LP2 2017 IN
Certain Carbon and Alloy Steel Line Pipe
Statement of Reasons

The complainant’s goods are produced at manufacturing facilities at two locations in Canada.

[6] The name and addresses of the complainant are as follows:

[7] Evraz Inc. NA Canada operates carbon and alloy steel line pipe manufacturing facilities in Regina, Saskatchewan. The EVRAZ North America group of companies also owns Canadian National Steel Corporation, which operates carbon and alloy steel line pipe manufacturing facilities in Camrose, Alberta. Both facilities manufacture line pipe using the electric resistance weld (ERW) process.

[8] The other manufacturers of like goods in Canada are:

[9] Tenaris Global Services (Canada) Inc., Algoma Tubes Inc., and Prudential Steel Inc. are collectively referred to as “Tenaris Canada”. Tenaris Canada manufactures line pipe in Canada at its Algoma Tubes facility in Sault Ste Marie, Ontario using the seamless process and at its Prudential facility in Calgary, Alberta using the ERWprocess. Tenaris Global Services Inc. acts as commercial agent for Tenaris sales in Canada.

[10] Bri-Steel Manufacturing produces small and large diameter seamless steel line pipe and processing pipe in Canada through a process called Thermal Pipe Expansion. Specifically, Bri Steel is capable of producing pipe sizes ranging from 16 through 36 inches outside diameters, and wall thicknesses up to 2.343 inches in CSA, ASTM, ASME, and API specifications.

[11] The CBSA has identified 57 potential exporters of the subject goods from CBSA import documentation and from information submitted in the complaint. All of the potential exporters were sent a CBSA Dumping Request for Information (RFI) and asked to respond.

[12] The CBSA has identified 62 potential importers of the subject goods from CBSA import documentation and from information submitted in the complaint. All of the potential importers were sent a CBSA Importer RFI and asked to respond.

[13] For the purpose of this investigation, subject goods are defined as:

Carbon and alloy steel line pipe originating in or exported from the Republic of Korea, welded or seamless, having a nominal outside diameter from 2.375 inches (60.3 mm) up to and including 24 inches (610 mm) (with all dimensions being plus or minus allowable tolerances contained in the applicable standards), including line pipe meeting or supplied to meet any one or several of API 5L, CSA Z245.1, ISO 3183, ASTM A333, ASTM A106, ASTM A53-B or their equivalents, in all grades, whether or not meeting specifications for other end uses (e.g. single-, dual-, or multiple-certified, for use in oil and gas or other applications), and regardless of end finish (plain ends, beveled ends, threaded ends, or threaded and coupled ends), surface finish (coated or uncoated), wall thickness, or length, excluding galvanized line pipe and excluding stainless steel line pipe (containing 10.5 percent or more by weight of chromium), and excluding goods covered by the Canadian International Trade Tribunal’s Finding in Inquiry No. NQ 2012-003.

For greater certainty, the product definition includes:

1. unfinished line pipe (including pipe that may or may not already be tested, inspected, and/or certified to line pipe specifications) originating in the Republic of Korea and imported for use in the production or finishing of line pipe meeting final specifications, including outside diameter, grade, wall-thickness, length, end finish, or surface finish; and
2. non-prime and secondary pipes (“limited service products”).

[14] Pipe that is being sold for oil and gas transmission purposes or process piping purposes is line pipe. Line pipe is used by the oil and gas industry in pipelines for the gathering and distribution of oil and gas or as process pipe used in steam generation facilities for steam assisted gravity drainage, petrochemical plants, upgraders, gas transmission facilities, and fabrication of modules.

[15] The Canadian market for oil and gas line pipe is governed by two main design codes depending on whether the line pipe is for pipelines or for process piping. Each code specifies the standards and grades of pipe that are acceptable for use. Together, the complainant and supporting producers manufacture or have the capability to manufacture line pipe under both design codes, in all grades. Pipelines must conform or be equivalent to CSA Z662 (oil and gas pipeline systems), and process piping must conform or be equivalent to ASME B31.1. These systems standards cover multiple pipe standards and can cover multiple grades of pipe.

Examples of pipe standards include:

• CSA Z245.1;
• API 5L;
• ISO 3183;
• ASTM A333;
• ASTM A53-B; and,
• ASTM A106.

[16] Pipe manufactured to a particular standard may be compatible with the requirements of another standard. This means that a particular pipe may be able to be certified as complying with multiple standards (if all the requirements of each standard/grade are met for that particular pipe). 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. Process piping is generally supplied with multiple stencils including API 5L, CSA Z245.1 and ASTM A106.

[17] Equivalent grades of pipe specified under each design code represent products that are equivalent regardless of manufacturing process. As a result, any grade of pipe is considered to be substitutable by a similar grade of pipe designed with a different standard. 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 supplied.

[18] Line pipe is normally marked or stenciled in paint on the external surface with the API, ASME, or equivalent specifications to which it has been manufactured and tested. The subject goods cover all line pipe meeting or supplied to meet the above specifications, regardless of whether the pipe has been multiple stenciled to indicate that it meets or is supplied to meet additional end use specifications. Line pipe that is manufactured and tested to meet higher API specifications (or equivalent CSA and ISO specifications) is automatically in conformity with 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. Seamless line pipe conforming to API 5L may also be marked as conforming to pressure pipe applications under ASME B31.3. Additionally and for the same reasons, line pipe that is single-stencilled as API 5L may be used in lower specifications absent stencilling identifying that lower specification. All line pipe that is marked as meeting or that is supplied to meet API 5L (or equivalent specifications) for use as oil and gas pipelines or as ASME B31.3 for use as pressure pipe are covered in this complaint as subject goods regardless of whether the pipe is marked as meeting any other end-uses or is supplied to meet any other end-uses.

[19] Line pipe may be manufactured by the seamless or welded process. The typical end finish is a beveled end to allow for welding in the field, although line pipe may also be supplied as plain end (square cut), threaded, and threaded and coupled.

[20] Line pipe is made on the same production equipment as oil country tubular goods (OCTG) and other tubular products such as standard pipe and piling pipe. Production may involve either the seamless or the welded process.

[21] ERW line pipe is produced by slitting flat hot-rolled steel in coil form of a pre-determined thickness (called “skelp”) to the proper width required to produce the desired diameter of pipe. The skelp is then sent through a series of forming rolls that bend it into a tubular shape. As the edges of the skelp come together under pressure in the final forming rolls, an electric current is passed between them. The resistance to the current heats the edges of the skelp to the welding temperature, and the weld is formed as the two edges are pressed together.

[22] ERW line pipe can also be produced by the stretch-reduction method, where the key difference is that outside diameter and wall thickness is achieved after the tube is formed. Specifically, a formed tube is heated to approximately 1850 degrees Fahrenheit and passed through a series of stretch reduction roll stands until the final outside diameter and wall thickness is achieved.

[23] Seamless pipe production begins with the formation of a central cavity in a solid steel billet to create a shell. The shell is then rolled on a retained mandrel and reduced in a stretch reduction mill to produce the finished size before cooling on a walking beam cooling bed. Once the hot rolling mill has transformed the billet into a tube and the stretch reduction/sizing mill has produced the final dimensions, the pipe is put into inventory where it waits for the next process, either heat treatment, testing, or finishing.

[24] Tube formed by either the seamless or the ERW methods is then cut to length. The product is sent to the finishing line where it is usually beveled on both ends. Finishing operations also include cooling, straightening, facing, testing, coating, or bundling and could include threading and coupling.

[25] Large diameter line pipe (line pipe with an outside diameter of 26 inches and above) is a separate product with wholly different costs, production processes, and sales considerations. Large diameter line pipe is typically produced using a submerged arc weld (SAW) or double SAW process, which is much different from the ERW process used for smaller diameter line pipe and encompasses both helical/spiral submerged arc welding and longitudinal submerged arc welding.

[26] Prior to January 1, 2017, the allegedly dumped goods were normally classified under the following Harmonized System (HS) codes:

• 7304.19.00.11
• 7304.19.00.12
• 7304.19.00.21
• 7304.19.00.22
• 7305.11.00.11
• 7305.11.00.19
• 7305.12.00.11
• 7305.12.00.19
• 7305.19.00.11
• 7305.19.00.19
• 7306.19.00.10
• 7306.19.00.90

[27] Beginning January 1, 2017, under the revised customs tariff schedule, subject goods would normally be imported under the following tariff codes for line pipe:

• 7304.19.00.10
• 7304.19.00.20
• 7305.11.00.10
• 7305.11.00.20
• 7305.12.00.10
• 7305.12.00.30
• 7305.19.00.10
• 7305.19.00.20
• 7306.19.00.10
• 7306.19.00.90

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

[29] Subsection 2(1) of SIMA defines “like goods” in relation to any other goods, as goods that are identical in all respects to the other goods, or in the absence of identical goods, goods the uses and other characteristics of which closely resemble those of the other goods.

[30] According to the complainant, with respect to subject goods, like goods consist of all domestically produced carbon and alloy steel line pipe.

[31] Line pipe produced by the domestic industry compete directly with and have the same end uses as the subject goods imported from the Republic of Korea. The goods produced in Canada and the Republic of Korea are fully interchangeable. Therefore, the CBSA has concluded that line pipe produced by the Canadian industry constitute like goods to the subject goods.

[32] After considering questions of use, physical characteristics and all other relevant factors, the CBSA is of the opinion that subject goods and like goods constitute only one class of goods. Further, the Canadian International Trade Tribunal (CITT) has previously recognized line pipe as a single class of goods in NQ-2015-002.

[34] Subsection 31(2) of SIMA requires that the following conditions for standing be met in order to initiate an investigation:

• the complaint is supported by domestic producers whose production represents more than fifty per cent of the total production of like goods by those domestic producers who express either support for or opposition to the complaint; and
• the production of the domestic producers who support the complaint represents twenty-five per cent or more of the total production of like goods by the domestic industry.

[35] The complaint included letters of support from the other producers of like goods in Canada, Tenaris Canada and Bri-Steel Manufacturing.^{Footnote 1}

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

[47] The complainant indicated that they do not have access to the domestic selling prices of carbon and alloy steel line pipe in the Republic of Korea. As such, they were unable to estimate normal values using the methodology of section 15 of SIMA.

[48] As a result, the complainant estimated normal values for the subject goods using the methodology set out in paragraph 19(b) of SIMA. Under this methodology normal values are determined as the aggregate of the cost of production of the goods, a reasonable amount for administrative, selling and all other costs, and a reasonable amount for profits.

[49] The complainant provided estimated normal values that cover a range of outer diameters of welded line pipe, and which account for all of the complainant’s sales in Canada. The complainant did not provide estimated normal value for seamless line pipe. However, as the complainant’s normal value estimates apply to over 98.8% of the estimated total volume of subject goods imported from the Republic of Korea, the CBSA has found that the estimated normal values are representative of the subject goods.

[50] Normal values for the benchmark products were estimated based on the aggregate of the costs of producing the goods, a reasonable amount for administrative, selling and all other costs, and a reasonable amount for profits. The complainant used costing data from their factories with adjustments to reflect cost differences between Canada and the Republic of Korea.

[51] Material costs were estimated by the complainant based on their own material costs. No adjustments were made to material costs as the complainant has stated that the material inputs for carbon and alloy steel line pipe produced in Canada and the Republic of Korea are similar and that these inputs are globally available and traded.

[52] Direct labour costs were estimated based on the complainant’s labour costs and adjusted to reflect cost differences between Canada and the Republic of Korea. A downward adjustment was applied to these costs based on comparative wage statistics from the International Labour Organization, to account for differences in wage rates between Canada and the Republic of Korea.^{Footnote 3}

[53] Overhead costs were estimated by the complainant based on their own overhead costs and adjusted to reflect cost differences between Canada and the Republic of Korea. The downward adjustment described above was made to the full cost of overhead. The complainant stated that they believe this be a conservative estimate as overhead costs are not entirely comprised of labour related costs.^{Footnote 4}

[54] Administrative, selling and all other costs were estimated using the administrative, selling and all other costs incurred by Evraz on a per tonne basis in 2016. The complainant estimated that 50% of administrative, selling and all other costs expenses were labour related costs. As such, a downward adjustment was made to 50% of administrative, selling and all other costs expenses to account for the difference in labour costs between the Republic of Korea and Canada. In order to be conservative, the complainant did not include an estimate for financial costs in the cost build up.^{Footnote 5}

[55] For the purposes of estimating an amount for profits, the complainant compiled a list of all potential producers of line pipe in the Republic of Korea. The complainant then excluded companies that did not have publicly available financial information for 2016, companies that were not profitable in 2016, and companies that primarily produced non-subject goods. This resulted in an amount for profit of 4.16%, based on the 2016 financial statements of five profitable Korean steel pipe companies.^{Footnote 6}

[56] The CBSA found the normal values estimated by the complainant using the methodology of paragraph 19(b), to be reasonable and representative. The amount for profits included in the normal values estimated using the methodology of paragraph 19(b) was also found to be reasonable. As such, no adjustments were made to the complainant’s estimated normal values.

[57] The CBSA therefore used the complainant’s estimated normal values based on a constructed cost approach using the methodology of paragraph 19(b) of SIMA.

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

[59] The complainant’s estimated export prices are based on the quarterly average 2016 pricing for subject goods from the Republic of Korea. To estimate export prices, the complainant relied on information from Statistics Canada and the Korea Customs Service.^{Footnote 7} The complainant reported export prices for both welded and seamless line pipe from the Republic of Korea.

[60] In estimating the export prices, the CBSA relied on actual import data from commercial and customs documentation and reports generated through the Facility for Information Management (FIRM). Due to the large volume of line pipe imported into Canada, customs information pertaining to a sample of imports in the period January 1, 2016 to December 31, 2016, was examined. Actual import data was retrieved and refined through a review of CBSA customs entries and consequently, the information used by the CBSA for its estimate is more comprehensive than what was available to the complainant.

[61] The CBSA compared the estimated normal values with the estimated export prices obtained from CBSA import data for all importations during the period of January 1, 2016, to December 31, 2016. The margin of dumping was estimated by deducting the total estimated export price from the total estimated normal value.

[62] Based on this analysis, the subject goods from the Republic of Korea were dumped by an estimated margin of dumping of 58.2%, expressed as a percentage of the total export price.

[66] The import volumes as estimated by the CBSA are detailed in the “Canadian Market” section of this Statement of Reasons. This information shows an overall trend of rising import shares from the Republic of Korea, which increased from 9.8% of total imports in 2014, to 38.0% in 2016. Overall, imports of subject goods from the Republic of Korea have increased as imports from all other countries have decreased from 2014 to 2016.

[67] The complainant provided declarations which detail specific examples of lost sales due to lower pricing from exporters of the subject goods from the Republic of Korea.^{Footnote 8} The complainant also provided supporting documentation, including price quotations and internal reports.

[68] The complaint contains evidence that supports the link between the complainant’s lost sales and the allegedly dumped subject goods. Furthermore, the complainant states that they have lost the business of several major accounts. The complainant indicates that these lost accounts are directly linked to low-priced subject imports from the Republic of Korea.

[69] The Canadian market information provided by the complainant also shows a significant overall decrease in sales and production volumes for domestic producers of line pipe from 2014 through 2016.

[70] Based on the CBSA’s analysis of the information contained in the complaint, the CBSA finds the claim of loss of sales and production volumes to be well supported and sufficiently linked to the allegedly dumped goods.

[71] The complainant states that the allegedly dumped goods have captured sales and market share by undercutting their prices. Further, the complainant notes that the price of subject goods imported from the Republic of Korea has declined from 2015 to 2016. As a result, the complainant states that they have been forced to discount prices to compete with the low priced line pipe and maintain throughput for line pipe production.^{Footnote 9}

[72] As reviewed by the CBSA, the complaint contains documented instances where prices were suppressed whereby the complainant was unable to raise selling prices to account for increasing input costs due to competition from the allegedly dumped imports from the Republic of Korea.^{Footnote 10}

[73] Based on the above, and the CBSA’s analysis of the information contained in the complaint, the CBSA finds the claim of price depression and price suppression to be well supported and sufficiently linked to the allegedly dumped goods.

[74] The complainant provided consolidated production and income statements which include information from the complainant, and the supporting producer Tenaris Canada, from 2014 to 2016. The complainant alleges that the injurious impact of the allegedly dumped goods is demonstrated in the consolidated financial results.^{Footnote 11}

[75] The CBSA has reviewed the consolidated financial statements and determined that these income statements demonstrate a deterioration in financial performance from 2014 through 2016. The CBSA noted that the consolidated pre-tax net income declined from 2014 to 2016. Further, the CBSA has noted that the consolidated gross margin has declined steadily from 2014 to 2016.

[76] The CBSA finds that the consolidated declining financial performance of the complainant and the supporting producer can be linked to lost sales and price depression resulting from imports of the allegedly dumped goods.

[77] The complainant states that capacity utilization rates with respect to production of line pipe have suffered due to the presence of the allegedly dumped goods. The complainant argues that this has led to costly underutilization of installed capacity and an increase in the average cost of producing like goods by the domestic industry. The complainant has provided evidence of this underutilization of capacity in a consolidated production statement which includes information from the complainant and the supporting producer Tenaris Canada.^{Footnote 12}

[78] The consolidated production statement demonstrates a decrease in capacity utilization from 2014 to 2016. The result is an overall decrease in capacity utilization which is greater than the decrease in the total apparent Canadian market.^{Footnote 13}

[79] Based on the information provided, the CBSA finds the claim of underutilization of capacity to be reasonable and well supported.

[80] The complainant provided evidence that competition from unfairly priced imports has led to a reduction in employment.^{Footnote 14}

[81] The CBSA recognizes the significance of this injury factor, and finds that this reduction in employment can be reasonably linked to the presence of the allegedly dumped goods.

[82] There is a reasonable indication that material injury has occurred to the Canadian industry. The nature of the injury incurred by the complainant is well-documented in terms of lost sales and production volumes, price depression and price suppression, negative financial results, underutilization of capacity, and reductions in employment.

[84] The complainant states that the magnitude of alleged dumping of the subject goods demonstrates a real threat to the domestic industry. The complainant argues that the evidence demonstrates that exporters of subject goods are willing to resort to substantial margins of dumping in order to secure sales in the Canadian market.^{Footnote 15}

[85] The CBSA has found that sufficient evidence exists to support the complainant’s allegation that the subject goods are being dumped. The CBSA recognizes that the dumping of subject goods could significantly impact the trade of subject goods.

[86] The complainant alleges that the rapid increase in the volume of allegedly dumped subject goods, at prices that undercut domestically produced like goods, pose a threat of further injury to the Canadian industry. This allegation is supported by import statistics provided by the complainant. The complainant submits that without protection, the trend of rapidly increasing imports is expected to continue.^{Footnote 16}

[87] The CBSA’s analysis of import data supports the allegation of an increase in the market share of the alleged dumped goods. Subject goods from the Republic of Korea accounted for 9.8% of total imports in 2014, 3.3% in 2015, and 38.0% in 2016. Despite a significant contraction in the Canadian market due to a downturn in the oil and gas sector, the volume of imports of subject goods from the Republic of Korea increased by 0.8% from 2014 to 2016. During this same time period, import volumes of goods of the same description as the subject goods from all other countries decreased by 82.1%. Based on the CBSA’s analysis of import data, the CBSA finds the complainant’s allegation of threat of injury posed by an increase in the market share of subject good imports to be reasonable and well supported.

[88] The complainant has provided information to support the allegation of excess and underutilized production capacity in the Republic of Korea. The complainant states that the production capacity of the Korean steel tubular industry exceeds 10 million tonnes. The complainant also alleges that the reported capacity utilization rate of Korean steel tubular producers is less than 48%.^{Footnote 17}

[89] With respect to the production capacity of line pipe producers in the Republic of Korea, the complainant alleges that the combined production capacity of five major Korean producers could supply the Canadian market several times over.^{Footnote 18}

[90] Despite the excess capacity discussed above, the complainant argues that producers of line pipe in the Republic of Korea have continued to increase production capacity. The complainant submits that this suggests that excess Korean production capacity will continue to increase and threatens to cause further injury.^{Footnote 19}

[91] Based on the CBSA’s analysis of the information provided in the complaint, the CBSA recognizes the significant excess capacity of line pipe producers in the Republic of Korea. As such, the CBSA finds the complainant’s allegation of threat of injury posed by the excess capacity of producers of line pipe in the Republic of Korea to be reasonable and well supported.

[92] Regarding the allegation of rapidly increasing production capacity, the CBSA does not find the information presented in the complaint to be sufficient to support this allegation.

[93] The complainant states that line pipe producers in the Republic of Korea will be encouraged to export their products in the next 12-18 months as domestic demand will remain weak. This allegation is supported by industry publications which forecast market demand. Further, the complainant also states that the excess supply of line pipe in China is increasingly destined to the Korean market. The complainant submits that this has a negative effect on Korean producers’ ability to sell line pipe in their domestic market.^{Footnote 20}

[94] The complainant has also made allegations concerning the export dependency of the Korean steel tubular industry. To support this allegation, the complainant has referenced the annual reports of producers of steel tubular products in the Republic of Korea.^{Footnote 21}

[95] The complainant alleges that the factors discussed above will encourage producers to abandon the domestic market and look to export markets such as Canada where average prices are higher.^{Footnote 22}

[96] The CBSA’s analysis of the information contained in the complaint revealed market conditions which the CBSA recognizes may lead Korean producers to focus on certain export markets, including Canada. The CBSA finds the complainant’s allegations of the threat of injury posed by market conditions in the Republic of Korea to be reasonable and well supported.

[97] Line pipe exports from the Republic of Korea are subject to trade remedy actions in the United States and Thailand. The complainant also notes that exports of other steel pipe and tubular products are subject to trade remedy actions in a number of countries. The complainant submits that these market restrictions will encourage Korean producers to focus on other export markets, such as Canada.^{Footnote 23}

[98] The CBSA acknowledges the presence of trade remedy actions in other countries which may impact the export of line pipe from the Republic of Korea. Further, the CBSA recognizes that these restrictions may have a significant impact on the Canadian market. The CBSA finds the complainant’s allegations of the threat of injury posed by foreign trade remedy actions to be reasonable and well supported.

[99] The complainant states that the dumping of subject goods has depressed the price of like goods in Canada. Further, the complainant states that the subject goods from the Republic of Korea have undercut the price of like goods and led to lost sales.^{Footnote 24}

[100] The complainant alleges that the trend of aggressive pricing of subject goods from the Republic of Korea will continue. The complainant argues that this pricing behaviour, combined with the increasing volume of subject goods from the Republic of Korea, will have increasing injurious effects on the Canadian production of like goods.^{Footnote 25}

[101] As discussed in the respective sections, the CBSA finds the complainant’s allegations of price suppression and loss of sales to be well documented, well supported and reasonable. Further, the CBSA finds that the continued presence of these conditions threaten to cause further injury to the domestic industry.

[102] The complaint contains evidence that discloses a reasonable indication that there is a threat of injury due to increasing import volumes of subject goods from the Republic of Korea. The increasing volumes of imports of subject goods at prices that substantially undercut domestic producer pricing will continue to depress or supress domestic prices and threaten to take market share from the Canadian producers. The CBSA is of the view that the adverse volume and price effects of the alleged dumped imports threatens to cause domestic producers to suffer further decline in production, capacity utilization, market share, prices, financial results and employment.