E7-13014. Notice of Initiation of Countervailing Duty Investigation: Circular Welded Carbon Quality Steel Pipe from the People's Republic of China

AGENCY:

Import Administration, International Trade Administration, Department of Commerce.

EFFECTIVE DATE:

July 5, 2007.

FOR FURTHER INFORMATION CONTACT:

Damian Felton, Yasmin Nair or Nancy Decker, AD/CVD Operations, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW, Washington, DC 20230; telephone: [phone] and [phone], respectively.

SUPPLEMENTARY INFORMATION:

Initiation Of Investigations:

The Petition

On June 7, 2007, the Department of Commerce (“the Department”) received a petition filed in proper form by the Ad Hoc Coalition for Fair Pipe Imports from China and its individual members (Allied Tube & Conduit; IPSCO Tubulars, Inc.; Northwest Pipe Company; Sharon Tube Company; Western Tube & Conduit Corporation; Wheatland Tube Company; and the United Steelworkers) (collectively, “petitioners”). The Department received timely information from petitioners supplementing the petition on June 15, June 20 and June 25, 2007.

In accordance with section 702(b)(1) of the Tariff Act of 1930, as amended (“the Act”), petitioners allege that manufacturers, producers, or exporters of circular welded carbon quality steel pipe (“CWP”) in the People's Republic of China ( the “PRC”), receive countervailable subsidies within the meaning of section 701 of the Act and that such imports are materially injuring, or threatening material injury to, an industry in the United States.

The Department finds that petitioners filed the petition on behalf of the domestic industry because they are interested parties as defined in sections 771(9)(C) and (D) of the Act and petitioners have demonstrated sufficient industry support with respect to the countervailing duty investigation (see “Determination of Industry Support for the Petition” section below).

Scope of Investigation

The scope of this investigation covers certain welded carbon quality steel pipes and tubes, of circular cross-section, and with an outside diameter of 0.372 inches (9.45 mm) or more, but not more than 16 inches (406.4 mm), whether or not stenciled, regardless of wall thickness, surface finish (e.g., black, galvanized, or painted), end finish (e.g., plain end, beveled end, grooved, threaded, or threaded and coupled), or industry specification (e.g., ASTM, proprietary, or other), generally known as standard pipe and structural pipe (they may also be referred to as circular, structural, or mechanical tubing).

Specifically, the term “carbon quality” includes products in which: (a) iron predominates, by weight, over each of the other contained elements; (b) the carbon content is 2 percent or less, by weight; and (c) none of the elements listed below exceeds the quantity, by weight, as indicated:

(i) 1.80 percent of manganese;

(ii) 2.25 percent of silicon;

(iii) 1.00 percent of copper;

(iv) 0.50 percent of aluminum;

(v) 1.25 percent of chromium;

(vi) 0.30 percent of cobalt;

(vii) 0.40 percent of lead;

(viii) 1.25 percent of nickel;

(ix) 0.30 percent of tungsten;

(x) 0.15 percent of molybdenum;

(xi) 0.10 percent of niobium;

(xii) 0.41 percent of titanium

(xiii) 0.15 percent of vanadium; or

(xiv) 0.15 percent of zirconium.

All pipe meeting the physical description set forth above that is used in, or intended for use in, standard and structural pipe applications is covered by the scope of this investigation. Standard pipe applications include the low-pressure conveyance of water, steam, natural gas, air, and other liquids and gases in plumbing and heating systems, air conditioning units, automatic sprinkler systems, and other related uses. Standard pipe may also be used for light load-bearing and mechanical applications, such as for fence tubing, and as an intermediate product for protection of electrical wiring, such as conduit shells. Structural pipe is used in construction applications.

Standard pipe is made primarily to American Society for Testing and Materials (ASTM) specifications, but can be made to other specifications. Standard pipe is made primarily to ASTM specifications A-53, A-135, and A-795. Structural pipe is made primarily to ASTM specifications A-252 and A-500. Standard and structural pipe may also be produced to proprietary specifications rather than to industry specifications. This is often the case, for example, with fence tubing. Pipe multiple-stenciled to an ASTM specification and to any other specification, such as the American Petroleum Institute (API) API-5L or 5L X-42 specifications, is covered by the scope of this investigation when used in, or intended for use in, one of the standard applications listed above, regardless of the Harmonized Tariff Schedule of the United States (HTSUS) category under which it is entered. Pipe used for the production of scaffolding (but not finished scaffolding) and conduit shells (but not finished electrical conduit) are included within the scope of this investigation.

The scope does not include: (a) pipe suitable for use in boilers, superheaters, heat exchangers, condensers, refining furnaces and feedwater heaters, whether or not cold drawn; (b) mechanical tubing, whether or not cold-drawn; (c) finished electrical conduit; (d) tube and pipe hollows for redrawing; (e) oil country tubular goods produced to API specifications; and (f) line pipe produced to API specifications for oil and gas applications.

The pipe products that are the subject of these investigations are currently classifiable in HTSUS statistical reporting numbers 7306.30.10.00, 7306.30.50.25, 7306.30.50.32, 7306.30.50.40, 7306.30.50.55, 7306.30.50.85, and 7306.30.50.90. However, the product description, and not the HTSUS classification, is dispositive of whether merchandise imported into the United States falls within the scope of the investigation.

Comments on Scope of Investigation

During our review of the petition, we discussed the scope with Petitioners to ensure that it accurately reflects the product for which the domestic industry is seeking relief. During this review, we noted that, while the Department typically prefers to rely upon physical characteristics to determine the scope of product coverage, the scope description proposed by Petitioners relied upon, in part, end-use applications as a method for determining scope coverage. On June 20, 2007, we met with Petitioners to discuss the scope and its reliance upon end-use applications as a method for determining scope coverage. See Memorandum to The File, through Abdelali Elouaradia, Office Director, Office 4, from Maisha Cryor, Import Compliance Specialist, titled “Circular Welded Carbon Quality Steel Pipe from the People's Republic of China: Scope of the Petition,” dated June 22, 2007. As discussed in the preamble to the Department's regulations, we are setting aside a period for interested parties to raise issues regarding product coverage. See Antidumping Duties; Countervailing Duties; Final rule, 62 FR 27296, 27323 (May 19, 1997). The Department encourages all interested parties to submit such comments, including comments regarding the scope's definition of covered merchandise based upon end-use application, and whether additional HTSUS numbers should be included in the scope description, 14 calendar days after publication of this initiation notice. Rebuttal comments are due 7 calendar days thereafter. Comments should be addressed to Import Administration's Central Records Unit in Room 1870, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW, Washington, DC 20230 - Attention: Maisha Cryor, Room 3057. The period of scope consultations is intended to provide the Department with ample opportunity to consider all comments and consult with interested parties prior to the issuance of the preliminary determination.

Consultations

Pursuant to section 702(b)(4)(A)(ii) of the Act, the Department invited representatives of the Government of the PRC for consultations with respect to the countervailing duty petition. The Department held these consultations in Beijing, China with representatives of the Government of the PRC on June 24, 2007. See the Memoranda to The File, entitled, “Consultations with Officials from the Government of the People's Republic of China” (June 24, 2007) (public documents on file in the CRU of the Department of Commerce, Room B-099).

Determination of Industry Support for the Petition

Section 702(b)(1) of the Act requires that a petition be filed on behalf of the domestic industry. Section 702(c)(4)(A) of the Act provides that a petition meets this requirement if the domestic producers or workers who support the petition account for (1) at least 25 percent of the total production of the domestic like product and (2) more than 50 percent of the production of the domestic like product produced by that portion of the industry expressing support for or opposition to the petition. Moreover, section 702(c)(4)(D) of the Act provides that, if the petition does not establish support of domestic producers or workers accounting for more than 50 percent of the total production of the domestic like product, the Department shall: (i) poll the industry or rely on other information in order to determine if there is support for the petition, as required by subparagraph (A), or (ii) determine industry support using a statistically valid sampling method.

Section 771(4)(A) of the Act defines the “industry” as the producers as a whole of a domestic like product. Thus, to determine whether the petition has the requisite industry support, the statute directs the Department to look to producers and workers who produce the domestic like product. The International Trade Commission (“ITC”) is responsible for determining whether “the domestic industry” has been injured and must also determine what constitutes a domestic like product in order to define the industry. While the Department and the ITC must apply the same statutory definition regarding the domestic like product, they do so for different purposes and pursuant to separate and distinct authority. See Section 771(10) of the Act. In addition, the Department's determination is subject to limitations of time and information. Although this may result in different definitions of the domestic like product, such differences do not render the decision of either agency contrary to law.¹

Section 771(10) of the Act defines the domestic like product as “a product which is like, or in the absence of like, most similar in characteristics and uses with, the article subject to an investigation under this subtitle.” Thus, the reference point from which the domestic like product analysis begins is “the article subject to an investigation,” i.e., the class or kind of merchandise to be investigated, which normally will be the scope as defined in the petition.

With regard to domestic like product, petitioners do not offer a definition of domestic like product distinct from the scope of the investigation. Based on our analysis of the information presented by petitioners, we have determined that there is a single domestic like product, CWP, which is defined in the “Scope of Investigation” section above, and we have analyzed industry support in terms of the domestic like product.

Our review of the data provided in the petition, the supplemental submission and other information readily available to the Department indicates that petitioners have established industry support. First, the petition established support from domestic producers (or workers) accounting for more than 50 percent of the total production of the domestic like product and, as such, the Department is not required to take further action in order to evaluate industry support (e.g., polling). See Sec. 702(c)(4)(D) of the Act. Second, the domestic producers have met the statutory criteria for industry support under 702(c)(4)(A)(i) because the domestic producers (or workers) who support the petition account for at least 25 percent of the total production of the domestic like product. Finally, the domestic producers have met the statutory criteria for industry support under 702(c)(4)(A)(ii) because the domestic producers (or workers) who support the petition account for more than 50 percent of the production of the domestic like product produced by that portion of the industry expressing support for, or opposition to, the petition. Accordingly, the Department determines that the petition was filed on behalf of the domestic industry within the meaning of section 702(b)(1) of the Act. See Initiation Checklist at Attachment I (Analysis of Industry Support). See “Office of AD/CVD Operations Initiation Checklist for the Countervaling Duty Petition on Circular Welded Carbon Quality Steel Pipe from China,” at Attachment II (“CVD Initiation Checklist”).

Injury Test

Because the PRC is a “Subsidies Agreement Country” within the meaning of section 701(b) of the Act, section 701(a)(2) of the Act applies to this investigation. Accordingly, the ITC must determine whether imports of the subject merchandise from the PRC materially injure, or threaten material injury to, a U.S. industry.

Allegations and Evidence of Material Injury and Causation

Petitioners allege that imports of CWP from the PRC are benefitting from countervailable subsidies and that such imports are causing or threatening to cause, material injury to the domestic industry producing CWP. In addition, petitioners allege that subsidized imports exceed the negligibility threshold provided for under section 771(24)(A) of the Act.

Petitioners contend that the prices on imports from the PRC do not reflect recent increases in raw material costs, and that large margins of underselling exist, which are causing domestic producers to suffer. Petitioners assert that the industry's injury is evidenced by a decline in production, U.S. shipments, capacity utilization, market share, employment and profitability. The allegations of injury and causation are supported by relevant evidence including U.S. Customs and Border Protection import data, lost sales, employment and pricing information. We have assessed the allegations and supporting evidence regarding material injury and causation and have determined that these allegations are properly supported by adequate evidence and meet the statutory requirements for initiation. See CVD Initiation Checklist.

Initiation of Countervailing Duty Investigations

Section 702(b) of the Act requires the Department to initiate a countervailing duty proceeding whenever an interested party files a petition on behalf of an industry that (1) alleges the elements necessary for an imposition of a duty under section 701(a) of the Act and (2) is accompanied by information reasonably available to the petitioners supporting the allegations. The Department has examined the countervailing duty petition on CWP from the PRC and found that it complies with the requirements of section 702(b) of the Act. Therefore, in accordance with section 702(b) of the Act, we are initiating a countervailing duty investigation to determine whether manufacturers, producers, or exporters of CWP in the PRC receive countervailable subsidies. For a discussion of evidence supporting our initiation determination, see CVD Initiation Checklist.

We are including in our investigation the following programs alleged in the petition to have provided countervailable subsidies to producers and exporters of the subject merchandise in the PRC:

Preferential Lending

1. Government Policy Lending Program

2. Loans and interest subsidies provided pursuant to the Northeast Revitalization Program

Income Tax Programs

3. “Two Free, Three Half” income tax program

4. Income tax exemption for export-oriented foreign investment enterprises (“FIEs”)

5. Corporate income tax refund program for reinvestment of FIE profits in export-oriented enterprises

6. Local income tax exemption and reduction program for “productive” FIEs

7. Reduced income tax rates for FIEs based on location

8. Reduced income tax rate for knowledge or technology intensive FIEs

9. Reduced income tax rate for high or new technology FIEs

10. Preferential tax policies for research and development at FIEs

11. Income tax credits on purchases of domestically produced equipment by domestically-owned companies

12. Income tax credits on purchases of domestically produced equipment by FIEs

Provincial Subsidy Programs

13. Program to rebate antidumping legal fees in Shenzen and Zhejiang provinces

14. Funds for “outward expansion” of industries in Guangdong province

15. Export interest subsidy funds for enterprises located in Shenzhen and Zhejiang province

16. Loans pursuant to the Liaoning Province's five-year framework

Indirect Tax Programs and Import Tariff Program

17. Export payments characterized as VAT rebates

18. VAT and tariff exemptions on imported equipment

19. VAT rebates on domestically produced equipment

20. Exemption from payment of staff and worker benefits for export-oriented enterprises

Grant Programs

21. State Key Technology Renovation Program Fund

22. Grants to loss-making state owned enterprises

Provision Of Goods Or Services For Less Than Adequate Remuneration

23. Hot-rolled steel

24. Electricity and natural gas

25. Water

26. Land

Government Restraints on Exports

27. Zinc

28. Hot-rolled steel

For further information explaining why the Department is investigating these programs, see CVD Initiation Checklist.

We are postponing our investigation of the following program until such time as we select our respondents because the allegation is company-specific:

1. Loans to uncreditworthy companies

For further information explaining why the Department is postponing investigation of this program, see CVD Initiation Checklist.

We are not including in our investigation the following programs alleged to benefit producers and exporters of the subject merchandise in the PRC:

1. Currency manipulation

Petitioners allege that the GOC's policy of maintaining an undervalued RMB is an export subsidy that provides either a direct transfer of funds or the provision of a good or service at less than adequate remuneration. Petitioners have not sufficiently alleged the elements necessary for the imposition of a countervailing duty and did not support the allegation with reasonably available information. Therefore, we do not plan to investigate the currency manipulation program.

2. Tax reduction for enterprises making little profit

Petitioners allege that “enterprises making little profit” are a de jure specific group. Petitioners have not established with reasonably available evidence that “enterprises making little profit” are a de jure specific group pursuant to section 771(5A)(D)(i) of the Act. Therefore, we do not plan to investigate tax reduction for enterprises making little profit.

3. Tax incentives for companies engaging in research and development

Petitioners allege that “domestic” companies (i.e., companies that are not FIEs) are a de jure specific group. Petitioners have not established with reasonably available evidence that this program is de jure specific pursuant to section 771(5A)(D)(i) of the Act. Therefore, we do not plan to investigate tax incentives for “domestic” companies engaging in research and development.

4. Exemption of CWP from export taxes

Petitioners allege that CWP producers have been exempted from the export taxes that were imposed on 142 steel products effective June 1, 2007. Petitioners have not sufficiently alleged, on the basis of reasonably available information, that CWP producers have been relieved from paying export taxes that would otherwise have been due. Consequently, we do not plan to investigation the exemption of CWP producers from export taxes.

5. Funds for technology and research

Petitioners allege that because the GOC did not provide the criteria for awarding funds under this program when they notified it to the Word Trade Organization, funds are awarded on a discretionary basis and, hence, specific. Petitioners have not adequately explained how this program is specific pursuant to section 771(5A)(D)(i) of the Act. Therefore, we do not plan to investigate funds for technology and research.

6. Provision of goods or services for less than adequate remuneration - other companies

Petitioners allege that the GOC's policy of combining steel companies results in the provision of productive assets to the combined companies at less than adequate remuneration. Petitioners have not sufficiently alleged the elements necessary for the imposition of a countervailing duty and did not support the allegation with reasonably available information. Consequently, we do not plan to investigate this program.

7. Loan guarantees from government-owned banks

As part of their Government Policy Lending allegation, petitioners include loan guarantees. To support this allegation, they point to a provincial guarantee program. However, the supporting evidence indicates that this program is for small and medium size enterprises, a non-specific group under our regulations. See 19 C.F.R. 351.502(e). Accordingly, we do not plan to investigate loan guarantees from government-owned banks.

8. Loan to Huludao Economic Development Zone

Petitioners identify a loan to the Huludao Economic Development Zone and suggest that some portion of the loan would likely have gone to a CWP producer in the zone. However, the supporting information indicates that the money was used to support infrastructure development within the zone. Therefore, we do not plan to investigate the loan to Huludao Economic Development Zone program.

For further information explaining why the Department is not initiating an investigation of these programs, see CVD Initiation Checklist.

Application of the Countervailing Duty Law to the PRC

Petitioners contend that there is no statutory bar to applying countervailing duties to imports from the PRC or any other non-market economy country. Citing Georgetown Steel, petitioners assert that the court deferred to the Department's conclusion that it did not have the authority to conduct a CVD investigation, but did not affirm the notion that the statute prohibits the Department from applying countervailing duties to NME countries. See Petition, Volume I, at 38 (citing Georgetown Steel Corp. v. United States, 801 F.2d 1308 (Fed. Cir. 1986) (“Georgetown Steel”)). Petitioners further argue that Georgetown Steel is not applicable as the countervailing duty law (section 303 of the Tariff Act of 1930) involved in the court's decision has since been repealed and the statute has been amended to provide an explicit definition of a subsidy. See Petition, Volume I, at 39 (citing 777(5) of the Act). In addition, petitioners argue that the Chinese economy is entirely different from the economies investigated in Georgetown Steel and noted that the Department recently recognized in the CFS Investigation that the economic conditions of Georgetown Steel are not applicable to present-day China. See Petition, Volume I, at 41 (citing Coated Free Sheet Paper from the People's Republic of China; Amended Preliminary Affirmative Countervailing Duty Determination, 72 FR 17484, 17486 (April 9, 2007) (“CFS Investigation”); and Memorandum for David M. Spooner, Assistant Secretary for Import Administration, entitled “Countervailing Duty Investigation of Coated Free Sheet Paper from The People's Republic of China Whether the Analytic Elements of the Georgetown Steel Opinion are Applicable to China's Present-day Economy,” (March 29, 2007) (“Georgetown Steel Memorandum”)). Petitioners argue that the conditions of the CWP sector of the PRC economy are substantially the same as the Department found them to be in the CFS Investigation. Consequently, the countervailing duty law should be applied to the PRC in this investigation.

The Department has treated the PRC as an NME country in all past antidumping duty investigations and administrative reviews. In accordance with section 771(18)(C)(i) of the Act, any determination that a country is an NME country shall remain in effect until revoked by the administering authority. See Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, (“TRBs”) From the People's Republic of China: Preliminary Results of 2001-2002 Administrative Review and Partial Rescission of Review, 68 FR 7500, 7500-1 (February 14, 2003), unchanged in TRBs from the People's Republic of China: Final Results of 2001-2002 Administrative Review, 68 FR 70488, 70488-89 (December 18, 2003). In the CFS Investigation, the Department preliminarily determined that the current nature of China's economy does not create obstacles to applying the necessary criteria in the CVD law. As such, the Department determined that the policy that gave rise to the Georgetown Steel litigation does not prevent us from concluding that the PRC government has bestowed a countervailable subsidy upon a Chinese producer. See Georgetown Steel Memorandum. Therefore, because petitioners have provided sufficient allegations and support of their allegations to meet the statutory criteria for initiating a countervailing duty investigation of CWP paper from the PRC, we continue to find that Georgetown Steel does not preclude us from initiating this investigation. For further information, see CVD Initiation Checklist.

Distribution of Copies of the Petition

In accordance with section 702(b)(4)(A)(i) of the Act, a copy of the public version of the petition has been provided to the Government of the PRC. As soon as and to the extent practicable, we will attempt to provide a copy of the public version of the petition to each exporter named in the petition, consistent with 19 CFR 351.203(c)(2).

ITC Notification

We have notified the ITC of our initiation, as required by section 702(d) of the Act.

Preliminary Determination by the ITC

The ITC will preliminarily determine, within 25 days after the date on which it receives notice of the initiation, whether there is a reasonable indication that imports of subsidized CWP from the PRC are causing material injury, or threatening to cause material injury, to a U.S. industry. See section 703(a)(2) of the Act. A negative ITC determination will result in the investigation being terminated; otherwise, the investigation will proceed according to statutory and regulatory time limits.

This notice is issued and published pursuant to section 777(i) of the Act.

Dated: June 27, 2007.

Joseph A. Spetrini,

Deputy Assistant Secretary for Import Administration.

Footnotes

1.  See USEC, Inc. v. United States, 25 CIT 49, 55-56, 132 F. Supp. 2d 1, 7-8 (Jan. 24, 2001) (citing Algoma Steel Corp. v. United States, 12 CIT 518, 523, 688 F. Supp. 639, 642-44 (June 8, 1988)).