SR2 2019 IN
Certain Sucker Rods
Statement of Reasons

[11] The complainant, AOT is a manufacturer and supplier of steel products for the oil and gas sector. AOT is the only producer of solid steel sucker rods in Canada. The company’s production facility is located in Edmonton, Alberta. AOT’s product range includes conventional sucker rods, specialty Drive Rods® for progressing cavity pump applications, polished rods, sinker bars, pony rods and sucker rod/polished rod couplings. The company also manufactures other oil tubular products, including pup joints at another facility in Edmonton, Alberta.^{Footnote 1}

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

[13] The name and address of the complainant is as follows:

Apergy Canada ULC–Alberta Oil Tool Division
6939 – 68th Avenue
Edmonton, Alberta, T6B 3E3

[14] At the initiation of the investigation, the CBSA identified 3 potential exporters/producers of the subject goods located in Argentina, Brazil, and Mexico from CBSA import documentation and from information submitted in the complaint. The potential exporters located in Argentina, Brazil, and Mexico were asked to respond to the CBSA’s Dumping RFI.

[15] Four parties provided a response to the Dumping exporter RFI: Tenaris Global Services S.A. Uruguay (TGSU)^{Footnote 2}, identifying itself as the exporter of subject goods from the named countries, Metalmecanica S.A. (MM)^{Footnote 3}, a producer/exporter of subject goods located in Argentina, Tenaris Confab Hastes de Bombeio S.A. (TCHB)^{Footnote 4}, a producer/exporter of subject goods located in Brazil, and Tubos de Acero de Mexico S.A. (TAMSA)^{Footnote 5}, a producer/exporter of subject goods located in Mexico. See “Dumping Investigation” for detailed information regarding these companies.

[16] At the initiation of the investigation, the CBSA identified one potential importer of the subject goods based on both information provided by the complainant and CBSA import entry documentation. The one potential importer was asked to respond to the CBSA’s Importer Request for Information (RFI). The CBSA received a response to the Importer RFI from Tenaris Global Services (Canada) Inc. (TGS Canada).^{Footnote 6} TGS Canada is a related party to each of the exporters/producers of subject goods from the named countries that exported goods into Canada during the POI.

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

[18] Sucker rods are lengths of steel, usually with externally threaded ends, connected by couplings to form a rod string. In an oil or gas well, the rod string connects the above-ground drive to the down well pump(s). Sucker rods are usually produced to 25 feet in length but can be longer.

[19] Pony rods are shorter lengths of sucker rods used to obtain the proper length of a 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.

[20] 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.

[21] The diameter of the sucker rod always refers to the outer diameter of the rod body, rather than any part of the forged end.^{Footnote 7}

[22] Special grades of steel referred to in the product definition include 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;^{Footnote 8}
• Sinker bars, which are used to add weight to the rod string;^{Footnote 9}
• Fiberglass sucker rods (Fiber reinforced plastic);^{Footnote 10}
• Hollow sucker rods;^{Footnote 11} and
• Continuous sucker rods.^{Footnote 12}

[23] 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.

[24] 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.

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

[26] 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 and waxy crude oil. The hollow rod presents the ability to inject diluents through the hollow rod in progressive cavity pumping (PCP) operations. There is no indication that these goods are manufactured in Canada.

[27] 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.

[28] The subject goods are produced world-wide using materially similar production processes.

[29] 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.

[30] AOT’s sucker rods are manufactured from micro-alloyed, modified SBQ hot rolled carbon or alloy steel bar. The raw material for sucker rods is generally of a significantly higher quality than most concrete reinforcing bar, for example, and with much lower chances of defects or flaws.

[31] SBQ is supplied as long steel bars and arrives at AOT’s facility where it is inspected and received into inventory. The SBQ is cut to length for 25 foot sucker rods. The SBQ is transferred to a straightener, where it is straightened by being passed through straightener rollers. Bars then get passed through an eddy current tester to check for any surface quality defects. All acceptable bars are collected to form a bundle and rejected rods are kicked out in reject pockets.

[32] Usable 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. The bar end is measured and documented on AOT’s quality plan. After one end is completed, the bar is rotated 180 degrees and the same processes are performed on the other end. During the forging process, the sucker rods are stamped with: AOT’s name as the manufacturer, the size, pin type, grade, heat code and date of manufacturing.

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

[34] 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 pre-set 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.

[35] The rods are then transferred to 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 14}

[36] Rods are then settled in output table pockets to allow for cooling to room temperatures. 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 follow. 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 others.

[37] 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. 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.

[38] Sucker rods are used in oil and gas extraction by forming a rod string that connects the above-ground drive to the down well pump(s). In extracting oil and gas from a well, some form of drive is required to provide the motive force and power to extract the oil and gas. Although drives may be located above ground or down well, sucker rods are only used with drives that are located above ground.

[39] An 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, which is roughly 100 to 300 sucker rods of 25 feet in length.

[40] A down well pump will either be a reciprocating pump or a progressive cavity pump, and suckers rods are used in both types of pumps. Reciprocating pumps which are the more traditional type of pump require the rod string to move up and down to extract oil and gas out. For these kinds 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.

[41] The allegedly dumped goods are normally classified under the following tariff classification number:

• 8413.91.00.10

[42] The tariff classification number is for convenience of reference only. Refer to the product definition for authoritative details regarding the subject goods.

[58] 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.

[59] Given the insufficient information provided by the responding parties, the CBSA estimated normal values on the basis of facts available. In establishing the methodology for estimating normal values, the CBSA considered all the information on the administrative record, including the complaint filed by the domestic industry and the CBSA’s estimates at the initiation of the investigation. Normal values were based on the methodology of paragraph 19(b) of SIMA using information from the complaint adjusted by the CBSA to more reasonably represent the cost of raw materials and the cost of freight which may be incurred in the named countries. An amount for administrative, selling, and general costs, and a reasonable amount for profit was estimated based on the 2018 annual report of Tenaris S.A.

[60] 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.

[61] 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.

[62] TGS Canada, the sole importer of subject goods, is associated with the four responding exporters of subject good during the POI. Given that the information provided by the responding exporters was incomplete, the CBSA was unable to estimate export prices based on the exporter’s sale price for the goods as provided in paragraph 24(a) or the importer’s resale price as provided in paragraph 25(1)(c) of SIMA.

[63] Consequently, the CBSA estimated export prices based on the methodology of subparagraph 24(b) of SIMA, using the importer’s purchase prices provided as part of the substantially complete importer RFI responses.

[64] Generally, 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.

[65] However, as the exporter/producers in the named countries did not provide responses that were substantially compete, for purposes of the preliminary determination, the CBSA estimated the margin of dumping for each of the exporters from the named countries by finding the highest amount by which the estimated normal value exceeded the estimated export price, on a single transaction, excluding anomalies. This methodology limits the advantage that an exporter may gain from not providing necessary information requested as part of the dumping investigation.

[66] Further information regarding each exporter that responded to the CBSA’s exporter RFI is detailed below.

[67] Paragraph 16(2)(c) is a provision of SIMA that may be applied when the President of the CBSA is of the opinion that domestic sales of like goods in the country of export do not permit a proper comparison with the sales of the goods to the importer in Canada because a particular market situation (PMS) prevails.

[68] Pursuant to subsection 16(2.1), the President of the CBSA may form the opinion that a PMS exists in respect of any goods of a particular exporter or of a particular country.

[69] In such cases, the CBSA would not estimate normal values using the methodology of section 15 of SIMA, which relies on domestic prices. Accordingly, and where such information is available, the CBSA would look to using the constructed normal value methodology of paragraph 19(b).

[70] Where the President of the CBSA is of the opinion that a PMS also distorts the cost of inputs that are significant in the production of the goods, the CBSA will use information in accordance with subsection 11.2(2) of SIMR, that best represents the actual cost of the input to permit a proper comparison.

[71] Where the CBSA finds there is sufficient reason to believe that an investigation into PMS is warranted, the CBSA will solicit information from exporters and, where applicable, the government of the country of export, and independently gather other relevant information in order to form an opinion as to whether paragraph 16(2)(c) is applicable.

[72] In its complaint, AOT made the allegation that particular market situations may exist in each of the named countries. The complainant made allegations that the largest corporations producing oil in the named countries are state-owned and there is evidence that this has created distorted market prices in these countries.^{Footnote 20}

[73] The CBSA is continuing to examine these allegations in order to determine if the presence and purchasing activities of state-owned enterprises in the named countries are resulting in a particular market situation.

Argentina

Metalmecanica S.A.

[74] Metalmecanica S.A. (MM) is a producer and exporter of subject goods. MM is located in Villa Mercedes, in the province of San Luis of Argentina and has one production facility capable of producing the subject goods. During the POI, all subject goods from Argentina were exported by MM to Canada and were sold to a related importer, TGS Canada.

[75] MM provided an incomplete response to the Dumping RFI on November 6, 2019 and was issued a letter of deficiency on November 19, 2019. The letter noted deficiencies and advised MM to provide a revised RFI response as soon as possible to ensure that the CBSA has sufficient time to review, analyze and verify the information provided.

[76] A full resubmission of the Dumping RFI was received from MM on November 29, 2019. An initial review of that resubmission revealed that deficiencies still remained. As such, on December 6, 2019, the CBSA issued a correspondence to MM outlining essential information that was still outstanding. On December 16, 2019, the CBSA received further revised documents relating to the resubmission received on November 29, 2019, unrelated to the CBSA’s correspondence of December 6, 2019. Consequently, information provided by MM remains incomplete and has not been considered by the CBSA.

[77] For purposes of making a preliminary determination, the highest amount by which the estimated normal value exceeded the estimated export price on a single transaction, based on the methodology set out at the beginning of the Dumping Investigation section, excluding anomalies resulted in an estimated margin of dumping of 30.5% for MM, expressed as a percentage of the export price.

Brazil

Tenaris Confab Hastes de Bombeio S.A.

[78] Tenaris Confab Hastes de Bombeio S.A. (TCHB) is a producer and exporter of subject goods. TCHB is located in Pindamonhangaba, São Paulo, Brazil, and has one production facility capable of producing the subject goods. During the POI, all subject goods from Brazil were exported by TCHB to Canada and were sold to a related importer, TGS Canada.

[79] TCHB provided an incomplete response to the Dumping RFI on November 6, 2019 and was issued a letter of deficiency on November 19, 2019. The letter noted deficiencies and advised TCHB to provide a revised RFI response as soon as possible to ensure that the CBSA has sufficient time to review, analyze and verify the information provided.

[80] A full resubmission of the Dumping RFI was received from TCHB on November 29, 2019. An initial review of that resubmission revealed that deficiencies still remained. As such, on December 6, 2019, the CBSA issued a correspondence to TCHB outlining essential information that was still outstanding. On December 16, 2019, the CBSA received further revised documents relating to the resubmission received on November 29, 2019, unrelated to the CBSA’s correspondence of December 6, 2019. Consequently, information provided by TCHB remains incomplete and has not been considered by the CBSA.

[81] For purposes of making a preliminary determination, the highest amount by which the estimated normal value exceeded the estimated export price on a single transaction, based on the methodology set out at the beginning of the Dumping Investigation section, excluding anomalies resulted in an estimated margin of dumping of 27.3% for TCHB, expressed as a percentage of the export price.

Mexico

Tubos de Acero de Mexico S.A.

[82] Tubos de Acero de Mexico S.A. (TAMSA) is a producer and exporter of subject goods. TAMSA is located in Veracruz, Mexico, and has one production facility capable of producing the subject goods. During the POI, all subject goods from Mexico were exported by TAMSA to Canada and were sold to a related importer, TGS Canada.

[83] TAMSA provided an incomplete response on November 6, 2019 to the Dumping RFI and was issued a letter of deficiency on November 19, 2019. The letter noted deficiencies and advised TAMSA to provide a revised RFI response as soon as possible to ensure that the CBSA has sufficient time to review, analyze and verify the information provided.

[84] A full resubmission of the Dumping RFI was received from TAMSA on November 29, 2019. An initial review of that resubmission revealed that deficiencies still remained. As such, on December 6, 2019, the CBSA issued a correspondence to TAMSA outlining essential information that was still outstanding. On December 16, 2019, the CBSA received further revised documents relating to the resubmission received on November 29, 2019, unrelated to the CBSA’s correspondence of December 6, 2019. Consequently, information provided by TAMSA remains incomplete and has not been considered by the CBSA.

[85] For purposes of making a preliminary determination, the highest amount by which the estimated normal value exceeded the estimated export price on a single transaction, based on the methodology set out at the beginning of the Dumping Investigation section, excluding anomalies resulted in an estimated margin of dumping of 48.9% for TAMSA, expressed as a percentage of the export price.

Summary of Preliminary Results - Dumping

[86] 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.

[87] 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.

[88] 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.

[89] As can be seen from the table above, the volume of subject goods from Argentina, Brazil, and Mexico are 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 Argentina, Brazil, and Mexico are, therefore, not negligible.

[90] 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.

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