[Federal Register Volume 76, Number 156 (Friday, August 12, 2011)]
[Notices]
[Pages 50173-50176]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-20570]
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
International Trade Administration
[A-570-965 and C-570-966]
Drill Pipe From the People's Republic of China: Initiation of
Anti-circumvention Inquiry
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
SUMMARY: In response to a request from VAM Drilling U.S.A., Texas Steel
Conversion Inc. and Rotary Drilling Tools (collectively the
``Petitioners''), the Department of Commerce (the ``Department'') is
initiating an anti-circumvention inquiry to determine whether certain
imports of drill pipe from the People's Republic of China (``PRC'') are
circumventing the Drill Pipe Orders.\1\
---------------------------------------------------------------------------
\1\ See Drill Pipe from the People's Republic of China:
Antidumping Duty Order, 76 FR 11757 (March 3, 2011); Drill Pipe from
the People's Republic of China: Countervailing Duty Order, 76 FR
11758 (March 3, 2011) collectively the ``Drill Pipe Orders.''
---------------------------------------------------------------------------
DATES: Effective Date: August 12, 2011.
FOR FURTHER INFORMATION CONTACT: Paul Walker, AD/CVD Operations, Office
9, Import Administration, International Trade Administration, U.S.
Department of Commerce, 14th Street and Constitution Avenue, NW.,
Washington, DC 20230; telephone: (202) 482-0413.
SUPPLEMENTARY INFORMATION:
Background
On June 14, 2011, pursuant to section 781(b) of the Tariff Act of
1930, as amended (the ``Act''), and section 351.225(h) of the
Department's regulations, the Petitioners submitted a request for the
Department to initiate an anti-circumvention inquiry of the Hilong
Group of Companies Co., Ltd. (``Hilong'') \2\ to determine whether pipe
\3\ and tool joints produced in the PRC, and friction welded together
in the United Arab Emirates (``UAE''), which are allegedly products of
the PRC exported from the UAE, are circumventing the Drill Pipe
Orders.\4\ In their request, the Petitioners contend that Hilong's PRC
drill pipe facility exports PRC-produced pipe and tool joints to
AlMansoori/Hilong in the UAE, which friction welds the pipe to the
tools joints, and then exports them to Hilong USA, which enters and
sells the drill pipe as UAE origin merchandise. The Petitioners argue
that because Hilong's PRC-produced pipe and tool joint are assembled in
the UAE, and enter the United States as UAE-origin merchandise which is
of the same class or kind as the merchandise covered by the Drill Pipe
Orders, this constitutes circumvention.
---------------------------------------------------------------------------
\2\ This includes Hilong's U.S. affiliate, Hilong USA LLC.
(``Hilong USA'') and its joint venture affiliate Almansoori/Hilong
Petroleum Pipe Company (``Almansoori/Hilong'') located in the United
Arab Emirates (the ``UAE'').
\3\ ``Pipe'' is heat treated and upset green tube, minus the
tool joint. See Circumvention Request at 3.
\4\ See the Petitioners' June 14, 2011 submission
(``Circumvention Request'') at 1.
---------------------------------------------------------------------------
On June 16, 2011, the Petitioners certified that all parties on the
scope service list were served with their request. On July 6, 2010, the
Department issued a supplemental questionnaire to the Petitioners
regarding the request to initiate the anti-circumvention inquiry. On
July 13, 2011, the Petitioners provided a response to the Department's
supplemental questionnaire.\5\ Hilong did not submit comments regarding
the Petitioners' circumvention allegations.
---------------------------------------------------------------------------
\5\ See the Petitioners' July 13, 2011 submission
(``Circumvention Request Supplement'').
---------------------------------------------------------------------------
On July 27, 2011, the Department extended the deadline to initiate
an anti-circumvention inquiry by 8 days, pursuant to section 351.302(b)
of the Department's regulations.\6\ On August 3, 2011, the Department
extended the deadline to initiate an anti-circumvention inquiry by 14
days, pursuant to section 351.302(b) of the Department's
regulations.\7\
---------------------------------------------------------------------------
\6\ See Letter to Petitioner, dated July 27, 2011.
\7\ See Letter to Petitioner, dated August 3, 2011.
---------------------------------------------------------------------------
Scope of the Orders
The products covered by the orders are steel drill pipe, and steel
drill collars, whether or not conforming to American Petroleum
Institute (``API'') or non-API specifications. Included are finished
drill pipe and drill collars without regard to the specific chemistry
of the steel (i.e., carbon, stainless steel, or other alloy steel), and
without regard to length or outer diameter. Also included are
unfinished drill collars (including all drill collar green tubes) and
unfinished drill pipe (including drill pipe green tubes, which are
tubes meeting the following description: seamless tubes with an outer
diameter of less than or equal to 6 \5/8\ inches (168.28 millimeters),
containing between 0.16 and 0.75 percent molybdenum, and containing
between 0.75 and 1.45 percent chromium). The scope does not include
tool joints not attached to the drill pipe, nor does it include
unfinished tubes for casing or tubing covered by any other antidumping
or countervailing duty order.
The subject products are currently classified in the following
Harmonized Tariff Schedule of the United States (``HTSUS'') categories:
7304.22.0030, 7304.22.0045, 7304.22.0060, 7304.23.3000, 7304.23.6030,
7304.23.6045, 7304.23.6060, 8431.43.8040 and may also enter under
8431.43.8060, 8431.43.4000, 7304.39.0028, 7304.39.0032, 7304.39.0036,
7304.39.0040, 7304.39.0044, 7304.39.0048, 7304.39.0052, 7304.39.0056,
7304.49.0015, 7304.49.0060, 7304.59.8020, 7304.59.8025, 7304.59.8030,
7304.59.8035, 7304.59.8040, 7304.59.8045, 7304.59.8050 and
7304.59.8055.
While HTSUS subheadings are provided for convenience and customs
purposes, the written description of the scope of the investigation is
dispositive.
Initiation of Anti-Circumvention Proceeding
Section 781(b)(1) of the Act provides that the Department may find
circumvention of an antidumping duty order when merchandise of the same
class or kind subject to the order is completed or assembled in a
foreign country other than the country to which the order applies. In
conducting anti-circumvention inquiries, under section 781(b)(1) of the
Act, the Department will also evaluate whether: (1) The process
[[Page 50174]]
of assembly or completion in the other foreign country is minor or
insignificant; (2) the value of the merchandise produced in the foreign
country to which the antidumping duty order applies is a significant
portion of the total value of the merchandise exported to the United
States; and (3) action is appropriate to prevent evasion of such an
order or finding. As discussed below, the Petitioners have provided
evidence with respect to these criteria.
A. Merchandise of the Same Class or Kind
The Petitioners state that the Drill Pipe Orders cover the drill
pipe assembled in the UAE because it is the same class or kind as the
drill pipe produced in the PRC. The Petitioners assert that the drill
pipe assembled in the UAE contains the same components as the drill
pipe produced in the PRC, i.e., green tube which is subsequently heat
treated and upset, and tool joints. According to the Petitioners, the
only distinction is that the friction welding of the pipe to the tool
joint occurs in the UAE instead of the PRC. The Petitioners provided
affidavits, as well as an e-mail from one of the Petitioner's
customers, which indicate that Hilong USA has imported merchandise
identical to that which is subject to the Drill Pipe Orders.\8\ Since
the merchandise being imported into the United States from the UAE is
physically identical to the subject merchandise from the PRC, pursuant
to section 781(b)(1)(A)(i) of the Act, this drill pipe is of the same
class or kind as the drill pipe subject to the Drill Pipe Orders.
---------------------------------------------------------------------------
\8\ See Circumvention Request at Attachment 3; see also
Circumvention Request Supplement at Exhibit 5.
---------------------------------------------------------------------------
B. Completion of Merchandise in a Foreign Country
The Petitioners state that the drill pipe subject to its anti-
circumvention inquiry request is made from pipe and tool joints
produced in the PRC, then exported to and assembled in the UAE for re-
export to the United States. The Petitioners maintain that the pipe is
subject merchandise before the assembly performed by Almansoori/Hilong
in the UAE, which consists of friction welding the PRC-produced pipe to
the PRC-produced tool joints. The Petitioners posit that the completed
merchandise is then exported to the United States as UAE-origin.
Therefore, the Petitioners conclude that, pursuant to section
781(b)(1)(B)(ii) of the Act, Hilong's drill pipe is merchandise
assembled in another foreign country (the UAE) from merchandise that is
produced in a country (the PRC) already subject to the Drill Pipe
Orders.\9\
---------------------------------------------------------------------------
\9\ See Circumvention Request at 4.
---------------------------------------------------------------------------
C. Minor or Insignificant Process
The Petitioners argue that for the purposes of section 781(b)(1)(C)
of the Act, the process of friction welding the pipe to the tool joint
in the UAE is ``minor or insignificant'' as defined by the Act.
According to the Petitioners, the most fundamental aspect of the
production process--the forming of seamless green tube by rotary
piercing billet in an integrated or electric furnace, and the forming
of tool joints from alloy steel bars that undergo a number of processes
that require various specialized and expensive equipment--occurs in the
PRC.\10\ Citing to a normal value build up consisting of factors of
production consumption ratios reported by VAM Drilling, and surrogate
values used in the antidumping investigation, the Petitioners contend
that pipe and tool joint production account for about 75 percent of the
cost of manufacture of the subject merchandise.\11\
---------------------------------------------------------------------------
\10\ See Circumvention Request at 5; see also Circumvention
Request Supplement at 1-2.
\11\ Because this information is business proprietary, its
specific content cannot be discussed here. See Circumvention Request
at 5 and Attachment 4a; see also Circumvention Request Supplement at
2 and Exhibit 1.
---------------------------------------------------------------------------
The Petitioners maintain that only a small percentage of the cost
of manufacture consists of friction welding the pipe to the tool joint.
The Petitioners provided evidence of the costs VAM Drilling incurs to
subcontractors for friction welding pipe to tool joints.\12\
---------------------------------------------------------------------------
\12\ Because this information is business proprietary, its
specific content cannot be discussed here. See Circumvention Request
Supplement at 2 and Exhibit 1.
---------------------------------------------------------------------------
The Petitioners reason that an analysis of the relevant statutory
factors of section 781(b)(2) of the Act further supports its conclusion
that the UAE processing is ``minor or insignificant.'' These factors
include (1) the level of investment in the foreign country, (2) the
level of research and development in the foreign country, (3) the
nature of the production process in the foreign country, (4) the extent
of production facilities in the foreign country and (5) whether the
value of the processing in the foreign country represents a small
proportion of the value of the merchandise imported into the United
States.
(1) Level of Investment
The Petitioners provided an affidavit from VAM Drilling asserting
that the cost of a friction welding line is approximately $20 million
U.S. dollars (``USD'').\13\ The Petitioners provided an additional
affidavit that asserts that one of VAM Drilling's affiliates has
invested $650 million in a rotary piercing mill to produce pipe,
although this company already has its own steel mill for producing
billet.\14\ Further, the Petitioners provided publically available
information that Tianjin Pipe Company indicates that the costs for a
pipe production facility with a mill to produce billet is $1 billion
USD.\15\ Thus, the Petitioners conclude that the cost of investing in a
friction welding line is approximately two percent of the cost of
investing in a pipe production line.
---------------------------------------------------------------------------
\13\ See Circumvention Request Supplement at 1-2 and Exhibit 1.
\14\ See Circumvention Request Supplement at 1 and Exhibit 2.
\15\ See Circumvention Request Supplement at 1-2 and Exhibit 3.
---------------------------------------------------------------------------
The Petitioners argue that, based on their own experience in the
UAE market, with regard to drill pipe, Almansoori/Hilong is engaged in
assembly operations, and is essentially an export platform for PRC-
origin drill pipe and is not an integrated production facility.
Consequently, the Petitioners assert that little investment has been
made in the UAE by Hilong in the assembly of drill pipe.
(2) Level of Research and Development
The Petitioners state that, similar to the level of investment,
because Almansoori/Hilong's drill pipe operations only involve the
friction welding of pipe to tool joints, little or no research and
development are required to set up and operate the UAE company to
assemble Chinese components.\16\
---------------------------------------------------------------------------
\16\ See Circumvention Request at 6.
---------------------------------------------------------------------------
(3) Nature of the Production Process
According to the Petitioners, the nature of the production process
for friction welding pipe to tool joints requires little machinery or
equipment. The Petitioners contend that once a tool joint is attached,
the drill pipe is exported to the United States.\17\ The Petitioners
argue that the drill pipe assembled in the UAE contains the same
components as the drill pipe produced in the PRC, i.e., pipe friction
welded to tool joints, and the only distinction is that the friction
welding of the tool joint to the pipe occurs in the UAE instead of the
PRC. As a consequence, the Petitioners maintain that before the pipe is
friction welded to the tool joints, the pipe is of the same class or
kind as the drill pipe produced in the PRC that is subject to the Drill
Pipe Orders.
---------------------------------------------------------------------------
\17\ See Circumvention Request at 3.
---------------------------------------------------------------------------
[[Page 50175]]
(4) Extent of Production in the UAE
As stated above, the Petitioners contend that the extent of
production in the UAE is simply friction welding PRC-produced pipe to
PRC-produced tool joints. As noted above, the Petitioners state that
this process is completed by the single friction welding line by
Almansoori/Hilong in the UAE.
(5) Value of Processing in the UAE as Compared to Drill Pipe Imported
Into the United States
The Petitioners assert that assembly in the UAE of pipe and tool
joints adds little value to the final product exported to the United
States. The Petitioners posit that the value of the final product is,
most significantly, the pipe and tool joints, which, as noted above,
comprise approximately 75% of the cost of manufacture. Also as noted
above, the Petitioners maintain that only a small percentage of the
cost of manufacture consists of friction welding the pipe to the tool
joint.\18\ Thus, the Petitioners maintain that the completion
activities in the UAE add very little to the drill pipe that is
exported to the United States because pipe and tool joints supplied by
Hilong are sourced from the PRC.
---------------------------------------------------------------------------
\18\ See Circumvention Request Supplement at 2 and Exhibit 1.
---------------------------------------------------------------------------
D. Value of Merchandise Produced in PRC
The Petitioners argue that the evidence, as noted above, in its
anti-circumvention request clearly supports their position that the
value of the pipe and tool joints produced in the PRC, and assembled by
Almansoori/Hilong, represents a significant portion of the total value
of the merchandise exported to the United States, as measured by a
percentage of the cost of manufacture.
E. Additional Factors To Consider in Determining Whether Action Is
Necessary
The Petitioners argue that the additional factors contained in
section 781(b)(3) of the Act must also be considered in the
Department's decision whether to issue a finding of circumvention
regarding the importation of drill pipe from the UAE.
(1) Pattern of Trade
The Petitioners state that section 781(b)(3) of the Act directs the
Department to take into account patterns of trade when making a
decision whether to include merchandise assembled or completed in the
UAE within the scope of the Drill Pipe Orders. Based on an analysis of
publically available information from the ITC's Dataweb of U.S. import
data, the Petitioners assert that after the initiation of the
investigations in January 2010, imports of drill pipe from the PRC fell
significantly.\19\ The Petitioners note that Almansoori/Hilong was
founded in 2006, but did not begin production until 2009.\20\ The
Petitioners state that they are unaware of when Almansoori/Hilong began
affixing pipe to tool joints, and only recently became aware of
Almansoori/Hilong's commercial operations involving drill pipe in
recent months, in conjunction with information concerning drill pipe
exports to the United States from the UAE.\21\ The Petitioners provided
data which shows that in 2011 imports of drill pipe from the UAE
increased.\22\ Specifically, the Petitioners provided DataWeb data
which shows that in the first five months of 2011 the imports of drill
pipe nearly doubled compared to the first five months of 2010.\23\
Moreover, the Petitioners provided evidence that a very large shipment
of drill pipe entered the United States in June 2011.\24\ One of the
Petitioners, Rotary Drilling Tools, provided an affidavit which states
that a U.S. distributor of drill pipe is marketing Almansoori/Hilong-
produced drill pipe as having avoided dumping duties by assembling the
pipe and tool joints in the UAE. The Petitioners contend that these
patterns of trade are consistent with an assembly operation in the UAE
established by a PRC producer who is no longer able to supply drill
pipe directly to the United States due to the antidumping duty order in
place.
---------------------------------------------------------------------------
\19\ See Circumvention Request at Attachment 6; see also
Circumvention Request Supplement at Exhibit 4c.
\20\ See Circumvention Request Supplement at 4.
\21\ Id.
\22\ See Circumvention Request at Attachment 6.
\23\ Id.
\24\ See Circumvention Request Supplement at Exhibit 5.
---------------------------------------------------------------------------
(2) Affiliation
The Petitioners state that section 781(b)(3) of the Act directs the
Department to take into account whether the manufacturer or exporter of
the merchandise is affiliated with the person who uses the merchandise
to assemble or complete in the foreign country the merchandise that is
subsequently imported into the United States when making decisions on
anti-circumvention rulings. The Petitioners have provided an affidavit,
as well as website pages, indicating that Hilong operates a joint
venture in the UAE, Almansoori/Hilong.\25\ Furthermore, the Petitioners
have provided an affidavit which indicates that Almansoori/Hilong
operates a friction welding line in the UAE.\26\ The Petitioners
contend that, based on proprietary information, Hilong USA imports
drill pipe as having been finished in the UAE and is, thus, able to
avoid dumping duties.\27\ The Petitioners maintain that through minor
assembly operations in the UAE, Hilong is actively circumventing the
Drill Pipe Orders. According to the Petitioners, the acknowledgement of
affiliation and the timing of the exports from the UAE to the United
States support a conclusion that Hilong's assembly of PRC-produced
drill pipe components in the UAE is circumventing the Drill Pipe
Orders.
---------------------------------------------------------------------------
\25\ See Circumvention request at Attachment 3; see also
Circumvention Request Supplement at Exhibits 6 & 7.
\26\ See Circumvention Request at Attachment 3.
\27\ See Circumvention Request Supplement at Exhibit 4.
---------------------------------------------------------------------------
(3) Subsequent Import Volume
The Petitioners state that section 781(b)(3) of the Act directs the
Department to take into account whether imports into the foreign
country of the merchandise have increased after the initiation of the
investigation which resulted in the issuance of an order or finding
when making a decision on anti-circumvention rulings. While the
Petitioners were unable to provide evidence of trade flows of pipe and
tool joints between the PRC and the UAE, the Petitioners note that they
are unaware of any imports of pipe or tool joints into the United
States by Almansoori/Hilong prior to the initiation of the
investigations in January 2010.\28\ The Petitioners note that U.S.
import data shows that, after the initiation of the investigations, the
UAE became a source of drill pipe to the United States when Almansoori/
Hilong began operations.\29\ The Petitioners argue that Almansoori/
Hilong's initial shipments, starting in February 2011, support the
conclusion that the UAE had not, until recently, been a source of drill
pipe shipments to the United States.\30\
---------------------------------------------------------------------------
\28\ See Circumvention Request at 9.
\29\ See Circumvention Request at Attachments 5 & 6; see also
Circumvention Request Supplement at Exhibits 4 & 5.
\30\ Id.
---------------------------------------------------------------------------
Analysis of the Request
Based on our analysis of the Petitioners' anti-circumvention
inquiry request, the Department determines that the Petitioners have
satisfied the criteria under section 781(b) of the Act to
[[Page 50176]]
warrant an initiation of a formal anti-circumvention inquiry. In
accordance with section 351.225(e) of the Department's regulations, if
the Department finds that the issue of whether a product is included
within the scope of an order cannot be determined based solely upon the
application and the descriptions of the merchandise, the Department
will notify by mail all parties on the Department's scope service list
of the initiation of a scope inquiry, including an anti-circumvention
inquiry. In addition, in accordance with section 351.225(f)(1)(ii) of
the Department's regulations, a notice of the initiation of an anti-
circumvention inquiry issued under paragraph (e) of this section
includes a description of the product that is the subject of the anti-
circumvention inquiry--drill pipe that contain the characteristics as
provided in the scope of the Drill Pipe Orders, and an explanation of
the reasons for the Department's decision to initiate an anti-
circumvention inquiry, as provided below.
With regard to whether the merchandise from the UAE is of the same
class or kind as the merchandise produced in the PRC, the Petitioners
have presented information to the Department indicating that, pursuant
to section 781(b)(1)(A) of the Act, the merchandise being exported from
the UAE by Almansoori/Hilong may be of the same class or kind as drill
pipe produced in the PRC, which is subject to the Drill Pipe Orders.
Consequently, the Department finds that the Petitioners have provided
sufficient information in their request regarding the class of kind of
merchandise to support the initiation of an anti-circumvention inquiry.
With regard to completion or assembly of merchandise in a foreign
country, pursuant to section 781(b)(1)(B) of the Act, the Petitioners
have also presented information to the Department indicating that the
drill pipe exported from the UAE to the United States is assembled by
Almansoori/Hilong in the UAE from pipe and tool joints produced in the
PRC. We find that the information presented by the Petitioners
regarding this criterion supports their request to initiate an anti-
circumvention inquiry.
The Department believes that the Petitioners sufficiently addressed
the factors described in section 781(b)(2) of the Act regarding whether
the friction welding of pipe to tool joints in the UAE is minor or
insignificant. Specifically, in support of their argument, the
Petitioners relied on their own experience and surrogate values from
the less-than-fair-value investigation. Thus, we find that the
information presented by the Petitioners supports their request to
initiate an anti-circumvention inquiry. In particular, we find that the
Petitioners' submissions suggest that (1) little investment has been
made by Hilong in its drill pipe welding operations in the UAE, (2)
Hilong has fully integrated production facilities in the PRC, and
therefore, research and development presumably takes place in the PRC
rather than the UAE, (3) the friction welding of pipe to tool joints in
the UAE does not alter the fundamental characteristics of the drill
pipe, nor does it remove it from the scope of the Drill Pipe Orders,
(4) Almansoori/Hilong has a lower investment level than companies that
manufacture pipe and tool joints and (5) friction welding pipe to tool
joints adds little value to the merchandise imported to the United
States. Our analysis will focus on Almansoori/Hilong's assembly
operations in the UAE and, in the context of this proceeding, we will
closely examine the manner in which this company's processing materials
are obtained, whether those materials are considered subject to the
scope of the Drill Pipe Orders, and the extent of processing in the
UAE, as well as the manner in which production and sales relationships
are conducted with the alleged PRC and U.S. affiliates.
With respect to the value of the merchandise produced in the PRC,
pursuant to section 781(b)(1)(D) of the Act, the Petitioners relied on
one of its member's information and arguments in the ``minor or
insignificant process'' portion of its anti-circumvention request to
indicate that the value of the pipe and tool joint may be significant
relative to the total value of finished drill pipe exported to the
United States. We find that the information adequately meets the
requirements of this factor, as discussed above, for the purposes of
initiating an anti-circumvention inquiry.
Finally, the Petitioners argue that pursuant to section 781(b)(3)
of the Act the Department considers the pattern of trade, affiliation,
and subsequent import volumes as factors in determining whether to
initiate the anti-circumvention inquiry. Here, we find that imports of
drill pipe from the PRC decreased after the initiation of the
investigations, that the Almansoori/Hilong joint venture in the UAE is
affiliated to Hilong, and that the U.S. import data submitted by the
Petitioners suggests that imports of drill pipe have risen since the
investigations.
Accordingly, based on the Petitioners' submissions, we have
determined that we have a sufficient basis to initiate a formal anti-
circumvention inquiry concerning the Drill Pipe Orders, pursuant to
section 781(b) of the Act. In accordance with section 351.225(l)(2) of
the Department's regulations, if the Department issues a preliminary
affirmative determination, we will then instruct U.S. Customs and
Border Protection to suspend liquidation and require a cash deposit of
estimated duties on the merchandise.
This anti-circumvention inquiry covers Hilong and its affiliated
companies in the UAE and United States. If, within sufficient time, the
Department receives a formal request from an interested party regarding
potential circumvention of the Drill Pipe Orders by other UAE
companies, we will consider conducting additional inquiries
concurrently.
The Department will establish a schedule for questionnaires and
comments on the issues. In accordance with section 351.225(f)(5), the
Department intends to issue its final determination within 300 days of
the date of publication of this initiation. This notice is published in
accordance with section 777(i)(1) of the Act.
Dated: August 5, 2011.
Ronald K. Lorentzen,
Deputy Assistant Secretary for Import Administration.
[FR Doc. 2011-20570 Filed 8-11-11; 8:45 am]
BILLING CODE 3510-DS-P