SR 2018 IN
Certain Sucker Rods
Statement of Reasons

[12] The complainant is AOT of Edmonton, Alberta. AOT produces and markets a wide range of production service equipment solutions for the oil and gas industry. AOT is a division of Apergy, and operates as part of the Apergy Artificial Lift business unit along with Norris Rods (a US company). AOT produces and sells its products under the Norris brand, including sucker rods, pony rods, polished rods and couplings. AOT’s production facilities are located in Edmonton, Alberta.

[13] The complainant accounts for all of the production of like goods in Canada.

[14] The contact information of the complainant is as follows:

Apergy Canada ULC – Alberta Oil Tool Division
9530 – 60^th Avenue
Edmonton, Alberta, T6E 0C1

[15] At the initiation of the investigations, the CBSA identified 22 potential importers of the subject goods based on both information provided by the complainant and CBSA import entry documentation. All of the potential importers were asked to respond to the CBSA’s Importer Request for Information (RFI)^{Footnote 2}. The CBSA received five responses to the Importer RFI: Exceed (Canada) Oilfield Equipment Inc. (Exceed Canada), Imex Canada Inc. (Imex), Lifting Solutions Inc., Weatherford Canada Ltd. (Weatherford Canada) and Westcan Oilfield Supply Ltd.

[16] At the initiation of the investigations, the CBSA identified 40 potential exporters/producers of the subject goods located in China from CBSA import documentation and from information submitted in the complaint. The potential exporters located in China were asked to respond to the CBSA’s Dumping RFI, Section 20 RFI and Subsidy RFI.

[17] Four exporters/producers in China provided substantially complete responses to the Dumping and Subsidy RFIs: FOUND Petroleum Equipment Co., Ltd. (FOUND), Nine-Ring Petroleum Machinery Co., Ltd. (Nine-Ring), Shandong Shouguang Kunlong Petroleum Machinery Co., Ltd. (Shandong Kunlong) and Zibo Hongyang Weatherford Oilfield Equipment Co., Ltd. (Zibo Weatherford). Two exporters, FOUND and Zibo Weatherford, also provided responses to the Section 20 RFI. See “Dumping Investigation” and “Subsidy Investigation” for detailed information regarding these companies.

[18] As part of the section 20 inquiry, the CBSA identified 12 known foreign producers of sucker rods located in the following eight countries: Argentina, Brazil, India, Kazakhstan, Mexico, Romania, Russia and the United States. The CBSA sent Surrogate Producer RFI to those 12 producers. The CBSA received three responses, two from producers located in the United States, Norris Rods^{Footnote 3} and Weatherford Artificial Lift Systems LLC^{Footnote 4}, and one from a producer located in Romania, S.C. Silcotub S.A.^{Footnote 5}

[19] For the purposes 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.

[20] At the initiation of the investigations, the CBSA sent a Government Subsidy RFI and Government Section 20 RFI to the GOC. The GOC did not respond to the CBSA’s Subsidy or Section 20 RFI.

[21] For the purposes of these investigations, subject goods are defined as:

[22] Sucker rods are used in oil and gas extraction. In an oil or gas well, the rod string connects the above-ground drive to the down well pump(s). They are usually produced to 25 feet in length but can be longer.

[23] Pony rods are shorter lengths of sucker rods used to obtain the proper length of rod string when a full sucker rod would make the string too long. Pony rods are connected to each other, or to sucker rods, with couplings. They are usually produced in lengths of 1, 2, 4, 6, 8, 10 or 12 feet. Pony rods are usually made in the same diameters as sucker rods in the rod string.

[24] Sucker rods are “semi-finished” at any point following the forming of the ends of the material input (i.e. solid bar) into the essential sucker rod shape (e.g. forging) which typically creates the pin shoulder, wrench square and transition/upset of the sucker rod.

[25] The diameter of the sucker rod always refers to the outer diameter of the rod body, rather than any part of the forged end.

[26] Special grades of steel referred to in the product definition includes steel grades which may not meet standard industry specifications including proprietary grades.

For greater clarity, the product definition does not cover:

• Polished rods, which are above ground connections to the rod strings;
• Sinker bars, which are used to add weight to the rod string;
• Fiberglass sucker rods (Fiber reinforced plastic);
• Hollow sucker rods; and
• Continuous sucker rods.

[27] A “polished rod” connects the rest of the rod string to the above-ground drive. A polished rod is a special rod required to endure exposure to the surface conditions, unlike sucker rods which remain below ground the entire time they are being used. The polished rod’s placement requires particular sizing and characteristics which make it quite different from a sucker rod.

[28] A “sinker bar” is at the opposite end from the polished rod, as it connects the sucker rod string to the pump. The bar provides weight so that the tool will lower properly into the well.

[29] A fiberglass sucker rod or pony rod is typically manufactured in three pieces and assembled by a process that connects two metal end-fittings to a non-metallic fiber reinforced plastic rod body.

[30] A hollow sucker rod is made of seamless steel pipe, and the screw thread joint is connected with the rod body through friction welding and heat treatment. Hollow sucker rod is used for the exploitation of heavy oil, high freezing point oil and waxy crude oil. The hollow rod presents the ability to inject diluents through the hollow rod in progressive cavity pumping (PCP) operations.

[31] Continuous (coiled) sucker rods have an entire rod string in one piece with only two connections; one at the top and one at the bottom. These rods are available in either round or elliptical configurations. Continuous rod eliminates all the couplings along the entire wellbore except for the top connection to the polished rod and the bottom connection to the pump itself.

[32] Sucker rods described in the product definition are produced world-wide using materially similar production processes.

[33] Steel bars are the raw material for sucker rods. In North America, suitable steel bars are typically referred to as special bar quality (SBQ), however this is not a rigidly standardized term. In some cases, including in other countries, the input material could be referred to as engineered bar or merchant bar. Ultimately, any steel bar that meets the relevant requirements (chemical, mechanical, dimensional and so forth) can be used as input material.

[34] SBQ arriving at the production facility is inspected and received into inventory. The SBQ is cut to length for 25 foot sucker rods.

[35] The SBQ is transferred to a straightener, and it is straightened by passing through straightener rollers.

[36] Bars then get passed through an Eddy Current tester to check for any surface quality defects. All good bars are collected to form a bundle and rejected bars are kicked out in reject pockets.

[37] Good bars are then transferred to forge machines. Each bar end (between 8 – 14 inches of material) is induction heated to 2300°F ±50°F and upset forged to dimensions specified by the drawing for one end.

[38] During the forging process, the material is stamped with: the name of the manufacturer, the size, pin type, grade, heat code and date of manufacturing.

[39] After forging, the rod is transferred to the normalizing furnace. Forged rods are put on conveyor chains which take them through the furnace at a preset speed and furnace temperatures above the critical transformational temperature (1550°F – 1675°F, depending on the desired finished grade) where the rods undergo beneficial microstructure changes. Essentially, normalizing allows for the re-crystallization of steel to offset any defects arising from the working of the metal (particularly the prior forging).

[40] Upon exiting the normalizing furnace, the rods will be brittle and have poor ductility, so the rods are then tempered. When the rods come out of the normalizing furnace, they are then slowly moved (to allow air cooling for a certain time) to the tempering furnace at preset speed and temperature. Again the speed and temperatures are governed by the finished grades, but are approximately 500°F lower than normalizing temperatures. Tempering improves the ductility and toughness of the steel.

[41] The rods are then transferred on another conveyor which takes them through the shot peener. In this process the rods are blasted with tiny metal balls which produce compressive residual stresses on the rod surface which improves the fatigue life of the rod making them a superior quality product over non peened rods.^{Footnote 8}

[42] Rods are then settled in output table pockets to allow for cooling to room temperature. Once cooled, rod bundles are moved to computer numerical control (“CNC”) machines where they are machined and threaded on the ends. AOT uses cold-formed rolled threads on its sucker rods. The cold-formed process displaces, rather than removes metal, to maintain consistent steel grain size. This strengthens the shear, yield, and fatigue resistance of the threads. As necessary, couplings are attached on one end and pin protector plastic caps are added to the other.

[43] Machined rods are then sent to paint tables where they are inspected for straightness. Rods that are out of straightness are straightened. The rods are then dipped into a paint vat.

[44] Painted rods are then arranged in a stack for bundling and strapping. Rods are covered in an oil-soluble coating to reduce atmospheric corrosion in storage. Rods are bundled to prevent handling damages during transportation. Bundled rods are then moved to the storage area from where they get loaded onto trucks for shipping out to distributors.

[45] Sucker rods are lengths of steel, usually with externally threaded (also referred to as male threaded) ends. Couplings are typically threaded hollow cylinders used to connect rods.

[46] They are used in oil and gas extraction. In an oil or gas well, the rod string connects the above-ground drive to the down well pump(s).

[47] In extracting oil or gas from a well, some form of “drive” (which includes the motor) is required to provide the motive force and power for the extraction. The drive may be located above ground, or it may be located down well. Sucker rods are only used with drives that are located above ground.

[48] The above-ground drive is physically connected to the down well pump(s) by a rod string. The rod string is primarily composed of a series of interconnected sucker rods. The number and length of sucker rods may vary widely from well to well, depending on the various requirements established by engineers of the purchasing end users. A string of sucker rods could consist of dozens or even hundreds of sucker rods and have a total length of thousands of feet. Rod strings in Canada are typically in the range of 2,500 to 7,500 feet (roughly 100 to 300 sucker rods of 25 feet in length).

[49] A down well pump will either be a reciprocating pump or a progressive cavity pump (“PCP”). Reciprocating pumps require the rod string to move up and down to extract oil and gas out. This style of pump is more traditional. For these kind of pumps, the drive will connect to a “walking beam” and “horse head,” which will then reciprocate by pulling the rod string up and then pushing it down.

[50] A single “polished rod” connects the rest of the rod string to the above-ground drive. A polished rod is a special rod required to endure exposure to the surface conditions, unlike sucker rods which remain below ground the entire time they are being used. The polished rod’s placement requires particular sizing and characteristics which make it quite different from a sucker rod.

[51] On the other extreme of the sucker rod string there is often a “sinker bar.” A sinker bar is similar to a polished rod and has special requirements based on its role. It connects the sucker rod string to the pump.

[52] In contrast to the up-down movement of sucker rods in a reciprocating pump application, PCPs require the rod string to spin. This spinning motion is what causes the PCP to extract oil and gas from the well. The basic layout and components of a PCP well are similar to a reciprocating pump well.

[53] The subject goods are normally imported under the following tariff classification number:

1. 8413.91.00.10

[54] The tariff classification number is for convenience of reference only. The tariff classification numbers include non-subject goods. Refer to the product definition for authoritative details regarding the subject goods.

[70] Normal values are generally estimated based on the domestic selling prices of like goods in the country of export, in accordance with the methodology of section 15 of SIMA, or on the aggregate of the cost of production of the goods, a reasonable amount for administrative, selling and all other costs, plus a reasonable amount for profits, in accordance with the methodology of paragraph 19(b) of SIMA.

[71] In the case of a prescribed country such as China, if, 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, the normal values are generally estimated on the basis of section 20 of SIMA using either the selling prices or costs of like goods in a “surrogate” country.

[72] The export price of goods sold to importers in Canada is generally estimated in accordance with the methodology of section 24 of SIMA based on the lesser of the adjusted exporter’s sale price for the goods or the adjusted importer’s purchase price. These prices are adjusted where necessary by deducting the costs, charges, expenses, duties and taxes resulting from the exportation of the goods as provided for in subparagraphs 24(a)(i) to 24(a)(iii) of SIMA.

[73] Where there are sales between associated persons and/or a compensatory arrangement exists, the export price is estimated based on the importer’s resale price 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 are additional to those incurred on the sales of like goods for use in the country of export, all costs included in the resale price that are incurred in reselling the goods (including duties and taxes) or associated with the assembly of the goods in Canada and an amount representative of the average industry profit in Canada as provided for in paragraphs 25(1)(c) and 25(1)(d) of SIMA.

[74] The estimated margin of dumping by exporter is equal to the amount by which the total estimated normal value exceeds the total estimated export price of the goods, expressed as a percentage of the total estimated export price. All subject goods imported into Canada during the POI are included in the estimation of the margins of dumping of the goods. Where the total estimated normal value of the goods does not exceed the total estimated export price of the goods, the margin of dumping is zero.

[75] 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 10} Where section 20 of SIMA is applicable, the normal values of the goods are not determined using domestic prices or costs in that country.

[76] 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.

[77] 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.

[78] The complainant alleged that the conditions described in section 20 prevail in the steel oil and gas products sector, which includes sucker rods, in China. That is, 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 sucker rods are not reliable for determining normal values.

[79] The complainant provided a variety of evidence supporting the claim that the GOC substantially determines prices of sucker rods sold in China, including a pricing analysis of long product inputs.^{Footnote 11} The complainant provided evidence of state-ownership in the steel industry, involving both producers and purchasers, including those in the steel oil and gas products sector. The complainant also provided evidence of subsidization in the steel industry, which includes the steel oil and gas products sector.

[80] Finally, the complainant cited specific GOC policies such as China’s 13^th Five-Year Plan,^{Footnote 12} the 2016 Iron and Steel Industry Adjustment and Upgrade Plan^{Footnote 13} and the State Council Decision on Accelerating the Development of Strategic Emerging Industries^{Footnote 14} as evidence of continued influence on market forces in China, including the steel oil and gas products sector, which includes sucker rods.

[81] At the initiation of the investigations, 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 oil and gas products sector, which includes sucker rods. 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 sucker rods 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 oil and gas products sector, which includes sucker rods.

Summary of Chinese Exporter Responses

[82] The CBSA received responses to the Section 20 RFIs from two exporters/producers. In general, the parties who provided a response did attempt to address each question. However, the responses did not include the information requested by the CBSA and did not provide significant information with respect to GOC influence on the steel oil and gas products sector.

Government of China Response

[83] An RFI was sent to the GOC requesting information for the purposes of the section 20 inquiry. No response was received from the GOC as of the date of the preliminary determination of dumping.

Surrogate Country Responses

[84] As part of the section 20 inquiry, Surrogate Producer RFIs were sent to all known producers of sucker rods in Argentina, Brazil, India, Kazakhstan, Mexico, Romania, Russia and the United States. These countries were selected as they all have well-developed sucker rods industries operating under competitive conditions. As previously stated the CBSA received responses from three surrogate producers, including Norris Rods, Weatherford Artificial Lift Systems LLC and S.C. Silcotub S.A.

Responses from Importers with Sales in Canada of sucker rods from Other Countries

[85] As part of the section 20 inquiry, the RFIs sent to importers requested information on re-sales in Canada of sucker rods imported from countries other than China. The CBSA received responses from five importers; however, only one importer, Weatherford Canada, provided information on re-sales in Canada of like goods.

Preliminary Results of the Section 20 Inquiry

[86] The following is the CBSA’s analysis of the relevant factors that are present in the steel oil and gas products sector in China, which includes sucker rods.

GOC Industrial Policies

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

• The National Steel Policy and the Steel Revitalization/Rescue Plan;
• The 12^th Five-Year Development Plan for the Steel Industry;
• The 13^th Five-Year National Economic and Social Development Plan;
• State Council Decision on Accelerating the Development of Strategic Emerging Industries; and
• List of Industries, Products and Technologies Currently Encouraged by the State for Development (2000).

The National Steel Policy and the Steel Revitalization/Rescue Plan

[88] The Development Policies for the Iron and Steel Industry – Order of the National Development and Reform Commission [No. 35], (National Steel Policy)^{Footnote 15} was promulgated on July 8, 2005 and outlines the GOC’s future plans for the Chinese domestic steel industry. 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; and
• Government supervision and management in the steel industry.

[89] 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 16}. 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 included 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; and
• Develop domestic and overseas resources and guarantee the safety of the industry.

[90] 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 oil and gas products sector, which includes sucker rods.

12^th Five-Year Development Plan for the Steel Industry

[91] The 12^th Five-Year Development Plan for the Steel Industry^{Footnote 17} is a policy document that was released by the GOC’s Ministry of Industry and Information Technology on November 7, 2011. It served as the guiding document for the development of the Chinese steel industry for the 2011-2015 period. Some of the key objectives in the plan included:

• 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; and
• GOC directed relocation of iron and steel companies to coastal areas.

[92] Also included in this plan were minimum requirements for steel production in order to eliminate smaller players in the market. Through this plan, the GOC continued its reform and restructuring of the Chinese steel industry. The GOC’s target was that by 2015, China’s top 10 steel producers would 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 was the next development stage of GOC directives aimed at achieving this long-range 2020 target.

[93] Additional GOC policies and measures in the 12^th Five-Year Development Plan include:

• Improve the industry management system;
• Create an environment for fair competition, strengthen and improve macro adjustment and control;
• Regulate the production and standardize the operation of the steel 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; and
• Improve planning by regional authorities of industries to develop the steel industry, combine the regional mergers and reconstruction and eliminate obsolete construction.

[94] The GOC’s direction of the steel industry includes enabling regional or provincial governments to combine enterprises across boundaries. Furthermore, as a result of the GOC’s administration of steel production capacity, the Chinese steel industry is very much under the purview of the GOC.

[95] Together with the GOC’s: Criterion for the Production and Operation of Steel Industry^{Footnote 18} – GY [2010] No. 105 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^{Footnote 19}– GBF (2010) No. 34, these policies set out the detailed requirements for existing production and operations of steel enterprises in China.

[96] The intent of these latter policies 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.”

[97] 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.

13^th Five-Year Plan for National Economic and Social Development

[98] The GOC adopted its 13^th Five-Year Plan for National Economic and Social Development of the People’s Republic of China (2016-2020) (13^th Five-Year Plan)^{Footnote 20}, on March 15, 2016 and issued the plan in December 2016 through the National Development Reform Commission (NDRC). The 13^th Five-Year Plan outlines China’s goals, principles and targets for its development for the period of 2016-2020.

[99] The objectives outlined in the 13^th Five-Year Plan continue the themes expressed in the 12^th Five-Year Steel Plan, including the strengthening of state owned enterprises (SOE) and control over the economy, including the steel industry.

[100] The 13^th Five-Year Plan calls for greater involvement of SOEs in the development of the Chinese economy. Specifically, Chapter 11 of the plan states:

[101] Given the overcapacity in the steel industry causing excess supply, the above statement supports GOC intentions to further consolidate the steel industry through mergers and restructuring and that the GOC views SOEs as having an important role to play in the economy.

State Council Decision on Accelerating the Development of Strategic Emerging Industries

[102] The initial policy pertaining to Strategic Emerging Industries (SEIs) is the State Council Decision on Accelerating the Development of Strategic Emerging Industries^{Footnote 22}, issued in October 2010. The policy established a quantitative target for SEIs to account for eight percent of the gross domestic product by 2015 and 15 percent by 2020.

[103] The complainant provided information supporting that sucker rods falls within the seven specific SEIs denoted by the GOC for two main reasons:

1. The energy efficiency and environmental objectives of the decision will necessarily affect steel producers because energy is such a significant input for the production of steel. Steel production can also have significant environmental impacts.
2. The decision directs the “development of high-quality special steel, new alloy materials...” Given the demanding applications in which sucker rods are used, they can benefit greatly from advances in steel technology, particularly in special service and high strength products.

[104] The CBSA is of the opinion that the policies on SEIs indicate that the GOC considers the steel oil and gas products sector, which includes sucker rods, to be an important industry in China. Given the importance of the steel oil and gas products sector in China’s economy, the GOC will have a vested interest in maintaining influence over this sector.

List of Industries, Products and Technologies Currently Encouraged by the State for Development (2000)

[105] Issued by the State Planning Commission and State Economic and Trade Commission, the List of Industries, Products and Technologies Currently Encouraged by the State for Development (Revised in 2000)^{Footnote 23} was approved by the State Council on July 27, 2000.

[106] The list came into force on September 1, 2000, and includes the following encouraged industries: iron and steel, petrochemical, oil and natural gas, nuclear energy and electric power. In promoting the development of these industries, it is clear that the steel oil and gas products sector, which includes sucker rods, is impacted due to the use of sucker rods in these encouraged industries.

GOC Ownership of Suppliers/Producers

[107] As part of its section 20 analysis with respect to the influence of SOEs, the CBSA examined:

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

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

[108] The Decree of the State Council of the People’s Republic of China No.378 (the Decree)^{Footnote 24}, promulgated on May 27, 2003, provides the authority for the State Council, the chief administrative authority of China, to control, supervise and manage SOEs.

[109] 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 SOEs in China.

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

[110] 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^{Footnote 25}. According to a summary of the circular released by the GOC, “inside and outside supervision will be strengthened on SOEs.” 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 an 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; and
• improvement of auditing on SOEs, especially during replacement of SOEs’ top executives.

[111] 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.

State ownership of the steel and oil & gas industries in China

[112] Information available from the World Steel Association indicates that China accounted for just under half of the world’s crude steel production in 2016 and four of the ten top steel producers in China were state-owned. Chinese steel SOEs accounted for 87% of all crude steel production in China in 2016.^{Footnote 26}

[113] China’s oil and gas industry is dominated by three SOE oil companies, Sinopec, China National Petroleum Corporation and China National Offshore Oil Corporation. Together these three SOE oil companies accounted for approximately 92% of Chinese oil production. The complainant provided information indicating that both Sinopec and CNPC own several large-scale producers of sucker rods in China. In addition, the three SOE oil companies control the vast majority of purchases of sucker rods in China, and this gives the GOC monopolist power.^{Footnote 27}

[114] The information provided by the complainant and available from the World Steel Association supports the assertion that there is substantial state ownership in the steel oil and gas products sector in China, which includes sucker rods.

Chinese Domestic Price Analysis

[115] 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 a country prescribed by paragraph 20(1)(a) of SIMA 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.

[116] At the initiation of the investigation, the CBSA did not have access to domestic price data of sucker rods in China. Given the absence of publicly available domestic price data of sucker rods, the CBSA relied on information provided by the complainant. The information provided by the complainant focused on domestic pricing of long products (i.e. steel bar and wire rod) because steel bar is the major input material used for the production of subject goods.

[117] Given the significant relative cost of steel bars in the manufacturing of sucker rods, and the similarity between steel bars and other long products, the price analysis of long products conducted by the complainant was an appropriate proxy to actual sucker rod prices and to determine whether there is evidence that the domestic market for sucker rods may be substantially distorted by raw material pricing that is not the same as it would if determined under a competitive market.

[118] It is noted that the CBSA has already formed the opinion that the conditions of section 20 of SIMA exist in the long steel products sector in China, which includes steel bar.^{Footnote 28} As such, the CBSA has formed the opinion that domestic prices of steel bar in China are not the same as they would be if they were operating in a competitive market.

[119] During the preliminary phase of the investigation, the CBSA conducted a preliminary price analysis of sucker rods sold in the domestic markets by producers in surrogate countries who participated in this investigation and compared it to domestic prices provided by the responding Chinese exporters/producers.

[120] The CBSA calculated quarterly average domestic prices of sucker rods in both China and the surrogate countries during the profitability analysis period (PAP). The quarterly average Chinese price data were then compared to the quarterly average surrogate price data. Results are found in the table below:

Quarterly Average Price Comparison – Chinese price vs. Surrogate Price

[121] The result summarized in the table above demonstrates a significant difference in the price of sucker rods in China when compared to the price in the surrogate countries, where prices are believed to be determined under competitive market conditions. The quarterly average surrogate price was 125% to 183% higher than the price of those goods in China during the PAP.

Summary of the Preliminary Results of the Section 20 Inquiry

[122] The wide range and material nature of the GOC measures have resulted in significant influence on the steel oil and gas products sector in China, which includes sucker rods. Based on the preceding, the CBSA is of the opinion that:

• domestic prices of sucker rods in China 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.

[123] During the final phase of the dumping investigation, the CBSA will continue the section 20 inquiry and further verify and analyze relevant information. The CBSA may reaffirm its opinion that the conditions of section 20 of SIMA exist in the steel oil and gas products sector as part of the final phase of the investigation, or conclude that the determination of normal values may be made using domestic selling prices and costs in China.

FOUND Petroleum Equipment Co., Ltd.

[124] FOUND is a producer and exporter of subject goods to Canada. FOUND is located in Baotou, Inner Mongolia, China and has one production facility capable of producing the subject goods. During the POI, all subject goods exported by FOUND to Canada were sold to an unrelated importer in Canada, Imex.

[125] FOUND provided a substantially complete response to the Dumping RFI^{Footnote 29} and one SRFI^{Footnote 30}, which was sent to gather additional information and seek clarification regarding their original Dumping RFI response. The CBSA will continue to collect and verify information from FOUND.

[126] Normal values for FOUND were estimated using the methodology of subparagraph 20(1)(c)(i) of SIMA. Therefore, normal values were estimated on the basis of the selling price of like goods sold domestically by producers in the surrogate countries during the PAP.

[127] For subject goods exported from FOUND to Canada during the POI, export prices were estimated using the methodology of section 24 of SIMA, adjusted by deducting the costs, charges and expenses incurred in preparing the goods for shipment to Canada and resulting from the exportation and shipment of the goods.

[128] For the preliminary determination, the total estimated normal value compared to the total estimated export price results in an estimated margin of dumping of 283.9% for FOUND, expressed as a percentage of the export price.

Nine-Ring Petroleum Machinery Co., Ltd.

[129] Nine-Ring is a producer and exporter of subject goods located in Binzhou, Shandong Province, China. During the POI, all subject goods exported by Nine-Ring to Canada were sold to a related importer, Exceed Canada.

[130] Nine-Ring provided a substantially complete response to the Dumping RFI^{Footnote 31} and one SRFI^{Footnote 32}, which was sent to gather additional information and seek clarification regarding their original Dumping RFI response. The CBSA will continue to collect and verify information from Nine-Ring.

[131] Normal values for Nine-Ring were estimated using the methodology of subparagraph 20(1)(c)(i) of SIMA. Therefore, normal values were estimated on the basis of the selling price of like goods sold domestically by producers in the surrogate countries during the PAP.

[132] Due to the relationship between Nine-Ring and Exceed Canada, for subject goods exported during the POI by Nine-Ring, a reliability test was performed to determine whether the section 24 export prices were reliable as envisaged by SIMA. The test was conducted by comparing the estimated section 24 export prices with the estimated section 25 export prices.

[133] The amount for profit used for the section 25 calculations was estimated in accordance with paragraph 22(a) of the Special Import Measures Regulations (SIMR), based on the profit information relating to vendors who are at the same or substantially the same trade level as Exceed Canada and that operated at a profit during the POI in Canada, on sales to purchasers in Canada who are not associated with those vendors.

[134] The reliability test revealed that the estimated export prices in accordance with section 24 of SIMA were reliable and, therefore, export prices for Nine-Ring were estimated using the methodology of section 24 of SIMA.

[135] For the preliminary determination, the total estimated normal value compared to the total estimated export price results in an estimated margin of dumping of 198.6% for Nine-Ring, expressed as a percentage of the export price.

Shandong Shouguang Kunlong Petroleum Machinery Co., Ltd.

[136] Shandong Kunlong is a producer and exporter of subject goods with headquarters and a factory located in Shouguang, China. During the POI, Shandong Kunlong exported a single shipment of sucker rods to a customer in Canada. During the POI, Shandong Kunlong also produced and sold sucker rods to a Chinese trading company, Tianjin Zhongyou, which were subsequently exported to Canada.

[137] Shandong Kunlong provided a substantially complete response to the Dumping RFI^{Footnote 33} and one SRFI^{Footnote 34}, which was sent to gather additional information and seek clarification regarding their original Dumping RFI response. The CBSA will continue to collect and verify information from Shandong Kunlong.

[138] Normal values for Shandong Kunlong were estimated using the methodology of subparagraph 20(1)(c)(i) of SIMA. Therefore, normal values were estimated on the basis of the selling price of like goods sold domestically by producers in the surrogate countries during the PAP.

[139] For subject goods exported from Shandong Kunlong to Canada during the POI, export prices were estimated using the methodology of section 24 of SIMA, adjusted by deducting the costs, charges and expenses incurred in preparing the goods for shipment to Canada and resulting from the exportation and shipment of the goods.

[140] For the preliminary determination, the total estimated normal value compared to the total estimated export price results in an estimated margin of dumping of 200.2% for Shandong Kunlong, expressed as a percentage of the export price.

Zibo Hongyang Weatherford Oilfield Equipment Co., Ltd.

[141] Zibo Weatherford is a producer and exporter of subject goods located in Zibo, Shandong province, China. During the POI, all subject goods exported by Zibo Weatherford to Canada were sold to a related importer, Weatherford Canada.

[142] Zibo Weatherford provided a substantially complete response to the Dumping RFI^{Footnote 35} and one SRFI^{Footnote 36}, which was sent to gather additional information and seek clarification regarding their original Dumping RFI response. The CBSA will continue to collect and verify information from Zibo Weatherford.

[143] Normal values for Zibo Weatherford were estimated using the methodology of subparagraph 20(1)(c)(i) of SIMA. Therefore, normal values were estimated on the basis of the selling price of like goods sold domestically by producers in the surrogate countries during the PAP.

[144] Due to the relationship between Zibo Weatherford and Weatherford Canada, for subject goods exported during the POI by Zibo Weatherford, a reliability test was performed to determine whether the section 24 export prices were reliable as envisaged by SIMA. The test was conducted by comparing the estimated section 24 export prices with the estimated section 25 export prices.

[145] The amount for profit used for the section 25 calculations was estimated in accordance with paragraph 22(a) of the SIMR, based on the profit information relating to vendors who are at the same or substantially the same trade level as Weatherford Canada and that operated at a profit during the POI in Canada, on sales to purchasers in Canada who are not associated with those vendors.

[146] The reliability test revealed that the estimated export prices in accordance with section 24 of SIMA were reliable and, therefore, export prices for Zibo Weatherford were estimated using the methodology of section 24 of SIMA.

[147] For the preliminary determination, the total estimated normal value compared to the total estimated export price results in an estimated margin of dumping of 138.2% for Zibo Weatherford, expressed as a percentage of the export price.

All Other Exporters

[148] For exporters of subject goods that did not provide a response to the Dumping RFI or did not furnish sufficient information, the normal values and export prices were estimated on the basis of facts available.

[149] In establishing the methodology for estimating the margin of dumping and export prices, the CBSA considered all the information on the administrative record, including the complaint filed by the domestic industry, the CBSA’s estimates at the initiation of the investigation, information submitted by exporters of sucker rods from China, information provided by potential surrogate producers from other countries and customs import documentation.

[150] The CBSA decided that the normal values and export prices estimated for the exporters whose submissions were substantially complete for purposes of the preliminary determination rather than the information provided in the complaint or estimated at initiation, would be used to establish the methodology for estimating normal values since it reflects the trading practices of sucker rods exporters during the POI.

[151] The submissions of FOUND, Nine-Ring, Shandong Kunlong and Zibo Weatherford were substantially complete for purposes of the preliminary determination. The CBSA examined the difference between estimated normal value and the estimated export price for each individual transaction from these exporters in order to obtain an appropriate amount for the normal value methodology. The transactions were examined to ensure that no anomalies were considered, such as a very low volume and value, effects of seasonality or other business factors.

[152] The CBSA considered that the highest amount by which the estimated normal value exceeded the estimated export price on an individual transaction of the four exporters mentioned above (expressed as a percentage of export price, excluding anomalies), was an appropriate basis for estimating normal values. This methodology limits the advantage that an exporter may gain from not providing the necessary information requested in a dumping investigation as compared to an exporter that did provide the necessary information. Therefore, the normal values were estimated based on the estimated export price, plus an amount equal to 305.1% of that estimated export price.

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

[154] Based on the above methodologies, for exporters that did not provide a response to the Dumping RFI, the margins of dumping of subject goods originating in or exported from China were estimated to be 305.1%, expressed as a percentage of export price.

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

* Expressed as a percentage of the export price.

[156] Under section 35 of SIMA, if at any time before making a preliminary determination the CBSA is satisfied that the actual and potential volume of goods of a country is negligible, the CBSA is required to terminate the investigation with respect to goods of that country.

[157] Pursuant to subsection 2(1) of SIMA, the volume of goods of a country is considered negligible if it accounts for less than 3% of the total volume of goods that are released into Canada from all countries that are of the same description as the goods.

[158] As can be seen from the table above, the volume of subject goods from China is above 3% of the total volume of goods released into Canada from all countries. Based on the definition above, the volume of subject goods from China is, therefore, not negligible.

[159] If, in making a preliminary determination, the CBSA determines that the margin of dumping of the goods of a particular exporter is insignificant pursuant to subsection 38(1.1) of SIMA, the investigation will continue in respect of those goods but provisional duties will not be imposed on goods of the same description imported during the provisional period. 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. The estimated margins of dumping of the exporters of subject goods expressed as a percentage of export price, are above 2% and are, therefore, not insignificant.

[160] A summary of the estimated margins of dumping and provisional duties by exporter is presented in Appendix 1.

[168] The following presents the preliminary results of the investigation into the subsidizing of certain sucker rods originating in or exported from China.

[169] At the initiation of the investigation, the CBSA sent Subsidy RFIs to the GOC, as well as to all known exporters/producers of certain sucker rods in China. The GOC was also requested to forward the RFIs to all subordinate levels of government that had jurisdiction over the exporters.

[170] The GOC did not respond to the CBSA’s government Subsidy RFI.

[171] The CBSA received a substantially complete response to the Subsidy RFI from four exporters/producers in China, namely, FOUND, Shandong Kunlong, Nine-Ring and Zibo Weatherford.

[172] At initiation of the subsidy investigation, the CBSA requested information on 22 potential subsidy programs that could potentially confer benefits to exporters/producers of sucker rods in China.

[173] For purposes of the preliminary determination, it was found that the responding exporters/producers benefited from the following seven subsidy programs during the POI:

Grants and Grant Equivalents

Preferential Tax Programs and Relief from Duties and Taxes on Inputs, Materials and Machinery

Goods/Services Provided by the Government at Less than Fair Market Value

[174] Information on the administrative record indicates that the programs identified under Grants and Grant Equivalents are potentially actionable as financial contributions pursuant to paragraph 2(1.6)(a) of SIMA from the government that involve a direct transfer of funds. These grants confer a direct benefit to the recipient and the benefit is equal to the amount of the grant provided.

[175] The programs identified under Preferential Tax Programs and Relief from Duties and Taxes on Inputs, Materials and Machinery constitute potentially actionable subsidies as financial contributions pursuant to paragraph 2(1.6)(b) of SIMA, in that amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

[176] The program identified under Goods/Services Provided by the Government at Less than Fair Market Value constitutes a potentially actionable subsidy as financial contributions pursuant to paragraph 2(1.6)(c) of SIMA as they involve the provision of goods or services, other than general governmental infrastructure.

[177] Due to the lack of a response by the GOC, there is not sufficient information on the record to determine whether the seven subsidy programs named above are specific pursuant to sub-section 2(7.2) or subsection 2(7.3) of SIMA; nor is there sufficient information to indicate that the subsidy is not specific pursuant to the criteria set out in subsection 2(7.1). On the basis of the available information, these programs do not appear to be generally available to all enterprises in China and thus appear to be specific.

[178] More detailed information about the subsidy programs is contained in Appendix 2.

FOUND Petroleum Equipment Co., Ltd.

[179] FOUND is a producer and exporter of subject goods to Canada. FOUND provided a substantially complete response to the Subsidy RFI^{Footnote 37} and one SRFI.^{Footnote 38}

[180] For purposes of the preliminary determination, FOUND benefitted from two subsidy programs during the POI: Programs 11 & 20.

[181] The estimated amount of subsidy for FOUND is 53.1%, expressed as a percentage of the export price.

[182] The CBSA will continue to analyze the company’s information during the final phase of the investigation. The CBSA may also consider any other potential subsidy programs that have not yet been identified.

Nine Ring Petroleum Machinery Co., Ltd.

[183] Nine-Ring is a producer and exporter of subject goods to Canada. Nine-Ring provided a substantially complete response to the Subsidy RFI^{Footnote 39} and one SRFI.^{Footnote 40}

[184] For purposes of the preliminary determination, Nine-Ring benefited from five subsidy programs during the POI: Programs 6, 11, 15, 17 and 20.

[185] The estimated amount of subsidy for Nine-Ring is 10.0%, expressed as a percentage of the export price.

[186] The CBSA will continue to analyze the company’s information during the final phase of the investigation. The CBSA may also consider any other potential subsidy programs that have not yet been identified.

Shandong Shouguang Kunlong Petroleum Machinery Co., Ltd.

[187] Shandong Kunlong is a producer and exporter of subject goods to Canada. Shandong Kunlong provided a substantially complete response to the Subsidy RFI^{Footnote 41} and one SRFI^{Footnote 42}.

[188] For purposes of the preliminary determination, Shandong Kunlong benefitted from four subsidy programs during the POI: Programs 11, 13, 15 & 20.

[189] The estimated amount of subsidy for Shandong Kunlong is 46.1%, expressed as a percentage of the export price.

[190] The CBSA will continue to analyze the company’s information during the final phase of the investigation. The CBSA may also consider any other potential subsidy programs that have not yet been identified.

Zibo Hongyang Weatherford Oilfield Equipment Co., Ltd.

[191] Zibo Weatherford is a producer and exporter of subject goods to Canada. Shandong Kunlong provided a substantially complete response to the Subsidy RFI^{Footnote 43} and one SRFI^{Footnote 44}.

[192] For purposes of the preliminary determination, Zibo Weatherford benefitted from two subsidy programs during the POI: Programs 7 & 20.

[193] The estimated amount of subsidy for Zibo Weatherford is 9.5%, expressed as a percentage of the export price.

[194] The CBSA will continue to analyze the company’s information during the final phase of the investigation. The CBSA may also consider any other potential subsidy programs that have not yet been identified.

All Other Exporters

[195] For all other exporters of subject goods from China during the POI, the CBSA estimated an amount of subsidy on the basis of the following methodology:

1. the highest estimated amount of subsidy for each of the seven programs, as found at the preliminary determination, for the exporters/producers located in China that provided a substantially complete response to the Subsidy RFI, plus;
2. the average of the estimated amounts of subsidy for the seven programs referenced in (1), applied to each of the remaining 15 potentially actionable subsidy programs for which sufficient information is not available or has not been provided at the preliminary determination.

[196] Using the above methodology, the estimated amount of subsidy for all other exporters in China is 144.3%, expressed as a percentage of the export price.

[197] A summary of the preliminary results of the subsidy investigation respecting all subject goods released into Canada during the subsidy POI follows:

* Expressed as a percentage of the export price.

[198] Under section 35 of SIMA, if, at any time before making a preliminary determination, the CBSA is satisfied that the actual and potential volume of goods of a country is negligible, the CBSA is required to terminate the investigation with respect to goods of that country.

[199] Pursuant to subsection 2(1) of SIMA, the volume of goods of a country is considered negligible if it accounts for less than 3% of the total volume of goods that are released into Canada from all countries that are of the same description as the goods.

[200] As can be seen from the above table, the volume of subject goods from China is above 3% of the total volume of goods released into Canada from all countries. Based on the definition above, the volume of subject goods from China is, therefore, not negligible.

[201] If, in making a preliminary determination, the CBSA determines that the amount of subsidy on the goods of an exporter is insignificant pursuant to subsection 38(1.1) of SIMA, the investigation will continue in respect of those goods but provisional duties will not be imposed on goods of the same description imported during the provisional period. Pursuant to subsection 2(1) of SIMA, an amount of subsidy of less than 1% of the export price of the goods is defined as insignificant. The amount of subsidy, estimated in respect of the exporters, are above 1% of the export price and are, therefore, not insignificant.

[202] A summary of the estimated amounts of subsidy and provisional duties by exporters are presented in Appendix 1.

[208] The CBSA will continue its investigations of the dumping and subsidizing and will make final decisions by November 14, 2018.

[209] If the margins of dumping or amounts of subsidy of any exporter are found to be insignificant, the CBSA will terminate the investigation in respect of goods of that exporter and any provisional duty paid or security posted will be refunded to importers, as appropriate. If the CBSA is satisfied that the goods were dumped and/or subsidized, final determinations will be made.

[210] The CITT has begun its inquiry into the question of injury to the Canadian industry. The CITT is expected to issue its finding by December 14, 2018.

[211] If the CITT finds that the dumping has not caused injury, retardation or is not threatening to cause injury, the proceedings will be terminated and all provisional anti-dumping duty collected or security posted will be refunded.

[212] If the CITT makes a finding that the dumping has caused injury, retardation or is threatening to cause injury, anti-dumping duty in an amount equal to the margin of dumping will be levied, collected and paid on imports of sucker rods that are of the same description as goods described in the CITT’s finding.

[213] If the CITT finds that the subsidizing has not caused injury, retardation or is not threatening to cause injury, the proceedings will be terminated and all provisional countervailing duty collected or security posted will be refunded.

[214] If the CITT makes a finding that the subsidizing has caused injury, retardation or is threatening to cause injury, countervailing duties in the amount equal to the amount of subsidy on the imported goods will be levied, collected and paid on imports of sucker rods that are of the same description as goods described in the CITT’s finding.

[215] For purposes of the preliminary determination of dumping or subsidizing, the CBSA has responsibility for determining whether the actual and potential volume of goods is negligible. After a preliminary determination of dumping or subsidizing, the CITT assumes this responsibility. In accordance with subsection 42(4.1) of SIMA, the CITT is required to terminate its inquiry in respect of any goods if the CITT determines that the volume of dumped or subsidized goods from a country is negligible.