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Circular Welded Carbon Quality Steel Line Pipe From the People's Republic of China: Notice of Initiation of Countervailing Duty Investigation

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AGENCY:

Import Administration, International Trade Administration, Department of Commerce.

DATES:

Effective Date: April 29, 2008.

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FOR FURTHER INFORMATION CONTACT:

Kristen Johnson or Eric Greynolds, AD/CVD Operations, Office 3, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230; telephone: (202) 482-4793 and (202) 482-6071, respectively.

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SUPPLEMENTARY INFORMATION:

The Petition

On April 3, 2008, the Department of Commerce (“Department”) received the Petition concerning imports of certain circular welded carbon quality steel line pipe (“welded line pipe”) from the People's Republic of China (“PRC”) filed in proper form by United States Steel Corporation, Maverick Tube Corporation, Tex-Tube Company, and the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, and AFL-CIO-CLC (collectively, “Petitioners”). See Imposition of Antidumping and Countervailing Duties: Certain Circular Welded Carbon Quality Steel Line Pipe from the People's Republic of China and the Republic of Korea, dated April 3, 2008 (“Petition”).

On April 9 and 10, 2008, the Department issued requests for additional information and clarification of certain areas of the Petition. Based on the Department's requests, Petitioners filed additional information supplementing the Petition on April 14, 2008, including one submission on general issues (Response to the Department Questionnaire Concerning Volume I of the Petition, dated April 14, 2008 (“Supp. Response”)) and one submission on the imposition of countervailing duties (“CVD”) (Response to the Department Questionnaires Concerning Volume III of the Petition, dated April 14, 2008 (“Supp. CVD Response”)). On April 16, 2008, the Department called Petitioners to request certain information relating to the Petition. See Memorandum to the File from Meredith A.W. Rutherford, Import Policy Analyst, regarding Petitions for the Imposition of Antidumping and Countervailing Duties—Certain Circular Welded Carbon Quality Steel Line Pipe from the People's Republic of China and the Republic of Korea: Phone Call with Petitioner Regarding Industry Support, dated April 16, 2008. On April 17, 2008, the Department issued a request for additional information and clarification of certain areas of the Petition concerning the imposition of countervailing duties. On April 18, 2008, Wheatland Tube Company, a U.S. manufacturer of welded line pipe, filed a letter in support of the Petition. On April 21, 2008, Petitioners filed additional information in response to the April 16, 2008, memorandum to the file. See Response to the Department's Second Request for Additional Information Concerning the People's Republic of China and the Republic of Korea, dated April 21, 2008 (“Second Supp. Response”). Petitioners also filed a response to the Department's April 17, 2008, request for additional information on the imposition of countervailing duties. See Response to the Department's Request for Additional Information Concerning Volume III of the Petition filed on April 3, 2008 (“Second CVD Supp. Response”).

On April 21, 2008, the Department called Petitioners regarding the scope language. See Memorandum to the File from Norbert Gannon, Supervisory Import Policy Analyst, regarding Petitions for the Imposition of Antidumping and Countervailing Duties—Certain Circular Welded Carbon Quality Steel Line Pipe from the People's Republic of China and the Republic of Korea: Phone Call with Petitioners Regarding Industry Support, dated April 21, 2008. Additionally, on April 21, 2008, Stupp Corporation, a domestic producer of subject merchandise, filed a letter in support of the Petition.

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 welded line pipe in 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 section 771(9)(C) of the Act and Petitioners have demonstrated sufficient industry support with respect to the CVD investigation (see “Determination of Start Printed Page 23185Industry Support for the Petition” section below).

Period of Investigation

The period of investigation (“POI”) is January 1, 2007, through December 31, 2007.

Scope of Investigation

The merchandise covered by this investigation is circular welded carbon quality steel pipe of a kind used for oil and gas pipelines (“welded line pipe”), not more that 406.4 mm (16 inches) in outside diameter, regardless of wall thickness, length, surface finish, end finish or stenciling.

The term “carbon quality steel” includes both carbon steel and carbon steel mixed with small amounts of alloying elements that may exceed the individual weight limits for nonalloy steels imposed in the Harmonized Tariff Schedule of the United States (“HTSUS”). Specifically, the term “carbon quality” includes products in which (1) iron predominates by weight over each of the other contained elements, (2) the carbon content is 2 percent or less by weight and (3) none of the elements listed below exceeds the quantity by weight respectively indicated:

(i) 2.00 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) 0.012 percent of boron,

(xi) 0.50 percent of molybdenum,

(xii) 0.15 percent of niobium,

(xiii) 0.41 percent of titanium,

(xiv) 0.15 percent of vanadium, or

(xv) 0.15 percent of zirconium.

Welded line pipe is normally produced to specifications published by the American Petroleum Institute (“API”) (or comparable foreign specifications) including API A-25, 5LA, 5LB, and X grades from 42 and above, and/or any other proprietary grades or non-graded material. Nevertheless, all pipe meeting the physical description set forth above that is of a kind used in oil and gas pipelines, including all multiple-stenciled pipe with an API line pipe stencil is covered by the scope of this investigation.

The line pipe products that are the subject of this investigation are currently classifiable in the HTSUS under subheadings 7306.19.10.10, 7306.19.10.50, 7306.19.51.10, and 7306.19.51.50. While HTSUS subheadings are provided for convenience and customs purposes, the written description of the scope of this investigation is dispositive.

Comments on Scope of Investigation

During our review of the Petition, we discussed the scope with Petitioners to ensure that it is an accurate reflection of the products for which the domestic industry is seeking relief. The scope of this investigation covers line pipe which, we recognize, may include certain merchandise potentially subject to the on-going antidumping (AD) and CVD investigations of circular welded pipe (CWP investigations). See Circular Welded Carbon Quality Steel Pipe from the People's Republic of China: Notice of Preliminary Determination of Sales at Less than Fair Value and Postponement of Final Determination, 73 FR 2445, January 15, 2008; see also Circular Welded Carbon Quality Steel Pipe from the People's Republic of China: Preliminary Affirmative Countervailing Duty Determination; Preliminary Affirmative Determination of Critical Circumstances; and Alignment of Final Countervailing Duty Determination with Final Antidumping Duty Determination, 72 FR 63875, November 13, 2007. Given that the scope issue has not been finally resolved in the CWP investigations, for purposes of this initiation, we have defined the scope to include the potential overlap. However, we intend to resolve the issue to ensure that there will be no overlap between the scopes in the CWP and welded line pipe cases. Moreover, as discussed in the preamble to the regulations (Antidumping Duties; Countervailing Duties; Final Rule, 62 FR 27296, 27323 (May 19, 1997)), we are setting aside a period for interested parties to raise issues regarding product coverage. The Department encourages all interested parties to submit such comments by May 13, 2008, which is 20 calendar days from the date of signature of this notice. Comments should be addressed to Import Administration's APO/Dockets Unit, Room 1870, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230. The period of scope consultations is intended to provide the Department with ample opportunity to consider all comments and to consult with parties prior to the issuance of the preliminary determinations.

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 CVD petition. The Department held these consultations in Beijing, China, with representatives of the Government of the PRC on April 18, 2008. See the April 18, 2008, Memorandum to the File, entitled, “Consultations with Officials from the Government of the People's Republic of China on the Countervailing Duty Petition regarding Circular Welded Carbon Quality Steel Line Pipe,” on file in the Central Records Unit (“CRU”) of the Department of Commerce, Room 1117.

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: (i) At least 25 percent of the total production of the domestic like product; and (ii) 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 a 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”), which is responsible for determining whether “the domestic industry” has been injured, must also determine what constitutes a domestic like product in order to define the industry. While both the Department and the ITC must apply the same statutory definition regarding the domestic like product (section 771(10) of the Act), they do so for different purposes and pursuant to a separate and distinct authority. In addition, the Department's determination is subject to limitations of time and information. Although this may result in different definitions of the like product, such differences do not render the decision of either agency contrary to law. See USEC, Inc. v. United States, 132 F. Supp. 2d 1, 8 (CIT Start Printed Page 231862001), citing Algoma Steel Corp. Ltd. v. United States, 688 F. Supp. 639, 644 (CIT 1988), aff'd 865 F.2d 240 (Fed. Cir. 1989), cert. denied 492 U.S. 919 (1989).

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 title.” 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 the 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 submitted on the record, we have determined that welded line pipe constitutes a single domestic like product and we have analyzed industry support in terms of that domestic like product. For a discussion of the domestic like product analysis in this case, see “Countervailing Duty Investigation Initiation Checklist: Circular Carbon Quality Steel Line Pipe from the People's Republic of China,” (“Initiation Checklist”) Industry Support at Attachment II, on file in the CRU.

In determining whether Petitioners have standing (i.e., those domestic workers and producers supporting 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), we considered the industry support data contained in the Petition with reference to the domestic like product as defined in the “Scope of Investigation” section above. To establish industry support, Petitioners provided their shipments for the domestic like product for the year 2007, and compared them to shipments of the domestic like product for the industry. In the Petition, Petitioners demonstrated the correlation between shipments and production. See Petition, Volume I, at 3, and Exhibit 3b. Based on the fact that total industry production data for the domestic like product for 2007 is not reasonably available, and that Petitioners have established that shipments are a reasonable proxy for production data, we have relied upon shipment data for purposes of measuring industry support. For further discussion see Initiation Checklist, at Attachment II (Industry Support).

The Department's review of the data provided in the Petition, supplemental submissions, and other information readily available to the Department indicates that Petitioners have established industry support. First, the Petition establishes 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 Section 702(c)(4)(D) of the Act. Second, the domestic producers (or workers) have met the statutory criteria for industry support under section 702(c)(4)(A)(I) of the Act 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 (or workers) have met the statutory criteria for industry support under section 702(c)(4)(A)(ii) of the Act 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 II (Industry Support). The Department finds that Petitioners filed the Petition on behalf of the domestic industry because they are an interested party as defined in section 771(9)(C) and (D) of the Act and they have demonstrated sufficient industry support with respect to the CVD investigation that they are requesting the Department initiate. See Initiation Checklist at Attachment II (Industry Support).

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 these investigations. 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 welded line pipe from the PRC are benefitting from countervailable subsidies and that such imports are causing or threaten to cause, material injury to the domestic industry producing welded line pipe. 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 industry's injured condition is illustrated by reduced market share, underselling and price depressing and suppressing effects, lost sales and revenue, a decline in financial performance, and an increase in import penetration. We have assessed the allegations and supporting evidence regarding material injury, threat of material injury, and causation, and we have determined that these allegations are properly supported by adequate evidence and meet the statutory requirements for initiation. See Initiation Checklist at Attachment III (Injury).

Initiation of Countervailing Duty Investigation

Section 702(b) of the Act requires the Department to initiate a CVD 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 petitioner(s) supporting the allegations. The Department has examined the CVD petition on welded line pipe from the PRC and finds 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 CVD investigation to determine whether manufacturers, producers, or exporters of welded line pipe in the PRC receive countervailable subsidies. For a discussion of evidence supporting our initiation determination, see 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:

A. Preferential Loans

1. Preferential Lending of Policy Loans to State-Owned Enterprises (“SOEs”) and the Steel Industry by State-Owned and Controlled Banks.

2. Preferential Loans for Key Projects and Technologies.

B. Equity Infusions and Debt-to-Equity Swaps

1. Equity Infusions into Baosteel.

2. Debt-to-Equity Swaps for SOEs.

C. Tax Benefit Programs

1. The “Two Free, Three Half” Program.

2. Income Tax Reduction for Export-Oriented Foreign Invested Enterprises (“FIEs”).Start Printed Page 23187

3. Income Tax Reductions for FIEs Based on Location.

4. Preferential Tax Programs for FIEs that Quality as Technology-Intensive or Knowledge-Intensive.

5. Preferential Tax Programs for FIEs Recognized as High or New Technology

Enterprises.

6. Preferential Tax Programs for FIEs that are Engaged in Research and Development.

7. Income Tax Reduction for FIEs that Reinvest Profits into Export-Oriented Enterprises.

8. Local Income Tax Exemption and Reduction Programs for “Productive” FIEs.

9. Income Tax Credits on Purchases of Domestically-produced Equipment by FIEs.

10. Income Tax Credits on Purchases of Domestically-produced Equipment by Domestically-Owned Companies.

D. Value-Added Tax (“VAT”) Programs

1. VAT Exemptions for Use of Imported Equipment.

2. VAT Export Rebates.

E. Land Grants and Discounts

F. Provision of Inputs for Less Than Adequate Remuneration

1. Hot-Rolled Steel.

2. Electricity.

3. Water.

G. Grant Programs

1. Interest Subsidies for Key Projects and Technologies.

2. State Key Technologies Renovation Project Fund.

3. Central Government's Famous Brands Program.

4. Government of Guandong Province Provision of Grants to Companies for Outward Expansion and Export Performance.

5. Export Interest Subsidy Program.

6. Grants to State Owned Enterprises Operating at Loss.

H. Provincial Programs

1. Northeast Revitalization Program.

2. Liaoning Province Framework.

3. The “Five Points One Line” Program.

4. Liaoning Province Grants.

5. Sub-Central Government Programs to Promote Famous Brands.

For further information explaining why the Department is investigating these programs, see 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. VAT Refunds Available to Companies Operating in Specific Locations

Petitioners allege that VAT refunds are available to companies that are located in the Economic Development Zone of Hainan. Specifically, under the “Preferential Policies Regarding Investment by Manufacturer,” high-tech or labor intensive enterprises with an investment of more than RMB 3 billion and more than 1,000 local employees are refunded 25 percent of the VAT paid on domestic sales, the percentage of the tax received by the local government. The subsidy starts the first year the company has production and sales and continues for five years. Petitioners, however, did not demonstrate that producers/exporters of welded line pipe are located in the Hainan Province or explain why such information is unavailable. Therefore, we are not investigating this program.

2. Preferential Tax Programs for Enterprises Making Little Profit

Petitioners assert that China's subsidies notification to the World Trade Organization (“WTO”) indicates that the Chinese government (“GOC”) provides preferential tax treatment to enterprises making little profit. This program, which is authorized by the Ministry of Finance, provides an 18 percent income tax reduction for enterprises which have annual taxable income of less than RMB 30,000 and a 27 percent income tax reduction to enterprises which have annual taxable income between RMB 30,000 and RMB 100,000. Petitioners, however, have not established with reasonably available information that “enterprises making little profit” are a de jure or de facto specific group. Petitioners failed to provide an explanation of why companies with access to this program comprise an enterprise or industry, or group of enterprises or industries, as those terms are normally interpreted by the Department. Therefore, we are not investigating this program.

3. Preferential Tax Programs for Enterprises Engaged in Research and Development

Petitioners allege that the GOC provides preferential tax policies for domestic-invested enterprises engaged in research and development. Specifically, Petitioners claim that under this program, authorized by the Ministry of Finance, the costs associated with research and development of new products, new technologies, and new crafts which have increased 10 percent or more from the previous year, are offset by 150 percent from the taxable income of that year. Petitioners, however, have not established with reasonably available information that “domestic enterprises” are a de jure or de facto specific group. Petitioners failed to provide an explanation of why companies with access to this program comprise an enterprise or industry, or group of enterprises or industries, as those terms are normally interpreted by the Department. Therefore, we are not investigating this program.

4. Central Government Grants and Loans

Petitioners allege that the government provides grants and loans for technology and research. Petitioners claim that one such program is administered by the Ministry of Finance pursuant to State Council Circular No. 99 of 1987, which is referenced in China's WTO accession. Petitioners assert that this grant program is intended to benefit preferred industries such as the steel industry, including welded line pipe producers. Petitioners, however, have not provided adequate documentation to support the allegation that this program is specific. For example, the evidence provided by Petitioners does not support the claim that this program is specific to state-owned enterprises or to the steel industry. We, therefore, are not investigating this program.

5. Hunan Province Grants and Loans

Petitioners allege that in 1999, the Hunan Province provided approximately RMB 300 million, in the form of grants and reduced-interest loans, for technological upgrades and for hi-tech companies located in the province. Petitioners claim that welded line pipe producers located in Hunan Province likely benefited from the program. Petitioners, however, have failed to demonstrate that welded line pipe producers are located in Hunan Province. We, therefore, are not investigating this program.

6. Government-Mandated Mergers and Transfers of Ownership on Terms Inconsistent With Commercial Considerations

Petitioners allege that the GOC provides benefits to welded line pipe producers through government-mandated mergers and transfers of ownership on terms inconsistent with commercial considerations. Petitioners maintain that the mergers are driven by the GOC's Eleventh FYP and China's Steel Policy. Petitioners allege that because many Chinese steel companies are controlled by the government, the GOC can essentially order companies to merge. Petitioners allege that such mergers commonly involve offering ownership stakes in state-owned steel companies to other, larger steel producers at prices below market value, or even for free. Petitioners, however, fail to explain how mergers and restructuring of state-owned enterprises provide a financial contribution in light of the Department's past practice in addressing restructuring of government-owned steel companies. See, e.g., Final Affirmative Countervailing Duty Start Printed Page 23188Determination: Certain Steel Products from Italy, 58 FR 37327 (July 9, 1993). Therefore, we are not investigating the provision of “other companies” for less than adequate remuneration.

7. Other Grant Programs

Petitioners assert that a review of available financial reports of Chinese welded line pipe producers indicates that many of the producers have benefitted from direct cash grants provided under other grant programs and policies administered by the GOC. Petitioners, however, have not adequately established with reasonably available evidence how these programs are specific. Petitioners also have not established whether these grants are a result of programs separate from those which Petitioners have already alleged. We, therefore, are not investigating this program.

Application of the Countervailing Duty Law to the PRC

The Department has treated the PRC as a non-market economy (“NME”) country in all past AD 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, e.g., Tapered Roller Bearings and Parts Thereof, Finished and 10 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 final affirmative CVD determination on coated free sheet paper from the PRC, the Department determined that the current nature of the PRC economy does not create obstacles to applying the necessary criteria in the CVD law. See Coated Free Sheet Paper from the People's Republic of China: Final Affirmative Countervailing Duty Determination, 72 FR 60645 (October 25, 2007), and the accompanying Issues and Decision Memorandum at Comment 1. Therefore, because Petitioners have provided sufficient allegations and support of their allegations to meet the statutory criteria for initiating a CVD investigation of welded line pipe from the PRC, initiation of a CVD investigation is warranted in this case.

Respondent Selection

For this investigation, the Department expects to select respondents based on U.S. Customs and Border Protection (“CBP”) data for U.S. imports during the POI. We intend to make our decision regarding respondent selection within 20 days of publication of this Federal Register notice. The Department invites comments regarding the CBP data and respondent selection within seven calendar days of publication of this Federal Register notice.

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 GOC. As soon as possible 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 welded line pipe 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.

Start Signature

Dated: April 23, 2008.

David M. Spooner,

Assistant Secretary for Import Administration.

End Signature End Supplemental Information

[FR Doc. E8-9345 Filed 4-28-08; 8:45 am]

BILLING CODE 3510-DS-P