FISC 2018 SP 02
Certain Fabricated Industrial Steel Components
Statement of Essential Facts

[1] On September 12, 2016, following a complaint filed by Supermetal Structures Inc., Supreme Group LP, and Waiward Steel LP, the Canada Border Services Agency (CBSA) initiated investigations respecting the dumping of certain fabricated industrial steel components (FISC) originating in or exported from the People’s Republic of China (China), the Republic of Korea (South Korea), the Kingdom of Spain (Spain), the United Arab Emirates and the United Kingdom of Great Britain and Northern Ireland and the subsidizing of certain FISC originating in or exported from China. On April 25, 2017, the CBSA made final determinations of dumping in respect of certain FISC from China, South Korea, and Spain, and subsidizing of certain FISC from China.

[2] On May 25, 2017, in Inquiry No. NQ-2016-004, the Canadian International Trade Tribunal (CITT) found that the dumping of FISC originating in or exported from China, South Korea (excluding those goods exported by Hanmaek Heavy Industries Co., Ltd.) and Spain (excluding those goods exported by Cintasa, S.A.), and the subsidizing of FISC from China, caused injury to the domestic industry.

[3] On August 7, 2018, the CBSA received an application for a scope ruling from Shanghai Shuangyan Chemical Equipment Manufacturing Co., Ltd. (SSCEM) as to whether its well pair modules, termination modules and metering modules are subject to the CITT injury finding issued on May 25, 2017, in Inquiry No. NQ-2016-004.

[4] The application for the scope ruling was complete and there was no basis under Special Import Measures Act (SIMA) to reject the application. The applicant provided arguments and evidence in support of its position that well pair modules, termination modules and metering modules are not subject to the CITT’s finding.

[5] On September 6, 2018, pursuant to subsection 63(8) of the SIMA, the CBSA initiated a scope proceeding with respect to the goods that are the subject of the application.

[6] On September 17, 2018, counsel representing the Canadian Institute of Steel Construction (CISC) filed a submission requesting the CBSA to terminate the scope proceeding pursuant to subsection 66(3) of SIMA and paragraph 54.3(b) of the Special Import Measures Regulations (SIMR) because the matter at issue in this scope proceeding is currently the subject of an Application for Judicial Review before the Federal Court of Appeal (FCA).

[7] In response, counsel representing the applicant, SSCEM, filed a submission on October 4, 2018 objecting to the CISC’s request for termination and supporting the position of Woodfibre LNG Limited in the FISC 2018 SP scope proceeding that the matter at issue in the scope proceeding is the subjectivity of the goods in question whereas the matter before the FCA is whether the CITT has an obligation to clarify the scope of the product definition.^{Footnote 1}

[8] The CBSA considered the submissions from both parties and decided not to terminate the scope proceeding. The CBSA is of the view that the matter before the FCA is separate from the specific application for a scope ruling filed by SSCEM. Further, pursuant to subsection 67(1) of SIMA, the CBSA shall review a scope ruling for the purpose of giving effect to a decision of the CITT, FCA or the Supreme Court of Canada.

[9] The administrative record for this scope proceeding closed on October 31, 2018.

[10] On the basis of the information on the record and the consideration of the relevant factors contained in section 54.6 of the SIMR and any other relevant factors, the CBSA’s preliminary assessment is that the goods that are the subject of the application, namely the FISC portion of SSCEM’s well pair modules, termination modules and metering modules are subject to the CITT’s finding issued on May 25, 2017, in Inquiry No. NQ-2016-004.

[11] The goods in question in this scope proceeding are well pair modules, termination modules and metering modules for use in an oil sands project.

[12] An oil sands production facility uses steam-assisted gravity drainage (SAGD) technology that recovers bitumen from oil sands reservoirs. Steam injected into the reservoir heats the bitumen so that it flows more easily, allowing it to be pumped to the surface. The on-site processing facilities that perform the steam injection and bitumen recovery are referred to as SAGD well pad modules.

[13] A complete SAGD well pad module consists of multiple well pair modules, a termination module and a metering module.^{Footnote 3}

[14] An SAGD well pad module consists of interconnected mechanical, electrical and hydraulic equipment that is designed and manufactured in modular form. Once connected on-site, a completed well pad functions as a discrete injection/recovery unit for one or more underground wells.

[15] Well pair modules transfer the injection steam from the central processing facility to the steam wells and pump out bitumen to the central processing facility. Well pair modules consist of piping, valves, controls, monitoring and other electrical equipment, support structures, walkways and other components.

[16] Termination modules are identical in design to well pair modules but are located at the end of a well pad assembly. Termination modules are distinguished by pipe drain and vent valves.

[17] Metering modules perform the functions of measuring bitumen and steam production rates, along with sampling and testing water to oil ratios for internal and regulatory reporting. Metering modules consist of instrumentation, electrical and mechanical components.

[18] In the remainder of the Statement of Essential Facts, well pair modules, termination modules and metering modules will be referred to as SAGD well pad modules.

[19] Materials and components for SAGD modules are either fabricated at or transported to SSCEM’s facility in Shanghai, China. The material and components are then further engineered, fabricated and assembled into SAGD modules to meet detailed specifications provided by the client. Some materials and components including FISC elements and non-FISC elements are free-issued to SSCEM.^{Footnote 4}

[20] The client may send their own engineers to SSCEM’s facility to inspect and assist with the module fabrication.

[21] The production of SAGD modules involves a wide range of trades and professions including welders, electricians, pipe fitters, engineers and specialists from various disciplines.

[22] The FISC portion of the SAGD modules constitute the “skeleton” into which the interconnected mechanical and electronic components are installed and attached. The FISC elements are custom-engineered and fabricated to be part of the SAGD modules.

[23] Each of the SAGD modules is fully constructed, finished, painted (where specified) and functionally tested in the SSCEM facility prior to shipping.

[24] SAGD modules are shipped as complete, ready-to-function units, with the exception of certain minor protruding parts such as safety railings and stairs, spools, valves, instrumentation, electrical heat tracing cabinets that exceed the shipping envelope, and which are detached for shipping and re-installed at the project site.

[25] SAGD modules are specifically engineered to fall within the maximum size and weight restrictions for road transportation from ports in British Columbia to the project site in Alberta.

[26] SAGD modules are commonly-used technology in oil sands bitumen extraction and are designed to be easily set up and expanded using additional modules that are essentially identical across module types. Accordingly, the modules are essentially “plug and play” and can be installed in the existing facility relatively quickly, with no modification, and minimal additional assembly.

[27] The engineering and complete fabrication of the SAGD modules at offsite facilities ensures standardization and consistency of function for specific types of modules.

[28] For the purpose of this scope proceeding, the goods that are subject to the CITT finding (“subject goods”) are defined as:

[29] For additional information on the subject goods, please refer to the CITT’s Findings and Reasons in inquiry No. NQ-2016-004 and the CBSA’s Statement of Reasons respecting the FISC final determinations.

FISC 2018 SP – Woodfibre’s Liquefied Natural Gas Modules Including Pipe Rack Modules

[30] On June 26, 2018, the CBSA received an application for a scope ruling from Woodfibre LNG Limited as to whether its liquefied natural gas (LNG) modules including pipe rack modules are subject to the CITT finding. The applicant argued the product definition in the CITT finding did not include complex modules. The applicant argued that complex LNG modules including pipe rack modules are manufactured finished goods and that the FISC portion loses its characteristics when further processed and combined with substantial amounts of non-FISC elements.

[31] On November 23, 2018, the CBSA made a scope ruling that the FISC portion of Woodfibre’s LNG modules including pipe rack modules are subject to the CITT’s finding. The CBSA viewed modules, simple and complex, as intermediate construction of a process facility. Modularization of FISC with non-FISC elements performed in Canada or in foreign countries does not alter the characteristics of FISC. FISC in both simple and complex modules provides the structural steel framework and support to which non FISC elements are connected. The characterization of modules as stand-alone, finished goods distinct from its parts is not consistent with the reality of the different standards and codes that apply to different parts of a module and how the modules are warrantied.

[106] In making a scope ruling under subsection 66(1) of SIMA, subsection 66(6) provides that the CBSA shall take into account any prescribed factors as well as any other factor that is considered relevant in the circumstances. A copy of the factors prescribed in section 54.6 of the SIMR is found in the Appendix.

[107] Accordingly, the CBSA considered the following factors in making its preliminary assessment:

• The physical characteristics of the goods;
• The uses of the goods;
• The technical specifications of the goods;
• The channels of distributions of the goods;
• The characteristics of modularization;
• The description of the goods in the CITT finding; and
• The reasons for the CITT finding.

[108] The CBSA acknowledges that SSCEM’s SAGD modules are complex modules as they contain both FISC that form the structural framework and non-FISC elements such as equipment, piping, instrumentation and controls, etc. which provide the modules with specific SAGD functional properties.

[109] Complex modules are produced by first assembling FISC into a simple module of structural steel framework, after which non-FISC elements are connected. From a physical characteristic perspective, the FISC contained in a simple module and a complex module are fundamentally the same. They are produced from the same raw material inputs, according to the same technical standards or equivalent standards for Canada.^{Footnote 28} The FISC in a complex module is not transformed when non-FISC elements are connected, rather it maintains its essential characteristics, that is, to provide the structural framework and support in a FISC processing facility.

[110] FISC provides the structural steel framework and support upon which non-FISC elements are attached. The CBSA understands that, with respect to simple modules, all of the non-FISC elements are connected at the project site; whereas for complex modules, most of the non-FISC elements are connected at the fabrication site. From the perspective of usage, the FISC in a simple module and the FISC contained in a complex module have the same uses in an industrial project/facility; that is, the FISC provides the structural steel framework. In other words, they serve the same purpose, which is to provide the structural steel framework to which non-FISC elements are connected. This has been acknowledged by SSCEM and all other parties.

[111] As described in the CITT’s Finding and Reasons:

[112] As can be seen from the CITT’s Finding and Reasons, FISC, in stick form or in modules are procured in the same distribution channels and could involve one or more parties including EPCs, fabricators, modular yards and erectors.

[113] Modularization of FISC with non-FISC elements can be performed in Canada or in foreign countries. Whether a certain proportion of modularization activities are performed in Canada or a foreign country does not alter the essential characteristics of the FISC. Further, as mentioned previously by Supreme, SSCEM’s SAGD modules are not different from or more complex than the SADG modules produced by steel fabricators and modular assembly facilities for various facilities in Canada including Nexen Long Lake, Cenovus Cristina Lake and Suncor Energy Firebag.

[114] SSCEM’s SAGD modules are complex modules. They will be delivered to the project site in a deliberate sequence by the fabricator in order to be connected/erected in accordance with the engineering designs. FISC projects, whether employing a “stick”, “simple” modules, or “complex” modules strategy, are executed in a planned and coordinated fashion, over a period of time. The outcome of the various strategies is a final assembled/constructed FISC industrial process facility.

[115] The characterization of modules as stand-alone, finished goods distinct from their parts is not consistent with the reality of the different standards and codes that apply to different parts of a module and the industrial facility after construction. Canadian regulatory requirements treat various parts of a module as distinct and separate.

[116] Certain parties claim that each module is essentially a stand-alone unit, a commercial good in its own right with fully-tested functionality and is akin to an industrial machine. However, the CBSA notes that the well pair modules, termination modules and metering modules must still be interconnected at the project site using construction trades with construction tools and machinery. The final outcome of the integrated SAGD well pad module is a FISC industrial process facility.

[117] According to SSCEM, SAGD modules are commonly-used technology in oil sands bitumen extraction and are designed to be easily set up and expanded using additional modules that are essentially identical across module types and can be installed in the existing facility relatively quickly, with no modification, and minimal additional assembly. However, it later indicated that the engineering and complete fabrication of the modules at offsite facilities ensures standardization and consistency of function for specific types of modules. In this regard, the complex modules are customized for the particular FISC project.

[118] As FISC projects are customized projects, a single module produced for a particular FISC project cannot be sold separately even if it has stand-alone functions. All of the modules designed for the specific FISC project must be integrated together into an SAGD well pad module to form a FISC industrial process facility. Each unit only functions as designed and intended when it is integrated into the complete process facility.

[119] The characterization of procuring complex modules as the purchasing of a manufactured good is inconsistent with how modularization actually occurs for industrial projects. Typically, the project owner or the EPC, is intimately involved in all the aspects of the project from design to procurement to modularization to installation. As indicated by SSCEM, the project owner or the EPC, who already owns the goods, will provide free-issued materials, including FISC and non-FISC elements, to the modular yard for assembly/construction. In this regard, the CBSA views modular assembly as the purchase of a construction service; the project owner or the EPC is not purchasing a manufactured good.

[120] Further, the characterization of a module as a finished good manufactured by a modular yard is inconsistent with how the modules are warrantied. If there is an issue with the either the FISC or the equipment, or there are defects in module construction, the project owner of the FISC project or the EPC will have to address the issues separately with either the FISC producer, the equipment manufacturer, or the modular yard. Therefore, the project owner or EPC would need to address defects in the module with the modular yard. In this regard, the CBSA views modular assembly as the performance of construction service by a modular yard.

[121] As stated in Fluor’s submission, modularization is the production of a processing facility broken down into transportable units at a remote modular yard. The finished modules are transported and interconnected with other modules at the project site.

[122] In light of the above, and as stated in the CBSA’s Statement of Reasons with respect to FISC 2018 SP Woodfibre LNG Limited scope ruling, the CBSA views modules, simple and complex, as intermediate construction of a process facility.

[123] SSCEM argued that the domestic industry’s consent to exclusions from the CITT’s finding for a broad range of complex modules which incorporate FISC is persuasive evidence of their acceptance of the interpretation of the scope of the subject goods as set out in the scope ruling application. The CBSA notes that the domestic producers consented to the product exclusion requests for certain FISC that fell within the scope of the product definition. The CBSA also notes that SIMA authorizes the CITT to exclude only goods which are subject goods. It is the CBSA’s position that the CITT’s exclusion does not indicate that the FISC contained in complex modules are not subject goods; rather FISC contained in complex modules are subject goods and an exclusion was granted with respect to certain FISC for use in a particular project.

[124] In its application, SSCEM applied the reasoning outlined in Subjectivity Appeal No. SG-1, July 21, 2017, in which the CBSA maintained that fabricated steel grating were subject even though the steel gratings were imported for use in accompanying steel structures, at the time of importation the gratings were in their own separate containers, and were not physically attached, joined or wrought into a structure. SSCEM argued that FISC incorporated into the SAGD modules, at the time of importation, is permanently transformed and has “lost its identity” as FISC. It further argued that the isolation of goods permanently incorporated into imported finished goods for the purpose of applying duty is unprecedented in SIMA.

[125] The CBSA notes that the decision that grating fell within the scope of the Steel Grating finding, in part, because it was unattached, does not stand for the principle that any good subject to a CITT finding necessarily falls outside the scope of that finding because it is attached to a non-subject good at the time of importation. Further, there is no prohibition on a trade remedy applying to a good incorporated within another good. The CBSA must consider the relevant factors contained in section 54.6 of the SIMR and any other relevant factors in accordance with subsection 66(6) of SIMA in assessing the subjectivity of the well pad modules.

[126] Parties supporting the applicant argued that FISC elements in complex modules account for a small portion of the value of the complex module and do not in any way define or dominate the complex modules. As discussed previously, the proportion of non-FISC elements contained in a module dictates whether it is considered to be a simple module versus a complex module.

[127] As stated in the CBSA’s Statement of Reasons with respect to the FISC 2018 SP Woodfibre LNG Limited scope ruling, the product definition does not distinguish between “simple modules” or “complex modules”. Further, it is not limited to “simple modules”. Also, in that proceeding, the CBSA made a scope ruling that the FISC portion of the liquefied natural gas (LNG) modules including pipe rack modules are subject to the CITT’s finding.

[128] The CBSA notes the product definition of subject goods contained in the CITT’s finding specifically lists modules as being subject to the finding:

“Fabricated structural steel and plate-work components of … whether assembled or partially assembled into modules, or unassembled, for use in structures for...”

[129] On the basis of the information on the administrative record and the consideration of the relevant factors contained in section 54.6 of the SIMR and any other relevant factors, the CBSA’s preliminary assessment in this scope proceeding is that the FISC portion of SSCEM’s well pair modules, termination modules and metering modules are subject to the CITT’s finding issued on May 25, 2017, in Inquiry No. NQ-2016-004, concerning the dumping of certain FISC from China, South Korea (excluding those goods exported by Hanmaek Heavy Industries Co. Ltd.) and Spain (excluding those goods exported by Cintasa, S.A.), and the subsidizing of FISC from China.

[130] Comments on the Statement of Essential Facts (SEF) and responses to the comments on the SEF may be submitted by interested parties. Please note that the CBSA will not accept new factual information.

[131] Interested persons may submit comments on the SEF by noon, December 3, 2018, and responses to the comments on the SEF by noon, December 10, 2018.

[132] It is expected that the scope proceeding will be concluded by January 4, 2019.

[133] This SEF is available through the CBSA’s website at the address below. For further information, please contact the officers identified as follows:

The SIMR section 54.6 provides the following:

54.6 For the purpose of subsection 66(6) of the Act, the President may take the following factors into account in making a scope ruling:

1. in all cases,
   1. the physical characteristics of the goods in respect of which the scope proceeding has been initiated, including their composition,
   2. their technical specifications,
   3. their uses,
   4. their packaging, including any other goods contained in the packaging, along with the promotional material and documentation concerning the goods in respect of which the scope proceeding has been initiated, and
   5. their channels of distribution;
2. for a ruling as to whether goods in respect of which the scope proceeding has been initiated are of the same description as goods to which an order of the Governor in Council or an order or finding of the Tribunal applies,
   1. the description of the goods referred to in that order or that order or finding,
   2. in the case of an order or finding of the Tribunal, the reasons for the order or finding, and
   3. any relevant decision by the Tribunal, the Federal Court of Appeal, the Supreme Court of Canada, or a panel under Part I.1 or II of the Act;
3. for a ruling as to whether goods in respect of which the scope proceeding has been initiated are of the same description as goods to which an undertaking applies,
   1. the description of the goods referred to in the preliminary determination of dumping or subsidizing and in the undertaking, and
   2. the reasons for the preliminary determination; and
4. if the basis for a ruling referred to in paragraph (b) or (c) is whether goods in respect of which the scope proceeding has been initiated originate in a country that is subject to the applicable order, finding or undertaking or originate in a third country,
   1. the production activities undertaken in the third country in respect of the goods and undertaken in the subject country in respect of goods from which the goods are produced,
   2. the nature of the goods when they were exported from the third country and of goods from which the goods are produced when they were exported from the subject country, and
   3. the costs of production of the goods incurred in the third country.