Notice of Initiation of Antidumping Duty Investigations: Certain Circular Welded Carbon Quality Line Pipe From Mexico, The Republic of Korea, and the People's Republic of China

AGENCY:

Import Administration, International Trade Administration, Department of Commerce.

ACTION:

Initiation of Antidumping Duty Investigations.

EFFECTIVE DATE:

March 30, 2004.

FOR FURTHER INFORMATION CONTACT:

Helen Kramer at 202-482-0405 or John Drury at 202-482-0195, Import Administration, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue, NW., Washington, DC 20230.

SUPPLEMENTARY INFORMATION:

Initiation of Investigations

The Petition

On March 3, 2004, the Department of Commerce (“Department”) received an Antidumping Duty Petition filed in proper form by American Steel Pipe Division of American Cast Iron Pipe Company, IPSCO Tubulars Inc., Lone Star Steel Company, Maverick Tube Corporation, Northwest Pipe Company, and Stupp Corporation (“Petitioners”). On March 15 and 19, 2004, Petitioners submitted clarifications of the Petition. Petitioners are domestic producers of circular welded carbon quality line pipe (“Line Pipe”). In accordance with section 732(b) of the Tariff Act of 1930, as amended (“the Act”), Petitioner alleges imports of Line Pipe from Mexico, the Republic of Korea (“Korea”) and the People's Republic of China (“China”) are being, or are likely to be, sold in the United States at less than fair value within the meaning of section 731 of the Act, and that such imports are materially injuring, or threatening material injury to, the U.S. industry.

The Department finds that Petitioners filed their Petition on behalf of the domestic industry because they are interested parties as defined in section 771(9)(C) of the Act, and they have demonstrated sufficient industry support with respect to the investigations they are presently seeking. See Determination of Industry Support for the Petition section below.

Scope of the Investigations

These investigations cover circular welded carbon quality steel pipe of a kind used for oil and gas pipelines, not more that 406.4 mm (16 inches) in outside diameter, regardless of wall thickness, surface finish (black, or coated with any coatings compatible with line pipe), and regardless of end finish (plain end, beveled ends for welding, threaded ends or threaded and coupled, as well as any other special end finishes), and regardless of stenciling.

The merchandise subject to this investigation may be classified in the Harmonized Tariff Schedule of the United States (“HTSUS”) at heading 7306 and subheadings 7306.10.10.10, 730610.10.50, 7306.10.50.10, and 7306.10.50.50. The tariff classifications are provided for convenience and Customs purposes; however, the written description of the scope of the investigation is dispositive.

As discussed in the preamble to the Department's regulations, we are setting aside a period for 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 within 20 days of publication of this notice. Comments should be addressed to Import Administration's Central Records Unit, Room 1870, U.S. Department of Commerce, 1401 Constitution Avenue, NW, Washington, DC 20230. This period of scope consultations is intended to provide the Department with ample opportunity to consider all comments and consult with parties prior to the issuance of the preliminary determinations.

Determination of Industry Support for the Petition

Section 732(b)(1) of the Act requires that a petition be filed on behalf of the domestic industry. Section 732(c)(4)(A) of the Act provides that the Department's industry support determination, which is to be made before the initiation of the investigation, be based on whether a minimum percentage of the relevant industry supports the petition. 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 732(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 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 (Ct. Int'l Trade 2001), citing Algoma Steel Corp. Ltd. v. United States, 688 F. Supp. 639, 642-44 (Ct. Int'l Trade 1988) (“the ITC does not look behind ITA's determination, but accepts ITA's determination as to which merchandise is in the class of merchandise sold at LTFV”).

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' definition of the like product is all welded line pipe under 16 inches in diameter. See March 15, 2004, amended petition at 2. Based on our analysis of the information submitted in the Petition we have determined there is a single domestic like product, Line Pipe, which is defined further in the “Scope of the Investigations” section above, and we have analyzed industry support in terms of that domestic like product.

In determining whether the domestic petitioner has standing, we considered the industry support data contained in the Petition with reference to the domestic like product as defined above in the “Scope of the Investigations” section. To establish standing, Petitioners first provided production data for the industry for the years 2000 through 2002, obtained from the ITC. Petitioners also provided their own production data during the period 2000 through 2002. However, while Petitioners had their own production data for 2003, Petitioners did not have production data for the entire U.S. industry for the year 2003. Therefore, Petitioners provided their shipments of the domestic like product for the year 2003, and compared them to shipments of the domestic like product for the industry. Petitioners obtained domestic industry shipments from the American Iron and Steel Institute (“AISI”) for all line pipe not over 16” in diameter and made adjustments for shipments of seamless line pipe. See Petition at Exhibit I-3 describing how this production data was obtained. In their March 15, 2004, amended petition, Petitioners demonstrated the correlation between shipments and production. See Exhibit A-8. Based on the fact that complete production data for year 2003 is unavailable, and that Petitioners have established a close correlation between shipment and production data, we have relied upon shipment data for purposes of measuring industry support.

The Department considered it unreasonable to exclude all seamless line pipe from the shipments data because seamless line pipe can exceed 16” in diameter. Therefore the Department included seamless line pipe in the AISI data for line pipe not over 16” in diameter, but determined that the Petitioners' share of total estimated U.S. shipments of the subject Line Pipe in year 2003 nevertheless represented over 50 percent of total domestic shipments. Therefore, the Department finds the domestic producers who support the Petition account for at least 25 percent of the total production of the domestic like product. In addition, as no domestic producers have expressed opposition to the Petition, the Department also finds the domestic producers 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. For more information on our analysis and the data upon which we relied, see Antidumping Duty Investigation Initiation Checklist (“Initiation Checklist”), dated March 23, 2004, Appendix II - Industry Support. Therefore, we find that Petitioners have met the requirements of section 732(c)(4)(A) of the Act.

Export Price and Normal Value

The following are descriptions of the allegations of sales at less than fair value upon which the Department based its decision to initiate these investigations. The source or sources of data for the deductions and adjustments relating to U.S. and foreign market prices and cost of production (“COP”) and constructed value (“CV”) have been accorded treatment as business proprietary information. Petitioners' sources and methodology are discussed in greater detail in the business proprietary version of the Petition and in our Initiation Checklist. We corrected certain information contained in the Petition's margin calculations; these corrections are set forth in detail in the Initiation Checklist.

Periods of Investigation

The period of investigation (“POI”) for Mexico and Korea will be January 1, 2003, through December 31, 2003, the four most-recently completed fiscal quarters as of the month preceding the month in which the Petition was filed. See 19 CFR 351.204(b). The POI for China will be July 1, 2003, through December 31, 2003, the two most-recently completed fiscal quarters as of the month preceding the month in which the Petition was filed. See 19 CFR 351.204(b).

Mexico

Export Price

To calculate export price (“EP”), Petitioners used average unit values (“AUVs”) of U.S. imports for consumption of the subject merchandise and a U.S.-based price quote for Mexican imports of subject merchandise.

For the calculation of EP using AUV, Petitioners calculated the AUVs for two sizes of subject merchandise, i.e., the AUV for sizes up to and including 4.5 inches outside diameter (“OD”), and the AUV for sizes above 4.5 inches OD but not greater than 16 inches OD. See Petition at Volume II, Exhibit II-7. The reported AUVs provide a value of subject imports based on free-alongside-ship (“FAS”), packed for delivery. Petitioners calculated net U.S. price by deducting foreign inland freight from a Mexican producer's factory to the Mexican/U.S. border, thus establishing an ex-factory price. See Petition at Exhibit II-5. The per mile freight charge, exclusive of VAT, is based on a price quote from the same Mexican producer, dated January 6, 2004. See Petition at Exhibit II-3. Petitioners converted Mexican pesos to U.S. dollars using the average exchange rate for the POI. See amended petition dated March 15, 2004, at page 1 and Exhibit A-3. The AUVs were reported in U.S. dollars per short ton ($/ST), and converted to metric tons for purposes of the margin calculation.

To calculate EP using the quoted U.S. price, Petitioners obtained a price quote on subject merchandise sold by a U.S. distributor of Line Pipe produced in Mexico. The price information was for Line Pipe with a 4 inch nominal (4.5 inch OD) by 0.224 inch wall thickness (“WT”) (the product for which Petitioners obtained a home market price quote), among other products. See Petition at Exhibit II-8. The quoted price includes freight to the United States on an FOB basis. The date of the price offering is contemporaneous with the POI.

Petitioners converted the price to U.S. dollars per metric ton using the average exchange rate for the POI. Petitioners then deducted the inland freight and a distributor markup of three percent, applicable to the seller as a U.S. distributor of Mexican-produced subject merchandise. Petitioners reasonably based the distributor markup on one of the Petitioners' experience. See Petition at page II-4 and Exhibit A-6 of the amended petition dated March 15, 2004. No other deductions were made from U.S. price.

Normal Value

To calculate home market normal value (“NV”), Petitioners used price quotes obtained for two sizes of Line Pipe offered for sale in Mexico by a major Mexican producer. See Petition at Exhibit II-3. Petitioners calculated NV separately for each size of Line Pipe based on the price offering obtained from the Mexican producer. The quote did not include delivery charges. See Petition at page II-2 and Exhibit II-5. No adjustments were made for packing costs in the home market.

Petitioners converted Mexican home market prices from pesos per meter to pesos per metric ton and then to U.S. dollars per metric ton using the average exchange rate in effect during the POI. See amended petition dated March 15, 2004, at Exhibit A-3.

The price-to-price margin calculation is between 24.16 percent and 31.34. The price-to-AUV margin calculations range between 8.47 percent and 22.44 percent. See amended petition dated March 19, 2004, at Exhibit A2-2.

Petitioners included COP and CV calculations in their Petition. However, Petitioners did not allege that the sales of certain circular welded carbon quality line pipe products in the Mexican home market were made at prices below the fully absorbed COP within the meaning of section 773(b) of the Act. Therefore, we are not initiating a cost investigation with respect to imports from Mexico at this time. Furthermore, section 773(a)(1) of the Act lays out a specific hierarchy for determining NV. Because petitioners obtained representative home market prices, we have not relied on the CV calculation for purposes of initiation. Accordingly, we are not including in the range of dumping margins any CV comparisons.

Korea

Export Price

To calculate EP, Petitioners used two different prices: AUV of imports of subject merchandise from Korea, and a price offering of Korean imports based on an affidavit from the Vice President of Line Pipe Sales at Lone Star Steel Company describing a lost sale.

For the calculation of EP using AUVs, Petitioners calculated AUVs for two sizes of subject merchandise, the AUV for sizes up to and including 4.5 inches OD, and the AUV for sizes above 4.5 inches OD but not greater than 16 inches OD. Petitioners calculated net U.S. price by deducting international freight from the price. See Exhibit II-6 of the petition and Exhibit A-4 of the amended petition dated March 15, 2004. Petitioners estimated ocean freight by subtracting the average unit FAS value of subject imports imported during the POI from the average unit cost, insurance and freight (“CIF”) value of subject imports imported during the POI, using the Bureau of the Census IM145 import statistics. See page II-4 and Exhibit II-6 of the Petition and page 13 and Exhibits A-4 and A-22 of the amended petition dated March 15, 2004.

Petitioners converted the price to U.S. dollars per metric ton. Petitioners then deducted the estimated ocean freight in the same manner as used in the calculation using AUVs. No other deductions were made from U.S. price.

Normal Value

To calculate home market NV, Petitioners used price quotes obtained by a consultant for two sizes of Line Pipe from two different Korean producers. See pages II-1 II-2 and Exhibit II-3 of the Petition. For the first producer, Petitioners calculated NV separately for each size of Line Pipe. Petitioners converted the ex-VAT per unit price to a Korean won price per metric ton, then deducted a distributor markup of three percent and converted the resulting net price to U.S. dollars using the average exchange rate for the POI. No adjustment was made for home market inland freight or for packing. Petitioners reasonably based the distributor markup on an affidavit from one of the petitioning Line Pipe manufacturers, which states that distributor markups are commonly at least three to five percent. See page II-3 and Exhibit II-2 of the petition and Exhibit A-6 of the amended petition dated March 15, 2004.

For the second Korean producer, Petitioners converted the ex-VAT per unit price to a U.S. dollar price per metric ton for each of two sizes of Line Pipe. To convert to U.S. dollars, Petitioners used the average exchange rate for the POI. Petitioners then deducted credit expenses from the price at a rate of 6.2 percent, based on the International Monetary Fund's International Financial Statistics published lending rate during December 2003, the month of the price quote. Petitioners reasonably based the credit expense deduction on the terms listed in the price quote. See page II-3 and Exhibit II-2 of the Petition and pages 1 and 14 and Exhibits A-1 and A-24 of the amended petition dated March 15, 2004, and Exhibit A2-4 of the amended petition dated March 19, 2004. No adjustment was made for home market inland freight or for packing.

The price-to-price margin calculations range between 24.55 percent and 28.69 percent.

The price-to-AUV margin calculations range between 36.60 percent and 42.26 percent.

Petitioners stated that they had reason to believe that Line Pipe was sold in Korea at prices less than the COP. See Petition at page II-1. To value hot rolled steel purchases in their calculation of COP, Petitioners used a price of 405,000 won per metric ton, the price listed by POSCO, a major Korean supplier of hot-rolled steel, in Metal Bulletin. See petition at Exhibit II-9. The Department determined that the price of 405,000 won per metric ton was not contemporaneous to the POI, and therefore requested that Petitioners recalculate COP based on the price of hot rolled steel in effect during the POI of 355,000 won per metric ton, a price also listed by POSCO in Metal Bulletin. See Second Supplemental Questionnaire to the Petition, dated March 18, 2004, at page 2. Petitioners recalculated COP based on this revised price and noted in the amended petition dated March 19, 2004, at page 4, that there are no longer any home market prices below COP. Consequently, we are not initiating a cost investigation with respect to imports from Korea at this time. Furthermore, section 773(a)(1) of the Act lays out a specific hierarchy for determining NV. Because petitioners obtained representative home market prices, we have not relied on the CV calculation for purposes of initiation. Accordingly, we are not including in the range of dumping margins any CV comparisons.

China

Export Price

Petitioners identified the following four companies as producers and/or exporters of subject line pipe from China: Baoji OCTG Plant, Fanyu Zhujiang Steel Pipe Co., Ltd., Jiling Jiyuan Steel Pipe Co., Ltd., and Shengli Petroleum Administrative Bureau Steel Pipe Plant. To calculate EP, Petitioners used AUVs from the Bureau of the Census IM145 import statistics. Petitioners calculated AUVs for two sizes of subject merchandise, up to and including 4.5 inches OD, and above 4.5 inches OD but not greater than 16 inches OD. See Petition at pages II-5 to II-6 and Exhibits II-2 and II-13. Petitioners deducted U.S. customs duty to arrive at a price net of customs duty. See amended petition dated March 15, 2004, at A-6 to A-7 and Exhibits A-12 and A-13. Petitioners claim the reported AUVs provide an FAS value of subject imports, already packed and ready for delivery at the foreign port. See Petition at pages II-5 to II-6 and Exhibits II-2 and II-13, and amended petition dated March 15, 2004, at pages A-8 to A-9 and Exhibit A-18. Petitioners made no other adjustments or deductions to EP.

Normal Value

Petitioners assert that the Department considers China to be a non-market economy (“NME”) country , and therefore constructed NV based on the factors of production (“FOP”) methodology pursuant to section 773(c) of the Act. In previous cases, the Department has determined that China is an NME country. See, e.g., Notice of Final Determination Sales at Less Than Fair Value: Certain Folding Gift Boxes from the People's Republic of China, 66 FR 58115 (November 20, 2001), and Notice of Final Determination of Sales at Less Than Fair Value: Folding Metal Tables and Chairs from the People's Republic of China, 67 FR 20090 (April 29, 2002). In accordance with section 771(18)(c)(i) of the Act, the NME status remains in effect until revoked by the Department. The NME status of China has not been revoked by the Department and, therefore, remains in effect for purposes of the initiation of this investigation. Accordingly, the NV of the product appropriately is based on FOP valued in a surrogate market economy country in accordance with section 773(c) of the Act. In the course of this investigation, all parties will have the opportunity to provide relevant information related to the issues of China's NME status and the granting of separate rates to individual exporters.

As required by 19 CFR. section 351.202(b)(7)(i)(C), Petitioners provided dumping margin calculations for two types of merchandise within the proposed scope using the Department's NME methodology described in 19 CFR section 351.408. For the NV calculation, Petitioners based the quantities of FOP, as defined by section 773(c)(3) of the Act (raw materials, labor, energy and packing), for Line Pipe from China on usage rates for an Indian producer of subject merchandise, Surya Roshni, Ltd. (“Surya Roshni”) and one of the petitioning parties, and used publicly available surrogate values from India to calculate the respective factor costs. Petitioners assert that information regarding the Chinese producers' usage rates is not reasonably available, and have therefore assumed, for purposes of the Petition, that producers in China use the same inputs in the same quantities as Surya Roshni and the petitioning Line Pipe manufacturer. However, because Surya Roshni's financial statements did not contain sufficient information on the consumption of steel inputs and labor, Petitioners used the steel input data from one of the petitioning Line Pipe manufacturers in the United States. Likewise, Petitioners used the same U.S. manufacturer's labor data for the quantity of labor used in producing a ton of finished Line Pipe. See amended petition dated March 15, 2004, at pages A-9 to A-10. Based on the information provided by Petitioners, we believe that Petitioners' FOP methodology represents information reasonably available to Petitioners and is appropriate for purposes of initiating this investigation.

Pursuant to section 773(c) of the Tariff Act, the Petitioners assert that India is the most appropriate surrogate country for China, claiming India is: (1) a market economy; (2) a significant producer of comparable merchandise; and (3) at a level of economic development comparable to China in terms of per capita gross national income (GNI). The Department's regulation states it will place primary emphasis on per capita GNI in determining whether a given market economy is at a level of economic development comparable to the NME country (see 19 CFR 351.408(b)). In recent antidumping cases involving China, the Department identified a group of countries at a level of economic development comparable to China based primarily on per capita GNI. This group includes India, Indonesia, Sri Lanka, the Philippines, and Pakistan. Petitioners assert that India is the most appropriate surrogate. Based on the information provided by the Petitioners, we believe that the Petitioners' use of India as a surrogate country is appropriate for purposes of initiating this investigation.

In accordance with section 773(c)(4) of the Tariff Act, Petitioners valued FOP, where possible, on reasonably available, public surrogate data from India. Materials were valued based on the financial statements of Surya Roshni. See pages II-4 to II-5 and Exhibits II-7 and II-12 at page 33, and the amended petition dated March 15, 2004, at Exhibits A-13 and A-19. With regard to steel inputs, Petitioners used the per-metric ton price paid by Surya Roshni for the coil and strip used to produce subject merchandise. See amended petition dated March 15, 2004, at pages A-9 to A-10. Surya Roshni's financial statements identified the quantities and prices of electricity, furnace oil, and natural gas used in producing the subject merchandise. The updated labor rate was taken from the Department's web site. Surrogate values were not adjusted for inflation. Depreciation, overhead, SG&A, interest expense, packing, and profit ratios all came from Surya Roshni's financial statement. See Petition at pages II-4 to II-5 and Exhibits II-2, II-9, II-10, and II-12, and amended petition dated March 15, 2004, at pages A-9 to A-10 and Exhibit A-2.

The Department accepts Petitioners' calculation of NV based on the above arguments, which resulted in an estimated dumping margin of 67.24 percent for API 5LB, 12” OD, 0.280 Wall line pipe, and 43.53 percent for API 5LB, 4” OD, 0.280 Wall line pipe.

Fair Value Comparisons

Based on the data provided by Petitioners, there is reason to believe imports of Line Pipe from Mexico, Korea and China are being, or are likely to be, sold at less than fair value.

Allegations and Evidence of Material Injury and Causation

With respect to Mexico, Korea and China, Petitioners allege that the U.S. industry producing the domestic like product is being materially injured, or threatened with material injury, by reason of the individual and cumulated imports of the subject merchandise sold at less than NV.The Petition contains information on the evolution of the volume and prices of the allegedly dumped imports over the period beginning with 2001 and ending in 2003. See Petition at page I-16 and Exhibits I-12 and I-13. The Petition also contains evidence showing the effect of these import volumes and prices on the shipments and production of the domestic like product and of the consequent impact on the domestic industry. See Petition at pages I-15 to I-19 and Exhibits I-9, I-10, I-11, I-17, I-18, I-19, I-20, I-21, and I-23. This evidence shows lower AUVs of subject Line Pipe and price suppression of the domestic like product, resulting in declining value of sales, declining market share and lost sales. For a full discussion of the allegations and evidence of material injury, see Initiation Checklist at Attachment IV.

Initiation of Antidumping Investigations

Based on our examination of the Petition covering Line Pipe, we find it meets the requirements of section 732 of the Act. Therefore, we are initiating antidumping duty investigations to determine whether imports of Line Pipe from Mexico, Korea and China are being, or are likely to be, sold in the United States at less than fair value. Unless this deadline is extended pursuant to section 733(b)(1)(A) of the Act, we will make our preliminary determinations no later than 140 days after the date of this initiation.

Distribution of Copies of the Petition

In accordance with section 732(b)(3)(A) of the Act, a copy of the public version of the Petition has been provided to representatives of the governments of Mexico, Korea and China. We will attempt to provide a copy of the public version of the Petition to each exporter named in the Petition, as provided in section 19 CFR 351.203(c)(2).

International Trade Commission Notification

The ITC will preliminarily determine no later than April 19, 2004, whether there is reasonable indication that imports of Line Pipe from Mexico, Korea and China are causing, or threatening, material injury to a U.S. industry. A negative ITC determination for any country will result in the investigation being terminated with respect to that country; otherwise, these investigations will proceed according to statutory and regulatory time limits.

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