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Undertaking Review - Oil And Gas Well Casing

OTTAWA, November 13, 2001 

4258-59
AD/717

Statement Of Reasons

Concerning a review of undertakings pursuant to subsection 53(1) of the Special Import Measures Act in respect of certain Oil And Gas Well Casing originating in or exported from Japan.

Decision

On this date, the Commissioner of Customs and Revenue, having reviewed the undertakings accepted from Japanese exporters on November 18, 1986 and renewed on November 17, 1989, November 16, 1992, November 15, 1995 and November 13, 1998 for three-year periods, determined that the undertakings with respect to the above-mentioned goods no longer serve the purpose for which they were intended.

Therefore, the undertakings in question will expire on November 13, 2001, in accordance with subsection 53(2) of the Special Import Measures Act, which was in effect prior to the January 1, 1995 changes to the legislation.

This document is also available in French.
Cet énoncé des motifs est également disponible en français.

Statement Of Reasons

Summary

On June 29, 2001, the Commissioner of Customs and Revenue (Commissioner) initiated a review of the undertakings originally accepted from Japanese exporters on November 18, 1986, with respect to oil and gas well casing. These undertakings have been subsequently renewed on four previous occasions. The purpose of the review was to determine whether the undertakings should be renewed or allowed to expire.

Based on the results of the Canada Customs and Revenue Agency's (CCRA) review, the Commissioner is satisfied that the undertakings no longer continue to serve their intended purpose and under the present circumstances the undertakings do not require to be renewed. Accordingly, the undertakings will be allowed to expire on November 13, 2001.

Interested Parties

Canadian Industry

The original complainant at the time of the investigation in 1986 was Algoma Steel Inc., of Sault Ste. Marie, Ontario. At this time, the Canadian producers of oil country tubular goods (OCTG) are IPSCO Inc., of Regina, Saskatchewan which had supported the complaint in 1986; Prudential Steel Ltd., of Calgary Alberta and AlgomaTubes of Sault Ste. Marie, Ontario.

Exporters

The CCRA identified 26 exporters of the subject goods for the purposes of this review.

Importers

The CCRA identified 14 importers of the subject goods for the purposes of this review.

Background

On August 20, 1986, as a result of a complaint filed by Algoma Steel Inc. (Algoma Steel), the Department of National Revenue, now the CCRA, initiated a dumping investigation of certain oil and gas well casing originating in or exported from Japan and the Federal Republic of Germany.

Early in the investigation, the Japanese exporters indicated an interest in price undertakings that would eliminate the material injury to Algoma Steel. Following extensive deliberations between the Department, now the CCRA and the representatives for Algoma Steel and the Japanese exporters, price undertakings by the Japanese exporters were accepted by the Deputy Minister, now the Commissioner, on November 18, 1986. These undertakings accounted for all or substantially all imports of the subject goods and eliminated the material injury to the domestic industry. Accordingly, the investigation involving Japan and the Federal Republic of Germany was suspended on that date.

Since then, the undertakings have been renewed on November 17, 1989, November 16, 1992, November 15, 1995 and November 13, 1998, the date of the last renewal, for three-year periods. The undertakings would expire on November 13, 2001, unless they were renewed. The CCRA is required to review these undertakings within three years from the time that they were accepted or last renewed.

In reaching the decision on this matter, the Commissioner considered certain events involving the complainant as well as various factors including restructuring in the domestic industry, evolution in the OCTG product line, and changes in import patterns and players involved in importing the product.

Product Definition

The subject goods are defined as:

oil and gas well casing, made of carbon or alloy steel, having an outside diameter in the size range 114.3 mm to 298.5 mm (4.5" to 11.75") inclusive, seamless or welded, plain end, threaded or threaded and coupled, supplied to meet American Petroleum Institute (API) specification 5A in grades K55 and N80, API specification 5AC in grades C75, L80, C90 and C95, API specification 5AX in grade P110 and API specification 5AQ in grade Q125, or proprietary grades manufactured as substitutes for these specifications, originating in or exported from Japan and the Federal Republic of Germany, excluding the subject casing supplied to meet API specification 5A in grade K55, or a proprietary grade manufactured as substitute for this specification in the size range 114.3 mm to 273.0 mm (4.5" to 10.75") inclusive, originating in or exported from the Federal Republic of Germany.

It should be noted that API specifications 5A, 5AC, 5AX and 5AQ are currently combined and known as API specification 5CT.

Classification Of Imports

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

7304.29.00.11
7304.29.00.19
7304.29.00.21
7304.29.00.29
7306.20.90.11
7306.20.90.19
7306.20.90.21
7306.20.90.29

Legislative Requirements For Review Of Undertakings

All references to sections of the Special Import Measures Act (SIMA) refer to the Act, which was in place prior to the amendments introduced on January 1, 1995. The original investigation was conducted and undertakings were entered into prior to that date, and consequently, the CCRA is required to follow the former undertaking provisions of the law.

The Commissioner is required, pursuant to subsection 53(1) of SIMA, to review an undertaking before the expiration of three years from the date on which it was accepted and before the expiration of each subsequent period for which the undertaking is renewed.

Section 52 of SIMA provides that the Commissioner shall terminate an undertaking and make a preliminary determination of dumping, if any of the following three conditions exists:

• the undertakings are violated;
• new information is made available which, if such information had been available to the Commissioner at the time of acceptance of the undertakings, would have led the Commissioner not to accept the undertakings;
• circumstances change to the point where the undertakings would not have been accepted if the changed circumstances had prevailed at the time of acceptance.

An undertaking may be renewed for a further period of not more than three years where the Commissioner is satisfied that the undertaking continues to serve the purpose for which it was intended and where the Commissioner is not required to terminate it in accordance with the provisions of section 52 of SIMA. An undertaking that is not renewed for a further period pursuant to a review under subsection 53(1) of SIMA expires at the end of its term.

Canadian Industry As Of November 1998

Algoma Steel, the complainant in the original investigation, accounted for the major proportion of domestic production of the specific grades of casing included in the product definition and represented the domestic production of the subject goods for the purposes of this case.

At the time of the last renewal of the undertakings on November 13, 1998, there were three producers of the subject goods, Algoma Steel Inc. (Algoma Steel) of Sault Ste. Marie, Ontario; IPSCO Inc. (IPSCO) of Regina, Saskatchewan and Prudential Steel Ltd., of Calgary Alberta (Prudential). Algoma Steel, was capable of producing the full range of grades and sizes covered by the product definition and was also the sole producer of seamless casing. IPSCO and Prudential produced a limited range of casing using the electric resistance weld (ERW) process.

Subsequent Developments Concerning The Complainant

The following is a chronological listing of significant events affecting the complainant that have occurred since the November 13, 1998 review, when the undertakings were most recently renewed.

• On February 2, 1999, Algoma Steel released its year-end results and announced its intention to operate the seamless tube mill on a limited time basis until mid-year.
• In June 1999, Algoma Steel permanently closed the seamless tube mill. However, orders continued to be filled through existing inventory.
• On June 14, 2000, Algoma Steel entered into an agreement with the newly formed company, Algoma Seamless Tubular Inc. for the long-term lease and operation of the seamless tube mill. The new entity, which is operating under the name AlgomaTubes, started limited production of the subject goods in November 2000.
• AlgomaTubes is an affiliate of Siderca International of Argentina and is a member of the Tenaris Group of companies. The Tenaris Group, which is headquartered in Argentina, comprises a global group of seamless steel pipe producers including Dalmine (Italy), Siderca (Argentina), Tamsa (Mexico), NKKTubes (Japan), AlgomaTubes (Canada), Tavsa (Venezuela), together with welded pipe makers Confab (Brazil) and Siat (Argentina). Tenaris is the leading global player in the market for seamless steel tubes for the oil and gas industry.

The Undertakings Review

At the initiation of this review, the CCRA requested information from the original complainant, Algoma Steel and the three current Canadian producers, IPSCO, Prudential and AlgomaTubes, all of whom provided responses. Exporters and importers were also requested to contact the CCRA if they had comments concerning the undertakings.

Canadian Producers

The following outlines the position of the complainant and the current Canadian OCTG producers with respect to the undertakings.

Algoma Steel

Algoma Steel ceased production of the subject goods by mid-1999 and closed the seamless tube mill. Therefore, the complainant was not in a position to fully respond to the CCRA's Request for Information and did not espouse their view as to whether the undertakings should be allowed to expire or be renewed.

AlgomaTubes

AlgomaTubes, which is now leasing and operating the seamless tube mill formerly closed by Algoma Steel, argued for renewal of the undertakings, as its start up business which commenced production of the like goods in November 2000, is vulnerable to dumped and low priced imports. It noted that AlgomaTubes is now under pressure from lower priced imports of the subject goods from Austria, Brazil and China, which are currently selling at price levels below the Japanese exporters. In addition, AlgomaTubes is concerned that the Japanese exporters will lower their prices in order to compete in the event that the undertakings are not renewed.

AlgomaTubes cited the existing anti-dumping finding of the United States Department of Commerce, in place against Japanese OCTG, which restricts their sales to the largest market for subject goods, thus increasing the attractiveness of the Canadian market to the Japanese exporters. AlgomaTubes also anticipated that the rescission of the finding by the Canadian International Trade Tribunal (Tribunal) on July 4, 2001 covering OCTG products from Korea and the United States would increase the likelihood of low priced imports from these countries.

IPSCO

IPSCO produces a limited range of goods in Canada, specifically welded casing in grades K55 and L80 in diameters up to 10.75". IPSCO also wanted the undertakings renewed expressing concerns that the Japanese exporters would cut prices to regain market share.

Prudential

In September 2000, Prudential merged with Maverick Tube Corporation (Maverick) of the United States becoming a fully owned subsidiary of Maverick. However, there have been no changes to its production facilities in Canada where a limited range of casing, specifically Grade PS 80 in diameters up to 9.675" is produced. Prudential, similarly supported the continuation of the undertakings to maintain price levels and stability in the OCTG market.

Exporters and Importers

Several Japanese exporters provided comments to the CCRA. Sumitomo Corporation, Sumitomo Metals and MC Tubular were among the exporters who indicated that there was no need to keep the undertakings in place. Among reasons cited in support of this position included the assertions that the seamless casing that is subject to the undertakings was no longer manufactured, the current market prices were higher than undertaking prices and prices for OCTG were likely to remain high. An exporter also noted that the Japanese OCTG products could not compete against the same goods from Argentina, Mexico and other countries and Japanese exporters were therefore limited to exporting premium products.

Only NKKTubes, which felt that the undertakings served to stabilize prices, wanted to see the continuation of the undertaking.

Other exporters of Japanese OCTG products, Hamilton Metals, Mitsui Tubular Products Inc. and Petro Amigos Supply, all of Houston, Texas, as well as Mitsui & Co. and Kawasaki Steel Corporation of Japan, submitted comments but did not espouse an opinion on whether or not the undertakings should be renewed. Such comments included the assertion that they have concentrated on the 13 chrome or higher grade casing and specialty items which are not covered by the undertakings and further that the current prices are well above the undertaking prices.

The two importers, Russel Metals Inc. and Marubeni Tubular Canada Ltd., provided responses pertaining to importations but did not provide an opinion on whether or not the undertakings should be renewed.

Analysis

While the present Canadian producers have stated that the undertakings should be renewed, the CCRA must assess whether or not the undertakings continue to serve the purpose for which they were intended. The purpose of the original undertakings was to eliminate injury caused to the domestic industry.

Based on its review and analysis of available information, the CCRA is satisfied that the undertakings no longer continue to serve the purpose for which they were intended.

The CCRA considered a variety of factors in reaching this decision including the following:

• the current Canadian industry production,
• changes in the OCTG products and sources of supply since the renewal of the undertakings in November 1998,
• behaviour of the Japanese exporters with respect to the undertakings.

The following provides additional detail on the matters that were taken into consideration in making the determination:

Product Coverage of the Undertakings and Current Canadian Production

Algoma Steel, the original complainant, ceased production of these goods in Canada in 1999 and a new manufacturer, AlgomaTubes (not related to Algoma Steel, the original complainant) commenced limited production of the subject goods at the end of 2000 and other Canadian producers, IPSCO and Prudential also produce only a limited range of the subject OCTG goods.

Originally, a specific range of product identified as produced by Canadian industry constituted the subject goods that are covered by the undertakings. The subject goods are oil and gas well casing made of carbon steel, having an outside diameter ranging from 4.5" to 10.75" inclusive, seamless or welded, plain end or threaded and coupled, supplied to meet a broad range of API specifications and grades as described in the product definition.

While AlgomaTubes has the capacity to produce seamless casing in various API and propriety grades and sizes, it currently produces a limited range of subject goods. AlgomaTubes produces the predominant grades K55 and L80 and plans to also produce higher grade products which are not covered by the undertakings. Prudential currently manufactures casing in grade PS-80 plain end and STC with diameters 4.5" to 9.675". IPSCO produces welded casing in API grades K55 and L80 in diameters 4.5" to 10.75" and in propriety grades IK55, L80Mod, I80 and IK70 in the same diameters.

Current Canadian production of OCTG products is limited and presently does not cover the range of new products required in the market place.

New Products

The OCTG industry has changed substantially to the extent that some new OCTG products such as 13 chrome are now produced and used in the industry but are not covered by the definition of subject goods. Japanese exporters have concentrated on the premium grade casing such as 13 chrome and other value added products which are not covered by the undertakings.

New Sources of Supply

The dominant source(s) of supply of the product in the Canadian OCTG market has also changed. The CCRA's review and analysis of imports of oil and gas well casing in Canada since 1998, based on its internal Customs information system, has confirmed that Japan's share of OCTG imports has dropped. In terms of value, of all OCTG imports into Canada, Japan's ranking dropped from third place in 1998 to fifth place in 2001. New players such as Mexico, Argentina and China have emerged as the leading exporters of OCTG goods. In addition to the shift in the sources of the OCTG imports to non-subject countries since 1998, the major players involved in the importation of OCTG products have also changed.

Pricing

OCTG products of Japanese origin imported into Canada during the review period largely involved premium products which are not subject to the undertakings. Where there were importations of subject goods covered by the undertakings, the CCRA is satisfied that such prices were above the prices prescribed by the undertakings.

Conclusion

Based on the results of the CCRA's review, the Commissioner is satisfied that the undertakings first accepted on November 18, 1986, and subsequently renewed, no longer serve the purpose for which they were intended. Accordingly, pursuant to subsection 53(2) of SIMA, the undertakings will not be renewed and will expire on November 13, 2001. In accordance with subsection 53(3) of SIMA, the expiration of the undertakings terminates all proceedings under SIMA in regard to certain oil and gas well casing originating in or exported from Japan and the Federal Republic of Germany.

Publication

Notice of the expiration of the undertakings is being published in the Canada Gazette pursuant to subsection 53(4) of SIMA.

Information

This Statement of Reasons has been provided to persons directly interested in these proceedings and is also posted at the CCRA's website at www.cbsa-asfc.gc.ca/sima-lmsi/. For further information, please contact Richard Pragnell, or Iqbal Motani, Senior Program Officers, Anti-dumping and Countervailing Directorate, 16th floor, Sir Richard Scott Building, 191 Laurier Avenue West, Ottawa, Ontario, K1A 0L5; by telephone at (613) 954-0032 or (613) 952-7547; by telefax at (613) 941-2612 or by e-mail at richard.pragnell@ccra-adrc.gc.ca. or iqbal.motani@ccra-adrc.gc.ca.

Alice Shields
Director General
Anti-dumping and Countervailing Directorate