PJ 2016 ER
Certain Pup Joints
Statement of Reasons

[1] On August 2, 2016, the Canadian International Trade Tribunal (CITT), pursuant to subsection 76.03(3) of the Special Import Measures Act (SIMA), initiated an expiry review of its finding made on April 10, 2012 in Inquiry No. NQ-2011-001 concerning the dumping and subsidizing of certain pup joints originating in or exported from the People’s Republic of China (China).

[2] As a result of the CITT’s notice, on August 3, 2016, the Canada Border Services Agency (CBSA) commenced an investigation to determine, pursuant to paragraph 76.03(7)(a) of SIMA, whether the expiry of the finding is likely to result in the continuation or resumption of dumping and/or subsidizing of the goods.

[3] Responses to the Canadian Producer Expiry Review Questionnaire (ERQ) were received from Dover Canada ULC – Alberta Oil Tool Division (AOT)^{Footnote 1} and Tenaris Canada.^{Footnote 2} In addition to responding to the ERQ, AOT submitted supplementary information prior to the closing of the record and also filed a case brief.^{Footnote 3}

[4] The ERQ response and the case brief submitted by AOT, as well as the ERQ response from Tenaris Canada, included information supporting their position that continued or resumed dumping and subsidizing of pup joints from China is likely should the CITT rescind its finding.

[5] The CBSA received a response to the Exporter ERQ from Hengshui Weijia Petroleum Equipment Manufacturing Co., Ltd. (Weijia)^{Footnote 4} and a response to its Importer ERQ from WestCan Oilfield Supply Ltd. (WestCan).^{Footnote 5} It should be noted that Weijia and WestCan are related to each other. WestCan has a 49% ownership share in Weijia and is the Canadian distributor of pup joints manufactured by Weijia.

[6] Both WestCan and Weijia provided case briefs^{Footnote 6} supporting their position that continued or resumed dumping and subsidizing of pup joints from China is likely if the CITT’s finding were to expire. No other exporters or importers submitted case briefs or reply submissions.

[7] The CBSA did not receive a response to the ERQ from the government of China (GOC) nor did it receive a case brief from the GOC.

[8] Analysis of information on the record indicates that pup joint producers in China have large production capabilities but are faced with a softening in domestic demand for these goods; anti-dumping measures have been imposed by other countries on the same or closely related tubular products from China; and exporters from China have not, with the exception of one, demonstrated an ability to compete in Canada at non dumped prices.

[9] Analysis of information on the record also indicates that exporters in China have continued to avail themselves of subsidy programs; exporters benefit from the GOC’s provision of subsidies to manufacturers in the steel sector; and the same or closely-related tubular products from China are also subject to countervailing measures in Canada and in other jurisdictions.

[10] For the forgoing reasons, the CBSA, having considered the information on the record, determined on November 30, 2016, under paragraph 76.03(7)(a) of SIMA that:

1. the expiry of the finding in respect of the dumping of certain pup joints originating in or exported from China is likely to result in the continuation or resumption of dumping of the goods into Canada; and
2. the expiry of the finding in respect of the subsidizing of certain pup joints originating in or exported from China is likely to result in the continuation of subsidizing of the goods exported to Canada.

[11] On September 12, 2011, following a complaint filed by AOT, the CBSA initiated investigations respecting the dumping and subsidizing of certain pup joints originating in or exported from China.

[12] On March 12, 2012, the CBSA made final determinations of dumping and subsidizing in respect of certain pup joints from China. On April 10, 2012, an injury finding was issued by the CITT.

[13] On December 14, 2015, the CBSA concluded a re-investigation to update the normal values, export prices, and amounts of subsidy of certain pup joints, oil country tubular goods (OCTG) and seamless casing, originating in or exported from China.

[14] On June 13, 2016, pursuant to subsection 76.03(2) of SIMA, the CITT issued a notice concerning the expiry of its finding, which is scheduled to expire on April 9, 2017. Based on the information filed during the expiry process, the CITT decided that a review of the finding was warranted.

[15] On August 2, 2016, the CITT initiated an expiry review of its finding pursuant to subsection 76.03(3) of SIMA.

[16] On August 3, 2016, the CBSA commenced an expiry review investigation to determine whether the expiry of the finding is likely to result in continued or resumed dumping and/or subsidizing of the goods from China.

[17] The goods subject to this expiry review are defined as:

[26] Pup joints are normally imported into Canada under the following Harmonized System (HS) classification numbers:

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

[27] This listing of HS codes is for convenience of reference only. Refer to the product definition for authoritative details regarding the subject goods.

[28] The period of review (POR) for the CBSA’s expiry review investigation is from January 1, 2013 to June 30, 2016.

[29] The Canadian industry for certain pup joints is comprised of the following companies:

• Dover Canada ULC – Alberta Oil Tool Division (AOT)
• Tenaris Canada

[34] The apparent Canadian market for pup joints cannot be disclosed. The total value and volume of Canadian production of pup joints sold for domestic consumption during the POR cannot be disclosed as it is based on confidential information filed by AOT and Tenaris Canada. Releasing the combined sales figures of the two would allow either party to calculate the confidential sales figures of the other. Similarly, the total value and volume of pup joints imported into Canada from China during the POR cannot be disclosed because of the limited number of parties involved in the importing and exporting of these goods. Releasing this information would disclose information protected under section 107 of the Customs Act.

[37] Subject goods were imported into Canada in each year of the POR as well as in the first six months of 2016. SIMA duties were collected on these imports but the amount of duties collected cannot be disclosed due to confidentiality reasons.

[38] On August 3, 2016, a notice concerning the CBSA’s initiation of the expiry review investigation was sent to potential Canadian producers, importers and exporters of pup joints, as well as to the GOC. All of these parties were also sent an ERQ.

[39] The ERQ requested information relevant to the CBSA’s consideration of the expiry review factors, as listed in subsection 37.2(1) of the Special Import Measures Regulations (SIMR).

[40] Of the 15 ERQs sent to potential Canadian producers of pup joints at the initiation of the expiry review investigation, the CBSA received responses from two parties, AOT and Tenaris Canada. In addition to its ERQ response, AOT also provided a case brief.

[41] The CBSA sent 142 ERQs to potential exporters of pup joints from China at the initiation of the expiry review investigation and received a response from one exporter, Weijia. In addition to its response to the ERQ, Weijia also provided a case brief.

[42] Of the 17 ERQs sent to potential importers at the initiation of the expiry review investigation, one importer, WestCan, provided a response to the ERQ. WestCan also provided a case brief.

[43] The GOC did not provide a response to the CBSA’s ERQ nor did it submit a case brief.

[68] In making a determination under paragraph 76.03(7)(a) of SIMA whether the expiry of the finding is likely to result in the continuation or resumption of dumping of the goods, the CBSA may consider factors identified in subsection 37.2(1) of the SIMR, as well as any other factors relevant in the circumstances.

[69] As mentioned earlier, four parties provided responses to the CBSA’s ERQ: Canadian producers AOT and Tenaris Canada and related importer and exporter WestCan and Weijia. In addition to ERQ responses, AOT, WestCan and Weijia submitted case briefs. All four parties made representations that dumping of pup joints from China is likely to continue or resume should the CITT rescind its finding.

[70] During the CBSA’s POR of January 1, 2013 to June 30, 2016, China’s domestic steel market was experiencing increasing supply. In March 2014 Qu Xiuli, vice secretary general of the China Iron and Steel Association (CISA), noted that the massive oversupply of steel in China will be “hard to reduce in a short time” and will very likely persist throughout 2014 because, despite suffering high steel inventories and financing costs, Chinese steelmakers have maintained high production rates. During January/February 2014 China’s crude steel output reached a new high of 2.217 million metric tons/day despite continuous domestic steel price declines since September 2013.^{Footnote 37}

[71] A narrower picture of the steel market, the seamless pipe market - of which pup joints are a small subset - offers a similar view. According to data from China’s National Bureau of Statistics, the country’s seamless pipe output increased to a record yearly high of 29.63 million metric tons in 2013 due in part to newly commissioned capacity. CISA affiliated China Metallurgical News (CMN) predicted that, due to oversupply and lukewarm domestic demand, the seamless pipe industry would likely remain under downward pressure in 2014. CMN also warned that the ramp-up in China’s seamless pipe production was likely to continue and that the overcapacity could cause the surplus to worsen in the coming years.^{Footnote 38} According to the China Steel Pipe Association (CSPA), in 2013 China’s seamless pipe capacity was 42 million metric tons/year (mt/y) and its capacity utilization was 67%, which it described as indicating important overcapacity.^{Footnote 39} A capacity utilization rate of 67% means that there would be approximately 14 million mt/y of unused capacity.

[72] At the same time as producers of seamless pipe in China were significantly increasing production levels and breaking production records, PetroChina and Sinopec, the country’s two largest oil and gas producers, were reducing capital spending. The reduced spending at the country’s largest energy companies was predicted to result in lower demand for OCTG in China.^{Footnote 40} According to a director at the CSPA in 2014:

[73] The CSPA official concluded that the fierce competition resulted from oversupply and low industry concentration and accused mills of selling OCTG at a loss.^{Footnote 41} This same behaviour of selling below cost, if directed at export markets, would be regarded as dumping.

[74] Specific information on production volumes and production capacities of pup joint producers in China is difficult to obtain. The reason for this is that pup joints are a very small subset of a much larger group of products called OCTG, comprised primarily of casing, tubing and drill pipes. Due to the small quantities of pup joints produced and the correspondingly small revenues generated from their sales, many companies do not track their production independently. OCTG producers, who are primarily concerned with producing and selling full length casing and tubing products, may simply merge pup joint production data with that of either casing or tubing since pup joints are often considered smaller pieces of casing and tubing. Despite the difficulties encountered in finding accurate production data on pup joints, either from producers themselves or from trade publications, there is sufficient information on the CBSA’s record pertaining to the broader category of OCTG products as well as information pertaining to a limited number of pup joint producers in China.

[75] In 2013, China’s OCTG production capacity exceeded 10 million mt/y and the country was home to 70% of the world’s seamless pipe rolling mills.^{Footnote 42} In 2014, five of the top ten seamless steel tube and pipe producers of the world were located in China.^{Footnote 43}

[76] OCTG producers in China who also produce pup joints include such companies as: Shandong Molong Petroleum Machinery, which boasts production capacity of 650,000 mt/y;^{Footnote 44} Hengyang Valin Steel Tube, whose seamless pipe rolling capacity is listed as 2 million mt/y thanks in part to an additional mill brought on stream in 2012;^{Footnote 45} Jiangsu Changbao Steel Tube, which boasts installed capacity of 650,000 mt/y and who commissioned a new heat treatment mill and threading mill in 2014;^{Footnote 46} and WSP Holdings Ltd., whose seamless pipe rolling capacity is listed as 950,000 mt/y.^{Footnote 47}

[77] In terms of pup joints specifically, as of March 2016, the API listed 84 pup joint manufacturers in China as having an API license.^{Footnote 48} Internet queries on websites such as alibaba.com reveal a number of pup joint manufacturers in China offering their products for sale. Along with selling price information, companies provide their ‘supply ability’ or, in other words, their production capabilities. According to the information supplied by six such producers in China their manufacturing abilities range from a low of 60,000 pieces/year to a high of 6,000 metric tons/month.^{Footnote 49} The total production capacity of the six producers amounts to approximately 126,000 mt/y. The production capabilities of this very small group of pup joint producers provides an indicator of the enormous potential capacity of all pup joint producers in China.

[78] With strong competition in their domestic market due to weaker sales and significant overcapacity, OCTG producers in China will have to continue to rely on export markets if they wish to survive given the challenging conditions they are confronted with, both in their home market and in the global energy market. Information on the record shows that one company has “lifted its export target” while another company “will have to . . . focus on exports.”^{Footnote 50} Already considered the largest exporter of OCTG in the world for a number of years^{Footnote 51}, China is unlikely to lose this title in the foreseeable future given the severe overcapacity issues producers in that country are faced with coupled with cutbacks by the country’s largest oil and gas producers.

[79] There are currently numerous anti-dumping measures in place by countries other than Canada aimed at protecting their domestic industries from the injurious effects of dumped steel products from China. As examples, Australia currently enforces anti-dumping duty against 8 steel products from China; the European Union enforces anti-dumping duty against 12 steel products from China; and the U.S. enforces anti-dumping duty against 24 steel products from China.^{Footnote 52} Sixteen of the 44 steel products currently under protective measures are tubular products. Of special note is a finding in the U.S. against OCTG from China, which includes pup joints. In May 2015, subject to a five year review, the U.S. International Trade Commission determined that revocation of the countervailing duty and antidumping duty orders on oil country tubular goods from China would be likely to lead to continuation or recurrence of material injury to an industry in the U.S. within a reasonably foreseeable time.^{Footnote 53}

[80] In Canada, there are currently 11 different steel products from China that are subject to anti dumping duty, not including pup joints. Of note are many tubular products such as carbon steel welded pipe and piling pipe and, more specifically, line pipe, OCTG and seamless casing.^{Footnote 54} These latter three products, like pup joints, are all goods specifically designed for the oil and gas industry. The existence of a substantial number of anti-dumping measures in place in various countries against tubular products from China and, more importantly, the existence of the same measures against OCTG products in Canada and the U.S. would indicate that exporters in China continue to aggressively sell these goods in export markets.

[81] As stated above, pup joints from China are not only subject to a finding in Canada but are also subject to an anti-dumping duty order in the U.S. by virtue of being included under the product definition of ‘oil country tubular goods from China’. In May 2015, the U.S. International Trade Commission extended anti-dumping duty orders on OCTG from China for a further five years. Based on the fact that the North American market is one of the largest OCTG markets in the world, and the fact that the Canadian and American markets are highly integrated with many of the same players, there is a distinct possibility that pup joints from China will be diverted from the U.S. market to Canada to be sold at unrestricted prices should the finding be rescinded.

[82] In the CBSA’s original dumping investigation of pup joints from China, which was initiated in 2011, Weijia was the only exporter to participate. Similarly, Weijia was the only exporter of pup joints to participate in the CBSA’s re-investigation of these goods in 2015. In both instances Weijia received a ruling letter from the CBSA outlining how the company would receive normal values on a monthly basis. The normal values would be based in part on the selling prices of tubing product sold in the U.S. and tracked by the trade publication Pipe Logix. It is noteworthy that Weijia has been able to sell to WestCan, its related importer in Canada, during the POR while imports of subject pup joints from other exporters in China have ceased. The lack of cooperation of other exporters in the re-investigation and the fact that all other exporters have vacated the Canadian market while Weijia has remained is a telling indication of the inability of other exporters in China to compete in Canada at non dumped prices.

[83] Also telling are the comments made by certain pup joint producers in China and obtained by AOT in response to its request for price quotations. The comments indicate that Canadian customers stopped purchasing pup joints once anti-dumping and countervailing duties were put in place in December 2011.^{Footnote 55} These comments suggest that certain exporters in China, who were participants in the Canadian market prior to anti-dumping duty coming into effect, were no longer able to compete in the market after that point.

[84] In order to determine at what price levels pup joints from China might re enter the Canadian market absent the finding, WestCan procured a number of quotes from potential suppliers in that country.^{Footnote 56} A sampling of quoted prices was compared to the normal values issued to its sister company Weijia in February 2016 for the same goods.^{Footnote 57} Based on the comparison, the prices quoted by the Chinese suppliers were found to be significantly lower than the normal values issued to Weijia.^{Footnote 58} Although only a small portion of the quoted prices were examined and the potential suppliers were quoting without having any concept of how the CBSA establishes normal values for these products, the exercise is somewhat useful in indicating where pup joint pricing in Canada may lead for certain products if the finding is rescinded.

[85] The likelihood of continued or resumed dumping of pup joints from China must be examined in context of what is happening in Canada’s oil and gas industry, in which OCTG products play an integral role. In 2014 oil prices peaked at around $US115/barrel, fell to $US27/barrel in January 2016 and have remained under $US50/barrel ever since. The rapid declines in oil prices in 2015 and 2016, along with continued weakness in gas, caused a dramatic decline in drilling activity in Canada. In 2013 and 2014, 11,000 wells were drilled in North America but drilling declined to 5,300 wells in 2015 and it is anticipated that only 3,400 wells will be drilled in 2016.^{Footnote 59} The sharp decreases in oil and gas prices have caused drastic cost-cutting measures across the Canadian oil industry. With less wells being drilled and costs being slashed by the oil and gas companies, pup joint producers, both domestic and foreign, will face increasing pricing pressures in order to secure sales.

Determination Regarding Likelihood of Continued or Resumed Dumping

[86] Based on information on the record demonstrating the significant production capabilities of OCTG and pup joint producers in China and a slowing demand for these products in that country; anti-dumping measures being imposed by Canada and other countries on the same or closely-related tubular products from China; and the inability of exporters, save one, to sell pup joints in Canada at non-dumped prices, the CBSA determined that the expiry of the finding is likely to result in the continuation or resumption of dumping into Canada of certain pup joints originating in or exported from China.

[94] In making a determination under paragraph 76.03(7)(a) of SIMA whether the expiry of the finding in respect of goods from China is likely to result in the continuation or resumption of subsidizing of these goods, the CBSA may consider factors identified in subsection 37.2(1) of the SIMR, as well as any other factors relevant in the circumstances.

[95] Weijia was the only exporter to participate in the CBSA’s original subsidy investigation in 2011. At that time, the CBSA determined that the GOC had conferred benefits to Weijia under the following two programs:

1. Preferential Tax Policies for Enterprises with Foreign Investment
2. Grants for Export Activities^{Footnote 66}

The total amount of subsidy for these two programs was calculated to be 563.9 renminbi per metric ton (RMB/mt) exported. Detailed descriptions of these programs and explanations as to why they were regarded as subsidies subject to countervailing duties are contained in the Statement of Reasons issued at the final determination.^{Footnote 67}

[96] For all other exporters, the amount of subsidy was determined under a ministerial specification pursuant to subsection 30.4(2) of SIMA. The amount of subsidy calculated for non cooperative exporters was 9,125.6 RMB/mt.^{Footnote 68}

[97] On December 14, 2015, the CBSA concluded a re-investigation to update the amount of subsidy for pup joints from China. Again, Weijia was the only exporter to participate and this time the amount of subsidy calculated for the company was 0.04 RMB/piece. The amount of subsidy for non cooperative exporters remained at 9,125.6 RMB/mt.^{Footnote 69}

[98] In both the CBSA’s original investigation in 2011 and its re-investigation in 2015 the GOC did not submit sufficient information to enable the CBSA to determine the amount of subsidy in accordance with subsection 30.4(1) of SIMA.^{Footnote 70} In the CBSA’s current expiry review investigation the GOC did not furnish a response to the ERQ. The fact that Weijia received subsidies from the GOC in the past leads to the conclusion that there is a likelihood that pup joints from China will continue to be subsidized should the CITT’s finding be rescinded.

[99] Besides conferring benefits to producers of pup joints, the GOC has been found to have conferred benefits to producers of OCTG, the larger group of products under which pup joints fall. In 2015, the CBSA conducted a re-investigation of the normal values, export prices and amounts of subsidy of certain seamless casing, certain oil country tubular goods and certain pup joints from China. At the conclusion of the re-investigation on December 14, 2015, the CBSA determined amounts of subsidy for eleven different exporters of seamless casing and OCTG that participated in the re-investigation. The amounts of subsidy for subject seamless casing and OCTG exported by these companies ranged from 2.20 RMB/mt to 1,066.56 RMB/mt.^{Footnote 71} It should be noted that nine of the eleven exporters also have the capability of producing pup joints and have API 5CT licenses certifying this.^{Footnote 72} This information would indicate that the GOC does not limit subsidy programs to only pup joint producers but offers subsidy programs to the much wider category of OCTG producers in China’s steel sector.

[100] At the initiation of the aforementioned re-investigation, the CBSA had named 67 potentially actionable subsidy programs available to exporters and producers in China. By the conclusion of the re-investigation an additional 46 programs were identified through the CBSA’s examination and verification of information submitted by the participating exporters.^{Footnote 73} This large and growing inventory of potentially actionable subsidy programs indicates that the GOC offers many incentives to both OCTG and pup joint producers in that country.

[101] Currently in Canada, there are six different tubular steel products from China that are subject to countervailing duty. They are as follows: carbon and alloy steel line pipe, carbon steel welded pipe, large line pipe, oil country tubular goods, piling pipe, and seamless casing. Three of these goods, line pipe, OCTG, and seamless casing, are specifically used in the oil and gas industry. In addition to these goods, there are five other steel-related products from China that are subject to countervailing duty in Canada. The existence of these countervailing measures in place in Canada against steel products from China would seem to indicate that the GOC has placed a great deal of importance on its steel industry and subsidized it accordingly.

[102] Both Australia and the U.S. have a number of countervailing measures against steel products from China, including tubular steel products.^{Footnote 74} Of particular note is the countervailing duty in place in the U.S. against oil country tubular goods from China. Included in the U.S. Department of Commerce’s product definition of oil country tubular goods are pup joints, the very same goods that are subject to duty in Canada. In May 2015, the U.S. International Trade Commission extended countervailing duty orders on OCTG from China for a further five years.^{Footnote 75} This further indicates that producers of OCTG and pup joints in China continue to receive countervailable benefits from the GOC.

Determination Regarding Likelihood of Continued or Resumed Subsidizing

[103] Based on the information on the record demonstrating that exporters in China have continued to avail themselves of subsidy programs; exporters benefit from the GOC’s provision of subsidies to manufacturers in the steel sector; and the same or closely-related tubular products from China are also subject to countervailing measures in Canada and in other jurisdictions, the CBSA determined that the expiry of the finding is likely to result in the continuation or resumption of subsidizing of pup joints originating in or exported from China.

[104] For the purpose of making a determination in this expiry review investigation, the CBSA conducted its analysis within the scope of the factors found under subsection 37.2(1) of the SIMR. Based on the foregoing consideration of pertinent factors and an analysis of the evidence on the record, on November 30, 2016, pursuant to paragraph 76.03(7)(a) of SIMA, the CBSA determined that the expiry of the finding made by the CITT on April 10, 2012, in Inquiry No. NQ 2011-001:

1. is likely to result in the continuation or resumption of dumping of certain pup joints originating in or exported from China; and
2. is likely to result in the continuation or resumption of subsidizing of certain pup joints originating in or exported from China.

[105] On December 1, 2016, the CITT commenced its inquiry to determine whether the expiry of the finding with respect to the dumping and subsidizing of the goods from China is likely to result in injury. The CITT’s Expiry Review schedule indicates that it will make its decision by April 7, 2017.

[106] If the CITT determines that the expiry of the order with respect to the goods is likely to result in injury, the finding will be continued in respect of those goods, with or without amendment. If this is the case, the CBSA will continue to levy anti-dumping and/or countervailing duties on dumped and/or subsidized importations of the subject goods.

[107] If the CITT determines that the expiry of the finding with respect to the goods is not likely to result in injury, the finding will be rescinded in respect of those goods. Anti-dumping and/or countervailing duties would then no longer be levied on importations of the subject goods.

[108] For further information, please contact the officer listed below: