certain pup joints from China.

  6. On September 13, 2011, the Canadian International Trade Tribunal (Tribunal) commenced a preliminary injury inquiry, pursuant to subsection 34(2) of SIMA, into whether the evidence discloses a reasonable indication that the alleged dumping and subsidizing of certain pup joints from China have caused injury or retardation or are threatening to cause injury to the Canadian industry producing the goods. On November 14, 2011, pursuant to subsection 37.1(1) of SIMA, the Tribunal made a preliminary determination that there is evidence that discloses a reasonable indication that the dumping and subsidizing of certain pup joints from China have caused injury or retardation or are threatening to cause injury.

  7. On December 12, 2011, as a result of the CBSA's preliminary investigations and pursuant to subsection 38(1) of SIMA, the President made preliminary determinations of dumping and subsidizing with respect to certain pup joints originating in or exported from China.

PERIOD OF INVESTIGATION

  1. The period of investigation with respect to dumping (Dumping POI), covered all subject goods released into Canada from July 1, 2010 to June 30, 2011.

  2. The period of investigation with respect to subsidizing (Subsidy POI), covered all subject goods released into Canada from January 1, 2010 to June 30, 2011.

INTERESTED PARTIES

Complainant

  1. The Complainant accounts for a major proportion of the production of like goods in Canada. The Complainant's goods are produced at manufacturing facilities in Edmonton, Alberta.

  2. [11] The name and address of the Complainant are:

    Dover Corporation (Canada) Limited – Alberta Oil Tool Division
    9530 – 60th Avenue
    Edmonton, Alberta
    T6E 0C1

  3. Of the other producers certified to produce the like goods in Canada, only Tenaris Canada (Tenaris), of Sault Ste. Marie, Ontario, confirmed that they are manufacturing them. Tenaris produces like goods which are premium pup joints in relatively small quantities and provided a letter supporting the complaint. 1

Exporters

  1. At the initiation of the investigations, the CBSA identified 109 potential exporters and producers of the goods under investigation. The CBSA sent a dumping Request for Information (RFI) to each potential exporter and section 20 and subsidy RFIs to each potential exporter and producer in China.

  2. The CBSA received two responses, but one company's response was determined to involve only non-subject goods.2 One exporter, Hengshui Weijia Petroleum Equipment Manufacturing Co., Ltd., provided responses to the three RFIs (dumping, subsidy and section 20). This exporter has been requested to provide additional information to supplement and clarify their responses.3

Importers

  1. At the initiation of the investigations, the CBSA identified 17 potential importers of the subject goods from information provided by the Complainant and CBSA import documentation over the period of January 1, 2010 to June 30, 2011.

  2. The CBSA sent an importer RFI to each of these parties and four importers provided substantially complete responses.4

Surrogate Producers

  1. As part of the section 20 inquiry, RFIs were sent to all known producers of pup joints in other countries (excluding China). This list of certified producers was obtained directly from the American Petroleum Institute (API). A total of 139 RFIs were sent to these producers requesting domestic selling price and costing information for pup joints produced at their facilities.

  2. The CBSA had received no complete responses to the Surrogate RFI as of the preliminary determination of dumping.

Government of China

  1. For the purpose of these investigations, “Government of China” refers to all levels of government, i.e. federal, central, provincial/state, regional, municipal, city, township, village, local, legislative, administrative or judicial, singular, collective, elected or appointed. It also includes any person, agency, enterprise, or institution acting for, on behalf of, or under the authority of any law passed by, the government of that country or that provincial, state or municipal or other local or regional government.

  2. At the initiation of the investigations, the CBSA sent subsidy and section 20 RFIs to the GOC. The GOC provided responses to both RFIs. The CBSA reviewed the responses and while some of the information requested was provided, some of the GOC's responses were limited. As a result, on December 12, 2011, the GOC was notified of the incomplete status of its submissions.

PRODUCT DEFINITION

  1. For the purpose of these investigations, the subject goods are defined as:

    Oil country tubular goods pup joints, made of carbon or alloy steel, welded or seamless, heat-treated or not heat-treated, regardless of end finish, having an outside diameter from 2 3/8 inches to 4 1/2 inches (60.3 mm to 114.3 mm), in all grades, in lengths from 2 feet to 12 feet (61 cm to 366 cm) originating in or exported from the People's Republic of China.

Additional Product Information

  1. Pup joints are oil country tubular goods (OCTG) made from carbon or alloy steel pipes used for the exploration and exploitation of oil and natural gas. These pipes may be made by the electric resistance welded (ERW) or seamless production method, and are supplied to meet American Petroleum Institute (API) specifications 5CT or equivalent standard. 5

  2. Pup joints are primarily used for the purpose of adjusting the depth of strings or down hole tools, particularly where exact depth readings in a well are required for any given purpose, such as setting valves, packers, nipples or circulating sleeves. Pup joints are also used with down hole pumps. The number and lengths of pup joints may vary widely from well to well, depending on the various equipment and performance requirements established by engineers of the purchasing end users.

  3. Pup joints may range from 2 feet to 12 feet in length with a permitted tolerance of plus or minus three inches. The sizes are generally 2, 4, 6, 8, 10 and 12 feet in length.

  4. The input pipe is produced in accordance with API 5CT, and may be produced using either seamless or ERW material. While pup joints may be made with ERW pipe, the Canadian market employs predominantly seamless OCTG. All pup joints produced by the Complainant are seamless products. 6

  5. The pup joints subject to these investigations are, by virtue of the characteristics such as the outside diameter range, essentially short lengths of OCTG tubing.

  6. Theoretically, subject pup joints may be supplied to meet any grade including and not limited to, H40, J55, K55, M65, N80, L80, L80 HC, L80 Chrome 13, L80 LT, L80 SS, C90, C95, C110, P110, P110 HC, P110 LT, T95, T95 HC, and Q125, or proprietary grades manufactured as substitutes for these specifications. The most common demand in the Canadian market is for J55 or L80 grades.

  7. The grade numbers define the minimum yield strength required of the grade in kilo-pounds [force] per square inch (“ksi” or 1,000 pounds per square inch). Pup joints may also be made to proprietary specifications. The Complainant makes or has the capability to produce pup joints in any of these specifications/grades.

  8. As with all OCTG, a standard pup joint must be able to withstand outside pressure and internal yield pressures within the well. Also, it must have sufficient joint strength to hold its own weight and must be equipped with threads sufficiently tight to contain the well pressure where lengths are joined.

  9. There is a small market segment for perforated pup joints. These are pup joints with holes in the body of the pup joint (usually 3/8 inch although they may have holes or slots of various sizes in the body). The product is produced with API 5CT tubing, though once perforated the product no longer conforms to an API 5CT specification, since it no longer meets the yield strength requirements. Perforated pup joints are employed to allow fluids to enter the production tubing. They can also be used to create a mud anchor. Perforated pup joints are included as goods subject to these investigations.

  10. On March 23, 2010, the Tribunal excluded ‘pup joints’ as part of its finding in Inquiry No. NQ-2009-004 on Certain Oil Country Tubular Goods (OCTG). In that finding, the Tribunal stated:

    “The Tribunal hereby excludes pup joints, seamless or welded, heat-treated or not heat-treated, in lengths of up to 3.66 m (12 feet), from its injury finding.” 7

  11. Consequently, the current investigation includes goods under the scope of goods excluded by the Tribunal in that finding.

Production Process

  1. Pup joints are manufactured in Canada by the Complainant using plain end tube as an input. For J55 grade pup joints, a length of J55 OCTG tubing is employed. For L80 grade pup joints, the input is an A-519 mechanical tube with the appropriate steel chemistry for L80 OCTG. The L80 input tube does not qualify for the API 5CT designation until it has been tested in accordance with API requirements. The Complainant performs the testing required.

  2. The Complainant acquires the input tubes for all its pup joints through arms length suppliers.

  3. The production process of the input pipe itself is virtually identical to that employed for OCTG tubing and casing. There are, however, significant subsequent costs associated with transforming the input tubing into pup joints including: cutting to length, end finishing, threading, and testing to meet the certification required.

  4. For J55 grade pup joints, the Complainant produces an upset end by heating (upset forging) and butting to thicken the end of the pipe diameter for threading. J55 tubing is cut 8 inches longer than the required pup joint length to accommodate this process. In the case of L80 grade pup joints, the production process uses profiling rather than upset ends, and accordingly only 1/4 inch of additional length is needed to accommodate finishing. Profiling refers to machining the pipe towards the ends of the pipe so it is thicker at the far ends. This process is used instead of upsetting because upsetting a pipe with steel chemistry for an L80 grade would require the producer to heat-treat the pipe again.

  5. Testing includes drift testing which is an assessment of the straightness within the hollow part of the tube, to ensure no bends or kinks exist after the pup joint was forged, and hydrostatic testing which assesses the pup joint's ability to withstand internal pressure.

  6. For further information on the production process of the input tubes, see the CBSA's Initiation Statement of Reasons for Certain Oil Country Tubular Goods (September 8, 2009).8

Classification of Imports

  1. The subject goods are usually classified under the following Harmonized System (HS) classification codes:

    • 7304.29.00.51
    • 7304.29.00.59
    • 7304.29.00.61
    • 7304.29.00.69
    • 7304.29.00.71
    • 7304.29.00.79


  1. The listing of HS codes is for convenience of reference only. The HS codes listed may include non-subject goods. Also, subject goods may fall under HS codes that are not listed. Refer to the product definition for authoritative details regarding the subject goods.

CANADIAN INDUSTRY

  1. The Complainant, Alberta Oil Tool (AOT) of Dover Corporation, accounts for the major proportion of domestic production of like goods in Canada. The Complainant manufactures pup joints in Canada at its facilities in Edmonton, Alberta.

  2. Dover Corporation (Canada) Limited (Dover) produces and markets a wide range of production service equipment solutions for the oil and gas industry. AOT is a division of Dover, and operates as part of the Norris Production Solutions business unit along with Norris Rods (USA). Norris was founded in 1882. AOT produces and sells its products under the Norris brand, including pup joints.

  3. Among the products produced and sold by the AOT division of Dover are pup joints, sucker rods, drive rods, tubing and casing fittings, butterfly valves and controls.

  4. As previously stated, the only other identified Canadian producer, Tenaris Canada, officially stated their position of supporting the complaint in their letter dated September 1, 2011.9

IMPORTS INTO CANADA

  1. During the preliminary phase of the investigations, the CBSA refined the estimated volume of imports based on information from its internal Customs Commercial System (CCS), CBSA import entry documentation and other information received from exporters and importers.

  2. The following table presents the CBSA's analysis of imports of certain pup joints for purposes of the preliminary determinations:

Imports of Certain Pup Joints (July 1, 2010   June 30, 2011)
Imports into Canada % of Total Import Volume
China 86.2%
U.S.A. 9.4%
All Other Countries 4.4%
Total Imports 100%

INVESTIGATION PROCESS

  1. Regarding the dumping investigation, information was requested from known and potential exporters, vendors and importers, concerning shipments of subject pup joints released into Canada during the Dumping POI of July 1, 2010 to June 30, 2011.

  2. Regarding the subsidy investigation, information related to potential actionable subsidies was requested from known and potential exporters and the GOC concerning financial contributions made to exporters or producers of subject pup joints released into Canada during the Subsidy POI of January 1, 2010 to June 30, 2011.

  3. After reviewing the responding exporter's responses to the RFIs, supplemental RFIs were sent to clarify information submitted by the company.10

  4. Preliminary decisions are based on the information available to the President at the time of the preliminary determination(s). Any additional information provided in supplemental RFI responses will be taken into consideration during the final phase of the investigations.

DUMPING INVESTIGATION

Section 20 Inquiry

  1. Section 20 of SIMA may be applied to determine the normal value of goods in a dumping investigation where certain conditions prevail in the domestic market of the exporting country. In the case of a prescribed country under paragraph 20(1)(a) of SIMA, it is applied where, in the opinion of the President, domestic prices are substantially determined by the government of that country and there is sufficient reason to believe that they are not substantially the same as they would be if they were determined in a competitive market. Where section 20 is applicable, the normal values of goods are not determined using domestic prices or costs in that country.11

  2. For purposes of a dumping proceeding, the CBSA proceeds on the presumption that section 20 of SIMA is not applicable to the sector under investigation absent sufficient information to the contrary. The President may form an opinion where there is sufficient information that the conditions set forth in paragraph 20(1)(a) of SIMA exist in the sector under investigation.

  3. The CBSA is also required to examine the price effect resulting from substantial government determination of domestic prices and whether there is sufficient information on the record for the President to have reason to believe that the resulting domestic prices are not substantially the same as they would be in a competitive market.

  4. In the current case, the Complainant requested that section 20 be applied in the determination of normal values due to the alleged existence of the conditions set forth in paragraph 20(1)(a) of SIMA. The Complainant provided information to support these allegations concerning the Chinese OCTG sector, which includes pup joints.

Preliminary Results of the Section 20 Inquiry

  1. At the initiation of the investigation, the CBSA had sufficient evidence, supplied by the Complainant and from its own research and past investigation findings, to support the initiation of a section 20 inquiry to examine the extent of GOC involvement in pricing in the OCTG sector, which includes pup joints. The information indicated that Chinese prices in this sector have been influenced by various GOC industrial policies. Consequently, the CBSA sent section 20 RFIs to the GOC and all known Chinese OCTG producers and exporters to obtain information on the matter.

  2. In response to the section 20 RFIs, the CBSA received a substantially complete and timely response from only one exporter, Hengshui Weijia Petroleum Equipment Manufacturing Co., Ltd. In respect of the GOC's section 20 submission, the GOC provided some of the information requested but some of the GOC's responses were limited. As a result, the GOC's submission is considered to be insufficient.

  3. The OCTG sector, which includes pup joints, is the same sector that was examined in the CBSA's investigations of certain Seamless Steel Casing (2008) and certain OCTG (2010). Each of those section 20 inquiries concluded that domestic prices in the OCTG sector in China are substantially determined by the GOC and that there is sufficient reason to believe that the domestic prices are not substantially the same as they would be in a competitive market.

  4. The following is the CBSA's analysis of the relevant factors that are present in the Chinese steel industry and which affect the OCTG sector, which includes pup joints.

Industrial Policies

  1. As cited in previous section 20 inquiries, The Development Policies for the Iron and Steel Industry – Order of the National Development and Reform Commission (No. 35), (National Steel Policy - NSP) was promulgated on July 8, 2005 and outlines the GOC's future plans for the Chinese domestic steel industry. The major objectives of the NSP are:12

    • The structural adjustment of the Chinese domestic steel industry;
    • Industry consolidations through merger and acquisitions;
    • The regulation of technological upgrading with new standards for the steel industry;
    • Measures to reduce material and energy consumption and enhance environmental protection;
    • Government supervision and management in the steel industry.

  1. On March 20, 2009, the GOC promulgated the Blueprint for the Adjustment and Revitalization of the Steel Industry issued by the General Office of the State Council (2009 Steel Revitalization/Rescue Plan). This macro-economic policy was the GOC's response to the international financial crisis and is also the action plan for the steel industry for the period between 2009 and 2011. This plan includes the following major tasks:13

    • Maintain the stability of the domestic market and improve the export environment;
    • Strictly control the total output of steel and accelerate the process of eliminating what is backward (obsolete);
    • Enhance enterprise reorganization and improve the industrial concentration level;
    • Spend more on technical transformation and promote technical progress;
    • Optimize the layout of the steel industry and overall arrangements of its development;
    • Adjust the steel product mix and improve the product quality;
    • Maintain stable import of iron ore resources and rectify the market order;
    • Develop domestic and overseas resources and guarantee the safety of the industry.

  1. There are common measures between these two GOC policies as the 2009 Steel Revitalization/Rescue Plan is an acceleration of the major objectives of the NSP. In the 2009 plan, the GOC continues with its strict control of new or additional steel production capacity, new GOC directed mergers and acquisitions to reform the Chinese steel industry into larger conglomerates, along with an increased emphasis on steel product quality.

  2. The 2009 Steel Revitalization/Rescue Plan also applies to the OCTG sector in China, which includes pup joints. The GOC specifically directed one of the cooperating exporters in the OCTG (2010) investigation, which was one of the largest state-owned enterprise (SOE) producers, and possibly the largest seamless OCTG manufacturer, to reorganize with another company.14

  3. In 2011, the GOC's new macro-economic policy, the “12th Five-Year Plan: Iron and Steel” provides the government directives for the Chinese steel industry for 2011 to 2015.

12th Five-Year Plan: Iron and Steel (2011-2015)

  1. In the section 20 RFI, the CBSA requested the GOC to provide the “12th Five- Year Plan: Iron and Steel.” The GOC stated that this document was still being drafted and had not been published yet and no further information was provided. 15

  2. On November 7, 2011, the GOC's Ministry of Industry and Information Technology released the “12th Five -Year Plan: Iron and Steel.” The CBSA has a summary of the draft plan that had been published in May 2011 by KPMG, an international accounting firm. According to KPMG, the main goals for the 12th Five-Year Plan include: 16

    • Increased mergers and acquisitions as the GOC intends to create larger, more efficient steel companies;
    • GOC restrictions on steel capacity expansion;
    • Upgrading of steel industry technology;
    • Greater GOC emphasis on high-end steel products;
    • GOC directed relocation of iron and steel companies to coastal areas.

  1. Also included in this plan are minimum requirements for steel production in order to eliminate smaller players in the market. Through this plan, the GOC is continuing its reform and restructuring of the Chinese steel industry. The GOC's target is that by 2015, China's top 10 steel producers will represent 60% of the country's total steel output. According to the NSP (2005), the long-range GOC target for mergers and acquisitions is to have the top 10 Chinese steel producers account for 70% of total national steel production by 2020.17 This 12th Five-Year Plan is the next development stage of GOC directives aimed at achieving this long-range 2020 target.

  2. These GOC directives at the national level are further supported by corresponding measures at the provincial government level. For example, in Hebei province where the sole cooperating exporter is located and where 60% of the steel production capacity comes via small private steel mills, the provincial Hebei government is drafting a plan to reduce the number of its steel mills from 88 to 10 over the next five years.18 This is a significant reduction of the number of steel producing facilities and a fundamental re-organization of the Hebei steel industry by the GOC. As a result, for steel companies in Hebei, market driven forces will compete with GOC mandated priorities in arriving at their corporate decisions. Based on the GOC's amalgamation target in Hebei, many of its steel enterprises will be merged with, or acquired by, larger steel enterprises.

  3. According to this 12th Five-Year Plan, the benefits of a more highly concentrated steel industry will reduce overcapacity, decrease pollution and will improve Chinese steel producers' bargaining power when negotiating on iron ore imports. In addition, through the 12th Five-Year Plan, the GOC is progressing with its initiative in the 2009 Steel Revitalization/Rescue Plan to move Chinese steel production facilities to China's coast. By the end of the GOC directed 12th Five-Year Plan, in 2015, 40% of China's steel production will be relocated to the coast.19

  4. In the section 20 RFI, the CBSA requested information regarding state-owned enterprises (SOEs) and the GOC's role in the SOEs. The State Assets Supervision and Administration Commission (SASAC) is the GOC authority for SOEs and its representatives and directors are normally found at the board level of SOEs. The GOC replied in its section 20 RFI that:

    “The government cannot interfere through its asset ownership with the operation of a company's commercial activities because the company enjoys a distinct legal person status, which is protected by the laws pertinent to the state-owned company. This is as clear a statement as can be made respecting the non-application of section 20 SIMA criteria.”20

  5. When asked to explain the role and activities of SASAC directors in the SOEs in the section 20 RFI, the GOC responded:

    “According to Company Law of China, the SASAC director is a representative of the shareholder. SASAC guides and pushes the reform and restructuring of state-owned enterprises, as well as supervises the maintenance and appreciation of state assets value for those state-invested enterprises.” 21

  6. The above two seemingly contradictory statements by the GOC illustrate the dual role of SASAC directors in the SOEs, where the GOC's mandates compete with market demands in corporate decisions. Based on the above, it appears government mandates are the priority for SOEs.

  7. The 12th Five-Year Plan also includes restrictions on steel capacity expansion. This plan further supports the initiatives in the NSP and the 2009 Steel Revitalization/Rescue Plan. The CBSA's section 20 inquiry in the Seamless Steel Casing (2008) investigation confirmed that the GOC's control of new or additional steel production capacity extended to the OCTG sector, which includes pup joints.22

  8. The CBSA considers that a government's regulation or control of production levels in an industry influences the supply of goods and indirectly affects the price of the goods. This is one indication that prices are being substantially determined by the government.

  9. In the 12th Five-Year Plan, the GOC charges the China Iron and Steel Association (CISA) to provide policy support proposals during its implementation. It appears that this has in fact occurred, as the Steel Pipe Branch of the China Steel Construction Association has published its own 12th Five-Year Plan in support of the National 12th Five-Year Plan.

China Steel Pipe Industry 12th Five-Year Plan

  1. The China Steel Pipe Industry 12th Five-Year Plan23 was released by the Steel Pipe Branch of the China Steel Construction Society. In its response to the section 20 RFI, CISA stated that the Steel Pipe Branch is one of its member institutions.24 The CBSA considers CISA to be “Government” as it is under the administration of SASAC as per its Articles of Association. This 12th Five-Year Plan directs that the output of steel pipe should be controlled at 67-75 million metric tonnes (mmt). The scope of the GOC's reform of the Chinese steel industry extends to the Chinese pipe sector, with the industry concentration targets through mergers and acquisitions to be attained by the end of 2015.

  2. The China Steel Pipe Industry 12th Five-Year Plan addresses the following objectives:

    • Profits at the end of the 12th Five-Year Plan should exceed the average level of the profit margin for the steel industry;
    • Concentration of the industry should be such that the top 20 steel pipe enterprises account for more than 60% of the total output;
    • Energy conservation targets for seamless pipe.

  1. The major tasks in the China Steel Pipe Industry 12th Five-Year Plan include:

    • Controlling the total volume and eliminating outdated production facilities, which the government intends to supervise;
    • Controlling the new or additional production capacity, to be done in coordination with the “Production and Operation Specification for the Steel Tube Industry” guidelines. In addition, the GOC is to issue strict market access specifications to restrict construction of new production facilities;
    • Increasing the horizontal and vertical unification among enterprises to form large steel pipe enterprises as per the GOC's 12th Five-Year Plan;
    • In respect of the OCTG sector, to further expand the development of high collapse and anti-corrosion pipes, such as grade P110 in addition to premium connection pipes;
    • Strengthening industrial self-discipline and regulating market order. To do this, the supply and demand must be balanced and exports regulated. Enterprises are to establish factories in foreign countries to occupy the international market. This is to avoid anti-dumping actions in the export markets.

  1. As stated above, one GOC directive under the China Steel Pipe Industry 12th Five-Year Plan is to expand the development of OCTG products such as high collapse, anti-corrosion pipe.25 Chinese OCTG producers are not motivated solely by commercial interests, but must operate and be attentive to the GOC's objectives, which may conflict with commercial interests. Based on the information on the record, the scope of the GOC's macro-economic policies and measures have resulted in significant influences on pricing within the Chinese steel industry including the OCTG sector, which includes pup joints.

Domestic Prices

  1. The CBSA's section 20 inquiry also reviewed Chinese domestic prices in the OCTG sector, which includes pup joints.

  2. As previously stated, section 20 requires that domestic prices be examined to establish whether they are substantially determined by the government and there is sufficient reason to believe that they are not substantially the same as they would be if they were determined in a competitive market.

  3. With the sole cooperating exporter/producer of pup joints being export-oriented, there is no information on the record for domestic selling prices of pup joints. In the absence of Chinese domestic prices for pup joints, the CBSA considers it reasonable to examine other goods in the OCTG sector such as casing and tubing, as pup joints are simply shorter lengths of OCTG casing and tubing.

  4. For the initiation of the investigation, domestic Chinese prices were compared to U.S. pricing information, available through Pipe Logix, given that these prices are determined in a competitive market. For the purposes of the preliminary determination of dumping, this is still considered the best information available to the CBSA, given the lack of surrogate RFI responses and import price information from other countries.

  5. The Chinese domestic prices of J55 seamless casing as reported by Metal Bulletin Research (MBR) were compared to prices of J55 welded casing as reported by Pipe Logix. Pipe Logix does not report J55 seamless casing. Since there is usually a price premium for seamless products this is a conservative price comparison.26 A downward adjustment to the Pipe Logix price as was done for the OCTG investigation was incorporated as well to account for differences in levels of trade.27

  6. The resulting price comparison indicates that the Chinese domestic prices for J55 seamless casing as reported in MBR were on average 26% below the adjusted U.S. prices of J55 welded casing reported by Pipe Logix during the period of investigation. On a monthly basis, the Chinese domestic J55 seamless casing prices during the period of investigation varied from 19% to 36% lower than the Pipe Logix trade level adjusted U.S. prices for J55 welded casing.

Relationship between the OCTG Sector (including Pup Joints) and Other Steel Sectors in China

  1. The President of the CBSA has issued opinions in respect to the following steel sectors that domestic prices are substantially influenced by the GOC and there is sufficient reason to believe that they are not substantially the same as they would be if they were determined in a competitive market:

    • certain hot-rolled carbon steel plate and high strength low-alloy steel plate (2010)
    • certain flat hot-rolled carbon and alloy steel sheet and strip (2010)
    • certain seamless carbon or alloy steel oil and gas well casing (2008)
    • certain carbon steel welded pipe (2010)
    • certain oil country tubular goods (2010)

  1. Domestic selling prices in the above cited steel product sectors have been found by the President to be not the same as they would be if they were determined in a competitive market.

Summary of the Preliminary Results of the Section 20 Inquiry

  1. The wide range and material nature of the GOC measures have resulted in significant influence on the Chinese steel industry including the OCTG sector, which includes pup joints. Based on the preceding, the President is of the opinion that:

    • the conditions of section 20 exist in this sector;
    • domestic prices are substantially determined by the GOC and
    • there is sufficient reason to believe that the domestic prices are not substantially the same as they would be in a competitive market.

  1. During the final stage of the dumping investigation, the CBSA will continue the section 20 inquiry and further verify and analyze relevant information. The President may reaffirm his opinion that the conditions of section 20 exist in the OCTG sector, which includes pup joints, as part of the final phase of the investigation, or conclude that the determination of normal values may be made using domestic selling prices and costs in China.

  2. A supplemental request for information was sent to the GOC in regards to their response to the section 20 RFI as part of this continuing investigation. 28

Normal Value

  1. For purposes of a preliminary determination, normal values of goods sold to importers in Canada are generally based on the estimated domestic selling prices of like goods in the country of export or based on the estimated cost of production of the goods, a reasonable amount for administrative, selling and all other costs, and a reasonable amount for profits.

  2. For purposes of this preliminary determination, normal values could not be estimated on the basis of domestic selling prices in China or on the full cost of goods plus profit, because the President formed the opinion that the conditions of paragraph 20(1)(a) of SIMA exist in the OCTG sector, which includes pup joints, in China.

  3. Where section 20 conditions exist, the CBSA may determine normal values using the selling price, or the total cost and profit, of like goods sold by producers in a surrogate country designated by the President pursuant to paragraph 20(1)(c) of SIMA. However, sufficient surrogate country data respecting domestic pricing and costing information relating to the like goods was not provided to the CBSA.

  4. Where normal values cannot be determined under paragraph 20(1)(c), SIMA provides an alternative methodology to calculate normal values under paragraph 20(1)(d), using re-sales in Canada of like goods imported from a third country. The CBSA determined that this provision could also not be used given that the importers did not provide sufficient re-sale information.

  5. Accordingly, given the absence of information, the CBSA has used an alternative method to estimate normal values for purposes of the preliminary determination, by advancing the export price of the goods by an estimated margin of dumping determined for the initiation of the investigation.

  6. At initiation, the CBSA estimated normal values by utilizing the Complainant's full costs of the like goods, adjusted to account for the lower cost of production of subject goods in China, and adding an amount for profit found for publicly listed companies dealing in the pipe and tube sector. The constructed normal values were then compared to actual export prices obtained through customs declarations for subject goods imported into Canada during the dumping POI to estimate the margin of dumping.

  7. At initiation, the estimated average margin of dumping for these transactions was found to be 32.4%. For the preliminary determination, normal values for the cooperative exporter were estimated by advancing the export prices by 32.4%.

  8. For all other exporters, the normal values were estimated by advancing their export prices by 169%, which was the highest amount by which the normal value exceeded the export price on an individual transaction calculated for the initiation of the investigation, expressed as a percentage of the export price. 29

Export Price

  1. For purposes of a preliminary determination, the export price of goods sold to importers in Canada is generally estimated based on the lesser of the adjusted exporter's sale price for the goods or the adjusted importer's purchase price. These prices are adjusted, where necessary, by deducting the costs, charges, expenses, duties and taxes resulting from the exportation of the goods.

  2. For purposes of the preliminary determination, export prices were estimated using the reported data provided by the cooperative exporter and, where necessary, importer RFI responses and from the CBSA's internal information systems.

Summary of Preliminary Results of Dumping Investigation

  1. The determination of the volume of dumped goods is calculated by taking into consideration each exporter's net aggregate dumping results. Where a given exporter has been determined to be dumping on an overall or net basis, the total quantity of exports attributable to that exporter (i.e. 100%) is considered dumped. Similarly, where a given exporter's net aggregate dumping results are zero, then the total quantity of exports deemed to be dumped by that exporter is zero.

  2. In calculating the weighted average estimated margin of dumping for the country, the overall estimated margins of dumping found in respect of each exporter are weighted according to each exporter's volume of subject pup joints exported to Canada during the Dumping POI.

  3. Based on the preceding, 100% of pup joints from China were dumped by an estimated weighted average margin of dumping of 125.7%, expressed as a percentage of the export price.

  4. Pursuant to subsection 35(1) of SIMA, the President is required to terminate an investigation prior to the preliminary determination if he is satisfied that the margin of dumping of the goods of a country is insignificant or that the volume of dumped goods of a country is negligible. Pursuant to subsection 2(1) of SIMA, a margin of dumping of less than 2% is defined as insignificant, whereas a volume of dumped goods from a country forming less than 3% of total imports is considered negligible.

  5. The estimated weighted average margin of dumping of certain pup joints from China is above 2% and is, therefore, not insignificant. As well, the volume of dumped goods from China is above 3%, and is, therefore, not negligible.

Preliminary Dumping Results by Exporter

Hengshui Weijia Petroleum Equipment Manufacturing Co., Ltd. (Hengshui Weijia)

  1. Hengshui Weijia is a producer and exporter of certain pup joints to Canada. The company was incorporated in August 2009 as a Sino-foreign joint venture.30 Hengshui Weijia is a limited liability company, which is privately held by a Chinese limited liability company, and a Canadian limited liability company, WestCan Oilfield Supply Ltd., which owns 49% of Hengshui Weijia.31

  2. The company had no domestic sales of like goods during either the Dumping or Subsidy POI. Hengshui Weijia is the second largest known exporter of subject goods to Canada during the Dumping POI. 32

  3. As previously explained, given the current absence of surrogate pricing or cost information, import pricing from other countries or any other pup joint pricing that would be usable for the purposes of a preliminary determination, normal values were estimated by advancing the export price of the goods by the estimated margin of dumping determined for the initiation of the investigation, which was calculated at 32.4%. The estimated margin of dumping for Hengshui Weijia is 32.4 %, expressed as a percentage of the export price.

  4. In the case of sales to related importers in Canada, the CBSA performs a reliability test of the export price under section 24 of SIMA. If the export price under section 24 of SIMA is found not to be reliable, then section 25 of SIMA would be used to determine export prices. The preliminary results of the reliability test for such sales made by Hengshui Weijia indicate that the section 24 export price was reliable.

  5. Accordingly, export prices were determined pursuant to section 24 of SIMA, based on the exporter's selling price, adjusted to take into account all costs, charges and expenses incurred in preparing the goods for shipment to Canada and resulting from the exportation and shipment of the goods.

  6. Additional information was requested from Hengshui Weijia to both verify and augment information they have already provided. The information provided by the company will be fully considered by the CBSA for the final determination.33

All Other Exporters - Margin of Dumping

  1. For the exporters that did not provide information in response to the CBSA's RFI, the normal values were estimated by advancing the export prices by 169% (as explained in the section above). Export prices were obtained through customs declarations for the subject goods imported into Canada during the dumping POI.

  2. For the purposes of the preliminary determination, the estimated margin of dumping for “all other exporters” is 169%, expressed as a percentage of the export price.

SUMMARY OF RESULTS – DUMPING

Period of Investigation - July 1, 2010 to June 30, 2011
Country Estimated Volume of Dumped Goods as Percentage of Country Imports Estimated Weighted Average Margin of Dumping Volume of Country Imports as Percentage of Total Imports Estimated Volume of Dumped Goods as Percentage of Total Imports
China 100% 125.7% 86.2% 86.2%

SUBSIDY INVESTIGATION

  1. In accordance with section 2 of SIMA, a subsidy exists if there is a financial contribution by a government of a country other than Canada that confers a benefit on persons engaged in the production, manufacture, growth, processing, purchase, distribution, transportation, sale, export or import of goods. A subsidy also exists in respect of any form of income or price support within the meaning of Article XVI of the General Agreement on Tariffs and Trade, 1994, being part of Annex 1A to the WTO Agreement, that confers a benefit.

  2. Pursuant to subsection 2(1.6) of SIMA, there is a financial contribution by a government of a country other than Canada where:

    1. practices of the government involve the direct transfer of funds or liabilities or the contingent transfer of funds or liabilities;
    2. amounts that would otherwise be owing and due to the government are exempted or deducted or amounts that are owing and due to the government are forgiven or not collected;
    3. the government provides goods or services, other than general governmental infrastructure, or purchases goods; or
    4. the government permits or directs a non-governmental body to do anything referred to in any of paragraphs (a) to (c) where the right or obligation to do the thing is normally vested in the government and the manner in which the non-governmental body does the thing does not differ in a meaningful way from the manner in which the government would do it.

  1. Where subsidies exist they may be subject to countervailing measures if they are specific in nature. According to subsection 2(7.2) of SIMA a subsidy is considered to be specific when it is limited, in a legislative, regulatory or administrative instrument, or other public document, to a particular enterprise within the jurisdiction of the authority that is granting the subsidy; or is a prohibited subsidy.

  2. The following terms are defined in section 2 of SIMA. A “prohibited subsidy” is either an export subsidy or a subsidy or potion of subsidy that is contingent, in whole or in part, on the use of goods that are produced or that originate in the country of export. An export subsidy is a subsidy or portion of a subsidy contingent, in whole or in part, on export performance. An “enterprise” is defined as including a group of enterprises, an industry and a group of industries.

  3. Notwithstanding that a subsidy is not specific in law, under subsection 2(7.3) of SIMA a subsidy may also be considered specific having regard as to whether:

    1. there is exclusive use of the subsidy by a limited number of enterprises;
    2. there is predominant use of the subsidy by a particular enterprise;
    3. disproportionately large amounts of the subsidy are granted to a limited number of enterprises; and
    4. the manner in which discretion is exercised by the granting authority indicates that the subsidy is not generally available.

  1. For purposes of a subsidy investigation, the CBSA refers to a subsidy that has been found to be specific as an “actionable subsidy,” meaning that it is subject to countervailing measures if the persons engaged in the production, manufacture, growth, processing, purchase, distribution, transportation, sale, export or import of goods under investigation have benefited from the subsidy.

  2. Financial contributions provided by State-Owned Enterprises (SOEs) may also be considered to be provided by the GOC for purposes of this investigation. A state-owned enterprise (SOE) may be considered to constitute “government” for the purposes of subsection 2(1.6) of SIMA if it possesses, exercises, or is vested with, governmental authority. Without limiting the generality of the foregoing, the CBSA may consider the following factors as indicative of whether the SOE meets this standard: 1) the SOE is granted or vested with authority by statute; 2) the SOE is performing a government function; 3) the SOE is meaningfully controlled by the government; or some combination thereof.

  3. At initiation, the CBSA identified 80 potential subsidy programs in the following eight categories:

    1. Special Economic Zones (SEZ) and other Designated Areas Incentives;
    2. Grants;
    3. Equity Programs;
    4. Preferential Loan Programs;
    5. Preferential Income Tax Programs;
    6. Relief from Duties and Taxes on Materials and Machinery;
    7. Reduction in Land Use Fees; and
    8. Goods/Services Provided by the Government at Less than Fair Market Value.

  1. Details regarding these potential subsidies were provided in the Statement of Reasons issued for the initiation of this investigation. This document is available through the CBSA website at the following address: www.cbsa-asfc.gc.ca/sima-lmsi/menu-eng.html .

Preliminary Phase of the Subsidy Investigation

  1. In conducting its investigation, the CBSA sent a subsidy RFI to the GOC, as well as to the potential exporters located in China that had been identified through internal CBSA documentation. Information was requested in order to establish whether there had been financial contributions made by any level of government, including SOEs possessing, exercising or vested with government authority, and, if so, to establish if a benefit has been conferred on persons engaged in the production, manufacture, growth, processing, purchase, distribution, transportation, sale, export or import of certain pup joints; and whether any resulting subsidy was specific in nature. The GOC was also requested to forward the RFIs to all subordinate levels of government that had jurisdiction over the exporters. The exporters were requested to forward a portion of the RFI to their input suppliers, who were asked to respond to questions pertaining to their legal characterization as SOEs.

  2. The CBSA received responses to the subsidy RFI from the GOC and exporter Hengshui Weijia on October 19, 2011. 34

  3. The GOC provided a response to the subsidy RFI only with respect to subsidy programs pertaining to the sole cooperating exporter, Hengshui Weijia, and for the 5 exporters that shipped subject goods during the POI but did not participate in the investigation.

  4. In addition, the GOC stated its objections with respect to three subsidy programs identified by the CBSA. Those programs are:

    • Program 77: Input Materials Provided by Government at Less than Fair Market Value
    • Program 79: Acquisition of Government Assets at Less than Fair Market Value
    • Program 80: Coke Provided by Government at Less than Fair Market Value

  1. The GOC referred to the CBSA's alleged practice and bias of treating Chinese SOEs as equivalent to the GOC. The GOC further stated that it never provides products or services to Chinese enterprises, whether directly or indirectly.

  2. In summary, the GOC provided information concerning the amounts received by the identified exporters of pup joints to Canada for four subsidy programs. These programs are:

    • Program 22: Technical Renovation Loan Interest Discount Fund
    • Program 31: Grants to Privately-Owned Export Enterprises
    • Program 34: Liaoning High-Tech Products & Equipment Exports Interest Assistance
    • Program 72: Exemption of Tariff and Import VAT for the Imported Technologies and Equipment

  1. Program 34 was identified by the GOC as a subsidy availed by the cooperating exporter, Hengshui Weijia. 35

  2. The GOC identified 18 subsidy programs that were not used by the exporters of pup joints during the POI and for the remainder of the 80 listed subsidy programs identified by the CBSA, the GOC either indicated that there was no such program, it had no information on the program or that the GOC disagreed with the CBSA on the nature of the subsidy.

  3. The CBSA's review of the GOC's submission indicated that some of the information requested has been provided but some of the GOC's responses were limited. As a result, the GOC's submission is considered to be insufficient.

  4. The CBSA will continue its analysis of the GOC's subsidy submission and has issued a supplemental request for information (SRFI) to clarify issues respecting, in part, the GOC's characterization of certain programs as noted above. 36

  5. For the preliminary determination, the CBSA has estimated an amount of subsidy for the one responding exporter in China, Hengshui Weijia, based on the information provided by the exporter and the GOC.

  6. The information received from Hengshui Weijia indicates that they received benefits from the following programs:

    • Program 1: Preferential Tax Policies for Enterprises with Foreign Investment (FIEs);
    • Program 32: Grants for Export Activities
    • Program 74: Exemption of VAT on Purchases of Equipment

  1. A summary of the preliminary results is included below, whereas an outline of the findings for the named subsidy programs can be found in Appendix 2.

  2. During the final stage of the investigation, the identified potential subsidy programs may be further analyzed. In addition, any other potential subsidy programs that are subsequently identified may be considered for the purposes of the final determination.

Summary of Preliminary Results of Subsidy Investigation

  1. For the purposes of the preliminary determination, the estimated total amount of subsidy for the participating exporter Hengshui Weijia is 2,065.64 RMB/MT or 8.8% of the export price.

  2. For all other exporters, the amount of subsidy has been estimated based on:

    1. the amount of subsidy (RMB/MT) estimated for each of the 3 actionable subsidy programs for the cooperative exporter located in China; plus;
    2. the subsidy amount per metric tonne for the actionable subsidy program in (i) above which was identified by both the GOC and the cooperative exporter, applied to each of the remaining 77 potentially actionable subsidy programs for which information is not available or has not been provided.

  1. Using the above methodology, the estimated amount of subsidy for all other exporters is 10,517.55 RMB/MT. The total amount of subsidy for all other exporters expressed as a percentage of the export price is estimated to be 50.8%.

  2. As a result of the above methodology, 100% of the subject goods imported from China are subsidized. The estimated overall weighted average amount of subsidy is equal to 39.9% of the export price.

  3. The estimated amount of subsidy of 8.8% will be applied to imports of subject goods from Hengshui Weijia during the provisional period. The amount of subsidy calculated for all other exporters, estimated to be 50.8% of the export price, is applicable to imports of subject goods during the provisional period from those exporters that did not respond to the RFI.

  4. Under subsection 35(1) of SIMA, if, at any time before the President makes a preliminary determination, the President is satisfied that the amount of subsidy on the goods of a country is insignificant or the actual and potential volume of subsidized goods of a country is negligible, the President must terminate the investigation with respect to that country. Under subsection 2(1) of SIMA, an amount of subsidy of less than 1% of the value of the goods is considered insignificant and a volume of subsidized goods of less than 3% of total imports is considered negligible, the same threshold for the volume of dumped goods.

  5. However, according to section 41.2 of SIMA, the President is required to take into account Article 27.10 of the WTO Agreement on Subsidies and Countervailing Measures when conducting a subsidy investigation. This provision stipulates that a countervailing duty investigation involving a product from a developing country should be terminated as soon as the authorities determine that the overall level of subsidies granted upon the product in question does not exceed 2% of its value calculated on a per unit basis or the volume of subsidized imports represents less than 4% of the total imports of the like product in the importing Member's market.

  6. SIMA does not define or provide any guidance regarding the determination of a “developing country” for purposes of Article 27.10 of the WTO Agreement on Subsidies and Countervailing Measures. As an administrative alternative, the CBSA refers to the Development Assistance Committee List of Official Development Assistance Recipients (DAC List of ODA Recipients) for guidance. As China is included in the listing, the CBSA will extend developing country status to China for purposes of this investigation. Therefore, the investigation will be terminated if the amount of subsidy does not exceed 2% of its value calculated on a per unit basis or if the volume of subsidized goods represents less than 4% of total imports of like goods.37

  7. The following table illustrates that the estimated amount of subsidy respecting China is not insignificant, nor is the volume of subsidized goods negligible.

SUMMARY OF RESULTS – SUBSIDY

Period of Investigation - July 1, 2010 to June 30, 2011
Country Estimated Volume of Subsidized Goods as Percentage of Country Imports

Estimated Weighted Average Amount of Subsidy*

Volume of Country Imports as Percentage of Total Imports

Estimated Volume of Subsidized Goods as Percentage of Total Imports
China 100% 39.9% 83.9% 83.9%
*As percentage of the export price

DECISION

  1. Based on the information available to the President, on December 12, 2011, the President made preliminary determinations of dumping and subsidizing respecting certain pup joints originating in or exported from the People's Republic of China, pursuant to subsection 38(1) of SIMA.

REPRESENTATIONS

GOC - Request for Deadline Extension

  1. On September 30, 2011, counsel for the GOC requested a nine day extension to the deadline to respond to the subsidy RFI. Counsel stated the massive volume of information requested by the CBSA, the GOC's involvement with other CBSA proceedings and interruptions to the Chinese work-week due to the National holidays, as circumstances affecting the GOC's ability to submit its response to the RFI within 37 days.38

Exporters - Request for Deadline Extension

  1. On October 3, 2011, counsel for exporter Hengshui Weijia requested a five working day extension to the deadline to respond to the CBSA's dumping, subsidy and section 20 RFIs. To justify its request, counsel cited the “extenuating and unforeseen circumstances that affect the exporter's ability to provide the information requested within the time limit.” Counsel stated that “the company is a very small manufacturing company with very limited resources and does not have a full time accountant on site.” 39

CBSA Response:

GOC

  1. On October 5, 2011, the CBSA denied counsel for the GOC its request for an extension on the basis that:

    1. an electronic copy of the RFI was hand delivered to the Chinese Embassy on the date of initiation, allowing the respondent a full 37 days to respond.
    2. In spite of the volume of information requested, complying to such a request remain normal business activities and therefore, do not constitute unforeseen circumstances or unusual burdens justifying the granting of an extension of time to respond.
    3. the majority of the subsidy programs under investigation have been examined by the CBSA in previous subsidy investigations in respect of China (including OCTG in 2010) and, consequently, the GOC would have much of the information already on hand.40

Exporters

  1. On October 6, 2011 the CBSA responded to and did not approve Hengshui Weijia's extension request for an extension of time, citing the fact that the activities mentioned did not constitute unforeseen circumstances or unusual burdens to justify granting an extension of time.

PROVISIONAL DUTY

  1. Pursuant to subsection 8(1) of SIMA, provisional duties, payable by the importer in Canada, will be applied to dumped and subsidized subject pup joints that are released during the provisional period commencing on the day the preliminary determinations are made, and ending on the earlier of the day on which the President causes the investigations to be terminated pursuant to subsection 41(1) or the day on which the Tribunal makes an order or finding. The imposition of provisional duties is needed to prevent the injury which, as per the Tribunal's preliminary determination, was caused by the dumping and subsidizing of subject pup joints.

  2. Provisional countervailing duty is based on the estimated amount of subsidy and is expressed as a percentage of export price of the goods. Provisional anti-dumping duty is based on the estimated margin of dumping, also expressed as a percentage of the export price of the goods. Appendix 1 contains the estimated margins of dumping, estimated amounts of subsidy, and the rates of provisional duties, payable on subject goods released from the CBSA on and after December 12, 2011.

  3. Importers are required to pay provisional duties in cash or by certified cheque. Alternatively, they may post security equal to the amount payable. Importers should contact their CBSA regional customs office if they require further information on the payment of provisional duty or the posting of security. If the importers of such goods do not indicate the required SIMA code or do not correctly describe the goods in the import documents, an administrative monetary penalty could be imposed. The imported goods are also subject to the Customs Act. As a result, failure to pay duties within the specified time will result in the application of the provisions of the Customs Act regarding interest.

FUTURE ACTION

The Canada Border Services Agency

  1. The CBSA will continue its investigations of the dumping and subsidizing and the President will make final decisions by March 12, 2012.

  2. If the President is satisfied that the goods were dumped and/or subsidized, and that the margin of dumping or amount of subsidy is not insignificant, final determinations will be made. Otherwise, the President will terminate the investigations and any provisional duties paid, or security posted, will be returned to importers.

The Canadian International Trade Tribunal

  1. The Tribunal has begun its full inquiry into the question of injury to the Canadian industry. The Tribunal is expected to issue its finding by April 10, 2012.

  2. If the Tribunal finds that the dumping has not caused injury, retardation or is not threatening to cause injury, the proceedings will be terminated and all provisional anti-dumping duties collected, or security posted, will be returned.

  3. If the Tribunal makes a finding that the dumping has caused injury, retardation or is threatening to cause injury, anti-dumping duties in an amount equal to the margin of dumping will be levied, collected and paid on imports of subject pup joints.

  4. If the Tribunal finds that the subsidizing has not caused injury, retardation or is not threatening to cause injury, the proceedings will be terminated and all provisional countervailing duties collected, or security posted, will be returned.

  5. If the Tribunal makes a finding that the subsidizing has caused injury, retardation or is threatening to cause injury, countervailing duties in the amount equal to the amount of subsidy on the imported goods will be levied, collected and paid on imports of subject pup joints.

  6. For purposes of the preliminary determinations of dumping or subsidizing, the CBSA has responsibility for determining whether the actual and potential volume of dumped or subsidized goods is negligible. After preliminary determinations of dumping or subsidizing, the Tribunal assumes this responsibility. In accordance with subsection 42(4.1) of SIMA, the Tribunal is required to terminate its inquiry in respect of any goods if the Tribunal determines that the volume of dumped or subsidized goods from a country is negligible.

RETROACTIVE DUTY ON MASSIVE IMPORTATIONS

  1. Under certain circumstances, anti-dumping and/or countervailing duty can be imposed retroactively on subject goods imported into Canada. When the Tribunal conducts its inquiry on material injury to the Canadian industry, it may consider if dumped and/or subsidized goods that were imported close to or after the initiation of the investigation constitute massive importations over a relatively short period of time and have caused injury to the Canadian industry. Should the Tribunal issue a finding that there were recent massive importations of dumped and/or subsidized goods that caused injury, imports of subject goods released by the CBSA in the 90 days preceding the day of the preliminary determination could be subject to anti-dumping and/or countervailing duty.

  2. In respect of importations of subsidized goods that have caused injury, this provision is only applicable where the CBSA has determined that the whole or any part of the subsidy on the goods is a prohibited subsidy. In such a case, the amount of countervailing duty applied on a retroactive basis will equal the amount of subsidy on the goods that is a prohibited subsidy. An export subsidy is a prohibited subsidy according to subsection 2(1) of SIMA.

UNDERTAKINGS

  1. After a preliminary determination of dumping, exporters may give a written undertaking to revise selling prices to Canada so that the margin of dumping or the injury caused by the dumping is eliminated. Similarly, after a preliminary determination of subsidizing, the government of a country may give a written undertaking to eliminate the subsidy on the goods or to eliminate the injurious effect of the subsidy by limiting the amount of the subsidy or the quantity of goods exported to Canada. Exporters, with the consent of their government, may also undertake to revise their selling prices so that the injurious effect of the subsidy is eliminated.

  2. Acceptable undertakings must account for all, or substantially all, of the exports to Canada of the dumped and subsidized goods. In the event that an undertaking is accepted, the required payment of provisional duty on the goods would be suspended.

  3. In view of the time needed for consideration of undertakings, written undertaking proposals should be made as early as possible, and no later than 60 days after the preliminary determinations of dumping and subsidizing. Further details regarding undertakings can be found in the CBSA's Memorandum D14-1-9, available online at www.cbsa-asfc.gc.ca/publications/dm-md/d14/d14-1-9-eng.html.

  4. SIMA allows all interested parties to make representations concerning any undertaking proposals. The CBSA will maintain a list of interested parties and will notify them should an undertaking proposal be received. Persons wishing to be notified must provide their name, address, telephone, fax, or email address, to one of the officers listed below. Interested parties may also consult the CBSA website noted below for information on undertakings offered in this investigation. A notice will be posted on the CBSA website when an undertaking proposal is received. Interested parties have nine days from the date the undertaking offer is received to make representations.

PUBLICATION

  1. A notice of these preliminary determinations of dumping and subsidizing will be published in the Canada Gazette pursuant to paragraph 38(3)(a) of SIMA.

INFORMATION

  1. This Statement of Reasons has been provided to persons directly interested in these proceedings. It is also posted on the CBSA's website, in both English and French, at the address below. For further information, please contact the officers identified as follows:

Mail:
SIMA Registry and Disclosure Unit
Anti-dumping and Countervailing Directorate
Canada Border Services Agency
100 Metcalfe Street, 11th Floor
Ottawa, Ontario K1A OL8
CANADA

Telephone:
Andrew Manera        (613)946-2052
 
Simon Duval              (613) 948-6464

Fax:
613-948-4844

E-mail:
simaregistry-depotlmsi@cbsa-asfc.gc.ca

Website:
www.cbsa-asfc.gc.ca/sima-lmsi/menu-eng.html

.

Original signed by

Daniel Giasson

Director General

Anti-dumping and Countervailing Directorate

APPENDIX 1 – SUMMARY OF ESTIMATED AMOUNTS OF DUMPING AND SUBSIDY, AND PROVISIONAL DUTIES PAYABLE

Exporter

Estimated Margin of Dumping*

Estimated Amount of Subsidy*

Total Provisional Duties Payable*
Hengshui Weijia Petroleum Equipment Manufacturing Co., Ltd 32.4$% 8.8% 41.2%
All Other Exporters (of subject goods originating in or exported from China) 169% 50.8% 219.8%
*As a percentage of export price.

.

APPENDIX 2 - SUMMARY OF PRELIMINARY FINDINGS FOR NAMED SUBSIDY PROGRAMS

As noted in the body of this document, the CBSA's review of the GOC's response to the subsidy RFI indicated that sufficient information had not been provided to determine whether the programs that were used by the responding exporter constituted actionable subsidies, or to estimate the amount of subsidy on a program basis. This would normally prevent the CBSA from estimating specific amounts of subsidy for the responding exporter and result in the use of other available information. However, in recognition of the amount of cooperation and the volume of information provided by the responding exporter, the CBSA has estimated an amount of subsidy for Hengshui Weijia based on the information provided in their response to the subsidy RFI.

This appendix consists of descriptions of the three potentially actionable subsidy programs used by the responding exporter in the current investigation, followed by a listing of the other potentially actionable subsidy programs identified by the CBSA.

POTENTIALLY ACTIONABLE SUBSIDY PROGRAMS USED BY THE RESPONDING EXPORTER IN THE CURRENT INVESTIGATION

The CBSA has used the best information available to describe the potentially actionable subsidy programs used by the responding exporter in the current investigation. This includes using information obtained from CBSA research on potential subsidy programs in China, information provided by the responding exporter and the GOC and descriptions of programs that the CBSA has previously publicly published in recent Statement of Reasons relating to subsidy investigations involving China.

Program 1: Preferential Tax Policies for Enterprises with Foreign Investment (FIEs) Established in Special Economic Zones (excluding Shanghai Pudong Area)

This program was established in the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprise, which was promulgated on April 9, 1991, and came into effect on July 1, 1991. This program was established to expand foreign economic cooperation. The granting authority responsible for this program is the State Administration of Taxation and the program is administered by local tax authorities.

Under this program, export oriented enterprises invested in and operated by foreign businesses may pay a reduced income tax rate of 15% if their annual output value of all export products amounts to 70% or more of the output value of the products of the enterprise for that year. Export oriented enterprises in the Special Economic Zones (SEZs) and Economic Technological Development Zones (ETDZs) and other such enterprises subject to enterprise income tax at the tax rate of 15% that qualify under the conditions mentioned above shall pay enterprise income tax at the tax rate of 10%.

On the basis of available information, this program constitutes a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and confers a benefit to the recipient equal to the amount of the income tax reduction/exemption.

Program 32: Grants for Export Activities

This program was established in the Circular of the Trial Measures of the Administration Of International Market Development Funds for Small and Medium-sized Enterprises (Cai Qi No. 467, 2000), which was promulgated and came into force on October 24, 2000. The granting authority responsible for this program is the Ministry of Foreign Trade and Economic department. 41

This program was established to support the development of small and medium-sized Enterprises (SMEs), to encourage SMEs to join in the competition of international markets, to reduce the business risks of the enterprises, and to promote the development of the national economy.

The granting authority responsible for this program is the foreign trade and economic department and the program is administered at local levels. The funds provided under this program are for the purpose of: (i) holding or participating in overseas exhibitions, (ii) accreditation fees for quality management system, environment management system or for the product, (iii) promotion in the international market, (iv) exploring a new market, (v) holding training seminars and symposiums, and (vi) overseas bidding.

On the basis of available information, this program constitutes a financial contribution pursuant to paragraph 2(1.6)(a) of SIMA; i.e. a practice of government that involves a direct transfer of funds, and confers a benefit to the recipient equal to the amount of the grant provided.

Program 74: Exemption of VAT on Purchases of Equipment

Under this program, the GOC permits producers to receive VAT refunds on purchases of equipment. Eligibility for this program is restricted to a small number of industries, including the metallurgy industry. The program is only available to 26 municipalities covering six provinces in the Central Region of China.

On the basis of available information, this program constitutes a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and confers a benefit to the recipient equal to the amount of VAT exempted. 42

OTHER POTENTIALLY ACTIONABLE SUBSIDY PROGRAMS

The following programs are also included in the current investigation. Questions concerning these programs were included in the RFIs sent to the GOC and to all known exporters of the subject goods in China. The responding exporter did not report using these programs during the Subsidy POI. Without a complete response to the subsidy RFI from the GOC, the CBSA does not have detailed descriptions of these programs; nor does it have sufficient information to determine that any of these programs do not constitute actionable subsidy programs. In other words, the CBSA has to date, not determined if any of these programs should be removed from the investigation. The CBSA will continue to investigate these programs in the final phase of the investigation.

I. Special Economic Zone (SEZ) Incentives and other Designated Areas

Program 2:

Preferential Tax Policies for FIEs Established in the Coastal Economic Open Areas and in the Economic and Technological Development Zones

Program 3:

Preferential Tax Policies for FIEs Established in the Pudong Area of Shanghai

Program 4:

Preferential Tax Policies in the Western Regions

Program 5:

Corporate Income Tax Exemption and/or Reduction in SEZs and other Designated Areas

Program 6:

Local Income Tax Exemption and/or Reduction in SEZs and other Designated Areas

Program 7:

Exemption/Reduction of Special Land Tax and Land Use Fees in SEZs and Other Designated Areas

Program 8:

Tariff and Value-added Tax (VAT) Exemptions on Imported Materials and Equipment in SEZs and other Designated Areas

Program 9:

Income Tax Refund where Profits Re-invested in SEZs and other Designated Areas

Program 10:

Preferential Costs of Services and/or Goods Provided by Government or State-owned Enterprises (SOEs) in SEZs and Other Designated Areas

II. Grants

Program 11:

The State Key Technology Renovation Projects

Program 12:

Reimbursement of Anti-dumping and/or Countervailing Legal Expenses by the Local Governments

Program 13:

Repaying Foreign Currency Loan by Returned VAT

Program 14:

Government Export Subsidy and Product Innovation Subsidy

Program 15:

Export Assistance Grant

Program 16:

Research & Development (R&D) Assistance Grant

Program 17:

Innovative Experimental Enterprise Grant

Program 18:

Superstar Enterprise Grant

Program 19:

Awards to Enterprises Whose Products Qualify for “Well-Known Trademarks of China” or “Famous Brands of China”

Program 20:

Export Brand Development Fund

Program 21:

Provincial Scientific Development Plan Fund

Program 22:

Technical Renovation Loan Interest Discount Fund

Program 23:

Venture Investment Fund of Hi-Tech Industry

Program 24:

National Innovation Fund for Technology Based Firms

Program 25:

Guangdong – Hong Kong Technology Cooperation Funding Scheme

Program 26:

Grants for Encouraging the Establishment of Headquarters and Regional Headquarters with Foreign Investment

Program 27:

Innovative Small and Medium-Sized Enterprise Grants

Program 28:

Product Quality Grant

Program 29:

2009 Energy-saving Fund

Program 30:

Energy-Saving Technique Special Fund

Program 31:

Grants to Privately-Owned Export Enterprises

Program 32:

Grants for Export Activities

Program 33:

Grants for International Certification

Program 34:

Liaoning High-Tech Products & Equipment Exports Interest Assistance

Program 35:

Emission Reduction and Energy-saving Award

Program 36:

Grant for Market Promotion and Trade Development

Program 37:

Refund of Land Transfer Fee

Program 38:

Grant – Assistance for Exhibition Booth Fees

Program 39:

Grant – Assistance for Exhibition Booth Fees

Program 40:

Grant – State Service Industry Development Fund

Program 41:

Grant – Changzhou Five Major Industries Development Special Fund

Program 42:

Grant – Ecological Garden Enterprise Reward

Program 43:

Grant – Ecological Garden Enterprise Reward

Program 44:

Grant – Cleaning-production Qualified Enterprise Reward

Program 45:

Grant – Provisional Industry Promotion Special Fund

Program 46:

Grant – Jiangsu Province Finance Supporting Fund

Program 47:

Grant – Guaranteed Growth Fund

Program 48:

Grant - Water Pollution Control Special Fund for Taihu Lake

Program 49:

Grant – Provincial Foreign Economy and Trade Development Special Fund

Program 50:

Grant – Subsidy from Water Saving Office

Program 51:

Grant – Insurance Expense Compensation

Program 52:

Grant – Industrial Science and Technology Breakthrough Special Fund

Program 53:

Grant – Special Supporting Fund for Commercialization of Technological Innovation and Research Findings

Program 54:

Grant – Changzhou City Key Supporting Industry Upgrading Special Fund

Program 55:

Grant – Changzhou City Key Supporting Industry Upgrading Special Fund

Program 56:

Grant – Financial Subsidies from Wei Hai City Gao Cun Town Government

Program 57:

Grant – Policy on Value-added Tax for Recyclable Resources

Program 58:

Grant – Large Taxpayer Award

Program 59:

Grant – Resources Conservation and Environment Protection Grant

III. Equity Programs

Program 60:

Debt-to-Equity Swaps

Program 61:

Exemptions for SOEs from Distributing Dividends to the State

IV. Preferential Loans

Program 62:

Loans and Interest Subsidies Provided Under the Northeast Revitalization Program

V. Preferential Income Tax Programs

Program 63:

Reduced Tax Rate for Productive FIEs Scheduled to Operate for a Period not Less Than 10 Years

Program 64:

Preferential Tax Policies for Foreign Invested Export Enterprises

Program 65:

Preferential Tax Policies for FIEs which are Technology Intensive and Knowledge Intensive

Program 66:

Preferential Tax Policies for the Research and Development of FIEs

Program 67:

Preferential Tax Policies for FIEs and Foreign Enterprises Which Have Establishments or Places in China and are Engaged in Production or Business Operations Purchasing Domestically Produced Equipments

Program 68:

Preferential Tax Policies for Domestic Enterprises Purchasing Domestically Produced Equipments for Technology Upgrading Purpose

Program 69:

Income Tax Refund for Re-investment of FIE Profits by Foreign Investors

Program 70:

VAT and Income Tax Exemption/Reduction for Enterprises Adopting Debt to Equity Swaps

Program 71:

Corporate Income Tax Reduction for New High-Technology Enterprises

VI. Relief from Duties and Taxes on Materials and Machinery

Program 72:

Exemption of Tariff and Import VAT for the Imported Technologies and Equipment

Program 73:

Relief from Duties and Taxes on Imported Material and Other Manufacturing Inputs

VII. Reduction in Land Use Fees

Program 75:

Reduction in Land Use Fees, Land Rental Rates, and Land Purchase Prices

Program 76:

Deed Tax Exemptions For Land Transferred through Merger or Restructuring

VIII. Goods/Services Provided by Government at Less than Fair Market Value

Program 77:

Input Materials Provided by Government at Less than Fair Market Value

Program 78:

Utilities Provided by Government at Less than Fair Market Value

Program 79:

Acquisition of Government Assets at Less than Fair Market Value

Program 80:

Coke Provided by Government at Less than Fair Market Value

.

Notes:

  1. CBSA Exhibit 41 (NC).

  2. CBSA Exhibit 67 (PRO). Wuxi Forest Petroleum Technology Co., Ltd. is an exporter and not a manufacturer. The reported goods were Seamless Carbon or Alloy Steel Oil and Gas Well Casing products subject to Tribunal Inquiry No. NQ-2007-001 Finding issued by the Tribunal on March 10, 2008.

  3. CBSA Exhibit 84 (PRO), Exhibit S44 (PRO).

  4. CBSA Exhibits 69 (PRO), 71 (PRO), 73 (PRO) and 75 (PRO).

  5. Perforated pup joints are an exception as they do not meet API 5CT.

  6. CBSA Exhibit 2 (NC) – Complaint narrative, page 3.

  7. Tribunal finding on Certain Oil Country Tubular Goods, Inquiry No. NQ-2009-004, March 23, 2010, paragraph 256.

  8. CBSA's Initiation Statement of Reasons for Certain Oil Country Tubular Goods, paragraphs 21-27, September 8, 2009.

  9. CBSA Exhibit 41 (NC).

  10. CBSA Exhibit 84 (PRO), Exhibit S44 (PRO).

  11. China is a prescribed country under section 17.1 of the Special Import Measures Regulations.

  12. CBSA Exhibit 38 (PRO) – Exhibit 1.

  13. CBSA Exhibit 38 (PRO) – Exhibit 3 - Blueprint for the adjustment and revitalization of the steel industry issued by the General Office of the State Council on March 20, 2009

  14. CBSA Exhibit 38 (PRO) – Exhibit 3 - Blueprint for the adjustment and revitalization of the steel industry issued by the General Office of the State Council on March 20, 2009 – Under Major Tasks detailed “the regional reorganization between Tianjin Pipe and Tian Tie Group.”

  15. CBSA Exhibit 82 (NC) – Response to Question B6.

  16. CBSA Exhibit 38 (PRO) – Exhibit 22 – KPMG Report on “China's 12th Five-Year Plan: Iron and Steel.”

  17. CBSA Exhibit 38 (PRO) – Exhibit 1.

  18. CBSA Exhibit 38 (PRO) – Exhibit 14: “Steel industry plan forged,” China Daily, Zhang Qi, January 27, 2011.

  19. CBSA Exhibit 38 (PRO) – Exhibit 14: “Steel industry plan forged,” China Daily, Zhang Qi, January 27, 2011.

  20. CBSA Exhibit 82 (NC) – GOC response to Question C4.

  21. CBSA Exhibit 82 (NC) – GOC response to Question C7(b).

  22. Final Determination Statement of Reasons for Seamless Steel Casing, February 22, 2008.

  23. CBSA Exhibit 38 (PRO) – Exhibit 6: China Steel Pipe Industry 12th Five-Year Plan.

  24. CBSA Exhibit 83 (NC) – CISA response to Question D11.

  25. CBSA Exhibit 38 (PRO) – Exhibit 6: China Steel Pipe Industry 12th Five-Year Plan.

  26. CBSA Exhibit 38(PRO) – Exhibit 25: Pipe Logix OCTG spot price market July 2010 to June 2011.

  27. Final Determination Statement of Reasons for Certain OCTG, March 9, 2010.

  28. CBSA Exhibit 93(PRO) – SRFI regarding section 20 to GOC.

  29. CBSA Exhibit 43 (PRO) – Complaint Analysis.

  30. CBSA Exhibit 80 (NC) – Hengshui Weijia Dumping RFI Response to Question A2.

  31. CBSA Exhibit 72 (NC) – WestCan Oilfield Supply Ltd. RFI Response to Question B1.

  32. There were no further exports from Hengshui Weijia in the incremental Subsidy POI of Jan - Jun 2010.

  33. CBSA Exhibit 84 (PRO), Exhibit S044 (PRO) – Supplemental RFI to Hengshui Weijia, Nov. 10, 2011.

  34. CBSA Exhibits S41and S39 (PRO).

  35. The CBSA has identified this as better classified under Program 32: Grants for Export Activities.

  36. CBSA Exhibit S047 (PRO) – RFI to GOC, November 28, 2011.

  37. The Organization for Economic Co-operation and Development, DAC List of ODA Recipients as at October 2011, the document is available at: http://www.oecd.org/document/45/0,3746,en_2649_34447_2093101_1_1_1_1,00.html

  38. CBSA Exhibit S25 (NC).

  39. CBSA Exhibit S26 (NC).

  40. CBSA Exhibit S27 (NC).

  41. CBSA Preliminary Determination Statement of Reasons for Certain Steel Grating, page 19, January 4, 2011. See also WTO G/SCM/Q2/CHN/42, October 11, 2011.

  42. CBSA Exhibit 1 (PRO) – Complaint Appendix 27, pages 907-908.

.

Date Modified: 2013-03-12

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