DP 2022 IN: Drill pipe
Statement of Reasons—Initiation of investigations

Concerning the initiation of investigations into the dumping and subsidizing of certain drill pipe originating in or exported from China.

Decision

Ottawa,

Pursuant to subsection 31(1) of the Special Import Measures Act, the Canada Border Services Agency initiated investigations on March 25, 2022, respecting the alleged injurious dumping and subsidizing of certain drill pipe originating in or exported from China.

On this page

Summary

[1] On February 3, 2022, the Canada Border Services Agency (CBSA) received a written complaint from Command Drilling Products Ltd. (CDP) (Nisku, AB) (hereinafter, “the complainant”) alleging that imports of certain drill pipe originating in or exported from the People’s Republic of China (China) have been dumped and subsidized. The complainant alleged that the dumping and subsidizing have caused injury and are threatening to cause injury to Canadian producers of drill pipe.

[2] On February 24, 2022, pursuant to paragraph 32(1)(a) of the Special Import Measures Act (SIMA), the CBSA informed the complainant and the Government of China (GOC) that a properly documented complaint had been received. The GOC was also provided with the non‑confidential version of the subsidy complaint and was invited for consultations pursuant to Article 13.1 of the Agreement on Subsidies and Countervailing Measures, prior to the initiation of the subsidy investigation. The CBSA did not receive any request for consultations.

[3] The complainant provided evidence to support the allegations that certain drill pipe from China have been dumped and subsidized, as well as evidence that discloses a reasonable indication that the dumping and subsidizing have caused injury or are threatening to cause injury to the Canadian industry producing like goods.

[4] On March 25, 2022, pursuant to subsection 31(1) of SIMA, the CBSA initiated investigations respecting the dumping and subsidizing of certain drill pipe from China.

Interested parties

Complainant

[5] The name and address of the complainant is as follows:

Command Drilling Products Ltd.
406 22nd Ave
Nisku, AB  T9E 7W8

[6] CDP was incorporated in 2011 and produced its first drill pipe in 2014. Located in Nisku, Alberta, CDP sells domestically produced drill pipe directly to customers within Canada.Footnote 1

Other producers

[7] The complainant stated that they are the only producer of drill pipe in Canada.Footnote 2

Trade union

[8] The complainant stated that there are no known trade unions that represent persons employed in the production of drill pipe in Canada.Footnote 3

Exporters

[9] The CBSA identified 64 potential exporters of the subject goods from CBSA import documentation and from information submitted in the complaint. All of the potential exporters were asked to respond to the CBSA’s Dumping, Subsidy, and Section 20 Requests for Information (RFI).

Importers

[10] The CBSA identified 27 potential importers of the subject goods from CBSA import documentation and from information submitted in the complaint. All of the potential importers were asked to respond to the CBSA’s Importer RFI.

Government

[11] Upon initiation of the investigations, the Government of China was sent the CBSA’s Government Section 20 RFI and the CBSA’s Government Subsidy RFI.

[12] For the purposes of these investigations, the GOC 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, 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.

Product information

Definition

[13] For the purpose of these investigations, subject goods are defined as:Footnote 4

Drill pipe, including heavy weight drill pipe (HWDP), meeting or manufactured to American Petroleum Institute (API) 5DP or API 7‑1 specifications, or comparable or proprietary standards, in all grades (including proprietary or enhanced grades), made of carbon or alloy steel, in nominal sizes of 2⅜” (outside diameter 60.3 mm) to 7 5/8” (outside diameter 193.7 mm) (with all dimensions being plus or minus allowable tolerances contained in the applicable standards), in any length, originating in or exported from the People’s Republic of China

Additional product informationFootnote 5

[14] Drill pipe is one of the three types of oil country tubular goods (OCTG), along with casing and tubing. Drill pipe is not interchangeable with casing or tubing, and is used for the distinct purpose of drilling a well, rather than supporting the well structure (like casing) or conveying fluids into or out of the well during the extraction process (like tubing).

[15] Drill pipe is a length of heavy, typically seamless, tubing with high strength tool joints on either end. Using high‑strength and high‑pressure threaded connections, drill pipe can connect together and rotate the drill bit at the bottom of the well and circulate drilling fluids. Drill pipe is primarily used in oil and gas exploration.

[16] Drill pipe consists of a drill pipe body with welded‑on tool joints, which are often made in accordance with API 5DP or 7‑1, or superior proprietary specifications. API 5DP defines the technical delivery conditions for steel drill pipes with upset pipe‑body ends and weld‑on tool joints for usage in drilling and production operations in petroleum and natural gas industries. API 7‑1 defines the specification standards for drill stem elements including drill collars.

[17] Although other processes precede and follow the welding of tool joints to the drill pipe body, it is the welding of one or more tool joints onto a drill pipe body which creates the drill pipe. For example, an unthreaded drill pipe would still meet the product definition provided the unthreaded tool joints are welded to the drill pipe body.

[18] This investigation does not cover drill pipe bodies, which do not have tool joints attached. Drill pipe bodies are an input material used in the production of drill pipe. Similarly, tool joints alone are not subject to this investigation, but are a component of the subject goods when affixed to a drill pipe body. It is this affixing of the tool joint to the drill pipe body that creates the subject goods.

[19] Drill pipe is commonly measured and sold by the “piece” (i.e. a single length of drill pipe, with a tool joint on either end). The expression a “piece” of drill pipe is synonymous with a “joint” of drill pipe, and both terms are used interchangeably in the industry. A piece or joint of drill pipe may also be referred to as a “finished drill pipe” or a “drill pipe assembly”.

[20] Typically one end of a drill pipe will have a box and the other will have a pin. An internally threaded (female) tool joint is called a “box”, while the externally threaded (male) tool joint is referred to as a “pin”. Joints of drill pipe are generally connected by screwing the pin of one joint into the box of another. Given these integral connections, there is no need for any other components to connect joints of drill pipe (e.g. there is no coupling with female threaded ends such as is used in OCTG casing and tubing, or sucker rods).

[21] Tool joint connections made to the API specification are typically one of the following styles: regular, full hole, internal flush or numbered connection (NC). API license holders manufacture tool joint connections to API standards.

[22] A Double Shoulder (DS) style connection is a non‑API connection, and various manufacturers have proprietary DS connections, which are generally interchangeable with each other.

[23] Proprietary tool joints are designed for more specific drilling applications than API tool joint connections. Drill pipe with these types of proprietary tool joints attract a premium in the market over drill pipe with API tool joints.

[24] Connections are often given a number that corresponds to the outer diameter of the tool joint but does not indicate a precise measurement. The larger the number affiliated with a NC, DS or other connection, the larger the outer diameter of the tool joint. For example, a NC46 connection would have a larger tool joint outer diameter than a NC40 connection.

[25] Drill pipe commonly meets or is produced to meet the API 5DP and/or API 7‑1 standards, or comparable or proprietary specifications. However, not all producers of drill pipe are API‑certified and parties may use drill pipe that are non‑API certified.

[26] The API specifications provide required mechanical characteristics for both drill pipe bodies and tool joints. Moreover, the API specifications define how drill pipe products are required to be marked including with a stamp of the manufacturer’s plant location and a paint‑stencil identifying the manufacturer.

[27] Eight common grades of drill pipe strength are described below in Table 1. Table 1 orders these grades of drill pipe based on thousands of pounds per square inch (“ksi”) and therefore, is in order of strength when comparing products of the same size and wall thickness. There is no universal standard of wall thickness.

Table 1
Common drill pipe grades
Standard Grade Minimum yield strength of drill pipe body
(ksi – 1000 lbs./sq. in.)
Minimum tensile strength
(ksi – 1000 lbs./sq. in.)
API HWDP 55 95
API E 75 100
API X 95 105
API G 105 115
Non‑API SS 105 Not defined/standardized
API S 135 145
Non‑API Z 140 Not defined/standardized
Non‑API V 150 Not defined/standardized

[28] Grade names correspond to the minimum yield strengths. Given that there is no relationship between higher letters referring to higher tensile strength, grades are commonly referred to by the combination of the letter grade and the minimum yield strength (in ksi). For example, a “G” grade pipe will always have a minimum tensile strength of 115 ksi. However “G” grade pipe is commonly referred to as a “G‑105”. For clarity, there are no grades like “G‑95” or “G‑135”. There is only a “G” grade, which always has a minimum 105 ksi yield strength, and this grade is most commonly called “G 105”.

[29] The “V” grade is an example of a common enhanced non‑API grade of drill pipe body with a higher minimum yield strength of 150 ksi than any API grades provides. There are additional higher strength non‑API grades. Drill pipe body grades are all specific to drill pipe. All of these API grades, as well as enhanced or proprietary grades of drill pipe, are covered by this investigation.

[30] Tool joints for non‑HWDP are required to have a minimum yield strength of 120 ksi, and a minimum tensile strength of 140 ksi. HWDP tool joints have a minimum yield strength of 110 ksi and minimum tensile strength of 140 ksi for outer diameter range of 3 1/8” – 6 7/8” and 100 ksi and 135 ksi for tool joints with larger outer diameters.

[31] Strengths are typically denoted in pounds per square inch, rather than the overall strength of the component. For example, the body of a piece of HWDP will have a minimum yield strength of 55 ksi (thousand pounds per square inch). A body of E grade drill pipe will have a higher minimum yield of 75 ksi. However, the HDWP will have much thicker walls and accordingly more square inches of steel than the E grade drill pipe. This means the actual piece of HWDP will be stronger than the E grade drill pipe.

[32] Drill pipe in Canada is typically supplied in lengths specified by the API 5DP specification. Range 1 drill pipe is 20 – 23 feet long, Range 2 is 29 – 32 feet, and Range 3 is 40 – 45 feet. Most drill pipe used in Canada is Range 2 (typically about a length of 31.5 feet) or Range 3, with a relatively small proportion of Range 1. Shorter lengths of drill pipe (“pup joints”) are also sold in Canada, though in much smaller quantities than Range 1 or 2 drill pipe.

[33] The most common diameter of drill pipe sold in Canada is 4.5” outside diameter drill pipe, though both larger and smaller sizes are also sold and used in Canada. The most common wall thickness for this 4.5” outside diameter drill pipe is 0.337 inches that weighs 16.6 nominal pounds per foot. The average joint (or piece of finished drill pipe) of 4.5” Range 2 length 16.6# (pounds) drill pipe weighs 553 pounds (0.251 MT).

[34] Drill pipe can be upset through a forging process with an internal upset (IU), an external upset (EU) or an internal‑external upset (IEU). IU refers to where the drill pipe’s internal diameter is decreased and the outer diameter is maintained. EU refers to additional wall thickness of the drill pipe by increasing the outside diameter while maintaining the internal diameter. IEU refers to where the drill pipe’s inside diameter is decreased and its outside diameter increased. The API specification of each drill pipe size dictates the type of upset employed.

[35] Drill pipe includes HWDP, which has thicker tube walls than non‑HWDP (up to three times as thick), making it generally stronger and heavier. HWDP is used in a portion of a drill string where this additional strength or additional weight (e.g. to apply downward pressure on the drill bit) is required. HWDP commonly meets API specification 7‑1 rather than API 5DP.

[36] Drill pipe also includes drill pipe pup joints. Drill pipe pup joints are simply short lengths of drill pipe (typically in 5”, 10”, 15” or 20” lengths). These short lengths of drill pipe are used to space the drilling string appropriately, such as where a full size length of drill pipe is too long. Drill pipe pup joints are custom lengths covered under API 5DP and/or API 7 1, or comparable or proprietary specifications.

[37] Drill pipe pup joints are distinct from pup joints used with other types of OCTG. These other types of OCTG are casing and tubing. Casing and tubing pup joints were the subject of Pup Joints, NQ‑2011‑001, where the CITT found a threat of injury from tubing pup joints and no injury with respect to casing pup joints. Drill pipe pup joints were not covered in that investigation. The scope of the investigation in Pup Joints was restricted to API 5CT or equivalent pup joints, and focused on tariff classifications under HS subheading 7304.29 (casing and tubing) rather than HS subheading 7304.23 (drill pipe). Drill pipe pup joints covered under the present investigation are not interchangeable with casing or tubing pup joints.

[38] Comparable standards to API 5DP and API 7‑1 include other international, domestic and foreign standards for drill pipe. Such standards generally have substantially the same essential requirements as the API specifications, such as ISO 11961 and ISO 10424. Chinese standards SY/T 6417 or SY/T 5146 are also believed to have substantially the same requirements as API 5DP and API 7‑1.

[39] Hardbanding may also be applied to the tool joints or directly to the drill pipe body for greater protection of the pipe. Similarly, an internal plastic coating may be applied to the drill pipe.

Production processFootnote 6

[40] At the very simplest level, production of drill pipe requires a drill pipe body and two tool joints. The tool joints are welded to the drill pipe body, creating an actual finished “drill pipe”.

[41] Where fresh drill pipe bodies are being produced, these drill pipe bodies are produced using a length of OCTG green seamless tube with the required inside and outside product diameters and the required chemistry to meet the minimum yield strengths. The green tube is upset on both ends to thicken the walls, by compressing the pipe ends and shortening the pipe. Upsetting can be done by the forging and butting method, or by the profiling method. Forging and butting involves heat treating and forging to create the desired upset type. Profiling involves machining the upset area to the proper finished dimensions to match the tool joint dimensions. Profiling is the more common method for HWDP. Once upset, the tube is heat treated and straightened as necessary. This creates a drill pipe body. The finished drill pipe body is then subject to inspection.

[42] These seamless tubes are produced from billet. Billet is produced primarily from scrap or iron ore (or a combination of both), along with various less significant inputs such as alloying elements.

[43] Some, but not all, producers of drill pipe are vertically integrated and also produce drill pipe bodies, i.e. they produce both drill pipe and the input material – drill pipe bodies. A drill pipe is a fundamentally different product from a drill pipe body. This investigation does not cover drill pipe bodies, only drill pipes.

[44] While a drill pipe producer may be vertically integrated with the drill pipe body producer, such producers still typically source seamless tube (the input material for drill pipe bodies) from upstream suppliers.

[45] It is common both in North America and in China for producers of drill pipe to rely on other companies to supply certified drill pipe bodies for the production of drill pipe, or seamless tube if the producer is a vertically integrated drill pipe and drill pipe body manufacturer.

[46] The process of affixing tool joints to drill pipe bodies is such a highly specialized operation that drill pipe producers must focus on this process.

[47] Drill pipe bodies are often reusable, and their reuse to produce different drill pipe can be more economical than purchasing drill pipe made from fresh drill pipe bodies. Tool joints that have been cut off are generally not reusable.

[48] When tool joints are properly cut off, virtually no additional preparation of the drill pipe body is required before new tool joints can be attached. The only preparation generally required is squaring the cut end of the drill pipe body to ensure good connection between the drill pipe body and the tool joint.

[49] At this point, the drill pipe body (whether fresh or used) is ready to be connected to tool joints. This step is the beginning of the production of drill pipe (i.e. producing a finished drill pipe assembly), which occurs after production of a drill pipe body.

[50] A finished drill pipe produced from a reused drill pipe body (including through stub welding) is physically indistinguishable from a finished drill pipe produced from a fresh drill pipe body. In fact, the convention is that good used drill pipe bodies are marked with a double white band to indicate that the drill pipe body is used and in good condition, otherwise the drill pipe could be taken for a fresh drill pipe.

[51] Tool joints begin with large rectangular steel bars (“bar stock” or “billet”). The bar stock is then either machined or forged into the tool joint shape (a “tool joint blank”). Tool joints blanks may then be heat treated, machined (as necessary) and threaded to meet the relevant specification, whether an API thread or a high strength proprietary thread to produce a finished tool joint.

[52] The preferred method for affixing tool joints to drill pipe bodies is inertia friction welding. Inertia friction welding is much faster, and generally more cost effective than stub welding when there is adequate throughput. In this process, the tool joint is rotated at high speed and pressed onto the tube. This has the effect of fusing the pieces together. The resulting “flash” (metal forced out the sides of the joint) is cleaned both inside and outside the pipe, so that the tool joint is aligned with the pipe. Drill pipe is then heat treated at the weld zone.

[53] Instead of inertia friction welding, tool joints may also be affixed through “stub welding”. Stub welding occurs using a stubbing plug assembly in combination with an air cooling system to weld the tool joints to the pipe.

[54] Both inertia friction welding and stub welding are highly specialized processes that should not be confused with standard welding practices, such as the production of electric resistance welded OCTG. The extreme rotational forces arising from drilling requires these specialized welds to prevent separation of the tool joint and drill pipe body.

[55] The finished drill pipe must then undergo a series of inspections and tests, such as a magnetic particle inspection and visual inspection of the finished drill pipe.

Classification of imports

[56] The allegedly dumped and subsidized goods are normally imported under the following tariff classification numbers:

  • 7304.23.00.10
  • 7304.23.00.20

[57] The subject goods may also be classified under the following tariff classification numbers:

  • 8431.43.00.20
  • 8431.43.00.90

[58] The listing of tariff classification numbers is for convenience of reference only. The tariff classification numbers include non‑subject goods. Also, subject goods may fall under tariff classification numbers that are not listed. Refer to the product definition for authoritative details regarding the subject goods.

Like goods and class of goodsFootnote 7

[59] Subsection 2(1) of SIMA defines “like goods” in relation to any other goods as “... (a) goods that are identical in all respects to the other goods, or (b) in the absence of any such goods..., goods the uses and other characteristics of which closely resemble those of the other goods.” In considering the issue of like goods, the CITT typically looks at a number of factors, including the physical characteristics of the goods, their market characteristics, and whether the domestic goods fulfill the same customer needs as the subject goods.

[60] With respect to the definition of like goods, the complainant stated that like goods are those goods described in the product definition. That is, domestically produced drill pipe, which meets the product definition.

[61] For the purposes of this analysis, like goods consist of domestically produced drill pipe described in the product definition.

[62] With respect to physical characteristics, the complainant stated that the subject goods and like goods have the same end uses as they are all interconnected tubular steel products used in the drill string for oil and gas exploration. They all allow the flow of drilling fluid down‑hole. They all connect the above ground motor to the down‑hole drill bit, and their mass provides downward force on the drill bit to facilitate drilling.Footnote 8

[63] After considering questions of use, physical characteristics and all other relevant factors, the CBSA is of the opinion that subject goods and like goods constitute only one class of goods.

The Canadian industry

[64] There are no other known producers of drill pipe in Canada.

Estimates of domestic production

[65] The complaint included the annual production of like goods for the complainant from January 1, 2018 through December 31, 2021.Footnote 9 As the complainant is the only producer in Canada, the complainant accounts for 100% of the production of drill pipe in Canada.

Standing

[66] Pursuant to subsection 31(2) of SIMA, the following conditions must be met in order for an investigation to be initiated:

  1. the complaint is supported by domestic producers whose production represents more than 50% of the total production of like goods by those domestic producers who express either support for or opposition to the complaint and
  2. the production of the domestic producers who support the complaint represents 25% or more of the total production of like goods by the domestic industry

[67] Based on an analysis of information provided in the complaint, as well as the information gathered by the CBSA, the CBSA is satisfied that the standing requirements of subsection 31(2) of SIMA have been met.

The Canadian market

[68] The complainant, using Statistics Canada and Global Affairs Canada Permit data, estimated the total value of imports of drill pipe from all countries from January 1, 2018 to December 31, 2021.Footnote 10

[69] The CBSA conducted its own independent review of imports of drill pipe from the CBSA’s (Facility Information Retrieval Management (FIRM)) database using the tariff classification numbers under which the subject goods are imported from China. In addition, the CBSA reviewed its Accelerated Commercial Release Operations Support System (ACROSS) data to correct any errors and remove non‑subject imports, which resulted in substantial changes to the import statistics.

[70] Detailed information regarding the sales from domestic production by the complainant and the volume of imports of subject goods cannot be divulged for confidentiality reasons. The CBSA, however, has prepared the following tables to show the estimated import share of subject goods in Canada as well as the Canadian market as a whole from January 1, 2018 to December 31, 2021.

Table 2
CBSA’s estimates of drill pipe imports
(in thousands of dollars)
  2018 % 2019 % 2020 % 2021 %
China 12,574 63% 8,485 56% 1,528 32% 4,824 42%
US 7,023 35% 5,816 39% 2,777 59% 6,334 55%
All other countries 319 2% 755 5% 433 9% 375 3%
Total imports 19,916 100% 15,05 100% 4,738 100% 11,533 100%
Some percent totals may not add to 100% due to rounding
Table 3
CBSA’s estimates of drill pipe imports
(mt)
  2018 % 2019 % 2020 % 2021 %
China 3,862 52% 1,851 35% 416 24% 1,079 34%
US 3,550 47% 3,188 61% 1,224 71% 2,054 65%
All other countries 78 1% 185 4% 78 5% 40 1%
Total imports 7,491 100% 5,224 100% 1,718 100% 3,173 100%
Some percent totals may not add to 100% due to rounding

[71] The CBSA will continue to gather and analyze information on the volume of imports during the Period of Investigation (POI) of January 1, 2021 to February 28, 2022 as part of the preliminary phase of the dumping and subsidy investigations and will refine these estimates.

Evidence of dumping

[72] The complainant alleged that the subject goods from China have been injuriously dumped into Canada. Dumping occurs when the normal value of the goods exceeds the export price to importers in Canada.

[73] Normal values are generally based on the domestic selling price of like goods in the country of export where competitive market conditions exist or as the aggregate of the cost of production of the goods, a reasonable amount for administrative, selling and all other costs, and a reasonable amount for profits.

[74] The complainant made the allegation that the OCTG industry in China may not be operating under competitive market conditions and as such, the domestic market for drill pipe may not be reliable for determining normal values. Accordingly, the complainant submitted that normal values should be determined under section 20 of SIMA.

[75] The export price of goods sold to importers in Canada is generally the lesser of the exporter’s selling price and the importer’s purchase price, less all costs, charges and expenses resulting from the exportation of the goods.

[76] Estimates of normal values and export prices by both the complainant and the CBSA are discussed below.

Normal value

Complainant’s estimates of normal value

Section 15

[77] The complaint included estimates of normal values for four models pursuant to the methodology of section 15 of SIMA for goods from China, based on the domestic selling prices of like goods in China. The complainant obtained these prices from a price list to a large Chinese oil and gas exploration company. The complainant stated that these models are amongst the most common types of drill pipe in Canada.Footnote 11

Paragraph 19(b)

[78] The complainant estimated normal values using a constructed cost approach based on the methodology in paragraph 19(b) of SIMA. The calculation was based on the aggregate of an estimate of the cost of production of the subject goods, an estimate for a reasonable amount for administrative selling and all other costs and an estimate of a reasonable amount for profits.

Complainant’s estimate of cost of production

[79] As information from Chinese producers on their costs of production of subject goods was not available to the complainant, the complainant estimated the cost of production of the subject goods from China, based on the costs of Command Tubular Product LLC (CTP USA), an American producer of drill pipe that is related to the complainant. The complainant relied on CTP USA’s costing information as it is more conservative than the use of its own costs of production, which are based on inefficiently lower production volumes resulting from the injurious effects of subject goods in Canada.Footnote 12

[80] The complainant estimated the cost of production of the subject goods from China, based on the same four benchmark models, using:

  • CTP USA’s direct material costs for drill pipe body and tool jointsFootnote 13
  • CTP USA’s total labour costs including direct labour and labour component of overhead for the production of drill pipe, adjusted downward based on a ratio of comparable American and Chinese wage rates in 2015, as reported in the Wall Street Journal. Labour costs in China were estimated by the complainant to be 64.4% of CTP USA’s total labour costs based on that information. The complainant stated that the same methodology and data was accepted for the purposes of the initiation of a dumping investigation against China on Upholstered Domestic Seating and Container ChassisFootnote 14
  • CTP USA’s non‑labour factory overhead costs for the production of drill pipeFootnote 15

Complainant’s estimates of expenses and profits

[81] To estimate a reasonable amount for administrative, selling, and all other costs and a reasonable amount for profits for the subject goods from China, the complainant used the publicly available financial results for 2020 for Hilong Holding Limited, a known Chinese producer and exporter of subject goods to Canada. Using this information, the complainant estimated an amount of 26.9% of cost of goods sold as a reasonable amount for administrative selling and all other costsFootnote 16 and 5.5% of cost of goods sold as a reasonable amount for profits.Footnote 17

Section 20

[82] The complainant submitted that domestic selling prices of drill pipe in China are substantially influenced by government policies and should not be used in the calculation of normal values since the prices are not reflective of competitive market conditions. As a result, the complainant also estimated normal values for exporters in China using the methodology of section 20 based on surrogate country information.

[83] The complainant submitted that the US is the most appropriate surrogate country. However, the complainant estimated normal values using both the US and Russia as surrogate countries.Footnote 18

United States

[84] The complainant estimated US section 20 normal values based on CTP USA’s sales within the US market. The complainant submitted four commercial invoices for sales made by CTP USA within the year 2021.Footnote 19

Russia

[85] The Russian section 20 surrogate normal values estimated by the complainant were calculated in the same manner as the China section 19 normal values discussed above, with adjustments to reflect labour rates in Russia. The amount for SG&A and the amount for profits were estimated based on a the publicly available financial information of PAO TMK, the dominate drill pipe producer in Russia. PAO TMK owns two facilities producing drill pipe and a separate facility that produces tool joints.Footnote 20

[86] Using this information, the complainant estimated an amount of 19.0% of cost of goods sold as a reasonable amount for administrative selling and other costs and 6.9% of revenue as a reasonable amount for profits.Footnote 21

CBSA’s estimate of normal value

[87] The CBSA conducted research and did not find published prices of drill pipes in China. Therefore the CBSA is unable to estimate normal values following the methodology described in section 15 of SIMA.

[88] With respect to the complainant’s allegations that the conditions of section 20 prevail in the OCTG sector in China, the CBSA will endeavor to gather additional information from exporters, the GOC, and other relevant sources in order to enable the CBSA to form an opinion as to whether the conditions of section 20 exist in the domestic market for drill pipe in China.

[89] While the CBSA acknowledges that there is evidence that the conditions of section 20 exist in the OCTG sector in China, the CBSA finds the methodology of section 19 to be a conservative and reasonable basis for estimating normal values at this stage.

[90] The CBSA estimated normal values using a constructed cost approach based on the methodology in paragraph 19(b) of SIMA, calculated based on the aggregate of estimates of the cost of production of the subject goods, a reasonable amount for administrative selling and other costs and a reasonable amount for profits.

[91] In estimating normal values for subject goods from China based on the methodology of paragraph 19(b) of SIMA, the CBSA established normal values for all four benchmark models identified by the complainant using:

  • CTP USA’s direct material costs of subject goods as estimated by the complainant
  • Estimated direct and indirect labour costs based on CTP USA’s labour costs with more recent data available from January 2022 to adjust for Chinese manufacturing labour costs.Footnote 22 This resulted in a downward adjustment based on a ratio of comparable Chinese and US labour costs that were estimated to be 25.5% of US labour costs.
  • Estimated a reasonable amount for selling, administrative and all other costs based on more recent financial information from June 2021, found by the CBSA, for the Chinese drill pipe producer, Hilong, mentioned earlier. This amount is equal to 35.0% of the cost of production
  • Estimated a reasonable amount for profits based on the publicly available profit information for Hilong based on more recent financial information found by the CBSA. The CBSA notes that complainant estimated an amount of profit of 5.5% based on Hilong’s 2020 financial results; however, upon review of the Hilong’s financial information, the CBSA determined that Hilong experienced a loss of 5.5%. Using more recent financial information from June 2021, the CBSA estimated an amount of profits of 6.6% of cost of production

[92] The CBSA notes that using financial information from two or more Chinese companies would be more representative; however, information from other Chinese companies was not publicly available. As Hilong is a major exporter of drill pipes to Canada, the CBSA finds Hilong’s information to be reasonable and represents the best available information.

Export price

[93] The export price of goods sold to an importer in Canada is generally determined in accordance with section 24 of SIMA as being an amount equal to the lesser of the exporter’s sale price for the goods and the price at which the importer has purchased or agreed to purchase the goods adjusted by deducting all costs, charges, expenses, and duties and taxes resulting from the exportation of the goods.

[94] The complainant estimated export prices of subject goods based on its experience as an importer of subject goods. The complainant indicated that it was forced to import subject goods in order to survive in a price sensitive market in Canada. The complainant also estimated export prices from China based on publicly advertised selling prices from Chinese exporters.Footnote 23 The complainant made certain adjustments where necessary to allow a comparison against the normal values estimated for drill pipes with API tool joints in bare condition without any internal plastic coating or hardbanding.Footnote 24

[95] The CBSA used import data in FIRM and ACROSS to match actual export prices with the normal values, for the benchmark products. The CBSA was able to identify actual export prices for one of the four benchmark models for which normal values were estimated. The CBSA was able to match normal values with a corresponding export price for approximately 433 MT of the estimated 1,079 MT of drill pipe imported between January 1, 2021 and December 31, 2021.

Estimated margins of dumping

[96] For the purposes of the initiation of the investigation the CBSA has estimated normal values based on the methodology of section 19 of SIMA. While the CBSA acknowledges that there is evidence that the conditions of section 20 may exist in the OCTG sector in China, the CBSA finds the methodology of section 19 to be a conservative and reasonable basis for estimating the margin of dumping at this stage.

[97] Based on normal values estimated under section 19, the CBSA estimated the margin of dumping for subject goods from China by comparing the estimated normal values with the estimated export prices for the period reviewed (January 1, 2021 to December 31, 2021). The CBSA estimates that subject goods from China were dumped by a margin of dumping of 39.8%, expressed as a percentage of the export price for subject goods from China.

Section 20 allegations

[98] Section 20 is a provision of SIMA that 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 CBSA, the government of that country substantially determines domestic prices and there is sufficient reason to believe that the domestic prices are not substantially the same as they would be in a competitive market.Footnote 25

[99] The provisions of section 20 are applied on a sector basis rather than on the country as a whole. The sector reviewed will normally only include the industry producing and exporting the goods under investigation.

[100] The CBSA initiates dumping investigations on the presumption that section 20 is not applicable to the sector under investigation unless there is information that suggests otherwise.

[101] A section 20 inquiry refers to the process whereby the CBSA collects information from various sources in order to form an opinion as to whether the conditions described under subsection 20(1) of SIMA exist with respect to the sector under investigation. Before initiating an inquiry under section 20, the CBSA must first analyze the information submitted in the complaint and the evidence it has gathered independently to determine if it is sufficient to warrant the initiation of an inquiry.

[102] The complainant alleged that the conditions described in section 20 prevail in the OCTG sector in China, which includes drill pipe. That is, the complainant alleged that this industry sector in China does not operate under competitive market conditions and consequently, prices of drill pipe established in the Chinese domestic market are not reliable for determining normal values.Footnote 26

[103] The complaint included a variety of evidence to support the claim that the GOC substantially determines domestic prices of drill pipe in the country and that the prices are substantially different than they would be in a competitive market. Specifically, the complainant provided evidence of export controls, state‑ownership in the oil and gas industry sector impacting the consumption of subject goods in China, state‑ownership in the steel industry and OCTG sector, and subsidization in the steel industry and OCTG sector.

[104] The complainant also cited specific policies implemented by the GOC, such as China’s 13th Five‑Year Plan on National Economic and Social Development, 14th Five‑Year Plan on National Economic and Social Development, Iron and Steel Industry Adjustment and Upgrade Plan, National Steel Plan, Steel Revitalization/Rescue Plan, List of Industries, Products and Technologies Currently Encouraged by the State for Development, State Council Decision on Accelerating the Development of Strategic Emerging Industries, Implementation of Capacity Replacement Measures in the Steel Industry, and Made in China 2025 Industrial Policy.Footnote 27

[105] Based on its own analysis, the CBSA believes that there is reasonable evidence to support an inquiry into the allegations that the measures taken by the GOC substantially influence prices in the OCTG sector in China, and that the prices are substantially different than they would be in a competitive market.

[106] Consequently, on March 25, 2022, the CBSA included in its investigation, a section 20 inquiry in order to determine whether the conditions set forth in paragraph 20(1)(a) of SIMA prevail in the OCTG sector in China, which includes drill pipe.

[107] As part of this section 20 inquiry, the CBSA sent section 20 RFIs to all potential producers and exporters of drill pipe in China, as well as to the GOC, requesting detailed information related to the OCTG sector in China, which includes drill pipe.

[108] For the purposes of obtaining information necessary to calculate normal values pursuant to subparagraph 20(1)(c) of SIMA, the CBSA requested information from producers in surrogate countries. As such, the CBSA has selected the US and the UAE as potential surrogate countries and has sent questionnaires to known producers of drill pipe in these countries.

[109] The CBSA selected the US and UAE as surrogate countries as both countries have significant domestic production of drill pipe, significant oil and gas production, and are market‑based economies.

[110] In the event that the CBSA forms an opinion that domestic prices of drill pipe in China are substantially determined by the government, and there is sufficient reason to believe that the domestic prices are not substantially the same as they would be if they were determined in a competitive market, the normal values of the goods under investigation will be determined, pursuant to paragraph 20(1)(c) of SIMA, where such information is available, on the basis of the domestic selling prices or the aggregate of the cost of production, a reasonable amount for administrative, selling and all other costs, and a reasonable amount for profits of like goods sold by producers in any country designated by the CBSA and adjusted for price comparability; or, pursuant to paragraph 20(1)(d) of SIMA, where such information is available, on the basis of the selling price in Canada of like goods produced and imported from any country designated by the CBSA and adjusted for price comparability.

Evidence of subsidizing

[111] In accordance with section 2 of SIMA, a subsidy exists where 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 World Trade Organization (WTO) Agreement that confers a benefit.

[112] Pursuant to subsection 2(1.6) of SIMA, a financial contribution exists 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) above 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

[113] A stated‑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 4) some combination thereof.

[114] If a subsidy is found to exist, it may be subject to countervailing measures if it is specific. A subsidy is considered to be specific when it is limited, in law or in fact, to a particular enterprise or is a prohibited subsidy. An “enterprise” is defined under SIMA as also including a “group of enterprises, an industry and a group of industries”. Any subsidy which is contingent, in whole or in part, on export performance or on the use of goods that are produced or that originate in the country of export is considered to be a prohibited subsidy and is, therefore, specific according to subsection 2(7.2) of SIMA for the purposes of a subsidy investigation.

[115] In accordance with subsection 2(7.3) of SIMA, notwithstanding that a subsidy is not specific in law, a subsidy may also be considered specific in fact, having regard as to whether:

[116] 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 countervailable.

Subsidy programs in China

[117] In alleging that actionable subsidies were applicable to the subject goods imported from China, the complainant mainly relied on previous CBSA subsidy investigations and the US Department of Commerce’s (USDOC) investigations and past countervailing duty findings. The complainant also relied on publications issued by the WTO and GOC as well as past subsidy investigations from the European Commission and the Australian Anti‑Dumping Commission.

[118] The complaint provided evidence of 364 subsidy programsFootnote 28 that producers of subject goods in China may have benefited from.

[119] The complainant primarily referred to the CBSA’s investigations in regards to the subsidizing of Seamless Casing, OCTG I, Pup Joints, Small Diameter Line Pipe, Large Diameter Line Pipe, Fabricated Industrial Steel Components, Carbon Steel Welded Pipe I, Sucker Rods, Steel Grating, Stainless Steel Sinks, Steel Piling Pipe, Galvanized Steel Wire, Rebar I, Cold‑Rolled Steel, and Corrosion‑Resistant Steel Sheet. Subsidy information was also referred from USDOC subsidy investigations including from Drill Pipe from China and from subsidy investigations by the European Commission and the Australian Anti‑Dumping Commission.

[120] The complainant listed each alleged subsidy program, explained how the subsidy is alleged to constitute a financial contribution and why it would be considered to be specific, and therefore actionable. The complainant alleges that each program is either used by or is available for use by producers and exporters of drill pipe in China. The documents that formed the basis for these allegations were appended to the complaint.Footnote 29

[121] The CBSA reviewed the relevant public reports for the subsidy programs identified in the complaint. The CBSA also reviewed the descriptions of subsidy programs provided in reports for other investigations, in particular for other programs found by the USDOC and from more recent subsidy investigations by the CBSA concerning goods from China, such as Container Chassis, Upholstered Domestic Seating, or Decorative and Other Non‑Structural Plywood.

[122] Of the 364 programs alleged by the complainant, the CBSA found that many were duplicates, for example the same program but translated under different names. The CBSA was able to determine that there were only 30 unique potentially actionable subsidy programs that may have benefited Chinese drill pipe producers/exporters. Many of these are programs that the CBSA has already countervailed in respect of previous subsidy investigations concerning goods from China. These programs have been grouped into the following five categories:

  1. Preferential loans and loan guarantees
  2. Grants and grant equivalents
  3. Preferential tax programs
  4. Relief from duties and taxes on inputs, material and machinery
  5. Goods/services provided by the government at less than fair market value

[123] The CBSA’s analysis revealed that the alleged subsidy programs constitute potential financial contributions by the GOC that may have conferred benefits to producers/exporters of drill pipe. In addition, the programs were further examined and were considered to be potentially specific either in law or in fact within the meaning of subsections 2(7.2) and 2(7.3) of SIMA.

[124] The description of the identified programs to be investigated are found in the Appendix.

[125] If more information becomes available during the investigation process that indicates that some exporters/producers of subject goods may have benefited from any other programs during the POI that are not included in the Appendix, the CBSA will request complete information from the GOC and exporters/producers of subject goods to pursue the investigation of these programs.

CBSA's conclusion

[126] Sufficient evidence is available to support the allegations that drill pipe originating in or exported from China have been subsidized. In investigating these programs, the CBSA has requested information from the GOC, exporters and producers to determine whether exporters/producers of subject goods received benefits under these programs and whether these programs, or any other programs, are actionable subsidies and, therefore, countervailable under SIMA.

Estimated amount of subsidy

[127] The complainant was unable to estimate the amounts of subsidy on a program basis for the subject goods imported from China. Instead, the complainant estimated the amount of subsidy as being equal to the difference between its estimated total cost of production and the export price for Chinese drill pipe.Footnote 30

[128] The CBSA estimated the amount of subsidy conferred on exporters of the subject goods by comparing the estimated weighted average full costs of the subsidized goods with the estimated weighted average export prices. The CBSA’s methodologies to estimate the full costs and the export prices are the same as those discussed above in the dumping section.

[129] It is the CBSA’s understanding that subsidies have the effect of lowering the cost of production of goods which allows exporters to pass‑through the subsidy benefits in reducing the selling price of those goods to Canada. Therefore, the CBSA is satisfied that the exporter’s ability to sell subject goods to Canada at prices substantially below their estimated costs supports the complainant’s allegations that the imported goods are subsidized.

[130] The CBSA’s analysis of the information indicates that subject goods imported into Canada during the period of January 1, 2021 to December 31, 2021 were subsidized and that the estimated amount of subsidy is 31.1% of the export price.

Evidence of injury

[131] The complainant alleges that the subject goods have been dumped and subsidized and that such dumping and subsidizing have caused and are threatening to cause material injury to the drill pipe industry in Canada.

[132] SIMA refers to material injury caused to the domestic producers of like goods in Canada. The CBSA has concluded that drill pipe produced by the domestic industry are like goods to the subject goods from China.

[133] In support of their allegations, the complainant provided evidence of: suppressed market share, lost sales, price undercutting, price depression, reduced profits, suppressed capacity utilization, and an inability to proceed with plans to expand production.Footnote 31

Suppressed market share

[134] The complainant alleges that subject imports from China have suppressed the market share of sales of drill pipe from Canadian production from 2018 to the present and provided estimates of import volumes to support this.Footnote 32 The complainant also provided evidence that demonstrates a link between the alleged dumping and subsidy and its suppressed market share in the form of communications regarding lost sales from domestic production.Footnote 33

[135] The CBSA estimates that between the calendar years of 2018 and 2021, the apparent Canadian market for drill pipe decreased by 58%. The CBSA estimates that in the same period, the volume of imports of subject goods from China decreased by 72% and the volume of imports of drill pipe from the US and all other countries decreased by 42%. The volume of Canadian production of like goods also declined significantly during the same period.

[136] The CBSA estimates that imports of subject goods from China peaked in 2018 when the market share of such goods reached 50% of the estimated Canadian market for drill pipe. In 2020 the Canadian market for drill pipe declined sharply due to the effects of the COVID‑19 pandemic, and in that year the market share of subject goods from China is estimated to have declined to 24%. The Canadian market for drill pipe began to recover in 2021, and in that year the volume of imports of subject goods from China increased by 159%, increasing their share of the Canadian market to 33%. Although Canadian production also increased in 2021 from the previous year, in absolute terms that volume of increase was small in comparison with the size of imports of subject goods from China.

[137] Based on continued insignificant market share experienced by the complainant during a period in which market share for imports of subject goods has recently increased, the CBSA finds a reasonable indication of sufficient evidence to support this injury factor alleged by the complainant.

Lost sales, price undercutting, and price depression

[138] The complainant provided five examples of lost sales to drilling contractors where they were undercut in price by subject goods from China.Footnote 34

[139] In all five account‑specific cases cited by the complainant, the customer selected drill pipes from China based on price. In the three instances where Canadian origin drill pipes were offered by the complainant as an option, the China origin drill pipes selected by the customer were significantly less than the CDP price for its goods produced in Canada.

[140] Based on the above evidence of sales lost by the complainant to subject goods on the basis of price, the CBSA finds a reasonable indication of sufficient evidence to support this injury factor alleged by the complainant.

Reduced profits

[141] The complainant stated that “the dominance of low‑priced subject goods, and the resulting downward price pressure in the market, has virtually excluded CDP’s domestic production from the market and prevented CDP from generating any kind of meaningful revenue or profits.”Footnote 35 The complainant provided its financial statements and a table summarizing its annual revenue and profits from 2018 to 2021 to support this statement.Footnote 36

[142] The available evidence supports the complainant’s claim of reduced revenue and net profits and the CBSA is of the opinion that this injury factor of negative financial performance is sufficiently supported and reasonably linked to the alleged dumped and subsidized goods.

Suppressed capacity utilization

[143] CDP stated that it has the capacity to produce an amount of drill pipe per year that is much larger than the amounts it produced in each of the years 2018 to 2021.Footnote 37

[144] As the complainant’s low capacity utilization occurred at that same time it alleges it was unable to compete with imports based on price, including where it lost sales to subject goods from China, the CBSA finds a reasonable indication of sufficient evidence to support this injury factor alleged by the complainant.

Inability to proceed with plans to expand production

[145] The complainant has plans to invest in an expansion of production of drill pipe in Canada which it states will increase its annual production. The complainant states that price undercutting by imports of drill pipe from China has delayed the investment and the investment will only be economically viable if subject goods are prevented from being sold at unfairly low prices. The complainant states that its decision on whether to proceed with the investment depends on the implementation of trade remedy protection to ensure imports of drill pipe from China are fairly traded in Canada, which is the only remaining barrier for the investment to occur.Footnote 38

[146] Based on the information submitted in the complaint, the CBSA finds a reasonable indication of sufficient evidence to support this injury factor alleged by the complainant.

Threat of injury

[147] The complainant alleges that the dumped and subsidized goods threaten to cause further material injury to the domestic producers of drill pipe. The complainant provided the following information to support the allegation that imports of subject goods threaten to cause further injury to the Canadian industry.

Volumes of imports of subject goods from China are growing significantly

[148] The complainant provided evidence that that volumes of imports of dumped and subsidized subject goods from China have grown substantially recently. The quarterly import volumes provided by the complainant are evidence of a trend that imports of subject goods have begun to recover from the 2020 downturn in the oil sector and the economy in general. The complainant cites the recent recovery in the oil market as an indication that the volume of imports of subject goods will continue to grow.Footnote 39

[149] The CBSA obtained evidence that supports the complaint’s allegation that import volumes of subject goods are likely to increase in the form of the change in the price of crude oil since the beginning of 2022. The price of West Texas Intermediate (WTI) crude oil, a benchmark product in the world oil industry, was $75.99 US/bbl on January 3, 2022, the first trading day of the year.Footnote 40 On March 8, 2022, the price of WTI closed at $126.12 US/bbl, a rise of 66% in just over two months.Footnote 41 The price of WTI on that date was the highest in 14 years, since July 2008.Footnote 42 With such a significant increase in the price of oil in 2022, it is reasonable to assume that drilling activity in Canada will increase compared to 2021, providing opportunities for exporters of allegedly dumped and subsidized goods to increase their volumes to Canada.

[150] As a result of the recent estimated increase in imports of subject goods in the fourth quarter of 2021, and the recent increase in the price of crude oil in 2022 which could lead to growing demand for drill pipe, the CBSA finds there is a reasonable indication of sufficient evidence to support this threat of injury factor alleged by the complainant.

Massive production capacity of Chinese producers of subject goods

[151] The complainant alleges that the production capacity for subject goods in China is massive compared to demand in China and demand globally. The complainant identified 52 producers in China of API certified drill pipe and was able to find drill pipe production capacity for 13 of these producers. The complainant noted that the drill pipe production capacity of those 13 producers in China is almost 93 times greater than its estimate of the Canadian market and is 10 times greater than its estimate of global demand.Footnote 43

[152] The CBSA found that these producers can meet only 5.6 times global demand using refined figures, but that still represents massive production capacity in China compared to total global demand. This means that producers in China have overcapacity which may be used to increase export volumes of subject goods to Canada. As a result, the CBSA finds there is a reasonable indication of sufficient evidence to support this threat of injury factor alleged by the complainant.

Trade measures of other countries increase the likelihood of the export of subject goods to Canada

[153] The complainant alleges that trade measures currently in place in markets other than Canada increase the likelihood that production capacity for subject goods in China will be diverted to the Canadian market.

[154] In support of its allegation, the complaint provided a document from US Customs and Border Protection which lists trade measures in place in countries around the world on imports of steel tubular products from China.Footnote 44 However, the document appears to include measures on mostly non‑drill pipe tubular products.

[155] Specific to drill pipe, the complainant identified two trade measures currently in place in the US against drill pipe and drill pipe bodies from China. These measures are section 301 tariffs of 25% on imports of finished drill pipe from ChinaFootnote 45 and section 232 tariffs of 25% on imports of drill pipe bodies from China.Footnote 46 As only the section 301 tariffs cover like goods, finished drill pipe, the CBSA will not consider the section 232 tariffs against drill pipe bodies.

[156] The complainant noted that before the US section 301 tariffs were in place, from January to May 2018, there were 8,224 pieces of drill pipe from China imported into the US, and that during the same five months in 2019 after the tariffs were in place, imports of drill pipe from China shrunk by almost three‑quarters to 2,204 pieces. The complainant annualized this figure by pro‑rating the imports from the five months in 2019 to a full year basis to estimate that approximately 14,400 pieces of drill pipe, which the complainant converted the unit of measure to 3,600 MT, would be diverted each year from the US market.Footnote 47 This estimated volume of drill pipe, no longer exported to the US as a possible result of the section 301 tariffs, could potentially be diverted to Canada. The complainant noted that this estimated volume diverted away from the US market is approximately half the size of the Canadian market for drill pipe.

[157] The complainant also cited the EU safeguard in place on imports of steel tubular goods from China, including drill pipe.Footnote 48 The complainant noted that this measure, along with a similar UK measure, was recently extended until June 2024.Footnote 49

[158] Given the evidence that the above trade measures are in place against like goods, and evidence in the form of an estimate of the amount of China origin drill pipe diverted away from the US market and the size of the estimated amount of such diverted goods relative to the Canadian market, the CBSA finds there is a reasonable indication of sufficient evidence to support this threat of injury factor alleged by the complainant.

High estimated margins of dumping magnifying the threat of injury

[159] The complaint states that the combined margin of dumping and amount of subsidy could be high based on its estimates of export prices, normal values and amounts of subsidy for subject goods. The complainant alleges that such a high unfair pricing advantage on imports of subject goods “pose an imminent and foreseeable threat of injury to CDP.”Footnote 50

[160] As noted above in the Dumping section, the CBSA estimates that subject goods from China were dumped by a margin of dumping of 39.8%, and that the subject goods benefited from an amount of subsidy of 31.1%, expressed as a percentage of the export price. The CBSA notes that a 25% tariff imposed by the US on imports of drill pipe from China, according to evidence provided by the complainant, reduced imports of such goods to the US by almost three quartersFootnote 51; therefore, a combined margin of dumping and amount of subsidy estimated by the CBSA of 70.9% is large enough to have a magnifying effect on imports of drill pipe, and is a reasonable indication of sufficient evidence to support this threat of injury factor alleged by the complainant.

CBSA's conclusion: injury

[161] The CBSA has reviewed the injury factors discussed above. Based on the evidence provided in the complaint, and supplementary data available to the CBSA through its own research, and its FIRM and ACROSS databases, the CBSA is satisfied that there is sufficient evidence that the allegedly dumped and subsidized subject goods from China have caused injury to the domestic industry. The injury factors allegedly suffered by the domestic industry from the imports of allegedly dumped and subsidized subject goods include suppressed market share, lost sales, price undercutting, price depression, reduced revenue and profits, suppressed capacity utilization and an inability to proceed with a planned expansion of production.

[162] With respect to threat of injury, the information provided in the complaint indicates that imports of allegedly dumped and subsidized subject goods from China are posing a threat of injury to the Canadian domestic industry. Given the presence of the factors detailed above for threat of injury, the CBSA believes that the allegation of threat of injury is reasonably supported for subject goods from China.

Causal link: dumping/subsidizing and injury/threat of injury

[163] The CBSA finds that the complainant has sufficiently linked the injury it has suffered to the alleged dumping and subsidizing of subject goods imported into Canada in the form of suppressed market share, lost sales, price undercutting, price depression, reduced profits, suppressed capacity utilization, and an inability to proceed with plans to expand production.

[164] The complainant submitted that the continued dumping and subsidizing of goods from China will cause further injury to the Canadian domestic industry in the future. As discussed above, the CBSA is of the opinion that this allegation of threat of injury is reasonably supported.

[165] In summary, the CBSA is of the opinion that the information provided in the complaint has disclosed a reasonable indication that the alleged dumping and subsidizing have caused injury and are threatening to cause injury to the Canadian domestic industry.

Conclusion

[166] Based on information provided in the complaint, other available information, and the CBSA’s customs documentation, the CBSA is of the opinion that there is evidence that drill pipe originating in or exported from China has been dumped and subsidized. Further, there is evidence that discloses a reasonable indication that such dumping and subsidizing have caused and are threatening to cause injury to the Canadian domestic industry. As a result, pursuant to subsection 31(1) of SIMA, dumping and subsidy investigations were initiated on March 25, 2022.

Scope of the investigations

[167] The CBSA is conducting investigations to determine whether the subject goods have been dumped and/or subsidized.

[168] The CBSA has requested information from all potential exporters and importers to determine whether or not subject goods imported into Canada during the POI of January 1, 2021 to February 28, 2022 were dumped. The information requested will be used to determine the normal values, export prices and margins of dumping, if any. The CBSA also requested information from the GOC with respect to the possibility that the conditions of section 20 of SIMA exist in the OCTG industry in China.

[169] The CBSA has also requested information from the GOC and all potential producers/exporters to determine whether or not subject goods imported into Canada during the POI of January 1, 2021 to February 28, 2022 were subsidized. The information requested will be used to determine the amounts of subsidy, if any.

[170] All parties have been clearly advised of the CBSA’s information requirements and the time frames for providing their responses.

Future action

[171] The CITT will conduct a preliminary inquiry to determine whether the evidence discloses a reasonable indication that the alleged dumping and subsidizing of the goods have caused or are threatening to cause injury to the Canadian industry. The CITT must make its decision on or before the 60th day after the date of the initiation of the investigations. If the CITT concludes that the evidence does not disclose a reasonable indication of injury to the Canadian industry, the investigations will be terminated.

[172] If the CITT finds that the evidence discloses a reasonable indication of injury to the Canadian industry and the CBSA’s preliminary investigations reveal that the goods have been dumped and/or subsidized, the CBSA will make preliminary determinations of dumping and/or subsidizing within 90 days after the date of the initiation of the investigations, by June 23, 2022. Where circumstances warrant, this period may be extended to 135 days from the date of the initiation of the investigations.

[173] Under section 35 of SIMA, if, at any time before making a preliminary determination, the CBSA is satisfied that the volume of goods of a country is negligible, the investigation will be terminated with respect to goods of that country.

[174] Imports of subject goods released by the CBSA on and after the date of preliminary determinations of dumping and/or subsidizing, other than goods of the same description as goods in respect of which a determination was made that the margin of dumping of, or the amount of subsidy on, the goods is insignificant, may be subject to provisional duty in an amount not greater than the estimated margin of dumping or the estimated amount of subsidy on the imported goods.

[175] Should the CBSA make preliminary determinations of dumping and/or subsidizing, the investigations will be continued for the purpose of making final decisions within 90 days after the date of the preliminary determinations.

[176] After the preliminary determinations, if, in respect of goods of a particular exporter, the CBSA’s investigations reveal that imports of the subject goods from that exporter have not been dumped or subsidized, or that the margin of dumping or amount of subsidy is insignificant, the investigation(s) will be terminated in respect of those goods.

[177] If final determinations of dumping and/or subsidizing are made, the CITT will continue its inquiry and hold public hearings into the question of material injury to the Canadian industry. The CITT is required to make a finding with respect to the goods to which the final determinations of dumping and/or subsidizing apply, not later than 120 days after the CBSA’s preliminary determinations.

[178] In the event of an injury finding by the CITT, imports of subject goods released by the CBSA after that date will be subject to anti‑dumping duty equal to the applicable margin of dumping and countervailing duty equal to the amount of subsidy on the imported goods. Should both anti‑dumping and countervailing duties be applicable to subject goods, the amount of any anti‑dumping duty may be reduced by the amount that is attributable to an export subsidy.

Retroactive duty on massive importations

[179] When the CITT conducts an inquiry concerning 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 investigations constitute massive importations over a relatively short period of time and have caused injury to the Canadian industry.

[180] Should the CITT issue such a finding, anti‑dumping and countervailing duties may be imposed retroactively on subject goods imported into Canada and released by the CBSA during the period of 90 days preceding the day of the CBSA making preliminary determinations of dumping and/or subsidizing.

[181] In respect of importations of subsidized goods that have caused injury, however, 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, as explained in the previous “Evidence of Subsidizing” section. In such a case, the amount of countervailing duty applied on a retroactive basis will be equal to the amount of subsidy on the goods that is a prohibited subsidy.

Undertakings

[182] After a preliminary determination of dumping by the CBSA, other than a preliminary determination in which a determination was made that the margin of dumping of the goods is insignificant, an exporter may submit a written undertaking to revise selling prices to Canada so that the margin of dumping or the injury caused by the dumping is eliminated.

[183] Similarly, after the CBSA has rendered a preliminary determination of subsidizing, a foreign government may submit a written undertaking to eliminate the subsidy on the goods exported or to eliminate the injurious effect of the subsidy, by limiting the amount of the subsidy or the quantity of goods exported to Canada. Alternatively, exporters with the written consent of their government may undertake to revise their selling prices so that the amount of the subsidy or the injurious effect of the subsidy is eliminated.

[184] An acceptable undertaking must account for all or substantially all of the exports to Canada of the dumped or subsidized goods. Interested parties may provide comments regarding the acceptability of undertakings within nine days of the receipt of an undertaking by the CBSA. The CBSA will maintain a list of parties who wish to be notified should an undertaking proposal be received. Those who are interested in being notified should provide their name, telephone number, mailing address and email address to one of the officers identified in the “Information” section of this document.

[185] If undertakings were to be accepted, the investigation and the collection of provisional duties would be suspended. Notwithstanding the acceptance of an undertaking, an exporter may request that the CBSA’s investigation be completed and that the CITT complete its injury inquiry.

Publication

[186] Notice of the initiation of these investigations is being published in the Canada Gazette pursuant to subparagraph 34(1)(a)(ii) of SIMA.

Information

[187] Interested parties are invited to file written submissions presenting facts, arguments, and evidence that they feel are relevant to the alleged dumping and subsidizing. Written submissions should be forwarded to the attention of the SIMA Registry and Disclosure Unit.

[188] To be given consideration in these investigations, all information should be received by the CBSA by August 2, 2022, at noon.

[189] Any information submitted to the CBSA by interested parties concerning these investigations is considered to be public information unless clearly marked “confidential”. Where the submission by an interested party is confidential, a non‑confidential version of the submission must be provided at the same time. This non‑confidential version will be made available to other interested parties upon request.

[190] Confidential information submitted to the CBSA will be disclosed on written request to independent counsel for parties to these proceedings, subject to conditions to protect the confidentiality of the information. Confidential information may also be released to the CITT, any court in Canada, or a WTO or Canada‑United States‑Mexico Agreement (CUSMA) dispute settlement panel. Additional information respecting the CBSA’s policy on the disclosure of information under SIMA may be obtained by contacting one of the officers identified below or by visiting the CBSA’s website.

[191] The schedule of the investigations and a complete listing of all exhibits and information are available. The exhibit listing will be updated as new exhibits and information are made available.

[192] This Statement of Reasons is available through the CBSA’s website at the address below. For further information, please contact the officers identified as follows:

SIMA Registry and Disclosure Unit
Trade and Anti-dumping Programs Directorate
Canada Border Services Agency
11-100 Metcalfe St
Ottawa ON  K1A 0L8

Email: simaregistry-depotlmsi@cbsa-asfc.gc.ca

Doug Band
Director General
Trade and Anti‑dumping Programs Directorate

Appendix: description of identified programs

Evidence provided by the complainant and obtained by the CBSA suggests that the Government of China may have provided support to exporters/producers of subject goods in the following manner.

Category 1: Preferential Loans and Loan Guarantees

Program 1: Loans from State‑Owned Banks at Preferential Rates

This program relates to government loans at a preferential rate of interest. The benefit provided in this case is a lower rate of interest than would otherwise be available if the enterprises had to obtain a non‑guaranteed commercial loan (i.e. the benchmark non‑guaranteed commercial loan). Financial institutions may be considered to constitute “government” if they possess, exercise or are vested with government authority, which may be indicated by the following factors:

The CBSA has previously countervailed this program in Container Chassis, Upholstered Domestic Seating (UDS), Fabricated Industrial Steel Components (FISC), Carbon and Alloy Steel Line Pipe (Line Pipe I), Oil Country Tubular Goods (OCTG I), and Seamless Casing.

The United States Department of Commerce (USDOC) countervailed this program as “Central and Provincial Policy Lending to Chinese Drill Pipe Producers” in Drill Pipe from China.

This program may constitute a financial contribution pursuant to paragraph 2(1.6)(a) of SIMA, in that practices of the government involve the direct transfer of funds or liabilities or the contingent transfer of funds or liabilities, that conferred a benefit to the recipient. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 2: Loan Guarantees through the Government of China/SOE Banks/Public Bodies

Assurance provided by the Government of China, a SOE bank or public body (the guarantor) to assume the debt obligation of a borrower if that borrower defaults. A guarantee can be limited or unlimited, making the guarantor liable for only a portion or all of the debt.

The CBSA has previously countervailed this program in UDS, Large Diameter Carbon and Alloy Steel Line Pipe (Large Diameter Line Pipe), and Line Pipe I.

This program may constitute a financial contribution pursuant to paragraph 2(1.6)(a) of SIMA, in that practices of the government involve the direct transfer of funds or liabilities or the contingent transfer of funds or liabilities, that conferred a benefit to the recipient. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 3: Debt and Interest Forgiveness on Loans from State‑Owned Banks

To stimulate the economy and support the development of key industries, the state owned banks write off bad debts or interest owed by state owned enterprises (SOEs).

The CBSA has previously countervailed this program in Certain Seamless Carbon or Alloy Steel Oil and Gas Well Casing (Seamless Casing).

This program may constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, in that amounts that would otherwise be owing and due to the government are reduced or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 4: Preferential Export Financing and Export Credit Guarantee/Insurance

The China Export & Credit Insurance Corporation (Sinosure) is a state funded policy oriented insurance company that was established to promote China’s foreign trade and economic cooperation. The China Exim Bank and Sinosure each provide export credit guarantees which, according to information from the Bank, have “played a key role in supporting Chinese companies to go global” and promoted “the export of new and high tech products”.

The CBSA has previously countervailed this program in UDS and Line Pipe I.

This program may constitute 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 exempted or deducted or amounts that are owing and due to the government are forgiven or not collected. The above confers a benefit to the exporter by way of reducing its financial costs upon obtaining loans from a financial institution, and the benefit is equal to the amount of the exemption/deduction. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Category 2: Grants and Grant Equivalents

Program 5: Insurance Grants

Local and provincial government reimbursement grants on credit insurance fees.

The CBSA has previously countervailed this program in UDS, Seamless Casing, OCTG I, Stainless Steel Sinks, and Line Pipe I.

The financial contribution by the government is the direct transfer of funds pursuant to section 2(1.6)(a) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 6: Design, Research and Development Grants

A grant that provides financial aid for enterprises determined to have undertaken expenses in design or research and development, including related to innovation, science & technology, information technology, or quality improvement.

The CBSA has previously countervailed this program in Container Chassis, UDS, Decorative and Other Non‑Structural Plywood (Plywood), Sucker Rods, Copper Tube, Line Pipe I, Rebar I, Photovoltaic Modules and Laminates, OCTG I, Unitized Wall Modules, Seamless Casing, and FISC.

The USDOC countervailed this program as “Technology to Improve Trade R&D Fund” in Drill Pipe from China.

The financial contribution by the government is the direct transfer of funds pursuant to section 2(1.6)(a) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 7: Grant ‑ Patent Assistance/Award

Based on the information available to the CBSA, this program was provided in several provinces, such as Guangdong, Shanghai and Jiangsu. For example, the GOC document associated with this program for Guangdong province may include: “Administrative Measures of Patent Award of Guangdong Province”. In Guangdong province, this program was administered by the Intellectual Property Office of Guangdong, the Bureau of Personnel of Guangdong Province and municipal level authorities. The program was established to support improvement in technology innovation and to promote intellectual property.

In addition, the GOC document associated with this program for Shanghai may include: “The administrative measures regarding the financial support/subsidy for Patents by Shanghai”. In Jiangsu province, this program was administrated by Jiangsu Intellectual Property Office.

The CBSA has previously countervailed this program in Container Chassis, UDS, and Plywood.

This program is a financial contribution pursuant to paragraph 2(1.6)(a) of SIMA as a direct transfer of funds from the government and confers a benefit to the recipient equal to the amount of the grant. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 8: Export Development and Performance Grants

Companies in China receive such grants provided by the GOC to assist in the development of export markets or to recognize export performance.

The CBSA has previously countervailed this program in Container Chassis, UDS, Plywood, Sucker Rods, OCTG I, Line Pipe I, Unitized Wall Modules, Aluminum Extrusions, Carbon Steel Welded Pipe (CSWP I), Pup Joints, FISC, Stainless Steel Sinks, and Steel Grating.

As per the SOR issued at the OCTG I final determination, the 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 came into force on October 24, 2000. The 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 is the Foreign Trade and Economic Department and the program is administered at the local levels.

The financial contribution by the government is the direct transfer of funds pursuant to section 2(1.6)(a) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 9: Performance Award Grants

A grant that provides financial aid for enterprises with excellent performance.

The CBSA has previously countervailed this program in UDS, Seamless Casing, Aluminum Extrusions, OCTG I, Copper Tube, and Line Pipe I.

The USDOC countervailed this program as “Outstanding Growth Private Enterprise and Small and Medium‑sized Enterprises Development in Jiangyin Fund” in Drill Pipe from China.

The financial contribution by the government is the direct transfer of funds pursuant to section 2(1.6)(a) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 10: Reductions in Land Use and/or Rental Fees

This program provides for the reduction in land use fees and rental rates for certain number of years. Examples of this program in action include: a document titled '[2003] No.8 Preferential Supply of Land', in order to offset costs for industrial companies in the Ninghai Economic Development Zone; or similar initiatives in the Tianjin Binhai New Area and the Tianjin Economic and Technological Development Area.

The CBSA has previously countervailed this program in UDS, Plywood, Stainless Steel Sinks, Unitized Wall Modules, Photovoltaic Modules and Laminates, Seamless Casing, OCTG I, and Line Pipe I.

The financial contribution by the government consists of government revenue that is otherwise due is foregone or not collected, pursuant to section 2(1.6)(b) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 11: Grants for the Retirement of Capacity

The GOC’s 12th Five‑Year Plan for Energy Conservation and Emission Reduction calls for accelerating and eliminating “backward production capacity” in certain industrial sectors, including the elimination of 48 million metric tonnes of steel production. In 2013, the State Council issued the “Guiding Opinion on Resolving the Problem of Severe Excess Capacity,” which called for establishing special funds to accelerate the elimination of backwards capacity and to also support industries with excess production capacity.

This program is a financial contribution pursuant to paragraph 2(1.6)(a) of SIMA as a direct transfer of funds from the government and confers a benefit to the recipient equal to the amount of the grant. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 12: Grants for Relocating Production Facilities

As part of the GOC’s 12th Five Year Steel Development Plan, the GOC has been locating urban based steel producers to locations outside of their current city. The GOC’s 12th Five Year Plan for Energy Conservation and Emission Reduction calls for the relocation for “heavy polluting enterprises” and for measures to optimize the “regional spatial layout” of “key industries,” including the steel industry.

This program is a financial contribution pursuant to paragraph 2(1.6)(a) of SIMA as a direct transfer of funds from the government and confers a benefit to the recipient equal to the amount of the grant. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 13: Environment Protection Grant

These are grants provided by the GOC for the purposes of improving environmental performance, for example, monitoring and cleaning pollutants, improving energy efficiency, upgrading facilities to be more environmentally efficient, and waste water treatment.

The CBSA has previously countervailed this program in Container Chassis, UDS, Line Pipe I, Concrete Reinforcing Bar (Rebar I), OCTG I, FISC, and Copper Tube.

This program appears to be a financial contribution pursuant to paragraph 2(1.6)(a) of SIMA as a direct transfer of funds from the government and confers a benefit to the recipient equal to the amount of the grant. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 14: Subsidies Related to Employment, Training, Recruitment, and Social Security

Available information indicates that the GOC has introduced several grants and incentives designed to support job stabilization by assisting companies with unemployment insurance payments as well as supporting the recruitment, training and subsequent job security of their staff.

The CBSA has previously countervailed this program in Container Chassis, UDS, and Plywood.

This program appears to be a financial contribution pursuant to paragraph 2(1.6)(a) of SIMA as a direct transfer of funds from the government and confers a benefit to the recipient equal to the amount of the grant. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 15: Subsidies Related to Pandemic Support

Available information indicates that the GOC has introduced several grants and incentives designed to support job stabilization and weather economic hardships experienced by exporters during the COVID‑19 pandemic.

The CBSA has previously countervailed this program in Container Chassis and UDS.

This program appears to be a financial contribution pursuant to paragraph 2(1.6)(a) of SIMA as a direct transfer of funds from the government and confers a benefit to the recipient equal to the amount of the grant. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 16: Subsidies Related to Capital Expenditures

Available information indicates that the GOC has introduced several grants and incentives designed to support companies with expenditures on capital assets, including equipment procurement, property or plant developments, upgrades or renovations, and company projects deemed by the government to benefit local infrastructure.

The CBSA has previously countervailed this program in Container Chassis, Line Pipe I, and Rebar I.

This program appears to be a financial contribution pursuant to paragraph 2(1.6)(a) of SIMA as a direct transfer of funds from the government and confers a benefit to the recipient equal to the amount of the grant. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Category 3: Preferential Tax Programs

Program 17: Corporate Income Tax Exemption and/or Reduction in Special Economic Zones (SEZs) and Other Designated Areas

This program was established under the Rules for the Implementation of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises, which came into effect on July 1, 1991. The program was allegedly established to absorb investment in special economic zones (SEZs) and designated areas to take the lead in their economic development. The granting authority responsible for this program is allegedly the State Administration of Taxation and the program is administered by local tax authorities. Under this program, it is alleged that an eligible enterprises may receive a reduced corporate income tax rate of 15%.

Under Article 57 of the Enterprise Income Tax Law in China and the “notification of the State Council on Providing Transitional Preferential Tax Treatments to High‑Tech Enterprises Newly Set Up in Special Economic Zones and in the Pudong New District of Shanghai,” the GOC exempts NHTEs from income taxes for the first two years after earning a profit from production, and pay only half of the standard tax rate for the next three years if located in a special economic zone (i.e., the Hainan, Shantou, Shenzhen, Xiamen, Zhuhai) or the Pudong New District of Shanghai.

The CBSA has previously countervailed this program in UDS, Aluminum Extrusions, OCTG I, Seamless Casing, and Line Pipe I.

The financial contribution by the government consists of government revenue that is otherwise due is foregone or not collected, pursuant to section 2(1.6)(b) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 18: Corporate Income Tax Reduction for New High Tech Enterprises (“NHTE”)

Under Article 28.2 of the Enterprise Income Tax Law in China, companies designated as high‑ or new‑technology enterprises are entitled to a reduced income tax rate of 10 percent instead of the normal national corporate tax rate of 25 percent. The granting authority responsible for this program is alleged to be the State Administration of Taxation and the program is administered by local tax authorities. In its notification of subsidy programs to the WTO, the GOC listed this program.

The CBSA has previously countervailed this program in Container Chassis, UDS, Plywood, Sucker Rods, FISC, Line Pipe I, Seamless Casing, and OCTG I.

The financial contribution by the government consists of government revenue that is otherwise due is foregone or not collected, pursuant to section 2(1.6)(b) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 19: Corporate Income Tax Reduction for Newly Profitable Enterprises

This program was originally found pursuant to Article 57 of the Income Tax Law of the People's Republic of China for Enterprises and the Notification of the State Council on Carrying out the Transitional Preferential Policies concerning Enterprise Income Tax, Guo Fa (2007), No. 39.

The CBSA has previously countervailed this program in OCTG I.

The financial contribution by the government consists of government revenue that is otherwise due is foregone or not collected, pursuant to section 2(1.6)(b) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 20: Municipal/Local Income or Property Tax Reductions

This program covers reductions and exemptions in tax provided from Municipal/Local Income tax units.

The CBSA has previously countervailed this program in UDS, Sucker Rods, Unitized Wall Modules, Photovoltaic Modules and Laminates, CSWP I, and Line Pipe I.

The financial contribution by the government consists of government revenue that is otherwise due is foregone or not collected, pursuant to section 2(1.6)(b) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 21: Preferential Tax Policies for Foreign‑Invested Enterprises (FIEs)

Despite the implementation of the new Enterprise Income Tax Law (EITL) in 2008, which officially superseded the old FIE Tax Law, FIEs have likely continued to benefit from various incentives that were provided under the older Foreign‑Invested Enterprise Tax Law (FIE Tax Law). Specifically, Article 9 of the FIE Tax Law delegates to China’s provincial and local governments the authority to provide exemptions and reductions of local income taxes for “productive” FIEs. Eligibility criteria vary by province and the relevant governmental authorities administer the application process.

The CBSA has previously countervailed this program in Pup Joints and Seamless Casing. Further, the GOC has listed this title in its notification of subsidy programs to the WTO.

The USDOC countervailed this program as “Two Free, Three Half Tax Exemption for FIEs” and “Exemption from City Construction Tax and Education Tax for FIEs” in Drill Pipe from China.

The financial contribution by the government consists of government revenue that is otherwise due is foregone or not collected, pursuant to section 2(1.6)(b) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 22: Preferential Tax Policies Related to Research and Investment

Under this program based on the 2008 corporate tax law, high‑ or new‑technology enterprises may deduct 50 percent of their total R&D expenses from their taxable income. Eligible expenses include design costs, expenses for materials and fuel consumed through R&D activities, wages, salaries, and benefits for personnel engaged in R&D activities, depreciation expenses on instruments and equipment, and many other expenses.

The CBSA has previously countervailed this program in Container Chassis, UDS, Plywood, Sucker Rods, Photovoltaic Modules and Laminates, Seamless Casing, Rebar I, and OCTG I. Further, the GOC has listed this title in its notification of subsidy programs to the WTO.

The financial contribution by the government consists of government revenue that is otherwise due is foregone or not collected, pursuant to section 2(1.6)(b) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Category 4: Relief from Duties and Taxes in Inputs, Material and Machinery

Program 23: Offsets to Taxable Income Related to Purchases of Domestic Machinery

Under this program, a tax credit up to 40% of the purchase price of domestic equipment may apply to the incremental increase in tax liability from the previous year. The legal bases of this program are the provisional measures on enterprise income tax credit for investment in domestically produced equipment for technology renovation projects of July 1, 1999 and the Notice of the State Administration of Taxation on Stopping the Implementation of the Enterprise Income Tax Deduction and Exemption Policy of the Investments of an Enterprise in Purchasing Home made Equipment, No. 52 [2008] of the State Administration of Taxation, effective January 1, 2008.

The CBSA has previously countervailed this program in Aluminum Extrusions, Photovoltaic Modules and Laminates, Seamless Casing, and OCTG I.

The financial contribution by the government consists of government revenue that is otherwise due is foregone or not collected, pursuant to section 2(1.6)(b) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 24: Exemption or Refund of Tariff and Import Value‑Added Tax (VAT) for Imported Technologies and Equipment

The program was established to absorb investment in Special Economic Zones (SEZs) and encourage districts to take the lead in development. The granting authority responsible for this program is the General Administration of Customs and this program is administered by local customs authorities. Under this program, machinery and equipment, spare parts, raw and semi‑processed materials, means of transportation and other capital goods necessary for production that are imported by enterprises in SEZs shall be exempted from import duties.

The CBSA has previously countervailed this program in Sucker Rods, Photovoltaic Modules and Laminates, Unitized Wall Modules, Seamless Casing, and Line Pipe I.

The USDOC countervailed this program as “Import Tariff and Value‑Added Tax (VAT) Exemptions for FIEs and Certain Domestic Enterprises Using Imported Equipment in Encouraged Industries” in Drill Pipe from China.

The financial contribution by the government consists of government revenue that is otherwise due is foregone or not collected, pursuant to section 2(1.6)(b) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 25: Relief from Duties and Taxes on Imported Material and Other Manufacturing Inputs

Under a duty drawback program, a subsidy may exist where the amount of duties and taxes relieved or refunded on inputs incorporated into exported goods is found to be in excess of the actual liability that existed on those imports.

The CBSA has previously countervailed this program in Photovoltaic Modules and Laminates, Seamless Casing, and OCTG I.

The financial contribution by the government consists of government revenue that is otherwise due is foregone or not collected, pursuant to section 2(1.6)(b) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 26: Deed Tax Exemption for SOEs Undergoing Mergers or Restructuring

The GOC imposes a deed tax on transfers of land and real estate. In the context of an ownership transfer by means of an asset sale, as opposed to a stock sale, a deed tax of three to five percent is levied on the amount of the purchase price, and the purchaser is responsible for paying the tax. The GOC’s “Notice of the Ministry of Finance and the State Administration of Taxation on Several Deed Tax Policies Concerning Enterprise Reorganization and Restructuring,” exempts this deed tax where the transfer of ownership occurs as part of the restructuring or merger of an SOE.

This financial contribution by the government consists of government revenue that is otherwise due is foregone or not collected, pursuant to section 2(1.6)(b) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Category 5: Good / Services Provided by the Government at Less Than Fair Market Value

Program 27: Acquisition at Less Than Fair Market Value of Government Inputs/Utilities

Provision by the government, including by SOEs and state‑controlled enterprises, of goods or services at prices lower than the fair market value of the goods or services in the territory of the government providing the subsidy.

The CBSA has previously countervailed this program in Container Chassis, UDS, FISC, Sucker Rods, CSWP I, Seamless Casing, OCTG I, and Steel Piling Pipe.

The USDOC countervailed this program as “Provision of Green Tubes for LTAR [Less Than Adequate Remuneration]” and “Provision of Electricity for LTAR” in Drill Pipe from China.

This program may constitute a financial contribution pursuant to paragraph 2(1.6)(c) of SIMA as it involve the provision of goods or services, other than general governmental infrastructure. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 28: Acquisition at Less Than Fair Market Value of Government Assets

Based on information available to the CBSA, during past periods of privatization, China's state‑owned oil companies shifted their focus toward core businesses and moved to divest themselves of certain peripheral operations such as production of OCTG, changing the ownership status of certain exporters from that of SOEs to either FIEs or private limited enterprises. The CBSA has determined in a past countervailing investigation that for one such exporter, the majority of previously government‑owned assets had been distributed to company employees at no cost.

The CBSA has previously countervailed this program in OCTG I.

The complainant also alleges that SOEs benefit from exemptions from distributing dividends to the government as their owner even when they earn profits. This exemption may constitute an acquisition at less than fair market value of equity capital from the GOC.

This program may constitute a financial contribution pursuant to paragraph 2(1.6)(c) of SIMA as it involve the provision of goods or services, other than general governmental infrastructure. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 29: Provision of Land for Less than Adequate Remuneration by Government

All land in China belongs to the government (i.e., either national or local governments, or through a “collective” at the township or village level), and government land agencies across China control the allocation of land through the granting of land‑use rights.

The CBSA has previously countervailed this program in Seamless Casing and Line Pipe I.

This financial contribution by the government consists of government revenue that is otherwise due is foregone or not collected, pursuant to section 2(1.6)(b) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 30: Debt‑to‑Equity Swaps for Less than Fair Market Value

The debt‑to‑equity swap was a measure used in the financial restructuring of China’s state owned enterprises (SOE) and state‑owned banks. Pursuant to the Regulations of Asset Management Companies (promulgated by decree on November 20, 2000), the State Council established four asset management companies (AMCs) that were directed to purchase certain non‑performing loans from state‑owned banks. The four AMCs were supervised and managed by the People's Bank of China, China's Ministry of Finance and the China Securities Regulatory Commission. One of the authorized business activities available for the management of non‑performing loans purchased by the AMCs was the debt‑to‑equity swap. A debt‑to‑equity swap is a transaction in which a creditor, in this case an AMC, forgives some or all of a company's debt in exchange for equity in the company.

The CBSA has previously countervailed this program in Seamless Casing and OCTG I.

This financial contribution by the Government consists of government revenue that is otherwise due is foregone or not collected, pursuant to section 2(1.6)(b) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Date modified: