Circular Welded Carbon Quality Steel Pipe from the People's Republic of China: Final Affirmative Countervailing Duty Determination and Final Affirmative Determination of Critical Circumstances

AGENCY:

Import Administration, International Trade Administration, Department of Commerce.

SUMMARY:

The Department of Commerce (the “Department”) has determined that countervailable subsidies are being provided to producers and exporters of circular welded carbon quality steel pipe (“CWP”) from the People's Republic of China (“PRC”). For information on the estimated countervailing duty rates, please see the “Suspension of Liquidation” section, below.

EFFECTIVE DATE:

June 5, 2008.

FOR FURTHER INFORMATION CONTACT:

Shane Subler, Damian Felton or Salim Bhabhrawala, AD/CVD Operations, Office 1, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW, Washington, DC 20230; telephone: (202) 482-0189, (202) 482-0133 or (202) 482-1784 respectively.

SUPPLEMENTARY INFORMATION:

Petitioner

The Petitioners in this investigation are the Ad Hoc Coalition for Fair Pipe Imports from the People's Republic of China and the United States Steel Workers (collectively, “Petitioners”).

Period of Investigation

The period for which we are measuring subsidies, or period of investigation, is January 1, 2006, through December 31, 2006.

Case History

The following events have occurred since the announcement of the preliminary determination published in the Federal Register on November 13, 2007. See 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) (“Preliminary Determination”).

On November 13, 2007, the Department issued questionnaires to Weifang East Steel Pipe Co., Ltd. (“East Pipe”); Zhejiang Kingland Pipeline and Technologies Co., Ltd., Kingland Group Co., Ltd., Beijing Kingland Century Technologies Co., Ltd., Zhejiang Kingland Pipeline Industry Co., Ltd., and Shanxi Kingland Pipeline Co., Ltd. (collectively, “Kingland”) and, the Government of the People's Republic of China (“GOC”) regarding new subsidy allegations made by petitioners on October 3, 2007. We received responses to these questionnaires from Kingland on November 22, 2007, and from the GOC and East Pipe on December 5, 2007.

We issued supplemental questionnaires to East Pipe and Kingland on November 16, 2007, and to the GOC on November 19, 2007. We received responses to these questionnaires from Kingland on December 4, 2007, from East Pipe on December 12, 2007, and from the GOC on December 17, 2007. We issued additional supplemental questionnaires to Kingland on December 14, 2007, and East Pipe on December 17, 2007. We received responses to these questionnaires from Kingland and East Pipe on December 27, 2007.

The GOC, East Pipe, Kingland, Petitioners, and interested parties also submitted factual information, comments, and arguments at numerous instances prior to the final determination based on various deadlines for submissions of factual information and/or arguments established by the Department subsequent to the Preliminary Determination.

From January 14 through January 23, 2008, we conducted verification of the questionnaire responses submitted by the GOC, Kingland, and East Pipe.

On April 9, 2008, we issued our post-preliminary determination regarding the provision of land for less than adequate remuneration and new subsidy allegations. We addressed our preliminary findings in an April 9, 2008, memorandum to David M. Spooner, Assistant Secretary for Import Administration, entitled Post-Preliminary Findings for the Provision of Land for Less Than Adequate Remuneration and New Subsidy Allegations, which is on file in the Central Records Unit (“CRU”).

We received case briefs from the GOC, East Pipe, Kingland, Petitioners, certain members of the Specialty Steel Industry of North America (“SSINA”), United States Steel Corporation (“US Steel”), Western International Forest Products, LLC (“Western”), MAN Ferrostaal, Inc., Commercial Metals Company and QT Trading LP (collectively, “MAN Ferrostaal”), and SeAH Steel America (“SSA”) on April 17, 2008. The same parties submitted rebuttal briefs on April 22 and April 29, 2008. We held a hearing for this investigation on May 5, 2008.

Scope of the 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.

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 a standard and/or structural specification and to any other specification, such as the American Petroleum Institute (“API”) API-5L specification, is also covered by the scope of this investigation when it meets the physical description set forth above and also has one or more of the following characteristics: is 32 feet in length or less; is less than 2.0 inches (50 mm) in outside diameter; has a galvanized and/or painted surface finish; or has a threaded and/or coupled end finish. (The term “painted” does not include coatings to inhibit rust in transit, such as varnish, but includes coatings such as polyester.)

The scope of this investigation 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) finished scaffolding; (e) tube and pipe hollows for redrawing; (f) oil country tubular goods produced to API specifications; and (g) line pipe produced to only API specifications.

The pipe products that are the subject of this investigation 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, 7306.30.50.90, 7306.50.10.00, 7306.50.50.50, 7306.50.50.70, 7306.19.10.10, 7306.19.10.50, 7306.19.51.10, and 7306.19.51.50. However, the product description, and not the Harmonized Tariff Schedule of the United States (“HTSUS”) classification, is dispositive of whether merchandise imported into the United States falls within the scope of the investigation.

Scope Comments

The scope listed above has changed from the Preliminary Determination.

On December 19, 2007, Petitioners requested that the Department clarify the scope of this investigation and the companion antidumping duty investigation of CWP from the PRC. We have analyzed the request and comments of the interested parties regarding the scope of this investigation. Our position on these comments is discussed in the final determination in the companion antidumping duty investigation of CWP from the PRC.

Injury Test

Because the PRC is a “Subsidies Agreement Country” within the meaning of section 701(b) of the Tariff Act of 1930, as amended, (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. On August 3, 2007, the ITC published its preliminary determination that there is a reasonable indication that an industry in the United States is materially injured or threatened with material injury by reason of imports from China of circular welded carbon-quality steel pipe. 72 FR 43295.

Critical Circumstances

In the Preliminary Determination, the Department determined that critical circumstances exist with respect to imports of circular welded pipe from certain PRC exporters, pursuant to section 703(e) of the Act and 19 CFR 351.206. Preliminary Determination, 72 FR at 63879-80. The Department continues to find critical circumstances in this final determination. For further discussion on this issue, see “Issues and Decision Memorandum for the Final Determination,” from Stephen J. Claeys, Deputy Assistant Secretary for Import Administration, to David M. Spooner, Assistant Secretary for Import Administration, dated May 29, 2008 (“Decision Memorandum”) at Comments 10, 11, and 12, and Memorandum to the File Re “Critical Circumstances Analysis for Zhejiang Kingland Pipeline and Technologies Co., Ltd. Import Shipment Analysis for Zhejiang Kingland Pipeline and Technologies Co., Ltd. and “All Others” (May 29, 2008) (“Final Critical Circumstances Memorandum”) (this memorandum is on file in the Department's CRU).

Analysis of Comments Received

All issues raised in the case and rebuttal briefs by parties to this investigation are addressed in the Decision Memorandum, which is hereby adopted by this notice. Attached to this notice as an Appendix is a list of the issues that parties have raised and to which we have responded in the Decision Memorandum. Parties can find a complete discussion of all issues raised in this investigation and the corresponding recommendations in this public memorandum, which is on file in the CRU. In addition, a complete version of the Decision Memorandum can be accessed directly on the Internet at http://ia.ita.doc.gov/frn/. The paper copy and electronic version of the Decision Memorandum are identical in content.

Use of Adverse Facts Available

Sections 776(a)(1) and (2) of the Act provide that the Department shall apply “facts otherwise available” if, inter alia, necessary information is not on the record or an interested party or any other person: (A) withholds information that has been requested; (B) fails to provide information within the deadlines established, or in the form and manner requested by the Department, subject to subsections (c)(1) and (e) of section 782 of the Act; (C) significantly impedes a proceeding; or (D) provides information that cannot be verified as provided by section 782(i) of the Act.

Where the Department determines that a response to a request for information does not comply with the request, section 782(d) of the Act provides that the Department will so inform the party submitting the response and will, to the extent practicable, provide that party the opportunity to remedy or explain the deficiency. If the party fails to remedy the deficiency within the applicable time limits and subject to section 782(e) of the Act, the Department may disregard all or part of the original and subsequent responses, as appropriate. Section 782(e) of the Act provides that the Department “shall not decline to consider information that is submitted by an interested party and is necessary to the determination but does not meet all applicable requirements established by the administering authority” if the information is timely, can be verified, is not so incomplete that it cannot be used, and if the interested party acted to the best of its ability in providing the information. Where all of these conditions are met, the statute requires the Department to use the information if it can do so without undue difficulties.

Section 776(b) of the Act further provides that the Department may use an adverse inference in applying the facts otherwise available when a party has failed to cooperate by not acting to the best of its ability to comply with a request for information. Section 776(b) of the Act also authorizes the Department to use as adverse facts available (“AFA”) information derived from the petition, the final determination, a previous administrative review, or other information placed on the record.

Section 776(c) of the Act provides that, when the Department relies on secondary information rather than on information obtained in the course of an investigation or review, it shall, to the extent practicable, corroborate that information from independent sources that are reasonably at its disposal. Secondary information is defined as “{i}nformation derived from the petition that gave rise to the investigation or review, the final determination concerning the subject merchandise, or any previous review under section 751 concerning the subject merchandise.” See Statement of Administrative Action (“SAA”) accompanying the Uruguay Round Agreements Act, attached to H.R. Rep. No. 103-316, Vol. I at 870 (1994), reprinted in 1994 U.S.C.C.A.N. 3773, 4163 (“SAA”). Corroborate means that the Department will satisfy itself that the secondary information to be used has probative value. See SAA at 870. To corroborate secondary information, the Department will, to the extent practicable, examine the reliability and relevance of the information to be used. The SAA emphasizes, however, that the Department need not prove that the selected facts available are the best alternative information. See SAA at 869.

The Department has concluded that it is appropriate to base the final determination for Tianjin Shuangjie Steel Pipe Group Co., Ltd. (“Shuangjie”) on facts otherwise available. Shuangjie failed to respond at all to the Department's October 24, 2007, request for shipment data relating to the allegation of critical circumstances, did not respond to the Department's October 25, 2007, supplemental questionnaire, and finally, on October 31, 2007, withdrew all of its proprietary information from the record.

Consequently, the use of facts otherwise available is warranted under section 776(a)(2)(A) of the Act.

In selecting from among the facts available, the Department has determined that an adverse inference is warranted, pursuant to section 776(b) of the Act because, in addition to not fully responding to all of our requests for information, Shuangjie withdrew from all participation in the investigation and did not provide the Department with the opportunity to verify the information it did submit. Thus, Shuangjie failed to cooperate by not acting to the best of its ability, and our final determination is based on total AFA.

We have also determined that it is appropriate to apply facts available with respect to certain information that the GOC failed to provide, or information that could not be verified. Specifically, despite the Department's requests to submit sub-national government plans relating to the steel industry in the PRC, the GOC stated that none existed. However, at verification the Department discovered the existence of the Shandong Provincial Steel Plan. Additionally, the Department was unable to verify information regarding the level of state ownership in the HRS industry in the PRC because the GOC misrepresented the source of the data. In both instances, the GOC failed to act to the best of its ability and, consequently, application of AFA is warranted.

Selection of the Adverse Facts Available

In deciding which facts to use as AFA, section 776(b) of the Act and 19 CFR 351.308(c)(1) authorize the Department to rely on information derived from (1) the petition, (2) a final determination in the investigation, (3) any previous review or determination, or (4) any information placed on the record. It is the Department's practice to select, as AFA, the highest calculated rate in any segment of the proceeding. See, e.g., Certain In-shell Roasted Pistachios from the Islamic Republic of Iran: Final Results of Countervailing Duty Administrative Review, 71 FR 66165 (November 13, 2006), and accompanying Issues and Decision Memorandum at “Analysis of Programs” & Comment 1.

The Department's practice when selecting an adverse rate from among the possible sources of information is to ensure that the margin is sufficiently adverse “as to effectuate the purpose of the facts available role to induce respondents to provide the Department with complete and accurate information in a timely manner.” See Notice of Final Determination of Sales at Less than Fair Value: Static Random Access Memory Semiconductors From Taiwan, 63 FR 8909, 8932 (February 23, 1998). The Department's practice also ensures “that the party does not obtain a more favorable result by failing to cooperate than if it had cooperated fully.” See SAA at 870. In choosing the appropriate balance between providing a respondent with an incentive to respond accurately and imposing a rate that is reasonably related to the respondent's prior commercial activity, selecting the highest prior margin “reflects a common sense inference that the highest prior margin is the most probative evidence of current margins, because, if it were not so, the importer, knowing of the rule, would have produced current information showing the margin to be less.” See Rhone Poulenc, Inc. v. United States, 899 F. 2d 1185, 1190 (Fed. Cir. 1990).

Therefore, for every program based on the provision of goods at less than adequate remuneration, the Department used the Kingland rate for the provision of hot-rolled steel for less than adequate remuneration. For value added tax (“VAT”) programs, we are unable to utilize company-specific rates from this proceeding because neither respondent received any countervailable subsidies from these subsidy programs. Therefore, for VAT programs we are also applying the highest subsidy rate for any program otherwise listed, which in this instance is Kingland's rate for the provision of hot-rolled steel for less than adequate remuneration.

Similarly, for the grant programs, we are not relying on the highest calculated final rate because it is de minimis. Instead, we are applying the highest calculated final subsidy rate, which in this instance is Kingland's rate for the provision of hot-rolled steel for less than adequate remuneration.

Finally, for the six alleged income tax programs pertaining to either the reduction of the income tax rates or exemption from income tax, we have applied an adverse inference that Shuangjie paid no income tax during the period of investigation (i.e., calendar year 2006). The standard income tax rate for corporations in the PRC is 30 percent, plus a 3 percent provincial income tax rate. Therefore, the highest possible benefit for these six income tax rate programs is 33 percent. We are applying the 33 percent AFA rate on a combined basis (i.e., the six programs combined provided a 33 percent benefit). This 33 percent AFA rate does not apply to income tax deduction or credit programs. For income tax deduction or credit programs, we are applying the highest subsidy rate for any program otherwise listed, which in this instance is Kingland's rate for the provision of hot-rolled-steel at less than adequate remuneration.

In a change from the Preliminary Determination, we are not assigning rates for alleged provincial subsidy programs where record evidence shows that Tianjin Shuangjie was not located in those provinces. See Decision Memorandum at Comment 15.

We do not need to corroborate these rates because they are not considered secondary information as they are based on information obtained in the course of this investigation, pursuant to section 776(c) of the Act. See also SAA at 870.

Regarding the application of adverse facts available to the GOC, we have treated companies as state-owned where the GOC did not provide information regarding the companies' ownership. Also, where the provincial steel plan was not provided, we are finding that policy lending existed in that province. See Decision Memorandum at “Analysis of Programs;” Comment 3; and Comment 8.

Suspension of Liquidation

In accordance with section 705(c)(1)(B)(i)(I) of the Act, we have calculated an individual rate for the companies under investigation, East Pipe, Kingland and Shuangjie. Section 705(c)(5)(A)(i) of the Act states that for companies not investigated, we will determine an “all others” rate equal to the weighted average countervailable subsidy rates established for exporters and producers individually investigated, excluding any zero and de minimis countervailable subsidy rates, and any rates determined entirely under section 776. As Shuangjie's rate was calculated under section 776 of the Act, it is not included in the “all others” rate.

Nothwithstanding the language of section 705(c)(1)(B)(i)(I) of the Act, we have not calculated the “all others” rate by weight averaging the rates of East Pipe and Kingland, because doing so risks disclosure of proprietary information. Therefore, we have calculated a simple average of the two responding firms' rates. Since there were either no or de minimis countervailable export subsidies for Kingland and East Pipe and because the “all others” rate is a simple average based on the individually investigated exporters and producers, the “all others” rate does not include export subsidies.

Because we preliminarily determined that critical circumstances exist for entries of CWP manufactured/exported by Kingland, Shuangjie and “all other” Chinese manufacturers/exporters and pursuant to sections 703(d)(1)(B) and (2) and 703(e)(2)(A) of the Act, we instructed the U.S. Customs and Border Protection (“CBP”) to suspend liquidation of entries of CWP manufactured/exported by Kingland, Shuangjie and “all other” Chinese exports of CWP which were entered or withdrawn from warehouse, for consumption on or after November 13, 2007, and to apply the suspension of liquidation to any unliquidated entries entered, or withdrawn from warehouse for consumption, on or after August 15, 2007 (90 days before the date of publication of the Preliminary Determination. Also, in accordance with section 703(d) of the Act, we instructed CBP to discontinue the suspension of liquidation for countervailing duty purposes for subject merchandise entered on or after March 12, 2008, but to continue the suspension of liquidation of entries made from August 15, 2007, through March 12, 2008. Preliminary Determination, 72 FR at 6386.

For entries of CWP manufactured/exported by East Pipe, we did not instruct CBP to suspend liquidation because we preliminarily determined that East Pipe did not receive any countervailable subsidies.

We will issue a countervailing duty order and reinstate the suspension of liquidation under section 706(a) of the Act (for all companies including East Pipe) if the International Trade Commission (“ITC”) issues a final affirmative injury determination, and will require a cash deposit of estimated countervailing duties for such entries of merchandise in the amounts indicated above. If the ITC determines that material injury, or threat of material injury, does not exist, this proceeding will be terminated and all estimated duties deposited or securities posted as a result of the suspension of liquidation will be refunded or canceled.

ITC Notification

In accordance with section 705(d) of the Act, we will notify the ITC of our determination. In addition, we are making available to the ITC all non-privileged and non-proprietary information related to this investigation. We will allow the ITC access to all privileged and business proprietary information in our files, provided the ITC confirms that it will not disclose such information, either publicly or under an APO, without the written consent of the Assistant Secretary for Import Administration.

Return or Destruction of Proprietary Information

In the event that the ITC issues a final negative injury determination, this notice will serve as the only reminder to parties subject to an administrative protective order (“APO”) of their responsibility concerning the destruction of proprietary information disclosed under APO in accordance with 19 CFR 351.305(a)(3). Timely written notification of the return/destruction of APO materials or conversion to judicial protective order is hereby requested. Failure to comply with the regulations and terms of an APO is a violation which is subject to sanction.

This determination is published pursuant to sections 705(d) and 777(i) of the Act.

Appendix

List of Comments and Issues in the Decision Memorandum

Comment 1: The Department's Authority to Apply the Countervailing Duty Law to China

Comment 2: Subsidies Prior to China's Accession to the World Trade Organization

Comment 3: Adverse Facts Available (“AFA”)

Comment 4: Attribution of Subsidies Received by Affiliates of Zhejiang Kingland Pipeline and Technologies Co., Ltd.

Comment 5: Scope of the Investigation

Comment 6: Sales Denominator for Weifang East Steel Pipe Company Ltd.

Comment 7: Provision of Hot-rolled Steel for Less Than Adequate Remuneration

Comment 8: Government Policy Lending

Comment 9: Provision of Electricity for Less Than Adequate Remuneration

Comment 10: Critical Circumstances on an Importer Specific Basis

Comment 11: Base and Comparison Period for Critical Circumstances

Comment 12: Kingland Export Subsidy and Finding of Critical Circumstances

Comment 13: East Pipe Debt Forgiveness

Comment 14: Discount Rate

Comment 15: Programs Included in AFA Rate for Tianjin Shuangjie Steel Pipe Co., Ltd.

Comment 16: Double Remedy