Dumping: AD1408 / 4214-47
Subsidy: CVD143 / 4218-44
Large diameter carbon and alloy steel line pipe
Statement of Reasons

[14] The complainant accounts for all domestic production of like goods in Canada, as defined in subsection 2(1) of SIMA. The complainant’s goods are produced at manufacturing facilities at two locations in Canada:

[15] Evraz Inc. NA Canada operates large line pipe manufacturing facilities in Regina, Saskatchewan. The EVRAZ North America group of companies also owns Canadian National Steel Corporation, which operates large line pipe manufacturing facilities in Camrose, Alberta.

[16] At the initiation of the investigations, the CBSA identified 34 potential importers of the subject goods based on both information provided by the complainant and CBSA import entry documentation.

[17] The CBSA sent an importer Request for Information (RFI) to all potential importers of the goods. The CBSA received seven responses to the importer RFI.

[18] At the initiation of the investigations, the CBSA identified 56 potential exporters of the subject goods from information provided by the complainant and CBSA import entry documentation. The CBSA sent dumping, subsidy and section 20 RFIs to each of the potential exporters in China. Potential exporters in Japan were sent dumping RFIs only.

[19] The CBSA received five substantially complete responses to the dumping RFI from three trading companies and two producers in Japan. No complete responses to the dumping RFI, section 20 RFI or subsidy RFI were received from exporters in China.

[20] One exporter in China, Panyu Chu Kong Steel Pipe Co., Ltd. (Chu Kong), submitted responses to the dumping, subsidy and section 20 RFIs one week after the required due date. The submissions were incomplete because important questions related to cost allocations, sales expense deductions, financial data reconciliation and subsidy amounts for specific programs were left unanswered. These deficiencies were communicated to the company, who went on to submit further information. Even with these subsequent submissions, Chu Kong’s responses to the RFIs remained substantially incomplete. Due to the incompleteness of the submissions, Chu Kong’s information was not taken into consideration for purposes of determining normal values, export prices and the amount of subsidy.

[21] As part of the section 20 inquiry to examine the extent of the GOC’s involvement in pricing in the steel pipe sector, which includes large line pipe, the CBSA requested that producers in other countries (specifically the Republic of Korea, the United States, and the Federal Republic of Germany) provide domestic pricing and costing information concerning large line pipe. These countries were selected as they are all major exporters of large line pipe to Canada. The CBSA received no information from producers in these countries.

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

[23] The CBSA sent a government subsidy RFI and government section 20 RFI to the GOC. The CBSA did not receive a response to either RFI from the GOC.

[24] For the purpose of these investigations, subject goods are defined as:

[25] Large line pipe is used in the oil and gas sector primarily in pipelines for the transmission of oil and natural gas products over long distances, but also in a variety of mining applications, including as slurry pipe in oil sands operations.

[26] The Canadian market for large line pipe is governed by applicable line pipe specifications including Canadian Standards Association (CSA) specification Z245.1 for line pipe used in pipeline applications. Oil and gas transmission pipelines must, in turn, for example, conform to CSA Z662 (Oil and Gas Pipeline Systems). That said, international trade in line pipe is governed primarily by API specification 5L. For example, CSA Z245.1 Grade 448 pipe is considered to be equivalent to API 5L Grade X65. The API 5L X grade numbers define the minimum yield strength required of the grade in kilopounds per square inch. This equivalency applies to other specifications, including International Organization for Standardization (ISO), which means that a particular line pipe may be certified and stenciled as complying with multiple standards if all the requirements of each standard/grade are met (leading to dual-, triple-, and further multiple stenciled line pipe). Indeed, it is common practice to certify multiple grades of pipe on a Mill Test Report. It is also common practice to substitute grades other than that initially requested by a customer with an equivalent grade. Mill Test Reports are provided to show that the properties of the supplied pipe meet the requirements of the actual grade ordered.

[27] The complainant manufactures or is capable of manufacturing line pipe to API 5L specifications in grades up to and including X100 and to all equivalent grades under CSA Z245.1, and in all outside diameter sizes covered by the product definition.

[28] The product definition covers all large line pipe meeting or supplied to meet the above specifications and grades, as well as equivalent specifications and grades, regardless of whether the line pipe has been multiple stenciled to indicate that it meets or is supplied to meet additional end use specifications. For purposes of greater clarity, all large line pipe stenciled or otherwise marked as meeting or supplied to meet API 5L (or equivalent specifications) for use as oil and gas pipelines are included in the product definition regardless of whether the pipe is marked as meeting any other end-uses or is supplied to meet any other end-uses. Line pipe that is manufactured and tested to meet higher API specifications (or equivalent CSA and ISO specifications) automatically conforms to lower specifications and may therefore have multiple stencils identifying additional end uses, such as American Society for Testing and Materials (“ASTM”), and equivalent specifications for end use as standard pipe (for low-pressure conveyance of steam, water, natural gas, air and other liquids in plumbing and heating applications), piling pipe, and other such end uses.

[29] Large line pipe has notable product characteristics that distinguish it from other pipe products. These include being more resistant to highly corrosive (“sour”) environments, which is accomplished by a secondary refining process in the production of the steel to increase the purity of the steel, thereby making it more resistant to corrosion from sour gas. The grain size of the steel plate used as an input into the production of large line pipe is also more refined, which affects the low temperature toughness of the steel. Large line pipe also typically is sold in API grades of X70 or greater, which speaks to higher strengths of steel. Finally, large line pipe is characterized by higher deformability and higher pressure crushing properties.

[30] Submerged arc welded (SAW) large line pipe derives its name from the stage in the production process wherein the welding arc is submerged in flux while the welding occurs. The flux protects the steel in the weld area from impurities found in the air when heated to welding temperatures. Double submerged arc welded (DSAW) large line pipe requires both inside and outside welds, which are accomplished in separate processes, hence the “double” prefix. DSAW encompasses both longitudinally welded SAW (LSAW) and helical (or spiral) welded SAW (HSAW).

[31] LSAW large line pipe is most often produced using either the pyramid rolls method (also known as the rolled and welded method) or the U&O method (also known as the “U O E” method). The difference between these two processes exists only in the method of forming the steel cylinder. The pyramid rolls method begins with three rolls arranged in a pyramidal structure, between which the steel plate is pressed until it is formed into a cylinder – the time required depends on the grade and thickness of the plate. In the U&O method, the cylinder is first formed into a U shape using a “U” press, then curled into an O shape (i.e., a cylinder) using an “O” press. Under this method, the “E” in the U-O-E descriptor signifies the press process in which the pipe is trade (or “stitch”) welded until further SAW welding is performed.

[32] Once formed, the cylinder is then welded both from the inside and the outside longitudinally along the length of the cylinder using the SAW process, with up to five welding wires, which in the end results in a welded pipe.

[33] Stages in the LSAW production process typically include: cutting and baiting the steel into strips (“skelp”); pre-bending; forming; stitch and pre-welding; internal and external SAW processing; finishing; straightening; cold expanding (for yield strength); demagnetization; seam removal, and bevelling (depending on the order in question).

[34] HSAW (or “spiralweld”) large line pipe is characterized as a steel pipe having a DSAW seam the entire length of the pipe in a spiral form. HSAW is produced using hot-rolled coil that is formed into a hollow cylinder by twisting the skelp as it is unrolled (in the same manner that the cardboard core in a roll of paper towel is formed) and then welded as the edges come together using an automated SAW process both inside the cylinder and outside the cylinder. The end product is a welded pipe.

[35] Stages in the HSAW production process typically include: de-coiling and leveling; skelp end welding for continuous rolling; edge trimming and bevelling; forming and tack welding; cutting to length; skelp and repair welding; inside cleaning of pipe; internal and external SAW; further inside cleaning; weld seam removal at pipe ends; and beveling of pipe ends (depending on the order in question).

[36] Both LSAW and HSAW large line pipe production processes also comprise a number of quality control steps including, but not limited to, the following: skelp and edge ultrasonic testing; sampling and destructive testing; inspection of SAW; tack weld inspection; hydrostatic testing; ultrasonic testing; x-ray weld inspection/filmless radiography; final inspection; and generation of certificates. The complainant employs both the LSAW process and the HSAW process for its production of large line pipe.

[37] Using the U&O method, large line pipe is generally produced in 40-foot lengths (commonly known as “double random lengths” or “DRL”). Using the pyramid roll method, however, large line pipe is most often produced in 20-foot lengths (“single random lengths” or “SRL”) or shorter; this may require producers to girth weld multiple sections together to achieve greater lengths, as needed. Using the spiral weld method, large line pipe can be rolled into exact lengths up to approximately 115 feet (including “triple random lengths”/“TRL” of 60 feet and “quadruple random lengths”/”QRL” of 80 feet).

[38] Small diameter line pipe (i.e., line pipe with an outside diameter of up to 24 inches) is a separate product, with wholly different costs, production processes and sales considerations. Among other characteristics of distinction, the DSAW, HSAW and LSAW processes used to produce large line pipe are different and distinct from the electric resistance weld (“ERW”) process used to produce small diameter line pipe. Moreover, a significant proportion of small diameter line pipe is sold through distributors, while large diameter line pipe is almost entirely sold directly to end users.

[39] The subject goods are normally classified under the following Harmonized System (HS) classification numbers:

• 7305.11.00.21
• 7305.11.00.29
• 7305.12.00.20
• 7305.19.00.21
• 7305.19.00.29

[40] The listing of HS classification numbers is for convenience of reference only. Refer to the product definition for authoritative details regarding the subject goods.

China

Section 20 Inquiry

[70] 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 2} Where section 20 of SIMA is applicable, the normal values of the goods are not determined using domestic prices or costs in that country.

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

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

[73] The complainant alleged that the conditions described in section 20 prevail in the steel pipe sector, which includes large line pipe in China. The complainant alleged that this industry sector in China does not operate under competitive market conditions and consequently, prices established in the Chinese domestic market for large line pipe are not reliable for determining normal values.

[74] The complainant provided information to support these allegations concerning the steel pipe sector, which includes large line pipe. This included evidence of export controls and state ownership in the steel industry and steel pipe sector. The complainant also cited specific GOC policies such as the National Steel Policy, the 12th Five-Year Development Plans for the Steel Industry, and the 12th Five-Year Plan for the Steel Pipe Industry.^{Footnote 3}

[75] At the initiation of the investigation, the CBSA had sufficient evidence, supplied by the complainant and from its own research and past investigation findings, to support the initiation of a section 20 inquiry to examine the extent of GOC involvement in pricing in the steel pipe sector, which includes large line pipe. The information indicated that prices in China in this sector have been influenced by various GOC industrial policies. Consequently, the CBSA sent section 20 RFIs to producers and exporters of large line pipe in China, as well as to the GOC, to obtain information on the extent to which the GOC is involved with the determination of domestic prices in the steel pipe sector, which includes large line pipe.

Summary of Chinese Exporter Responses

[76] The CBSA did not receive any complete responses to the exporter section 20 RFI from producers or exporters of subject goods in China. As previously mentioned, one exporter in China provided a partial response to the exporter section 20 RFI. The exporter’s submission was incomplete because most responses did not include all of the information requested by the CBSA.

Government of China Response

[77] An RFI was sent to the GOC requesting information for the purposes of the section 20 inquiry. No response was received from the GOC.

Surrogate Country Responses

[78] As part of the section 20 inquiry, RFIs were sent to all known producers of large line pipe in the Republic of Korea, the Federal Republic of the Germany and the United States of America. No producers located in surrogate countries responded to the RFI.

Responses from Importers with Sales in Canada of Large Line Pipe from Other Countries

[79] As part of the section 20 inquiry, the RFIs sent to importers requested information on re sales in Canada of large line pipe imported from countries other than China. The CBSA received information from five importers on re-sales in Canada of large line pipe from countries other than China; however, this information was not analysed as the CBSA did not receive substantially complete information from exporters and producers in China.

Results of the Section 20 Inquiry

[80] The following is the CBSA’s analysis of the relevant factors that are present in the steel pipe sector in China, which includes large line pipe.

GOC Industrial Policies

[81] As part of its section 20 analysis, the CBSA examined:

• The National Steel Policy and the Steel Revitalization/Rescue Plan;
• The 12th Five-Year Development Plans for the Steel Industry; and
• The 12th Five-Year Plan for the Steel Pipe Industry.

National Steel Policy & Steel Revitalization/Rescue Plan

[82] As cited in previous section 20 inquiries on steel products, The Development Policies for the Iron and Steel Industry – Order of the National Development and Reform Commission [No. 35] (National Steel Policy), was promulgated on July 8, 2005 and outlines the GOC’s future plans for the Chinese domestic steel industry.^{Footnote 4} The major objectives of the National Steel Policy are:

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

[83] On March 20, 2009, the GOC promulgated the Blueprint for the Adjustment and Revitalization of the Steel Industry issued by the General Office of the State Council (Steel Revitalization/Rescue Plan).^{Footnote 5} This macro-economic policy was the GOC’s response to the global financial crisis and is also the action plan for the steel industry for the 2009 through 2011 period. This plan includes the following major tasks:

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

[84] There are common measures between these two GOC policies, as the Steel Revitalization/Rescue Plan is an acceleration of the major objectives of the National Steel Policy. In the Steel Revitalization/Rescue Plan, the GOC asserts its strict control over new or additional steel production capacity, promotes new GOC directed mergers and acquisitions to reform the Chinese steel industry into larger conglomerates, along with an increased emphasis on steel product quality. These measures and reforms affect all of the steel industry in China, including the steel pipe sector which includes large line pipe.

12th Five-Year Development Plans for the Steel Industry

[85] The 12th Five-Year Development Plans for the Steel Industry^{Footnote 6} is a policy document that was released by the GOC’s Ministry of Industry and Information Technology on November 7, 2011. It serves as the guiding document for the development of the Chinese steel industry for the 2011 2015 period, which includes the period of investigation, and its directives include:

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

[86] Included in this plan are minimum requirements for steel production in order to eliminate smaller producers in the market. Through this plan, the GOC is continuing its reform and restructuring of the Chinese steel industry. The GOC’s target was that by 2015, China’s top 10 steel producers will represent 60% of the country’s total steel output. According to the National Steel Policy, the long-range GOC target for mergers and acquisitions is to have the top 10 Chinese steel producers account for 70% of total national steel production by 2020. This plan is the next development stage of GOC directives aimed at achieving this long range 2020 target.

[87] The 12th Five-Year Development Plans for the Steel Industry addresses existing issues in the steel industry with the directive to strictly control expansion of steel production capacity, accelerate the development of new material for steel and producer service and to continue to advance mergers and restructuring.

[88] According to the plan, the more highly concentrated steel industry will reduce overcapacity, decrease pollution and will improve Chinese steel producers’ bargaining power when negotiating prices on iron ore imports. In addition, through the 12th Five-Year Development Plans for the Steel Industry, the GOC is progressing with its initiative in the Steel Revitalization/Rescue Plan to move Chinese steel production facilities to China’s coast. As stated in a China Daily article titled Steel Industry Plan Forged, by the end of this GOC directed plan, in 2015, 40% of China’s steel production was projected to have been relocated to the coast.^{Footnote 7}

[89] In this 12th Five-Year Development Plans for the Steel Industry, the GOC’s policies and measures include:

• Improve the industry management system;
• Create an environment for fair competition, strengthen and improve macro adjustment and control;
• Regulate the production and operation of the steel industry;
• Standardize the operation of the industry;
• Strengthen the macro guidance of the policy;
• Promote international exchange and co-operation;
• Improve industry information flow, capital flow and material flow. Support enterprise groups to establish and improve the information system in different regions;
• Improve planning by regional authorities of industries to develop the steel industry, combine the regional mergers and reconstruction and eliminate obsolete construction. Related enterprises should put forward the planning scheme corresponding to the foregoing plan. The China Iron and Steel Industry should assist and put forward advice on the policy.

[90] As a result of the GOC’s administration of steel production capacity, the Chinese steel industry is under the purview of the GOC.

[91] Together with the GOC’s legislation: Criterion for the Production and Operation of Steel Industry – GY [2010] No. 105^{Footnote 8} and Several Observations of the General Office of the State Council on Further Strengthening Energy-saving and Emission Reduction Efforts as well as Accelerating of Restructuring of Steel Industry – GBF (2010) No. 34^{Footnote 9}, these plans set out the detailed requirements for existing production and operations of steel enterprises in China. For construction and renovation projects in the steel industry, the GOC’s development policies for the steel industry apply (i.e. the 12th Five-Year Plan Development Plans for the Steel Industry and Steel Revitalization/Rescue Plan).

[92] Control of new or additional steel production capacity by the GOC is further confirmed by the above mentioned document Several Observations of the General Office of the State Council on Further Strengthening Energy-saving and emission Reduction Efforts as well as Accelerating of Restructuring of Steel Industry. The intent of this legislation is to further support and carry out the Steel Revitalization/Rescue Plan, to achieve the energy-saving and emission targets, in addition to the restructuring of the steel industry in China as approved by the State Council. One main objective of the State Council is to “resolutely suppress the excessive growth of steel production capacity” and “strictly implement the approval and review process of steel projects.”^{Footnote 10}

[93] Should steel enterprises not acquiesce to the GOC’s requirements, laws and industrial policies, there are repercussions which include the withdrawal of steel production licenses and credit support. In respect of new construction or renovation of Chinese steel enterprises, the GOC’s steel development policies also apply.

12th Five-Year Plan for the Steel Pipe Industry

[94] On June 23, 2011, the Steel Pipe Branch Association (Steel Pipe Branch) of the China Steel Construction Society, released the 12th Five-Year Plan for the Steel Pipe Industry covering the period 2011-2015.^{Footnote 11} The Steel Pipe Branch is supervised by the State-owned Assets Supervision and Administration Commission^{Footnote 12} (SASAC) of the State Council.^{Footnote 13} The CBSA considers the China Steel Construction Society and the Steel Pipe Branch to be “Government” as it is under the administration of SASAC as per its Articles of Association.^{Footnote 14}

[95] The 12th Five-Year Plan for the Steel Pipe Industry is the second five year plan for the steel pipe industry. In the previous five-year period (2006 2010), the steel pipe industry experienced rapid growth and numerous modern pipe facilities were constructed. The construction of the new facilities allowed the industry to shift production to higher value pipe products, such as submerged arc welded (SAW) pipe, high frequency resistance welded pipe, OCTG and large line pipe.^{Footnote 15} However, at the end of the 11th five-year period the steel pipe industry was experiencing excess production capacity, intensified market competition, continued backward production and low industry concentration.^{Footnote 16} These issues were addressed in the 12th Five-Year Plan for the Steel Pipe Industry.

[96] The 12th Five-Year Plan for the Steel Pipe Industry directs that the output of steel pipe should be controlled at 67 75 million metric tonnes (MT). In addition to controlling the capacity of the steel pipe production, the plan also addresses the issue of overcapacity which was estimated to be 15 million MT, of which 8 million MT is surplus seamless pipe and 7 million MT is surplus welded pipe.^{Footnote 17}

[97] One of the main tasks of the 12th Five-Year Plan for the Steel Pipe Industry is to control total volume by eliminating obsolete (backward production) and controlling new production capacity.^{Footnote 18}

[98] The plan also states that the top 20 Chinese steel enterprises are to be responsible for more than 60% of the aggregate steel pipe output with the top 10 seamless steel pipe producers accounting for 70% of the seamless production and the top 10 welded pipe producers accounting for 50% of the welded production. These industry concentration targets are largely to be obtained through mergers and acquisitions by the end of 2015.^{Footnote 19} These GOC objectives are likely to conflict with the commercial interests of steel pipe producers by affecting production volumes, competition and ultimately prices.

GOC Ownership of Suppliers/Producers

[99] As part of its section 20 analysis with respect to the influence of state owned enterprises, the CBSA examined:

• State ownership of the steel industry in China;
• Decree of the State Council of the People’s Republic of China No.378; and
• Circular of the State-Council on Supervision of State-Owned Enterprises to Prevent Loss of State Assets.

State ownership of the steel industry in China

[100] The complaint provides evidence that eight of the top 10 steel companies in China are state-owned. According to the complainant, these eight state-owned enterprises (SOEs) produce flat steel products and billets, and in turn provide these inputs to large line pipe producers in China.^{Footnote 20} As per the 12th Five-Year Development Plans for the Steel Industry, these companies were expected to reach 60% of total Chinese steel production by 2015 and 70% by 2020.^{Footnote 21}

[101] The complaint referenced information on the record in the CBSA’s Galvanized Steel Wire investigation which indicated that the GOC has continuously pressured state owned steel mills to avoid cutbacks in bids to maintain economic growth and employment, which in turn has been a contributing factor behind plummeting Chinese steel prices.^{Footnote 22} This indicates that the GOC exerts control over the Chinese steel industry, which includes the steel pipe sector including large line pipe.

[102] Information available from the World Steel Association and publicly available information respecting companies in China shows that nine of the ten top steel producers in China were state owned in 2014.^{Footnote 23}

[103] In regards to large line pipe producers, the complainant provided evidence which estimated that up to 50% in China are state-owned.^{Footnote 24}

[104] The CBSA did not receive complete responses to the dumping or section 20 RFI from any exporters or producers of large line pipe in China. The GOC also did not respond to the section 20 RFI. As such, the CBSA does not have sufficient information to determine the proportion of large line pipe producers in China that are SOEs.

[105] The information provided by the complainant, and available from the World Steel Association and publicly available information respecting steel producers in China, supports the assertion that there is substantial state ownership in the steel industry in China, including the steel pipe sector, which includes large line pipe.

Decree of the State Council of the People’s Republic of China No.378

[106] The Decree of the State Council of the People’s Republic of China No.378 (the Decree)^{Footnote 25}, promulgated on May 27, 2003, provides the authority for the State Council, the chief administrative authority of China, to control, supervise and manage state-owned enterprises.

[107] According to article 12 of the Decree, “The State-owned assets supervision and administration authority of the State Council is a specially established authority directly subordinated to the State Council which, on behalf of the State Council, performs the responsibilities of investor, supervises and manages State-owned assets of enterprises.” This indicates that the GOC has significant authority over the actions of state-owned enterprises in China.

Circular of the State-Council on Supervision of State-Owned Enterprises to Prevent Loss of State Assets

[108] On November 10, 2015, the State Council issued the Circular of the State-Council on Supervision of State-Owned Enterprises to Prevent Loss of State Assets. According to a summary of the circular released by the GOC, “inside and outside supervision will be strengthened on SOEs”.^{Footnote 26} A range of increased supervision efforts were listed in the summary by the GOC, including:

• improving supervision of SOEs’ key departments and subsidiaries in areas of finance, procurement, marketing, and investment
• enhancing supervision of board of directors at SOEs
• establishing audit committee made up of outside directors; and reinforcing board of supervisors
• better oversight by State assets supervisory agencies of SOEs covering investment plans
• restructuring and reorganization
• property rights management
• financial evaluation
• performance appraisal
• employment and promotion, and salary distribution
• regular inspections on all business operations and random inspections on key projects
• improvement of board of external supervisors dispatched by the government to monitor finance, major decisions, operation, managers, and board of directors of SOEs
• improvement of auditing on SOEs, especially during replacement of SOEs’ top executives

[109] Based on the summary of the GOC of its Circular of the State-Council on Supervision of State Owned Enterprises to Prevent Loss of State Assets, the GOC increased its supervision of all SOEs in 2015, which includes SOEs in the steel industry.

GOC Purchases of Line Pipe

[110] The complainant provided information which suggests the GOC is a significant purchaser of line pipe. As the ultimate owner of PetroChina, a dominant oil and natural gas pipeline transporter in China, the GOC may influence the prices of line pipe through purchases of line pipe.^{Footnote 27} The complainant did not specifically indicate the outer diameter of line pipe purchased by PetroChina, but exhibits 6 25 and 6 26 of the complaint are evidence that PetroChina transports oil and natural gas by pipeline, and oil and natural gas pipelines use both small diameter line pipe (gathering lines) and large diameter line pipe (trunk lines).^{Footnote 28}

GOC Export Controls

[111] There is evidence that the GOC maintains export controls on raw materials used in the production of steel.

[112] The GOC export controls include export quotas, export duties and other export related administrative measures and costs. These GOC measures limit or prevent the export of the raw material resulting in an increasing supply in the Chinese domestic market causing downward pressure on domestic prices, while at the same time, increasing world market prices for these materials.^{Footnote 29}

[113] During the period of investigation for large line pipe, the GOC imposed an export tax of 25% on pig iron, iron and steel granules and powders, steel blooms, steel billets, and steel slab.^{Footnote 30} This discourages the export of such iron and steel products which increases their supply in the Chinese domestic market causing downward pressure on domestic prices on such products and products made from them, such as hot-rolled steel, which is the main raw material in the production of welded pipe, including large line pipe.

[114] The GOC has placed tariffs and import taxes on 78 steel products that are produced in the domestic market. The taxes are applied on finished steel materials that are re-exported after further domestic processing. The products subject to this tariff include large line pipe inputs such as hot-rolled coil.^{Footnote 31}

[115] The export controls of the GOC detailed above on steel products, including raw materials used in the manufacture of large line pipe, create an excess supply and therefore lower prices of raw materials for pipe manufactures than would exist in a competitive market without such controls.

Summary of Government Influence on Domestic Prices

[116] Based on the information on the record, the scope of the GOC’s macro economic policies and measures indicates that the GOC is influencing the Chinese steel industry, which encompasses the steel pipe sector including large line pipe. The use of such policies and measures can dramatically change the demand and supply balance in the domestic market and could influence the domestic prices of steel products such as steel pipe and large line pipe.

[117] In addition to the GOC’s actions to eliminate obsolete steel production and reduce energy-emissions, the GOC has clearly identified its plans for mergers and acquisitions. The GOC calls for provincial, autonomous regional and municipal governments to focus on formulating and reporting 2010 2011 iron and steel enterprise merger and restructuring plans to be organized, upon approval by the Ministry of Industry and Information Technology. The GOC directs that the implementation/improvement of policies for promoting mergers and restructuring be improved. These are compelling facts that the GOC is firmly in charge of the reform of the Chinese steel industry which encompasses the steel pipe sector including large line pipe.

[118] The cumulative impact of the GOC’s numerous macro-economic policies and measures, including the National Steel Policy, the Steel Revitalization/Rescue Plan, the 12th Five-Year Development Plans for the Steel Industry and the 12th Five-Year Plan for the Steel Pipe Industry, its ownership of a significant portion of the steel industry and export controls on steel products and steel inputs have resulted in an environment where enterprises have conflicting objectives. The GOC objectives are likely to conflict with the commercial objectives of steel pipe producers, affecting products produced, production volumes and ultimately prices.

[119] The cumulative impact of these GOC measures and control indicate that prices of large line pipe in China are being indirectly determined by the GOC.

Chinese Domestic Price Analysis

[120] In order to determine normal values pursuant to section 20 of SIMA, in addition to the requirement that the CBSA be of the opinion that the government of the prescribed country substantially determines domestic prices, the CBSA must be of the opinion that there is sufficient reason to believe that the domestic prices are not substantially the same as they would be in a competitive market.

[121] At initiation, the CBSA did not have access to domestic price data for large line pipe in China. Given the absence of publicly available domestic price data, the CBSA relied on information provided by the complainant. This information consisted of a publication which included price data for line pipe products, including large line pipe, in various grades for China as well as other countries and regions. The information provided by the complainant represented the domestic prices of these goods in the respective home markets. Prices were provided by grade and expressed in USD per metric tonne.

[122] The analysis of domestic prices in China continued during the final phase of the investigation. The following explains the CBSA’s analysis of domestic prices in China.

[123] The CBSA did not receive any complete responses to its dumping RFI from exporters or producers of large line pipe in China. However, Chu Kong, a Chinese exporter of subject goods, provided incomplete submissions in response to the CBSA’s RFIs. These submissions contained price information on the company’s domestic sales of large line pipe.

[124] Regarding prices of large line pipe in countries other than China, the CBSA did not receive any responses to its RFI sent to producers in the three surrogate countries. However, two producers in Japan responded to the RFI for purposes of the dumping investigation. Some information on the domestic selling prices of large line pipe in Japan was available from these responses and was used to compare with information available on selling prices in China from Chu Kong. The CBSA compared Chu Kong’s average domestic selling price of large line pipe in China to the average of domestic selling prices of large line pipe reported by the two producers in Japan, and found significant differences.

[125] In addition to the comparison of large line pipe prices above, the CBSA also considered the information provided by the complainant respecting price data for welded line pipe products in various grades for China as well as other countries and regions.^{Footnote 32} The complaint provided information from the publication Metal Expert which includes prices for grades X42, X52 and in some cases other grades of welded line pipe for the fourth quarter of 2014 and January 2015, which are within the period of investigation.^{Footnote 33} Specific price information by diameter was not publicly available.

[126] The information available from Metal Expert showed that prices of X42 grade welded line pipe in the fourth quarter of 2014 were between 18% and 29.5% higher in the comparison countries/regions of the United States, Russia, and the European Union when compared to prices in China. In January 2015, prices for such goods were between 25% and 37.5% higher in the comparison countries/regions.

[127] The Metal Expert information provided by the complainant also showed prices for grade X52 LSAW (longitudinally submerged arc welded) line pipe in China and the Middle East in the fourth quarter of 2014 and January 2015.^{Footnote 34} The prices for grade X52 LSAW line pipe were quoted by Metal Expert as 22% lower in China than in the Middle East in the fourth quarter of 2014, and 23% lower in China than in the Middle East in January 2015.

[128] The CBSA also compared the average of the price of large line pipe in Japan reported by two producers in Japan to the prices reported in Metal Expert for sales in China of line pipe, including large line pipe, and found significant differences.

[129] The Metal Expert pricing information provided by the complainant consists of averages for all diameters of line pipe, including larger diameters.

[130] The CBSA acknowledges certain limitations in the price analysis contained above, such as that average price information in China and other countries from Metal Expert is only available at the grade level for line pipe (grades X42 and X52) and not by diameter.

[131] Given that line pipe, including large line pipe, is a commodity product freely traded on the world market, these price discrepancies are evidence that domestic prices of line pipe, including large line pipe, in China are not being determined under competitive market conditions. The information discussed above supports the conclusion that the domestic prices of large line pipe in China are not substantially the same as they would be if they were determined in a competitive market.

Summary of the Results of the Section 20 Inquiry

[132] The wide range and material nature of the GOC measures have resulted in significant influence on the steel pipe sector in China, which includes large line pipe. Based on the preceding, the CBSA is of the opinion that:

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

[133] Based on the above analysis, for the purposes of the final determination, the CBSA affirmed the opinion rendered at the preliminary determination that the conditions described in paragraph 20(1)(a) apply in the steel pipe sector in China, which includes large line pipe^{Footnote 35}.

All Exporters – China

[134] As the exporters in China did not provide complete responses to the dumping RFI, the normal values and export prices were determined based on a ministerial specification pursuant to subsection 29(1) of SIMA based on the methodologies explained in the section below entitled “All Other Exporters – Japan”.

[135] Based on these methodologies, the margins of dumping for the exporters in China are equal to 95.0%, expressed as a percentage of export price.

Japan

[136] Further to a comprehensive review of the responses from both the producers and the trading companies in Japan, and in consideration of relevant jurisprudence and policy guidelines regarding the identification of the exporter, the CBSA concluded that, for the purposes of the final determination, the three trading companies are the exporters of the subject goods.

Marubeni Steel

[137] Marubeni Itochu Steel Inc. (Marubeni Steel) is considered to be an exporter of subject goods and is located in Japan. During the POI, Marubeni Steel purchased the subject goods that it exported to Canada from an unassociated Japanese producer.

[138] Marubeni Steel provided a substantially complete response to the CBSA’s dumping RFI. Supplemental RFIs were sent to Marubeni Steel to gather additional information and to seek clarification for certain questions. The producer of the goods provided the CBSA with information on the production of the subject goods exported by Marubeni Steel, including complete responses to the CBSA’s dumping RFI and supplemental RFIs. Officers of the CBSA met with representatives of Marubeni Steel and the producer of the goods at their offices in Japan to verify the information provided.

[139] Marubeni Steel did not have domestic sales of like goods during the PAP. Normal values were determined in accordance with paragraph 19(b) of SIMA, as the sum of cost of production, a reasonable amount for administrative, selling and all other costs, and a reasonable amount for profits. The CBSA received a complete response from the producer and was able to calculate the cost of production of the goods. An amount for administrative, selling and all other costs was calculated for both the producer and the exporter in accordance with subsection 11(3) of SIMR. Amounts for profits were calculated in accordance with subparagraph 11(1)(b)(vi) of the SIMR, based on the weighted average profits of two Japanese producers on sales of welded line pipe that were made in the country of export during the PAP.

[140] During the POI, Marubeni Steel sold subject goods to its related Canadian importer, Marubeni Itochu Tubulars Canada (Marubeni Canada). Due to the relationship between the two companies, a reliability test was performed to determine whether the prices between the companies were reliable as envisaged by SIMA. This test was conducted by comparing the section 24 export prices with the section 25 export prices. In accordance with paragraph 22(c) of SIMR, the CBSA used profit information provided by vendors of large line pipe and other products in Canada. The test revealed that the export prices determined in accordance with section 24 of SIMA were reliable and, therefore, export prices for sales to Marubeni Canada were determined in accordance with section 24 of SIMA.

[141] For the final determination, the total normal value compared with the total export price resulted in a margin of dumping of 22.1% for Marubeni Steel, expressed as a percentage of export price.

Metal One

[142] Metal One is considered to be an exporter of subject goods and is located in Japan. During the POI, Metal One purchased the subject goods that it exported to Canada from unassociated Japanese producers.

[143] Metal One provided a substantially complete response to the CBSA’s dumping RFI. Supplemental RFIs were sent to Metal One to gather additional information and to seek clarification for certain questions. The producers of the goods provided the CBSA with information on the production of the subject goods exported by Metal One, including complete responses to the CBSA’s dumping RFI and supplemental RFIs. Officers of the CBSA met with representatives of Metal One and the producers of the goods at their offices in Japan to verify the information provided.

[144] Metal One did not have domestic sales of like goods during the PAP. Normal values were determined in accordance with paragraph 19(b) of SIMA, as the sum of cost of production, a reasonable amount for administrative, selling and all other costs, and a reasonable amount for profits. The CBSA received a complete response from the producers and was able to calculate the cost of production of the goods. An amount for administrative, selling and all other costs was calculated for both the producer and the exporter in accordance with subsection 11(3) of SIMR. Amounts for profits were calculated in accordance with subparagraph 11(1)(b)(vi) of the SIMR, based on the weighted average profits of two Japanese producers on sales of welded line pipe that were made in the country of export during the PAP.

[145] During the POI, Metal One sold subject goods to four Canadian importers, Cantak Corporation (Cantak), Edgen Murray Corporation, CFP Industries Inc. and NOV Wilson. The majority of subject goods exported to Canada by the exporter were sold to Cantak, a related importer. Due to the relationship between the two companies, a reliability test was performed to determine whether the prices between the companies were reliable as envisaged by SIMA. This test was conducted by comparing the section 24 export prices with the section 25 export prices. The test revealed that the section 24 export prices were unreliable and, therefore, export prices for sales to Cantak were determined in accordance with paragraph 25(1)(c) of SIMA which is based on the importer’s resale prices of the imported goods in Canada to unrelated purchasers, less deductions for all costs incurred in preparing, shipping and exporting the goods to Canada that were additional to those incurred on sales of like goods for use in the country of export, all costs included in the resale prices that were incurred in reselling the goods in Canada (including duties and taxes) and an amount representative of the average industry profit in Canada. The amount for profit was determined in accordance with paragraph 22(c) of SIMR, using profit information provided by vendors of large line pipe and other products in Canada.

[146] For subject goods that were not sold to the related importer, export prices were determined in accordance with section 24 of SIMA, based on 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.

[147] For the final determination, the total normal value compared with the total export price results in a margin of dumping of 43.1% for Metal One, expressed as a percentage of export price.

Sumitomo

[148] Sumitomo is considered to be an exporter of subject goods and is located in Japan. During the POI, Sumitomo purchased the subject goods that it exported to Canada from an unassociated Japanese producer.

[149] Sumitomo provided a substantially complete response to the CBSA’s dumping RFI. Supplemental RFIs were sent to Sumitomo to gather additional information and seek clarification. The producer of the goods provided the CBSA with information on the production of the subject goods exported by Sumitomo, including complete responses to the CBSA’s dumping RFI and supplemental RFIs. Officers of the CBSA met with representatives of Sumitomo and with representatives of the producer of the goods at their offices in Japan to verify the information provided.

[150] Sumitomo did not have domestic sales of like goods during the PAP. Normal values were determined in accordance with paragraph 19(b) of SIMA, as the sum of cost of production, a reasonable amount for administrative, selling and all other costs, and a reasonable amount for profits. The CBSA received complete responses to the RFI and supplemental RFIs from the producer and was able to calculate the cost of production of the goods. An amount for administrative, selling and all other costs was calculated for both the producer and the exporter in accordance with subsection 11(3) of SIMR. Amounts for profits were calculated in accordance with subparagraph 11(1)(b)(vi) of the SIMR, based on the weighted average profits of two Japanese producers on sales of welded line pipe that were made in the country of export during the POI.

[151] During the POI, Sumitomo sold subject goods to two Canadian importers, including one related importer, Sumitomo Canada Limited (Sumitomo Canada). Due to the relationship between the two companies, a reliability test was performed to determine whether the prices between the companies were reliable as envisaged by SIMA. This test was conducted by comparing the section 24 export prices with the section 25 export prices. The test revealed that the section 24 export prices were unreliable and, therefore, export prices for sales to Sumitomo Canada were determined in accordance with paragraph 25(1)(c) of SIMA which is based on the importer’s resale prices of the imported goods in Canada to unrelated purchasers, less deductions for all costs incurred in preparing, shipping and exporting the goods to Canada that were additional to those incurred on sales of like goods for use in the country of export, all costs included in the resale prices that were incurred in reselling the goods in Canada (including duties and taxes) and an amount representative of the average industry profit in Canada. The amount for profit was determined in accordance with paragraph 22(c) of SIMR, using profit information provided by vendors of large line pipe and other products in Canada.

[152] For subject goods that were not sold to the related importer, export prices were determined in accordance with section 24 of SIMA, based on 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.

[153] The total normal value compared with the total export price results in a margin of dumping of 44.6%, expressed as a percentage of export price, for Sumitomo.

All Other Exporters – Japan

[154] At the initiation of the investigation, all known and potential exporters were sent a dumping RFI in order to solicit information required for purposes of determining normal values and export prices of subject goods in accordance with the provisions of SIMA. As such, all exporters were given the opportunity to participate in the investigation. In the RFI, the exporters were notified that failure to submit all required information and documentation, including non-confidential versions, or failure to permit verification of any information, may result in the normal values of the subject goods exported by their company being based on the facts available. It was further stated that such a decision would be less favourable to their company than if complete and verifiable information were made available.

[155] Where, in the opinion of the CBSA, sufficient information regarding the subject goods was not provided, normal values and export prices were determined under a ministerial specification pursuant to subsection 29(1) of SIMA on the basis of facts available. In establishing the methodology for determining normal values and export prices under the ministerial specification, the CBSA examined all information on the record, including information from the complaint, information provided by exporters, publicly available information and customs documentation.

[156] The CBSA considered that the normal values and export prices determined for the exporters where sufficient information was provided, rather than the information provided in the complaint, was the best information on which to base the methodology for determining normal values since it reflects exporters’ trading practices during the POI. The CBSA examined the difference between the normal value and export price of each individual transaction for the exporters where sufficient information was provided in order to obtain an appropriate amount for the normal value methodology. The transactions were also examined to ensure that anomalies were not considered; such anomalies can include low volume shipments, very low value sales, effects of seasonality or other business or environmental factors. However, no anomalies were identified.

[157] The CBSA considers that the highest amount by which the normal value exceeded the export price found on an individual transaction (expressed as a percentage of the export price), is an appropriate basis for determining normal values. This method of determining normal values is based on information on the record and limits the advantage that an exporter may gain from not providing necessary information requested in a dumping investigation as compared to an exporter that did provide the necessary information. Therefore, the normal values were determined under a ministerial specification pursuant to subsection 29(1) of SIMA, based on the export price as determined under section 24, 25 or 29 of SIMA, plus an amount equal to 95.0% of that export price.

[158] The CBSA considered that the information submitted on the CBSA customs entry documentation was the best information on which to determine the export price of the goods as it reflects actual import data. This information is more comprehensive than what was available in the complaint.

[159] Based on the above methodologies, the subject goods exported to Canada by all other exporters were found to be dumped by a margin of dumping of 95.0%, expressed as a percentage of the export price.

[160] A summary of the results of the dumping investigation respecting all subject goods released into Canada during the POI follows:

^{* Expressed as a percentage of the export price}

[161] Under paragraph 41(1)(a) of SIMA, the CBSA shall make a final determination of dumping when it is satisfied that the goods have been dumped and that the margin of dumping of the goods of a country is not insignificant. Pursuant to subsection 2(1) of SIMA, a margin of dumping of less than 2% of the export price of the goods is defined as insignificant.

[162] The margins of dumping of large line pipe from China and Japan are above 2% of the export price of the goods and are, therefore, not insignificant.

[170] At the initiation of the investigation, the CBSA sent subsidy RFIs to the GOC, as well as to all known exporters/producers of large line pipe in China. Information was requested in order to establish whether there had been financial contributions made by any level of government, including SOEs possessing, exercising or vested with government authority, and, if so, to establish if a benefit has been conferred on persons engaged in the production, manufacture, growth, processing, purchase, distribution, transportation, sale, export or import of large line pipe; and whether any resulting subsidy was specific in nature. The GOC was also requested to forward the RFIs to all subordinate levels of government that had jurisdiction over the exporters. The exporters/producers were requested to forward a portion of the RFI to their input suppliers, who were asked to respond to questions pertaining to their legal characterization as SOEs. Information was requested respecting 160 programs identified at the initiation of the investigation, as listed in Appendix 3.

[171] As such, the GOC and all exporters were given the opportunity to participate in the investigation. They were also notified that failure to submit all required information and documentation, including non-confidential versions, or failure to permit verification of any information, would result in the amount of subsidy on the subject goods exported by their company being based on the facts available to the CBSA. It was further stated that such a decision may be less favourable to their company than if complete and verifiable information was made available.

[172] The GOC did not submit a response to the subsidy RFI.

[173] One exporter from China, Chu Kong, provided a partial response to the subsidy RFI after the required due date. The exporter’s submission was incomplete because questions related to subsidy amounts for specific programs were left unanswered. Due to the incompleteness of Chu Kong’s responses, the response to the subsidy RFI was not taken into consideration for the purposes of the final determination.

[174] At the initiation of the subsidy investigation, the CBSA identified 160 potential subsidy programs. During the preliminary and the final phases of the investigation, no additional programs were identified and no programs were removed from the listing. A list of these 160 programs is provided in Appendix 3.

All Exporters in China

[175] The CBSA is unable to calculate specific subsidy amounts on a per program basis for exporters in China because they did not provide sufficient information. As such, the amounts of subsidy have been determined under a ministerial specification, pursuant to subsection 30.4(2) of SIMA on the basis of the facts available.

[176] In establishing the methodology for determining the amount of subsidy, the CBSA examined all information on the record, including information from the complaint and publically available information. Given the lack of information, the CBSA considered that the methodology used at the initiation of the investigation was the most appropriate. Therefore, the amount of subsidy was based on the difference between the cost of production, as determined by the CBSA, and the selling prices reported in customs entry documents of subject goods sold to importers in Canada. The CBSA determined these costs based on the complainant’s costs, adjusted to reflect the difference in wages between Canada and China. Since the subsidy programs are believed to significantly lower the cost of production of the subject goods, this was a reasonable method to calculate the amount of subsidy.

[177] Using the above methodology, the amount of subsidy for all exporters is 30.3%, expressed as a percentage of the export price.

[178] The following table summarizes the results of the subsidy investigation respecting all subject goods released into Canada during the POI:

^{* expressed as a percentage of export price.}

[179] In making a final determination of subsidizing under paragraph 41(1)(a) of SIMA, the CBSA must be satisfied that the subject goods have been subsidized and that the amount of subsidy on the goods of a country is not insignificant. According to subsection 2(1) of SIMA, an amount of subsidy that is less than 1% of the export price of the goods is considered insignificant.

[180] The amount of subsidy of large line pipe originating in or exported from China is above 1% and is, therefore, not insignificant.