Statement of reasons—Undertaking review determination: Sucker rods 2 (SR2 2024 UR)

Additional product information

[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.

[27] For greater clarify, 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^{Footnote 7}

Production process^{Footnote 8}

[28] The subject goods are produced worldwide 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 preset 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 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.

[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.

[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.

Product use^{Footnote 9}

[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.

Classification of imports

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

1. 8413.91.00.11
2. 8413.91.00.12
3. 8413.91.00.19

[42] This tariff classification number is for convenience of reference only. This tariff classification number includes non-subject goods. Also, subject goods may fall under tariff classification numbers that are not listed. Refer to the product definition for authoritative details regarding the subject goods.

Position of the Canadian producer

[53] In their case brief, the Canada producer, AOT, affirmed their position that “the undertakings continue to serve the purpose for which they were intended, and as such should be renewed for a period of no more than five years.” AOT stated their position on the foundation that the renewal would involve no amendments to the undertakings.^{Footnote 19}

[54] In respect of the information they submitted for the record, AOT asserted that “the evidence provided by AOT is directly relevant to the CBSA’s review, in that it demonstrates that the undertakings have indeed served their purpose of eliminating injury caused by Tenaris imports and will continue to serve their purpose of eliminating that material injury to the domestic industry if the undertakings are terminated.”^{Footnote 20}

[55] AOT acknowledged that the price undertakings have had a positive effect on its sucker rods business, summarizing their position that:

[56] AOT also affirmed that the price undertakings have created discipline in the Canadian market and that this has allowed for the fact that “sucker rod prices on the Canadian market have increased since 2021.”^{Footnote 22}

[57] AOT cited information on the record including a table of pre and post undertaking exports of subject goods from the named countries in support of their view that the undertakings have been effective. In particular, AOT cited Statistics Canada import data, which they said demonstrated that “the value of subject imports dropped by a remarkable 93 percent between 2019 and 2020, as soon as the price undertakings were accepted, and remained below 2019 levels over each year of the POR.”^{Footnote 23}

[58] AOT summarized the positive impact that the price undertakings have had on their business in stating:

[59] AOT emphasized the commodity nature of sucker rods and as such “price becomes the determining factor in purchasing decisions.”^{Footnote 25} They argued that the price undertakings have helped ensure that AOT can compete in the market without being undercut by dumped subject goods.

[60] AOT also cited historical evidence from the original investigation, contrasted with present day circumstances, to demonstrate the price undercutting they would likely face but for the price undertakings.^{Footnote 26}

[61] AOT summarized the importance of the price undertakings moving forward due to the “smaller Canadian market than the period before the undertakings came into effect,” the increased cost of manufacturing over the POR as compared to the time of the original investigation and the vulnerability AOT faces from imports of sucker rods from non-subject countries.^{Footnote 27}

Position of the exporters

[62] The exporters are all related entities under the Tenaris umbrella of companies and consequently, their response in this undertaking review was made collectively. As such, they are referred to throughout this part as “Tenaris” or “the exporters.”

[63] The position of the exporters was summarized by stating “Tenaris does not oppose the renewal of the undertakings, in their current format, provided that no amendment is made to their terms.”^{Footnote 28}

[64] With regards to the nature of an undertaking review, Tenaris argued that comments from AOT regarding the likely impact of any termination of the undertakings in regards to potential injury that may ensue is irrelevant to the undertaking review process:

[65] Tenaris further argued that the undertaking review is actually a mirror opposite legal test of that in an expiry review, stating that: “while an expiry review requires a positive finding of likelihood of resumed injury, termination under subsection 52(1.2) requires a finding that termination will not result in injury to the domestic industry caused by the dumping of subject goods.”^{Footnote 30}

[66] The exporters cited the absence of low-priced Chinese sucker rods as also facilitating their ability to “compete in Canada on equal footing.”^{Footnote 31}

[67] The exporters indicated that while the price undertakings establish a floor price, there was still room to negotiate within a range of prices during the POR.^{Footnote 32}

[68] Tenaris affirmed that it complied with the terms of the undertakings throughout the POR and that “Tenaris prices sucker rods in the Canadian market according to market trends and follows market prices.”^{Footnote 33}

[69] While Tenaris does not object to the renewal of the undertakings on the basis that the CBSA determines they continue to serve their intended purpose, they also identified evidence which suggest that certain positive results for the Canadian producer may not be attributable to the price undertakings themselves.^{Footnote 34}

[70] A substantial amount of additional analysis conducted by Tenaris in evaluating any improvement in AOT’s financial position which may be tied to the undertakings could not be disclosed in this summary as it relates to information submitted as protected documents.

CBSA's analysis

[71] The CBSA’s directive under section 53 of SIMA in respect of undertakings is that they shall be renewed for not more than five years, provided the President is (a) satisfied that the undertaking continues to service the purpose for which it was intended and that (b) the President is not required to terminate them under section 52.

[72] It was stated in reply submissions that:

[73] As a matter of clarity, while the CBSA agrees with not making an assessment of the factors in section 37.2 of the SIMR which are relegated to expiry reviews, the CBSA has examined the evidence pertaining to all of section 53(1) of SIMA, which includes both paragraphs (a) and (b). Paragraph 53(1)(b) permits the CBSA to renew the undertakings only if “the President is not required to terminate it under section 52.” As such, that consideration must be satisfied prior to renewing the undertakings.

[74] No party to the undertakings argued any merit to termination of the undertakings under section 52 and the CBSA did not find any supportive rationale for termination. Section 52(1) states:

[75] There was no evidence presented during the course of this proceeding that supported any violation of the undertakings, nor was there evidence that there was any new information or change in circumstance that would have altered the decision to accept the undertakings in the first place.

[76] As such, pursuant to section 53(1)(b) of SIMA, the President was not required to terminate the undertakings under section 52.

[77] Consequently, the remaining question for the CBSA to address is whether the undertakings continue to serve the purpose for which they were intended under section 53(1)(a) of SIMA. This is largely measured on the basis of the performance of the Canadian producer following the acceptance of the undertakings and the input from the respective parties to the undertakings.

[78] The CBSA’s analysis of the information on the record indicates that the price undertakings do continue to serve the purpose for which they were intended, which was to ensure that dumped subject goods are not causing injury to the domestic industry.^{Footnote 36}

[79] Moreover, the evidence indicates that the price undertakings have not resulted in material restrictions in competition, as evidenced by the continued presence of imports from both named and unnamed countries. Significant competitive restrictions would negatively impact the overall evaluation as to whether the undertakings continue to serve the purpose for which they were intended.

[80] With this said, as noted at the time of the acceptance of the undertakings in March 2020, drawing a connection between price increases brought upon by the price undertakings and the elimination of injury remains a subjective exercise, requiring certain assumptions in respect of cause and effect.^{Footnote 37}

[81] In terms of evidence of improvement for the domestic industry, an examination of the Canadian producer’s profit and loss results during the POR^{Footnote 38} in comparison to what it experienced in the period leading up the acceptance of the price undertakings demonstrates an improved financial performance.^{Footnote 39} Certain details cannot be revealed in this summary due to issues of confidentiality.

[82] According to information submitted on the record, the estimated Canadian market for like goods was nearly 450,000 pieces in 2023,^{Footnote 40} a market which AOT characterized moving into 2024 as being “stable.”

[83] During the period leading up to the original investigation, AOT sold a similar amount of goods in a much larger, albeit steadily declining Canadian market. That Canadian market is depicted in the table below:^{Footnote 41}

[84] A significant amount of additional information was submitted on the record in relation to the domestic market conditions in the named countries, the export orientation of the producers in those countries, the likelihood of diversion of subject goods to Canada in absence of the price undertakings, the impact of oil demand and drilling in other major world markets, etc.^{Footnote 43}

[85] Much of the analysis surrounding this information exceeded the scope of this process, which merely requires the CBSA to be satisfied that “the undertaking continues to serve the purpose for which it was intended,” in accordance with paragraph 53(1)(a) of SIMA. The fundamental improvement in the financial position of the company, in spite of a declining Canadian market and rising steel costs,^{Footnote 44} and the import presence of sucker rods from non-subject sources such as the USA more than adequately addressed this.