ARCHIVED - Statement of Reasons

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OTTAWA, March 2, 2001

4366-2
AD/683

Concerning a determination under subsection 76.03(7) of the Special Import Measures Act regarding

OIL AND GAS WELL CASING ORIGINATING IN OR EXPORTED FROM THE REPUBLIC OF KOREA AND THE UNITED STATES OF AMERICA

DECISION

Pursuant to subsection 76.03(7) of the Special Import Measures Act, the Commissioner of Customs and Revenue has determined that the expiry of the order of the CITT with respect to the above-mentioned goods is likely to result in the continuation or resumption of dumping of the goods.

STATEMENT OF REASONS

SUMMARY

On October 20, 2000, the Canadian International Trade Tribunal (Tribunal) initiated an expiry review, in accordance with subsection 76.03(3) of the Special Import Measures Act, of its order made on July 5, 1996, in Review No. RR-95-001, continuing, without amendment its order made on June 10, 1991, in Review No. RR-90-005, continuing, with amendment, the review finding made by the Canadian Import Tribunal (CIT) on November 6, 1986, in Review No. R-7-86, continuing, with amendment, the finding made by the CIT on April 17, 1986, in Inquiry No. CIT-15-85, concerning oil and gas well casing originating in or exported from the Republic of Korea and the United States of America. The purpose of the review is to determine whether the order should be continued or rescinded.

The Commissioner of Customs and Revenue (Commissioner) has 120 days after the initiation of an expiry review by the Tribunal to determine whether there is a likelihood of continued or resumed dumping if the order expires. On October 21, 2000, the Canada Customs and Revenue Agency (CCRA) initiated its investigation and, on the basis of the information available, the Commissioner determined on February 16, 2001, that the expiry of the order is likely to result in the continuation or resumption of dumping of the goods.

The Tribunal will now consider whether the expiry of the order is likely to result in injury or retardation to domestic industry. If the Tribunal determines that the expiry of the order is likely to result in injury or retardation, the order will be continued, with or without amendment. If the Tribunal determines that the expiry of the order is unlikely to result in injury or retardation, the order will be rescinded.

BACKGROUND

On April 17, 1986, the CIT found that the dumping of casing from Argentina, the Federal Republic of Germany, the Republic of Korea (Korea) and the United States of America (United States) had not caused, was not causing, but was likely to cause material injury to the production in Canada of like goods¹. On November 6, 1986, the CIT excluded from the injury finding casing manufactured in Canada and subsequently exported to the United States for threading and/or coupling before being re-imported by the manufacturer². On June 10, 1991, the Tribunal rescinded the finding with respect to casing imported from Argentina and the Federal Republic of Germany and continued the finding with respect to casing imported from Korea and the United States³. On July 5, 1996, the Tribunal continued the order with respect to casing imported from Korea and the United States⁴.

Injury findings expire five years from the date of the last order or finding unless an expiry review has been initiated. On September 1, 2000, the Tribunal issued a notice of expiry indicating that the above-mentioned order was scheduled to expire. The notice of expiry invited opinions from persons or governments requesting or opposing the initiation of an expiry review. On

October 20, 2000, the Tribunal initiated a review of the above-mentioned order as it was of the opinion that such a review was warranted and provided notice to the Commissioner. On

October 21, 2000, the Commissioner initiated an investigation to determine whether the expiry of the order is likely to result in the continuation or resumption of dumping of the goods.

As part of the Commissioner's investigation, the Canadian producers, the exporters and the importers of the subject goods were sent questionnaires and were requested to provide relevant information. The questionnaires requested information respecting the period of review

January 1, 1997, to September 30, 2000. All of the parties were also given an opportunity to make representations during the expiry review. The investigation was conducted in accordance with the Anti-dumping and Countervailing Directorate's administrative guidelines.

PRODUCT DEFINITION

The goods subject to this expiry review are defined as:

Oil and gas well casing made of carbon steel, having an outside diameter in the size range 114.3 mm to 273.0 mm (4 1/2" to 10 3/4") inclusive, seamless or welded, plain end or threaded and coupled, supplied to meet American Petroleum Institute specification 5A, currently known as American Petroleum Institute specification 5CT, grades H40, J55 and K55, or proprietary grades manufactured as substitutes for these specifications, originating in or exported from the Republic of Korea and the United States of America, excluding oil and gas well casing which has been manufactured in Canada and re-imported into Canada from the United States by the manufacturer thereof either in the condition as exported from Canada or after having been threaded and/or coupled in the United States.

PRODUCT INFORMATION

Oil and gas well casing falls in a category of products commonly referred to as oil country tubular goods (OCTG), which include drill pipe, casing and tubing. These goods are used to drill wells and to convey the oil and gas products to the surface. Casing is used to protect the walls of the bored hole from collapsing, both during drilling and after the well has been completed. Casing must be able to withstand outside pressure and internal yield pressures within the well. Also, it must have sufficient joint strength to hold its own weight and must be equipped with threads sufficiently tight to contain the well pressure where lengths are joined. Various factors limit the total amount of open hole that can be drilled at any one time, and it is necessary to set more than one string of casing concentrically for certain portions of the well depth.

Casing may be either electric resistance welded (ERW) or seamless. Three Canadian producers, IPSCO Inc., Prudential Steel Ltd. and Stelpipe Ltd., manufacture ERW casing. During the period of review seamless casing was produced by Algoma Steel Inc. and Algoma Seamless Tubulars Inc. ERW casing is manufactured by passing flat-rolled steel (skelp) through a series of rolls that form it into a cylindrical shape. The skelp edges are heated to a high temperature by electrical resistance and pressed together to form a closed tube. The weld is then heat-treated to create a molecular structure that is identical to that of the parent metal. Seamless casing is produced by first forming a central cavity in a solid steel billet. Subsequent rolling or extrusion operations shape and size the billet into a tubular product with the desired diameter and wall thickness. Seamless and ERW casing may then be threaded, at one end, and have a thread protector installed. A coupling is placed on the other end. Throughout the production process, the casing is subjected to quality control tests to ensure that it meets the desired specifications.

Within the product range, the H40 and J55 grades of casing are normally made using the ERW process, and the K55 grade of casing, which has a higher tensile strength than the J55 grade, is generally seamless. These three grades of casing are generally used in shallow wells measuring less than 1,600 m in depth. Domestically, these wells are most often found in Western Canada.

In these wells, surface casing, usually ERW grade H40, is used in the upper 10 percent of the depth. At lower depths, grades J55 and K55, ERW or seamless, are usually used. In "sweet" environments (where there are relatively low percentages of sulfur), ERW grade J55 is generally used, whereas in "sour" environments (where corrosive conditions exist because of higher sulfur content), the stronger seamless grade K55 is generally used.

Casing is sold primarily through distributors of oilfield supplies, although some is sold directly to end users. Most major distributors of oilfield supplies also supply other products relating to the drilling trade, such as tubing, pump jacks, drill pipe and pumping equipment.

CLASSIFICATION OF IMPORTS

The subject goods are classified under the following Harmonized System classification numbers:

7304.29.00.11
7306.20.90.11
7304.29.00.19
7306.20.90.19
7304.29.00.21
7306.20.90.21
7304.29.00.29
7306.20.90.29

INTERESTED PARTIES

Canadian Industry

During the period of review, the Canadian industry consisted of five producers, Algoma Steel Inc. (Algoma), Algoma Seamless Tubulars Inc. (ASTI), IPSCO Inc. (IPSCO), Prudential Steel Ltd. (Prudential) and Stelpipe Ltd. (Stelpipe). All of these producers provided a response to the CCRA's questionnaire. Complete mailing addresses for these producers can be found in Appendix 1.

Algoma Steel Inc. and Algoma Seamless Tubulars Inc.

On June 1, 1992, Algoma Steel Inc. (Algoma) acquired all of the assets (including the tube mill in Sault Ste. Marie, Ontario) and some of the liabilities of Algoma Steel Corporation, Limited. Algoma is 32% employee-owned with the remaining shares held by other investors.

Algoma Seamless Tubulars Inc. (ASTI) is 80% owned by Siderca International ApS, a fully owned subsidiary of Siderca SAIC of Argentina, and 20% owned by Tubos Acero de Mexico SA (TAMSA) of Mexico, which is controlled and 35% owned by Siderca International ApS. On September 15, 2000, ASTI began operating the tube mill in Sault Ste. Marie, Ontario, previously owned by Algoma Steel Inc. ASTI entered into an agreement with Algoma Steel Inc. for the long-term lease, with purchase option, and operation of the seamless tube mill.

ASTI produces seamless oil and gas well casing in both subject sizes and non-subject sizes. The company also produces other seamless tubular products such as line pipe.

IPSCO Inc.

IPSCO Inc. (IPSCO) was incorporated in 1956 and commenced operations with a pipe mill in Regina in 1957. The company started producing subject goods in 1964. Since that time, the company has expanded its manufacturing capabilities with the construction and acquisition of facilities in Canada and the United States.

In addition to subject goods, IPSCO produces carbon and alloy hot rolled sheet and plate, hollow structural sections, line pipe, piling pipe, standard pipe, oil and gas well tubing and water well casing.

Prudential Steel Ltd.

Prudential Steel Ltd. (Prudential) was incorporated in 1966 and commenced operations in Calgary manufacturing structural steel tubing. The company started producing subject goods in 1975. In 1998, Prudential expanded into the United States with the commissioning of a mill in Washington state. In 2000, the company was purchased by Maverick Tube Corporation of Chesterfield, Missouri, a manufacturer and exporter of OCTG products, including the subject goods.

Stelpipe Ltd.

Stelpipe Ltd. (Stelpipe) is a subsidiary of Stelco Inc. In 1984, the pipe and tube making facilities of Stelco Inc. were grouped together and managed as Stelpipe. The company produces subject casing only in size ranges 4 ½" to 8 5/8".

Exporters/Foreign Producers:

The CCRA requested information from 12 potential exporters of the subject goods. Eight exporters provided complete submissions to the CCRA by the deadline for receipt of information. Six of the eight were U.S. exporters while two were from Korea. The names and addresses of the these exporters are listed in Appendix 2.

Importers:

The CCRA requested information from 32 potential importers of the subject goods during the review period. Ten importers provided complete information to the CCRA in response to the questionnaires. The names and addresses of these importers are listed in Appendix 3.

POSITION OF THE PARTIES

Ten parties submitted arguments in writing through their respective counsel to the Commissioner as to whether the expiry of the order is likely to result in the continuation or resumption of dumping of the goods.

Parties Submitting that Continuation or Resumption Dumping is Likely

Case briefs were provided by all domestic producers of the subject goods submitting that the continuation or resumption of dumping is likely. In addition, one U.S. exporter, Paragon Industries Inc. (Paragon), made representations indicating that the resumption of dumping is likely if the order expires.

It is the position of the Industry that, if the order expires, there will be a resumption of dumping of subject casing by Korean and U.S. exporters. Industry submitted that in 2000, Canadian market demand for the subject casing had not yet returned to the levels of demand experienced in 1997. Oil and gas well casing demand, which includes the subject casing, is tied to oil and gas exploration and production activity. Oil and gas activity is presently strong going into 2001 and has increased demand for oil and gas well casing. Industry also submitted that fewer wells were drilled in 2000 than in 1997 and industry experts have forecasted that oil prices will decline sometime in late 2001.

United States

Referring to the period of review, Industry cited that the 1997 capacity utilization rate for pipe and tube mills, which includes production of the subject casing in the U.S. was 68.1%. Capacity utilization rates fell in 1998 to 50.2% and to 49.0% in 1999. In the first nine months of 2000, in a period of increasing demand for oil and gas well casing, capacity utilization rates increased slightly to 53.7%, and had not surpassed 1997 levels. There remains, in the U.S., a vast underutilized production capacity, which is sufficient to supply the entire Canadian market. Canada is the major export market for U.S. produced subject casing.

Industry noted that in its previous review, the Tribunal found that U.S. capacity was 4.7 million tons. In the proceedings at hand, Industry has estimated U.S. capacity to be 3.6 million tons. With the Canadian apparent market for subject casing estimated at 430,000 net tons, the U.S. excess/underutilized capacity is so large that it can easily supply the Canadian market without difficulty.

Industry also submitted that the historically cyclical nature of the oil and gas well casing industry and the volatility of the oil and gas prices are important factors. Presently, oil and gas activity and prices are strong and are predicted to remain strong into 2001. Traditionally, an upswing in oil and gas prices has been followed by a downturn swing in prices. Industry cited that the CCRA's decision regarding the likely continuation or resumption of dumping must also consider the situation in the downturn period. Industry submitted that the record contains credible evidence that oil and gas prices and hence drilling activity and the demand for subject casing will level off, then, decline significantly over the next two years. As demand drops, U.S. and Korean producers will have excess inventories and extensive production capacity and will seek markets at any price.

Industry noted that only one U.S. producer, Newport Steel Corporation (Newport), provided a brief submitting that the continued or resumed dumping is unlikely while other U.S. producers, namely, Paragon and Maverick Tube Corporation (Maverick) stated their appreciation of the discipline of the finding. There was no evidence from other U.S. exporters to counter the submissions of the Industry. Industry cited that anti-dumping duties have disciplined U.S. export prices and only Newport and an importer, Continental Oilfield Supply Canada (Continental), have challenged the domestic industry in the proceedings at hand. Furthermore, Industry submitted that there are other players, i.e. U.S. re-sellers, traders and brokers active in the Canadian market who are often the main source of dumping.

In its brief, Newport noted that part of the available U.S. tubular production capacity was not traditionally devoted to the subject goods. Industry agreed that this was the case, however, given the low capacity utilization levels in the U.S., there remains significant excess capacity available for the production of subject goods. In response to Newport's allegations, Industry submitted that this excess capacity was greater than the entire Canadian market demand and dumping would occur if the finding expires.

Newport cited that market conditions are different in 2001 from conditions in 1996. Newport argued that the particularly strong forecasted demand for gas drilling in 2001 meant that demand for the subject goods in the U.S. would be strong and not lead to dumping. However, Industry cited evidence on the record that the oil and gas sector is volatile and the extent and recovery of drilling activity in late 1999 and into 2000 is uncertain. Industry cited evidence, such as the anticipated production increases by OPEC to maintain it's per barrel target price and an expected general slowdown in the U.S. economy that indicates an expected reduction in oil and gas exploration activity. With that slowdown, there would be excess subject goods production capacity in the U.S., which would be aggravated by the rapid build-up of demand in 2000, and the ramping up (need to optimize mill loading to achieve maximum coverage of overhead) of production to meet that demand.

Industry cited that the U.S. exporters of subject casing have continued to demonstrate interest in the Canadian market and have maintained a significant market share during the period of review. However, imports of subject casing from non-subject countries have increased during the period of review and have gained a greater share of the market. Industry's analysis indicated that this market share had increased significantly, to 46% of the total apparent imports for the first six months of 2000. Industry submitted that imports of subject goods from, in particular, four non-subject countries have emerged at prices that are significantly lower than pricing of un-dumped imports from the U.S. Industry maintained that if the finding expires, the price of the U.S. and Korean imports would then be lowered to the dumped pricing of imports from the non-subject countries.

Industry submitted allegations of dumping of non-subject but closely related, higher grade casing and related oil and gas well line pipe by U.S. producers of subject casing. Industry further maintained that this alleged dumping demonstrates that dumping of subject casing would have taken place during the period of review, had it not been for the finding. Industry contended that U.S. producers have gained a larger share of the Canadian market for line pipe, which is not subject to a finding.

Industry noted that imports of subject casing from non-subject countries into the U.S. are forecasted for 2001 to comprise 30% of the market. This would further displace U.S. domestic production and add to the surplus capacity available for export to the U.S.' largest adjacent market, Canada.

One U.S. exporter, Paragon, also provided a case brief submitting that the continuation or resumption of dumping is likely should the order expire. The exporter noted that price is the determining factor in the purchase decision for subject ERW casing and that there is excess production capacity in the U.S. The U.S. exporter submitted that without the discipline of the finding, ERW subject casing from the subject countries would be dumped into Canada.

Korea

According to the Industry, Korea's casing production capacity, which includes the subject goods, is approximately 3 million tons with no domestic oil or gas drilling activity. This entire production capacity is dedicated to the export markets.

Further, the propensity to engage in unfair trade practices such as dumping is well established. Industry submitted that Korean exporters had been found to have dumped other carbon, stainless and alloy steel products in Canada and the Tribunal had issued findings of material injury to domestic production in Canada with respect to these goods.

Industry submitted that the situation in Korea has not changed dramatically since the Tribunal finding in Review No:RR-99-004 made in mid 2000. The Tribunal found there was a likelihood of resumed dumping of standard pipe, a similar product to the subject casing made by the same producers in the same mills, using the same equipment. Industry noted that the two Korean exporters that participated in this expiry review, Hyundai Pipe Co., Ltd. (Hyundai) and SeAH Steel Corporation (SeAH), did not participate in the recent Tribunal expiry review regarding carbon steel welded pipe from Korea. The Tribunal renewed the order in May 2000 and Industry submitted that this was highly persuasive evidence of dumping practices and of the threat of renewed dumping in this case. In addition, Industry noted that the decision of the Tribunal in RR-99-004 was an indication of dumping practices or tendencies in related products and is listed as a factor bearing on likelihood in section 37.2 of the Special Import Measures Regulations.

Industry noted that the Tribunal renewed the order in 1996, even in the absence of Korean imports of subject goods since 1989, due to compelling factors: the absence of any domestic Korean market for casing; the huge capacity of the South Korean mills (estimated at that time to be 2.1 million tons); their participation in the U.S. market and; anti-dumping findings covering related Korean production in Canada, the U.S. and elsewhere.

The U.S. findings covering Korean oil country tubular goods, which include related oil and gas well line pipe, increase the likelihood of diversion of exports to Canada. Industry noted that steel producers in Korea had been found in the 1990s to have dumped carbon, stainless and alloy steel products into the U.S. and this dumping had been found injurious to U.S. domestic producers. More importantly, both Hyundai and SeAH are subject to current U.S. anti-dumping orders in respect of several steel products. Industry cited that evidence relating to the actions of Korean producers of goods similar to the subject goods around the world was highly relevant given that it showed the propensity of Korean exporters to dump similar steel products.

Given the Korean exporters' participation in the proceedings and having provided detailed briefs, Industry maintained that there was significant interest on the part of the Korean exporters, at least with two of the four potential exporters of subject casing. Industry submitted that the significant excess production capacity of the Korean producers was relevant and not exaggerated, that there was no evidence on the record regarding precise Korean capacity and that Hyundai and SeAH were not in a position to provide reliable information of production capacity of companies other than themselves. Even if only the Hyundai and SeAH production capacities of 1 million tons in total were considered, this is several times the Canadian market and in the absence of a finding and no domestic Korean market, the Canadian market could be flooded with Korean imports.

In 2000, the U.S. imposed a three year tariff-rate quota under "Section 201" on imports of line pipe, a non-subject tubular product also sometimes produced by producers of subject goods casing. Korea is affected by this ruling as it shipped a significant volume of line pipe to the U.S. in 1999.

The Korean brief argued that there is no incentive to resume dumping because there were "other more profitable goods" such as line pipe being produced by them and, as a result, there was no risk of renewed dumping. The Korean brief then noted the prices for casing (which includes the subject goods) had increased significantly, which disproved any incentive to dump. Industry submitted that these were conflicting views. No information was provided to confirm what the "other profitable goods" were.

In response to the Korean allegation that a "tight gas market" would lead to an increase in the drilling activity and thereby increase demand and higher pricing for subject goods, Industry cited that Canadian gas wells are shallow and require smaller volumes of subject goods. Wells drilled deeper than 10,000 feet usually require non-subject high-strength casing.

Industry concluded that permitting the finding to expire would result in the resumption of dumping of subject goods into Canada.

Parties Submitting that the Continuation or Resumption of Dumping is Unlikely

Case briefs arguing that the continuation or resumption of dumping is unlikely were provided by one U.S. exporter, Newport, two Korean exporters, Hyundai and SeAH, and one importer, Continental.

United States

After reviewing the current finding and the context of the previous two reviews by the Tribunal, which continued the finding, Newport concluded that U.S. producers were unlikely to resume dumping because the U.S. situation differed vastly from that prevailing in 1996. It observed a marked recovery in North American demand that positively affected capacity utilization and prices. Counsel for Newport pointed that factors responsible for that situation were structural and long term.

It suggested that the structural change in demand for oil and gas well casing (which includes the subject goods) lay with the fact that gas drilling has become the predominant factor affecting demand with 72% of commercial drilling completions since 1999 as opposed to 47% in 1990.

This was due to increased demand for natural gas as fuel in North America and was also supported by new gas-fired electricity generation plants. Gas prices are expected to remain high in the long term. Counsel also pointed out that gas prices are less volatile than oil prices as they are largely dependent upon North American supply and demand conditions rather than international political pressures. Counsel contended that predicted record oil and gas drillings were based on conservative prices forecasted for oil and gas for 2002 and beyond. This led counsel to conclude that predicted price declines from record levels would not result in lower oil and gas well casing forecasts. Also, international oil and gas drilling was expected to increase by 12% in 2000 and 16% in 2001, thereby taking pressure off North American market.

Counsel for Newport also suggested that U.S. producers were unlikely to dump the subject goods in Canada because the market conditions were such that they would be operating at near capacity. As noted above, this was based on increased oil country tubular goods demand (which includes the subject casing) for 2001 and 2002, and beyond based on conservative oil and gas prices. Moreover, counsel indicated that these market conditions were also applicable to non-subject goods typically made on the same machinery as line pipes for which demand was forecasted to increase dramatically in 2001 and was expected to remain at high levels in the foreseeable future. This was reinforced by the recent imposition of Section 201 tariff quotas by U.S. authorities, which is likely to increase the price of U.S. produced line pipes. Newport also estimated that line pipe represented a significant share of total product mix of major U.S. oil and gas well casing producers. As a result of the application of section 201, which will limit imports, demand for and price of domestic produced line pipes will increase even more. Therefore, Newport submitted that, if anything, production capacity historically devoted to subject goods was likely to be converted to non-subject line pipe and not the reverse. Increased demand for oil and gas well casing and line pipe in 2000 resulted in dramatically lengthened order lead-time and the reopening of production facilities previously mothballed.

Newport found IPSCO's estimate of U.S. historical production of subject goods at 3.6 million tons to be unsubstantiated and overstated. Newport relied on Preston Pipe & Tube forecast of domestic shipments of 2.4 million tons in 2001 and contended that U.S. producers' utilization rate would increase dramatically in 2001 and beyond. As a result, order time will lengthen and inventories will be reduced as the U.S. industry nears capacity. Citing Maverick's CEO and Preston Pipe Report on the question of inventory level, Newport concluded that while the large U.S. inventory was a major reason for the continuation of the anti-dumping order in the 1996 Tribunal review, it no longer existed.

Besides Newport's submission that changes in the market were such as to result in the industry producing near capacity, Newport contended that U.S. producers had no history of dumping the subject goods. It pointed out that there were no outstanding orders against U.S. subject goods and that the one example cited from Mexico related rather to commercial seamless steel tube and that the order had probably been revoked or was under current review. Other orders relating to various steel products such as steel sheet, rod and coil were said to be quite different from the subject goods.

Counsel for Continental expressed the same opinion and noted submissions from the Canadian producers contained no evidence of subject seamless casing from U.S. Steel or seamless oil and gas well casing from other U.S. exporters being dumped into any other jurisdiction. Counsel further noted U.S. Steel International (USSI) was released from an injury finding in the 1993 plate case and was not included in any of the complaints and investigations that followed. A similar situation occurred with the hot-rolled steel sheet enquiry of 1993 and subsequent complaints. Counsel finally pointed out that the CCRA, through examination of its records, could determine that USSI, following the rescinding in 1998 of the Tribunal finding on cold-rolled sheet, did not reduce price to increase its market share. It then asked why they would respond differently to the rescission of the finding on the subject goods.

Analyzing Stelpipe's submission, Continental contended that it showed U.S. producers of the subject goods have enjoyed a substantial and growing share in Canada and that this market share has been secure at undumped prices despite aggressive pricing from non-subject sources. Counsel, therefore concluded it was not likely to result in the resumption of dumping.

Newport suggested that considerable weight should be given to the recent decision of the United States International Trade Commission (USITC) to rescind its order with respect to subject oil and gas well casing, other than drilled pipe, from Canada and several countries. In its analysis of the North American market, the USITC saw increased demand and strengthening of prices but concluded that any increased volumes from Canada would not likely be significant. Newport argued that since U.S. producers are subject to the same market conditions, a similar finding should be reached by the CCRA.

Citing examples of increasing consolidation between U.S. and Canadian producers, Newport indicated that this fact would make it unlikely that these producers would dump in their own backyard.

Newport generally stated that evidence that suggested that U.S. exports would be dumped was not credible. Evidence relating to the dumping of subject goods from non-subject countries was also believed to be completely irrelevant to the investigation and not indicative of dumping. As with Newport, counsel for Continental believed no weight should be given to these allegations of dumping from non-subject countries, which remain conjectural threats in absence of properly documented complaints. Counsel also did not take seriously the Canadian producers' argument that Korea and the U.S. were a more significant threat of lowering prices than the "emerging dumping countries". Given the distance from the Canadian market of these suppliers, it seemed to counsel that it was all the more likely they would need to dump to enter the Canadian market.

With respect to the allegation of dumping by U.S. producers of related products such as high strength casing and line pipe, counsel for Continental and Newport found that there was no evidence to that effect and, furthermore, it was not relevant to the investigation. Newport pointed out that the Canadian producers' comparison was based on average, which was highly dependent upon product mix and was not probative.

Commenting on reports of a general surge of steel imports and the resulting financial pressure on U.S. steel producers, Newport saw little relevance since the record showed that U.S. producers of the subject goods would experience high demand and prices for the subject goods in the foreseeable future. With respect to the argument of financial pressure, counsel for Continental also denied that U.S. Steel was financially troubled, indicating that one must not confuse ERW with seamless casing. Therefore, it cannot be argued that producers would be under pressure to increase production and sales and likely resume dumping.

Newport also noted that U.S. and Canadian producers did not differentiate between sales to Canadian and U.S. customers. Therefore, it suggested that, provided market levels were profitable, the U.S. producers were not dumping. Similarly, given that price increases had been implemented on both sides of the borders and additional increases were expected, it alleged that there was no reasonable expectation of resumed dumping since the profitability of subject goods had been restored.

In conclusion, both counsel for Newport and Continental noted that the finding has been in place for 15 years and that it would require compelling evidence to maintain such protection and that such evidence was not provided. Moreover, Newport also emphasized that this finding was rendered in extraordinary circumstances in which no past or present injury was ever found.

Korea

Counsel for the Korean producers, Hyundai and SeAH, argued that the onus lay with the Canadian producers to demonstrate that, upon the expiry of the Tribunal finding, dumping was likely to be continued or resumed, and that they failed to do so. Counsel maintained that a resumption of dumping from the Korean producers was unlikely. There also could not be a continuation since there was no dumping of the subject goods by Korean since the last renewal of the order by the Tribunal.

With respect to the capacity of the Korean producers, counsel indicated that although there were four Korean companies licensed to produce products to API standards, only SeAH and Hyundai were able to produce the subject goods for technical reasons. In particular, counsel noted that contrary to allegations, Shin Ho Steel Co. did not produce the subject goods.

Counsel submitted that, while SeAH produced the subject goods, much of the capacity was devoted to produce other more profitable goods for export such as standard and structural pipes, mother tubes and large diameter pipes. Hyundai did not allocate production capacity, produce or maintain inventories of the subject goods and was said to have no intention of producing them.

With respect to the potential of Korean manufacturers to produce the subject goods in facilities currently used to produce other goods, counsel disputed the "highly exaggerated" figures advanced by the Canadian producers. With respect to the Canadian producers' current estimate of over 3 million tons based on the 1997 publication "Pipe and Tube Mills of the World," counsel indicated that it was outdated and some producers should now be excluded. Counsel claimed that production capacity reported by Hyundai and SeAH was much more up to date and accurate and the CCRA should therefore rely on it. They submitted their maximum combined potential annual capacity for the subject goods is about 1 million tons. However, counsel stressed that much of this capacity has been devoted to production of other more profitable products. Counsel also mentioned that, despite its potential capacity, Hyundai was excluded from the U.S. 1995 anti-dumping order in respect of oil and gas well tubular goods.

Counsel disputed the fact that anti-dumping measures in effect in other countries against Korean steel producers was evidence of a likelihood of resumed dumping by Korean producers of subject goods. Counsel further noted that several U.S. anti-dumping orders against Korean steel producers have been found to be in violation of the WTO Anti-Dumping Agreement. Turning to the recent section 201 safeguard measures in the U.S. against line pipe, counsel remarked that it could not be considered evidence of propensity to dump by Hyundai and SeAH since these measures did not involve a finding of dumping.

With respect to specific orders against the Hyundai and SeAH, counsel stressed again that Hyundai, in the original U.S. anti-dumping investigation in 1995, was excluded from the anti-dumping order and has not produced the subject casing since 1991. The only anti-dumping order against Hyundai in another jurisdiction was the U.S. "standard pipe" where only a 3.77% margin of dumping was found. With respect to SeAH, counsel submitted that it had limited production capacity and that its involvement in the U.S. anti-dumping order on oil country tubular goods resulted from bad luck and highly questionable methodology which was under appeal. With respect to orders on standard pipe, stainless pipe and corrosion resistant flat rolled products, to the extent applicable to SeAH, counsel sustained that the margins of dumping were below or close to de minimis threshold. This situation was said to demonstrate the effort of Hyundai and SeAH to export products above normal value.

Counsel also considered, as highly overstated, the arguments about the risk of diversion of subject goods to Canada resulting from the existing anti-dumping order against Korean oil country tubular goods, which includes the subject casing, or the displacement of U.S. subject goods, which would be in turn dumped into Canada. Counsel reiterated that Hyundai had not produced the subject goods since 1991 and has been excluded from the U.S. anti-dumping order of 1995 on oil country tubular goods. For its part, SeAH, with much lower capacity, has exported only relatively insignificant quantities of the subject goods to the U.S. with a current margin of dumping expected to be reduced to about 2%. In such a situation, it argued that the risk of diversion or displacement was relatively insignificant and that the effect of any diversion would be inconsequential.

Counsel also submitted there were changes in market conditions for the subject goods, all of which would make it unlikely that dumping into Canada would resume should the Tribunal order be rescinded. These changes included: (i) an increase in demand for the subject goods, (ii) an increase in shipments and selling prices, (iii) an increase in Canadian productivity and difficulty meeting demand, (iv) strong recoveries in Asian economies, and (v) industry consolidation. Counsel made references to several publications from industry analysts in support of their view including some already cited by Newport with respect to prices, drilling activity and the predominance of gas drilling as an important factor in the maintenance of a healthy demand.

Hyundai and SeAH suggested that the proper forum to deal with the alleged threat of dumping by emerging countries would be to file a complaint with the CCRA. They disputed that it could be argued that they would try to regain market share at all costs and resort to dumping to do so. Counsel stressed, the fact that they had not exported the subject goods to Canada, indicated the contrary. Also, counsel argues that price was not the determining purchasing factor and cited the comments of various importers which suggested that quality, availability, delivery, or relationship with the producer were important consideration. In that respect, counsel disregarded as inappropriate the producer's analogy to the current anti-dumping order with respect to carbon steel welded pipe, which was a commodity product with multiple uses contrary to the subject goods.

On the current anti-dumping order with respect to carbon steel welded pipe, counsel noted that neither Hyundai nor SeAH participated in the Tribunal review which resulted in its renewal in June 2000. Accordingly, counsel advised that any facts arising from these procedures should be treated with extreme caution since they were based on estimates and extrapolations tendered by Canadian producers.

In conclusion, counsel for Hyundai and SeAH argued that market conditions had changed so radically since the finding was last renewed in 1996 that companies would not have to dump to do business in the current market. Counsel further argued that, to the extent there was any threat of sales of subject goods by foreign producers below normal values, it came rather from U.S. producers and increasingly from other emerging foreign producers which had practiced aggressive pricing.

CONSIDERATION AND ANALYSIS

Subsection 76.03(7) of the Act requires the Commissioner to determine if the expiry of an order or finding is likely to lead to a continuation or resumption of dumping. In making this determination, the Commissioner may consider a number of factors as listed in section 37.2 of the Special Import Measures Regulations. The following section contains the consideration and analysis of the principal factors upon which the Commissioner of Customs and Revenue determined whether the expiry of the order in respect of oil and gas well casing from Korea and the United States is likely to result in the continuation or resumption of dumping. The analysis is based on information provided by Canadian producers, exporters and importers as well as other information gathered by the CCRA.

United States

Canadian industry estimated U.S. historical plant capacity for oil country tubular goods, which includes the subject casing, at approximately 3.6 million tons⁵. Based on plant capacity data provided by U.S. exporters, the CCRA was satisfied that the 3.6 million tons was a close approximation to the actual plant capacity for these goods in the United States. Capacity utilization rates were then calculated for the U.S. exporters based on confidential production data provided by the companies. Based on the rates calculated, and applying this rate to the entire U.S. industry, it can be conservatively estimated that there exists excess capacity in the United States of approximately 1 million tons. This excess capacity is two to three times the size of the total apparent Canadian market for subject oil and gas well casing, depending upon which year is used for the analysis⁶.

Information was provided regarding an increase of imports of oil country goods into the U.S. domestic market⁷ . In the first nine months of 2000, imports of oil country goods into the U.S. increased significantly over 1999 levels⁸. This increase in imports was confirmed by the American Iron Steel Institute (AISI) which stated that steel imports were flooding the country⁹.

The loss in market share by the American producers is not only happening in the U.S. market but in the Canadian market as well. In 1997, imports from U.S. exporters represented 68% of all imports of subject goods into Canada. In the first nine months of 2000, U.S. imports accounted for only 41% of the total volume of imports of subject goods into Canada.

In the first nine months of 2000, the average declared value for duty of oil and gas well casing from non-subject countries was less than the average declared value for duty price for the U.S. subject casing. The CCRA's enforcement data indicated that importations of subject casing from the United States were made at normal values for the most part. This was demonstrated by the relatively small amount of anti-dumping duties assessed in comparison to the large volume of importations from the United States. If the current order were to expire, it is highly probable that U.S. exporters would abandon the pricing discipline imposed by the anti-dumping system and introduce aggressive pricing to recapture any market share lost to foreign competition.

Evidence on the record in the form of industry reports and articles comment on the fact that the North American OCTG market is presently in an upswing¹⁰. Oil and gas prices are increasing and, as a result, demand for oil country tubular goods, which include the subject casing, is rebounding. The current situation is in contrast to the downturn experienced in the market in 1998 and most of 1999. In April 1999, the rig count bottomed out at a level not seen in decades.

There are many healthy forecasts with regard to the state of the North American OCTG market in 2000 and 200. Spears & Associates Inc., one of the industry experts, made long term forecasts for the industry with regard to the 12 to 18 months following the scheduled expiry of the current order (i.e. July 5, 2001). For example, with respect to the price of oil, the December 2000 Spears and Associates Drilling & Production Outlook, stated that ". . .we may be entering the last two or three months of the oil price recovery that began in March 1999. Once the winter has passed, we expect the oil market to fixate on the planned rise in the world oil production capacity - specifically OPEC's increasing surplus production capacity."¹¹ This industry analyst also indicated that in 2001, U.S. spot oil prices will decrease 5% from 2000 levels and continue to soften in 2002. Oil prices will remain in that range for the next couple of years¹².

According to information on record, gas rigs now account for 75% of drilling activity in the U.S.¹³ and approximately 50% in Canada. This would indicate that the OCTG market in North America is now more dependent on the price of natural gas than the price for crude oil. However, wells drilled in Canada are historically shallow wells and in 2000, averaged approximately 850 meters (2,800 feet). Therefore, although a much greater proportion of OCTG is being used in recent years in gas well applications, the wells in Canada are shallow and do not require a proportionally larger volume of casing. As such, even though there is ample information on the record indicating that the price of gas will remain healthy in the near future, the evidence suggests that the impact on subject casing will not be as significant as for high-strength, non-subject casing used in deeper drilling applications.

In analyzing the current OCTG market as well as the forecasts for the twelve to eighteen months following the scheduled expiry of the order, the evidence points to a likely softening in the market. Such a downturn would be attributed in whole or in part to a predicted decrease in worldwide crude oil prices, increasing inventories in Canada and the U.S., increasing imports in Canada and the U.S. and a possible downturn predicted in the U.S. economy. The Commissioner is of the opinion that, under such conditions, the expiry of the order is likely to result in the continuation or resumption of dumping of the subject goods.

In conclusion, the Commissioner has determined that the expiry of the order with respect to the United States is likely to result in the continuation or resumption of dumping for the following reasons: (i) exporters in the United States have both the production capacity and the excess capacity to supply the entire Canadian market; (ii) U.S. producers have lost market share in Canada and the United States to foreign producers and would be forced to sell below current normal values in Canada to regain these sales; (iii) the volatile and cyclical OCTG market, while currently experiencing an upswing, will experience a downturn in the near future.

Korea

Unlike Canada and the United States, there is no domestic market in Korea for subject goods. As a consequence, all casing produced in Korea must be exported to foreign markets. Despite this, no subject casing from Korea has been exported to Canada since 1989, even though Canada is the second largest market in the world for these goods. This important fact can be viewed in one of two ways: either Korean exporters were unable to compete in the Canadian market at normal value levels or the Canadian market was not attractive enough to Korean exporters during this period of time, notwithstanding the normal value system in place.

It should be noted that, while Korean exporters abandoned the Canadian market in 1989, they continued to sell OCTG products into the United States. The same competitive forces that existed in the Canadian market at that time also would have been present in the U.S. market. The only significant difference between the two markets at that time was the existence of an anti-dumping finding in the Canadian market.

On June 28, 1995, the USITC issued a positive injury finding with respect to OCTG products (casing and tubing) from a number of countries including Korea. Now being restricted from selling casing into both the U.S. and Canadian markets because of anti-dumping measures in place in these countries, it is noted that no Korean manufacturers received normal values from the CCRA during the period of review. It should also be noted that Korean exporters did not apply for normal values during the Asian economic crisis of late 1997 and 1998 which triggered a depreciation in the Korean won of approximately 40 percent. The devaluation of the won should have made Korean casing more attractive in the eyes of potential importers in Canada, especially in years such as 1997 which was considered to be a banner year for all companies in the Canadian OCTG market.

Participants in the expiry review provided a number of conflicting views as to the present capacity of the Korean mills to produce OCTG, and in particular, the subject goods. Canadian producers estimated Korean OCTG capacity at 3.483 million net tons¹⁴ whereas Hyundai and SeAH indicated that their combined potential production capacity with respect to subject goods only was approximately 1 million tons¹⁵. Using this latter figure which relates to subject goods only, the combined potential capacity of Hyundai and SeAH is two to three times the size of the total apparent Canadian market for subject oil and gas well casing, depending upon which year is used for the analysis. Based on information provided, Hyundai and SeAH appear to be the only two companies in Korea that are both licensed to produce products to API standards and specifications and, for technical reasons, capable of producing oil and gas well casing within the description of the subject goods.

Both Hyundai and SeAH are capable of producing goods other than the subject goods on the same machinery and equipment used to produce the subject goods. Products such as standard pipe, line pipe, oil and gas well tubing and mechanical tubing can be produced on essentially the same facilities as those used to produce subject casing. Therefore, should either company reach their maximum production capacities on the machinery and equipment used to produce subject goods, they would also have the option of altering their product mix by producing more subject goods and less non-subject goods if it were economically advantageous to do so.

Another factor indicative of whether dumping is likely to continue or resume should the order expire is the fact that both Hyundai and SeAH continue to be subject to anti-dumping duties in Canada with respect to carbon steel welded pipe as a result of the CITT continuing its order with respect to this product on June 5, 2000. As well, both companies continue to be subject to an anti-dumping order in the U.S. with respect to standard pipe. SeAH alone is subject to an anti-dumping order in the U.S. with respect to OCTG (i.e. casing and tubing).

In summary, Korea has not exported subject goods to Canada since 1989 indicating an inability to compete in Canada at undumped prices, has significant production capacity coupled with no domestic market, and has a history of dumping subject and similar goods in Canada and in foreign markets. For these reasons, the Commissioner has determined that the expiry of the order with respect to Korea is likely to result in the continuation or resumption of dumping.

FUTURE ACTION

The Tribunal will now consider whether the expiry of the order is likely to result in injury or retardation to the domestic industry.

If the Tribunal determines that the expiry of the order is likely to result in injury or retardation, the order will be continued, with or without amendment. If this is the case, the CCRA will continue to levy anti-dumping duties on importations of subject goods where appropriate.

If the Tribunal determines that the expiry of the order is unlikely to result in injury or retardation, the order will be rescinded. Anti-dumping duties would no longer be levied on importations of the goods in question from the date the order is rescinded.

INFORMATION

For additional information, please contact Barbara Chouinard or Patrick Mulligan by telephone at (613) 954-7399 and (613) 952-6720 respectively or by facsimile at (613) 941-2612.

Denis Lefebvre
Assistant Commissioner
Customs Branch
Ottawa, March 2, 2001
File No. 4366-2

APPENDIX 1

PRODUCERS

Algoma Steel Inc.
105 West Street
P.O. Box 1400
Sault Ste. Marie, Ontario
P6A 5P2

Algoma Seamless Tubulars Inc.
547 Wallace Terrace
Sault Ste. Marie, Ontario
P6B 1E8

IPSCO Inc.
P.O. Box 1670
Regina, Saskatchewan
S4P 3C7

Prudential Steel Ltd.
18^th Floor, 140-4th Avenue S. W.
P.O. Box 1510
Calgary, Alberta
T2P 2L6

Stelpipe Ltd.,
A Subsidiary of Stelco Inc.
100 King Street West
24th Floor, Stleco Tower
Hamilton, Ontario
L8N 3T1

APPENDIX 2

EXPORTERS

Hyundai Pipe Co., Ltd.
77 Mugyo-Dong, Chung-Gu
Seoul, Korea

IPSCO Inc.
650 Warrenville Road
Suite 500
Lisle, Illinois 60532
USA

Lone Star Steel Company
P.O. Box 803546
Dallas, Texas 75380-3546
USA

Maverick Tube Corporation
16401 Swingley Ridge Road
Suite 700
Chesterfield, Missouri 63017
USA

Newport Steel Corporation
Ninth and Lowell Streets
Newport, Kentucky 41072
USA

North Star Steel Houston
8603 Sheldon Road
Houston, Texas 77049
USA

Paragon Industries, Inc.
Route 3, P.O. Box 331 A
Sapulpa, Oklahoma 74066
USA

Prudential Steel Inc.
1205 Prudential Blvd.
P.O. Box 1846
Longview, Washington 98632
USA

SeAH Steel Corporation
10 Bongnae-Dong
1 Ga, Jung-Gu
Seoul, 100-161 Korea

APPENDIX 3

IMPORTERS

Alberta Tubular Products, Ltd.
1920, 700-6th Avenue S W
Calgary, Alberta
T2P 0T8

Anvil Machine Ltd.
9539, 56th Avenue
Edmonton, Alberta
T6E 0B2

Continental Oilfield Supply Canada
7520 - 114^th Avenue S. E.
Calgary, Alberta
T2C 4T3

DST Tubulars Inc.
3450, 855 2nd Street S W
Calgary, Alberta
T2P 4J8

Fedmet Tubulars
a division of Russel Metals Inc.
#2200, 700 - 9^th Avenue S.W.
Calgary, Alberta
T2P 3V4

Global Steel Ltd.
1400, 400-3rd Avenue S. W.
Calgary, Alberta
T2P 4H2

Hallmark Tubulars Ltd.
910, 255- 5th Avenue S. W.
Calgary, Alberta
T2P 3G6

Marubeni Tubulars Canada Ltd.
3060, 205-5th Avenue S. W
Calgary, Alberta
T2P 2V7

Siderca Corporation
4511 Brittmoore Road
Houston, Texas 77041
USA

Summit Tubulars Corporation
3310, 350-7th Avenue S. W.
Calgary, Alberta
T2P 3N9

Endnotes

1. CITT Inquiry No. CIT-15-85.

2. CITT Review No. R-7-86.

3. Tribunal Review No. RR-90-005

4. Tribunal Review No. RR-95-001

5. Paragraph 27, IPSCO case brief, December 29, 2000

6. Stelco Case Brief page 5

7. IPSCO's Exhibit A Evidence - Attachment 3 IPSCO - December 15, 2000

8. Exhibit A Evidence- Attachment 3 - AISI Import Figures- IPSCO - Dec 15, 2000

9. Imports are blamed for steel output lull - 2000 Cahners Business Information - Attachment 4 - Additional Evidence of Algoma- December 29, 2000

10. State of the Canadian Oil and Gas Industry and outlook to 2000 by PSAC 2001 Industry Forecast and Producers' Panel, October 24, 2000 - Attachment F, Additional Information, Algoma Steel Inc., - November 2000

11. Spears and Associates, Inc., Drilling and Production Outlook - Supplementary Attachment E - Newport Steel Corp

12. Spears and Associates, Inc., Drilling and Production Outlook - Supplementary Attachment E - Newport Steel Corp

13. Pipe Logix - OCTG Review/Outlook Forecast for 20001 OCTG Market - Attachment B20(d) Newport submission page 259

14. Algoma, ASTI and Prudential Additional Public Evidence of December 18, 2000,p.14

15. Hyundai and SeAH case brief of January 8, p. 10