Downhole Pipe & Equipment, LP v. United States et al

Slip Op. 14-130
UNITED STATES COURT OF INTERNATIONAL TRADE
Before: Timothy C. Stanceu, Chief Judge
Court No. 11-00080
OPINION
[Affirming a redetermination that the U.S. International Trade Commission issued in response to
a remand order in litigation under the antidumping and countervailing duty laws]
Date: November 10, 2014
Mark B. Lehnardt, Lehnardt & Lehnardt, LLC, of Liberty, MO and Irene H. Chen, Chen
Law Group, LLC, of Rockville, MD, argued for plaintiff Downhole Pipe & Equipment, LP.
David Goldfine, Attorney-Advisor, U.S. International Trade Commission, of Washington,
DC, argued for defendants.
Roger B. Schagrin and John W. Bohn, Schagrin Associates, of Washington, DC, for
defendant-intervenors VAM Drilling USA, Texas Steel Conversion, Inc., Rotary Drilling Tools,
and TMK IPSCO.
DOWNHOLE PIPE & EQUIPMENT, LP,
Plaintiff,
v.
UNITED STATES and UNITED STATES
INTERNATIONAL TRADE
COMMISSION,
Defendants,
and
VAM DRILLING USA, TEXAS STEEL
CONVERSIONS, INC., ROTARY
DRILLING TOOLS, TMK IPSCO, and
UNITED STATES STEEL
CORPORATION,
Defendant-intervenors.
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Robert E. Lighthizer, Stephen P. Vaughn, and James C. Hecht, Skadden, Arps, Slate,
Meagher & Flom LLP, of Washington, DC, for defendant-intervenor United States Steel
Corporation.
Stanceu, Chief Judge: Before the court is a determination (“Remand Redetermination”)
issued by the U.S. International Trade Commission (“ITC” or the “Commission”) in response to
the court’s remand order in Downhole Pipe & Equipment, LP v. United States, 37 CIT __, 963 F.
Supp. 2d 1335 (2013) (“Downhole Pipe I”). Views of the Comm’n on Remand (Dec. 11, 2013),
ECF No. 96 (public version) (“Remand Redetermination”).1 In Downhole Pipe I, the court
reviewed the ITC’s final determination that the domestic industry manufacturing steel drill pipe
and steel drill collars, although not experiencing present material injury, was threatened with
material injury by imports of finished and unfinished steel drill pipe and steel drill collars (the
“subject merchandise”) from the People’s Republic of China (“China” or the “PRC”). See Drill
Pipe & Drill Collars From China, 76 Fed. Reg. 11,812 (Int’l Trade Comm’n Mar. 3, 2011)
(“Final Injury Determination”); Drill Pipe & Drill Collars from China, Inv. Nos. 701-TA-474
and 731-TA-1176 (Final), USITC Pub. 4213 (Feb. 2011) (“ITC Publ’n”), available at
http://www.usitc.gov/trade_remedy/731_ad_701_cvd/investigations/2010/
drill_pipe_from_china/final/PDF/pub4213.pdf (last visited Nov. 4, 2014). The court remanded
the Commission’s affirmative threat determination for reconsideration, principally upon the
conclusion that two of the Commission’s findings of fact were unsupported by substantial
evidence on the record of the investigation. Downhole Pipe I, 37 CIT at __, 963 F. Supp. 2d
at 1348. On remand, the ITC reconsidered its earlier determination in the absence of the
unsupported findings. The Commission again reached a negative determination on material
1 Citations in this Opinion are to the public version of each document unless otherwise
indicated.
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injury but reversed its prior affirmative determination with respect to threat. Remand
Redetermination 3.
The defendant-intervenors in this case, VAM Drilling USA, Texas Steel
Conversion, Inc., Rotary Drilling Tools, TMK IPSCO, and United States Steel Corporation, are
domestic drill pipe producers. Id. at 6. They raise various objections to the Remand
Redetermination and advocate a second remand for reconsideration of the ITC’s negative threat
determination. Comments of Def.-intervenors; VAM Drilling USA; Texas Steel
Conversion, Inc.; Rotary Drilling Tools; TMK IPSCO; & U.S. Steel Corp. Regarding the
Remand Results (Jan. 27, 2014), ECF No. 105 (“Def.-intervenors’ Comments”). For the reasons
discussed herein, the court rejects defendant-intervenors’ arguments and concludes that the
Remand Redetermination must be affirmed.
I. BACKGROUND
The background of this case is presented in the court’s prior opinions in this action and is
supplemented herein. Downhole Pipe I, 37 CIT at __, 963 F. Supp. 2d at 1338; Downhole Pipe
& Equipment Co. v. United States, 37 CIT __, __, Slip Op.14-23 at 2-4 (Feb. 25, 2014) (denying
motion for rehearing).
The ITC initiated its injury and threat investigation on January 6, 2010. Drill Pipe From
China, 75 Fed. Reg. 877, 878 (Int’l Trade Comm’n Jan. 6, 2010) (initiation). The Commission
conducted its investigation on the basis of data from a period of investigation (“POI”) from
January 2007 to June 2010. 	Drill Pipe & Drill Collars from China: Staff Report to the Comm’n
on Investigation Nos. 701-TA-474 and 731-TA-1176 (Final) at I-30 (Table I-4) (Jan. 26, 2011)
(Pub. Admin.R.Doc. No. 213) (Conf. Admin.R.Doc. No. 523) (“Final Staff Report”).
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The Commission published the preliminary results of its investigation on March 8, 2010,
determining that, for purposes of sections 703(a) and 733(a) of the Tariff Act of 1930 (the
“Tariff Act”), 19 U.S.C. §§ 1671b(a), 1673b(a), “there is a reasonable indication that an industry
in the United States is threatened with material injury by reason of imports from China of drill
pipe and drill collars.”2 Drill Pipe & Drill Collars from China, 75 Fed. Reg. 10,501 (Int’l Trade
Comm’n Mar. 8, 2010) (preliminary results). The International Trade Administration, U.S.
Department of Commerce (“Commerce” or the “Department”), determined, pursuant to sections
705(a) and 735(a) of the Tariff Act, 19 U.S.C. §§ 1671d(a), 1673d(a), that drill pipe and drill
collars were being sold at less than fair value and that the Chinese producers received
countervailable subsidies. Drill Pipe From the People’s Republic of China: Final Determination
of Sales at Less Than Fair Value & Critical Circumstances, 76 Fed. Reg. 1,966 (Int’l Trade
Admin. Jan. 11, 2011); Drill Pipe From the People’s Republic of China: Final Affirmative
Countervailing Duty Determination, Final Affirmative Critical Circumstances Determination,
76 Fed. Reg. 1,971 (Int’l Trade Admin. Jan. 11, 2011). Subsequently the ITC, reaching a
negative determination on injury and an affirmative determination on threat pursuant to sections
705(b) and 735(b) of the Tariff Act, 19 U.S.C. §§ 1671d(b), 1673d(b), published its final
determination on injury and threat concurrently with the publication of antidumping and
countervailing duty orders on March 3, 2011. Drill Pipe and Drill Collars From China, 76 Fed.
Reg. 11,812 (Int’l Trade Comm’n Mar. 3, 2011) (“Final Injury Determination”); Drill Pipe
From the People’s Republic of China: Antidumping Duty Order, 76 Fed. Reg. 11,757 (Int’l
2 All statutory citations are to the relevant provisions the 2006 edition of the U.S. Code,
unless otherwise indicated.
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Trade Admin. Mar. 3, 2011); Drill Pipe From the People’s Republic of China: Countervailing
Duty Order, 76 Fed. Reg. 11,758 (Int’l Trade Admin. Mar. 3, 2011).
Plaintiff Downhole Pipe & Equipment, LP, a Chinese producer of the subject
merchandise, initiated this action contesting the ITC’s final affirmative threat determination by
filing a summons on April 1, 2011 and a complaint on April 29, 2011. Summons, ECF No. 1;
Compl., ECF No. 8. Plaintiff subsequently moved for judgment on the agency record pursuant
to USCIT Rule 56.2. Pl.’s R. 56.2 Mot. for J. on the Agency R. (Oct. 19, 2011), ECF No. 28. In
Downhole Pipe I, the court concluded that the contested determination relied in part on two
factual findings that were not supported by substantial evidence on the administrative record and
also directed the Commission to provide further explanation with respect to two other aspects of
the affirmative threat determination.3 Downhole Pipe I, 37 CIT at __, 963 F. Supp. 2d
at 1344-47.
In reaching a negative determination on threat, the Remand Redetermination incorporated
by reference, and adopted in its entirety, a section of the final ITC publication presenting the
3 The U.S. International Trade Commission (“ITC” or the “Commission”) had relied in
part on a finding that U.S. sales of the subject merchandise had been confined to small
purchasers at the beginning of the period of investigation (“POI”) and a finding that importers
had “broken through a major prior limitation on their reach in the U.S. market” by successfully
targeting sales to large firms toward the end of the POI. Drill Pipe and Drill Collars from China
at 29, Inv. Nos. 701-TA-474 and 731-TA-1176 (Final), USITC Pub. 4213 (Feb. 2011) (“ITC
Publ’n”), available at http://www.usitc.gov/trade_remedy/731_ad_701_cvd/investigations/
2010/drill_pipe_from_china/final/PDF/pub4213.pdf (last visited Nov. 4, 2014). In Downhole
Pipe & Equipment, LP v. United States, 37 CIT __, 963 F. Supp. 2d 1335 (2013) (“Downhole
Pipe I”), the court concluded that the ITC had relied on these two factual findings, which the
court held impermissible, in determining that the U.S. market share of Chinese imports was
“poised to increase.” Id. at __, 963 F. Supp. 2d at 1342-45. The court ordered clarification of
the ITC’s findings that “‘subject imports held a substantial share of the U.S. market throughout
the period examined, a share that grew in first-half 2010’” and “‘U.S. importers have increased
their quantities of inventories of Chinese product to levels that are particularly significant in the
context of current market conditions.’” Id. at __, 963 F. Supp. 2d at 1346-47 (citing ITC Publ’n,
Original Comm’n Views 32).
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opinion of three Commissioners who had dissented from the Commission’s original affirmative
threat determination (“Original Dissenting Views”). Remand Redetermination 7 (citing ITC
Publ’n, Original Dissenting Views 41-62). In light of the reversal, the Remand Redetermination
did not respond to the court’s order seeking additional explanation with respect to certain aspects
of the original majority’s final affirmative threat determination.4
II. DISCUSSION
The court exercises jurisdiction according to section 201 of the Customs Courts Act of
1980, 28 U.S.C. § 1581(c), under which the Court of International Trade is granted exclusive
jurisdiction over actions brought under section 516A of the Tariff Act, 19 U.S.C. § 1516a. In
reviewing the Remand Redetermination, the court will “hold unlawful any determination,
finding, or conclusion found . . . to be unsupported by substantial evidence on the record, or
otherwise not in accordance with law.” 19 U.S.C. § 1516a(b)(1)(B)(i). Substantial evidence is
“such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.”
Consol. Edison Co. v. NLRB, 305 U.S. 197, 229 (1938). The court considers evidence on the
record in its entirety, and a determination as to the sufficiency of evidence “must take into
account whatever in the record fairly detracts from its weight.” Universal Camera Corp. v.
NLRB, 340 U.S. 474, 488 (1951). Where evidence is ambiguous or subject to different
weightings of the record, substantial evidence may consist of “something less than the weight of
the evidence, and the possibility of drawing two inconsistent conclusions from the evidence does
4 “Since we have adopted the Original Dissenting Views in their entirety, the Court’s
remand instructions do not apply to our negative determinations on remand.” Views of the
Comm’n on Remand 7 (Dec. 11, 2013), ECF No. 96 (“Remand Redetermination”). In addition,
the ITC addressed two errors in the Final Staff Report pointed out in the court’s remand order.
Id. at 6 n.16.
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not prevent an administrative agency’s finding from being supported by substantial evidence.”
Consolo v. Fed. Maritime Comm’n, 383 U.S. 607, 620 (1966).
Under sections 705(b)(1) and 735(b)(1) of the Tariff Act, 19 U.S.C. §§ 1671d(b)(1),
1673d(b)(1), the Commission is required to determine whether a domestic industry or industries
are materially injured or threatened with material injury “by reason of imports, or sales (or the
likelihood of sales)” of the merchandise for which Commerce has made an affirmative
determination of subsidy or sales at less than fair value. Section 771(7)(A) of the Tariff Act
defines material injury as harm that “is not inconsequential, immaterial, or unimportant.”
19 U.S.C. § 1677(7)(A).
In making its determination on threat, the ITC is required to “consider, among other
relevant economic factors,” eight specific factors. 19 U.S.C. § 1677(7)(F)(i).5 The statute also
identifies a ninth, nonspecific threat factor: “any other demonstrable adverse trends that indicate
5 The specific economic factors prescribed for the threat determination are as follows:
(1) “if a countervailable subsidy is involved . . . the nature of the subsidy . . . and whether
imports of the subject merchandise are likely to increase,” 19 U.S.C. § 1677(7)(F)(i)(I); (2) “any
existing unused production capacity or imminent, substantial increase in production capacity in
the exporting country indicating the likelihood of substantially increased imports of the subject
merchandise into the United States, taking into account the availability of other export markets to
absorb any additional exports,” id. § 1677(7)(F)(i)(II); (3) “a significant rate of increase of the
volume or market penetration of imports of the subject merchandise indicating the likelihood of
substantially increased imports,” id. § 1677(7)(F)(i)(III); (4) “whether imports of the subject
merchandise are entering at prices that are likely to have a significant depressing or suppressing
effect on domestic prices, and are likely to increase demand for further imports,” id.
§ 1677(7)(F)(i)(IV); (5) “inventories of the subject merchandise,” id. § 1677(7)(F)(i)(V); (6) “the
potential for product-shifting if production facilities in the foreign country, which can be used to
produce the subject merchandise, are currently being used to produce other products,” id.
§ 1677(7)(F)(i)(VI); (7) “the likelihood that there will be increased imports, by reason of product
shifting, if there is an affirmative determination by the Commission . . . with respect to either the
raw agricultural product or the processed agricultural product” (not relevant to this case), id.
§ 1677(7)(F)(i)(VII); and (8) “the actual and potential negative effects on the existing
development and production efforts of the domestic industry, including efforts to develop a
derivative or more advanced version of the domestic like product,” id. § 1677(7)(F)(i)(VIII).
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the probability that there is likely to be material injury by reason of imports (or sale for
importation) of the subject merchandise (whether or not it is actually being imported at the
time).” Id. § 1677(7)(F)(i)(IX).
Defendant-intervenors claim that the ITC’s findings regarding four of the nine factors
enumerated in 19 U.S.C. § 1677(7)(F)(i) are unsupported by substantial evidence and that,
because the Remand Redetermination relies upon these findings, the court must order another
remand in this case.6 Def.-intervenors’ Comments 4. They organize their comments under two
general objections to the Remand Redetermination. First, they claim that the ITC’s finding on
the likely volume and market share of subject imports lacked the support of substantial record
evidence. Id. at 3. Second, they claim that the ITC’s analysis of the U.S. industry’s financial
performance was fundamentally flawed. Id. at 27-29. At oral argument, the court asked
whether, as it appeared from defendant-intervenors’ comments on the Remand Redetermination,
the second claim was a challenge the ITC’s negative injury determination. Redacted Tr. of
Confidential Oral Arg. at 9 (July 30, 2014), ECF No. 117 (“Oral Tr.”). In response, counsel for
defendant-intervenors waived the second claim to the extent that the claim is interpreted to
challenge the injury determination but expressly declined to waive this claim to the extent that it
applies to the threat determination. Id. at 10.
6 In their comments on the Remand Redetermination, defendant-intervenors identify the
four statutory factors under which they contend the Commission made impermissible findings as
follows: “ . . . existing unused production capacity, any ‘significant rate of increase in the volume
or market penetration of imports of the subject merchandise,’ inventories of subject merchandise,
[and] ‘whether imports of the subject merchandise are entering at prices that are likely to have a
significant depressing or suppressing effect on domestic prices, and are likely to increase demand
for further imports.’” Comments of Def.-intervenors; VAM Drilling USA; Texas Steel
Conversion, Inc.; Rotary Drilling Tools; TMK IPSCO; & U.S. Steel Corp. Regarding the
Remand Results 3-4 (Jan. 27, 2014), ECF No. 105 (public) (“Def.-intervenors’ Comments”)
(citing 19 U.S.C. §1677(7)(F)(i)(II-V)).
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A. The Court Rejects Defendant-intervenors’ Arguments Pertaining to Likely Volume and
Market Share of Subject Imports and Existing Unused Production Capacity of Chinese Producers
In making a threat determination, the ITC is required to consider, among several other
factors, “any existing unused production capacity or imminent, substantial increase in production
capacity in the exporting country indicating the likelihood of substantially increased imports of
the subject merchandise into the United States, taking into account the availability of other
export markets to absorb any additional exports . . . .” 19 U.S.C. § 1677(7)(F)(i)(II). The
Commission noted that “Chinese capacity increased overall during the period examined, with
capacity utilization dropping to low levels by the end of the period, so that reported excess
capacity is extensive.” ITC Publ’n, Original Dissenting Views 43 (footnote omitted). The ITC
added that “[f]or finished products, reported excess capacity in 2009 . . . slightly exceeded
apparent U.S. consumption in that year.” Id. at 43-44. The ITC concluded, however, that the
existing unused production capacity in China did not indicate “a likelihood of substantially
increased imports of the subject merchandise into the United States, given the demonstrated
ability of other export markets to absorb any additional exports from China.” Id. at 45.
In claiming generally that the ITC’s finding on the likely volume and market share of
subject imports was unsupported by substantial record evidence, defendant-intervenors object
that “[t]he Commission’s finding that Chinese excess capacity would not imminently lead to
increased Chinese imports and market penetration was unreasonable and lacked substantial
evidence to support it.” Def.-intervenors’ Comments 5. They make five specific arguments in
support of this objection, id. at 5-26, each of which the court finds unpersuasive for the reasons
discussed below.
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1. Defendant-intervenors’ Argument Mischaracterizes the Commission’s Finding on Third
Country Export Markets
Defendant-intervenors first argue that “[t]he current majority’s finding that 3rd -country
export markets could ‘absorb any additional exports from China’ was not supported by
substantial evidence.” Def.-intervenors’ Comments 6. According to their argument, the ITC
“based this on the fact that the proportion of the Chinese industry’s total exports that were
headed to the United States had declined” during the POI. Id. They maintain that “[t]he
undisputed fact that Chinese producers’ unused capacity was so ‘extensive’ by the end of the
POI . . . showed that their export markets were inadequate to absorb their surplus,” id. (citations
omitted), and that “[t]he new Commission majority failed to identify any reason to believe that
available third-country demand was willing or able to absorb any of this amount of excess
capacity, let alone all of it,” id. at 7. Further, defendant-intervenors submit that “[t]he finding
that third-country export markets could ‘absorb any additional exports from China’ did not rest
on substantial evidence[] and therefore could not reasonably support its conclusion that rising
Chinese exports would bypass the U.S. market in the future.” Id. at 8.
Defendant-intervenors’ argument mischaracterizes the Commission’s finding on existing
unused production capacity. The ITC did not find that third country export markets would
necessarily absorb “any additional exports from China” that might result from future utilization
of that capacity. The ITC found instead that the existing unused production capacity did not
indicate a likelihood of substantially increased imports of the subject merchandise into the
United States “given the demonstrated ability of other export markets to absorb any additional
exports from China.” ITC Publ’n, Original Dissenting Views 45. In formulating its conclusion
in this way, the ITC adhered to the language of the statute rather than predicting that third
country markets necessarily would absorb any future increase in exports of Chinese drill pipe
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and drill collar that might result from increased capacity utilization. 19 U.S.C.
§ 1677(7)(F)(i)(II). Rather than making the prediction that defendant-intervenors argue it made,
the ITC referred to the “demonstrated ability of other export markets to absorb any additional
exports from China,” id. (emphasis added), thereby alluding to record data on the past pattern of
exports, i.e., the pattern that third country markets generally had absorbed an increasing share of
total Chinese exports of drill pipe and drill collars during the POI while the U.S. share of total
exports declined.
Moreover, the Commission’s finding that existing unused production capacity in China
would not likely result in substantially increased exports of Chinese drill pipe and collars did not
rest solely on consideration of the demonstrated ability of third country export markets to absorb
additional Chinese exports. The ITC also considered record information pertaining to conditions
of competition existing in the United States during the POI. As the Commission explained,
“[t]he issue before us, however, is not simply the amount of excess capacity that currently exists
in China but rather whether, given the conditions of competition in the U.S. market, the Chinese
industry is likely to use that excess capacity to substantially increase shipments to the U.S.
market.” ITC Publ’n, Original Dissenting Views 44. The Commission gave several reasons for
its conclusion that “such an outcome is unlikely.” Id.
The ITC relied, first, on a number of related findings to support its conclusion that the
Chinese industry is unlikely to use its excess capacity to substantially increase shipments to the
U.S. market. It found that Chinese exporters had not reported a “surge of exports” during the
POI, that exports of finished products (which the ITC found to have constituted the substantial
majority of subject imports during the POI) had increased only moderately between 2007 and
2008 before declining precipitously in 2009, that the U.S. market share of the Chinese finished
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products had declined over the POI, and that imports of subject unfinished products did not surge
between 2007 and 2009. Id. Concerning the increase in subject finished exports that occurred
from 2007 to 2008, the ITC reasoned that “[t]o the extent that any increase occurred, it did so
against the backdrop of an overheated demand environment, which is not likely to recur in the
imminent future,” and which was “characterized by extended lead times of U.S. producers in
2008 compared to importers of the subject products.” Id. The ITC further reasoned that
“[b]ecause subject imports declined in volume in 2009 (and, in the case of finished products, in
market share as well) when demand was weak, there is no reason to expect a surge in subject
import volume and market share in the imminent future, inasmuch as demand and domestic
producers’ lead times have not yet returned to the levels they reached during the period when
those trends were last observed.” Id. (footnotes omitted).
With respect to the third country markets, the ITC found that “although the Chinese
industry can be characterized as export-oriented, the Chinese industry is not very reliant on the
U.S. market compared to other markets[] and did not increase significantly the share of its
exports going to the U.S. market during the period examined.” Id. The Commission found that
the percentage of the total Chinese exports of finished drill pipe and collar products exported to
the United States increased only slightly between 2007 and 2009 “and was less than the share of
shipments going to non-U.S. markets throughout the period examined.” Id. at 44-45 (footnote
omitted). It found, further, that the percentage of responding Chinese producers’ shipments of
subject finished products going to the United States declined between 2007 and 2008, “a period
during which demand in the U.S. market was generally strong,” and that the share going to “all
other markets” increased “sharply” in 2008 and increased “even more markedly” in 2009. Id.
at 45.
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In summary, the court concludes from the entirety of the ITC’s discussion of the existing
unused production capacity of Chinese producers that defendant-intervenors are attempting to
challenge a finding the ITC did not actually make. To that extent, defendant-intervenors’
argument must be rejected.
At oral argument, defendant-intervenors argued that the ITC, in making its finding as to
existing unused capacity, erred in overlooking record data demonstrating that, viewed in absolute
terms as opposed to relative terms, the volume of exports of Chinese drill pipe and drill collars
shipped to third country export markets essentially remained unchanged during the POI. Oral Tr.
at 16-17 (describing Final Staff Report at VII-11 (Table VII-3b)). This precise argument does
not appear in defendant-intervenors’ comments on the Remand Redetermination and therefore is
not before the court. Even were the court to consider this argument, it still would be compelled
to reject it. Regardless of whether Chinese exports of drill pipe and drill collars to third
countries, in volume terms, remained essentially level during the POI, the fact that an increasing
share went to third country markets while the U.S. share declined still constitutes relevant
evidence in support of the Commission’s finding that the existing unused capacity would not
likely lead to substantially increased shipments of subject merchandise to the U.S. market, given
the demonstrated ability of third country markets to absorb Chinese exports of drill pipe and drill
collars.
2. The Court Rejects Defendant-intervenors’ Argument Pertaining to an Overheated Demand
Environment and the Lead Times of Domestic Suppliers
Next, defendant-intervenors argue that “the Commission’s finding that Chinese imports
would likely gain market share only in an ‘overheated demand environment’ in which U.S.
producers had ‘extended lead times’ was unreasonable and lacked substantial evidence to support
it.” Def.-intervenors’ Comments 9. They assert that “the Commission failed to reasonably
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analyze—or even in some cases to recognize—several significant changes that had transpired
since the 2007 to 2008 period,” adding that “[t]hese changes indicated that producers, exporters
and importers of subject merchandise were more aggressive than in 2007 to 2008[] and could in
fact increase their market share in periods of low demand when the U.S. industry had relatively
short lead times.” Id. at 10. In referring to “changes,” defendant-intervenors explain that
“Chinese producers were operating a[t] nearly full capacity in 2007 and for most of 2008, but by
2010 they had ‘extensive’ excess capacity.” Id. (footnote omitted). Repeating their argument
that the ITC erroneously found that export markets could absorb any additional exports (which
the court rejects for the reasons discussed previously), they maintain that “facilitated by all this
excess capacity, subject exports and imports actually had in fact started to surge by the end of the
POI.” Id. at 11. According to their argument, the Commission, having failed to analyze these
changes, could not reasonably draw a “‘connection between the facts found and the choices
made.’” Id. at 10 (citing Burlington Truck Lines v. United States, 371 U.S. 156, 168 (1962)).
They conclude by contending that “the Commission failed to reasonably account for evidence
that ‘fairly detracts’ from the weight of its base assumption that only overheated demand could
lead to surging subject imports because that was what had happened before.” Id. at 14 (citation
omitted).
The court is not persuaded by defendant-intervenors’ argument. Defendant-intervenors
once again mischaracterize a statement by the ITC. Moreover, in considering the likelihood of a
substantial increase in subject imports in the imminent future, the Commission did not fail to
analyze the relevant record evidence, including the record evidence to which defendant-
intervenors direct the court’s attention.
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Defendant-intervenors attempt to challenge an ITC finding that Chinese imports likely
would gain market share only in an overheated demand environment in which U.S. producers
had extended lead times. Id. at 9. The actual statement by the ITC, however, was narrower and
more nuanced than as interpreted by defendant-intervenors: “Because subject imports declined in
volume in 2009 (and, in the case of finished products, in market share as well) when demand was
weak, there is no reason to expect a surge in subject volume and market share in the imminent
future, inasmuch as demand and domestic producers’ lead times have not yet returned to the
levels they reached during the period when those trends were last observed.” ITC Publ’n,
Original Dissenting Views 44 (footnote omitted).
The ITC referred to the unlikelihood of an imminent “surge” in import volume and
market share, not merely a “gain” in market share, as defendant-intervenors paraphrase the
Commission’s statement. Def.-intervenors’ Comments 9. The Commission spoke in the context
of the prospect of a return to the overheated demand levels and extended lead times that occurred
concurrently with the increase in volume of subject imports from 2007 to 2008, not simply any
increase in demand. In this respect, defendant-intervenors’ argument that the ITC failed to
recognize that the changes they identify “indicated that producers, exporters and importers of
subject merchandise were more aggressive than in 2007 to 2008[] and could in fact increase their
market share in periods of low demand when the U.S. industry had relatively short lead times,”
id. at 10, is misguided.
The ITC’s statement referring to “demand and domestic producers’ lead times” that
“have not yet returned to the levels they reached during the period when those trends were last
observed,” ITC Publ’n, Original Dissenting Views 44 (footnote omitted), was part of a broader
discussion in which the ITC concluded that, given the conditions of competition in the U.S.
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market, the Chinese industry was not likely to use its excess capacity to increase substantially
shipments of subject merchandise to the United States, id. In presenting its analysis, the
Commission mentioned, specifically, the extensive level of existing unused capacity, the volume
trends of subject imports during the POI, and the record evidence that third country markets had
absorbed an increasing share of total exports of drill pipe and drill collars. Id. at 44-45.
As the court discussed previously, the ITC found that the increase in import volume that
took place early in the POI—which the Commission did not consider to be a substantial
increase—occurred during a period of overheated demand in which the extended lead times were
evident. ITC Publ’n, Original Dissenting Views 44. As the court also discussed previously, the
Commission concluded that a substantial increase in subject imports in the imminent future was
unlikely for several reasons. The initial reason it gave was this: “[f]irst, responding firms did not
report a surge of exports to the U.S. market during the period examined.” Id. Specifically, the
Commission found that subject finished products increased “only modestly” from 2007 to 2008,
declined substantially in 2009, and that subject unfinished products “did not surge between 2007
and 2009.” Id. (footnote omitted). The Commission reasonably considered the absence of a
surge of subject imports during the POI to be an indicator, among others, that a surge was not
likely to occur in the imminent future. The ITC discussed the overheated demand environment
and the lead times only as an ancillary point, in the context of the limited increase that occurred
between 2007 and 2008: “To the extent that any increase occurred, it did so against the backdrop
of an overheated demand environment, which is not likely to recur in the imminent future.” Id.
(emphasis added). The Commission added that “this demand environment was characterized by
extended lead times of U.S. producers in 2008 compared to importers of the subject products,
which we find accounted for any increase in imports that occurred.” Id. The Commission’s
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discussion suggests that the scale of the increase in subject imports during the POI, which the
Commission considered too small to constitute a “surge,” was at least as important to the
analysis as the demand environment in which that increase took place.
In making their argument concerning overheated demand conditions and lead times,
defendant-intervenors assert that “subject exports and imports actually had in fact started to
surge by the end of the POI,” pointing to an increase from the second half of 2009 to first-half
(i.e., “interim”) 2010 that occurred even though “demand remained relatively weak and U.S.
producers were not experiencing extended lead times.” Def.-intervenors’ Comments 11. They
maintain that “[s]ince there was no evidence of seasonality that would distort a comparison
between the second half of 2009 and the first half of 2010, as the original majority
determined . . . , this upsurge showed that Chinese producers were racing back into the U.S.
market.” Id. at 11-12 (citation omitted). They argue that during the twelve-month period
consisting of second-half 2009 and interim 2010, “subject import volume and market share
increased at an even more rapid rate than before, even though demand was improving” and that
“[t]his showed that subject imports were capable of rapidly increasing in both volume and
market share even absent an overheated demand environment.” Id. at 12. Acknowledging the
ITC’s observation that “finished subject imports had a lower volume and less U.S. market share
in the first half of 2010 than in the first half of 2009,” defendant-intervenors object that “the
Commission failed to provide a reasonable explanation of why it considered the comparison
between the first half of 2010 and the first half of 2009 more significant than the more recent
data.” Id. Taking issue with the Commission’s comparing interim 2009 data with interim 2010
data, they complain that “[t]he only explanation the Commission here offered was that this was
the Commission’s ‘typical’ methodology.” Id. at 13 (citing Remand Redetermination 10 n.42).
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Defendant-intervenors’ argument that the Commission failed to recognize the
significance of the increase in subject imports from second-half 2009 to interim 2010 is also
unpersuasive. Regardless of the conditions in which the ITC found the increase to have
occurred, i.e., in the absence of overheated demand, the court finds no basis to conclude that the
Commission improperly disregarded evidence of that increase. Although defendant-intervenors
characterize the increase from second-half 2009 to interim 2010 as a “surge” in subject imports,
their characterization is open to question in light of record evidence, cited by the ITC,
demonstrating that the subject import volume in interim 2010 still was substantially below the
level that was present in interim 2009. ITC Publ’n, Original Dissenting Views 41 & n.3. It was
reasonable for the Commission to accord significance to this evidence as it considered the record
as a whole, and it was reasonable for the Commission not to characterize the interim 2010
increase in imports as a “surge.” See id., Original Dissenting Views 45 & n.26.
3. The ITC’s Finding that Changes in Inventory Levels Do Not Indicate an Imminent Threat to
Domestic Producers is Supported by Substantial Evidence
In attacking what they consider, erroneously, to be the Commission’s finding pertaining
to an overheated demand environment and extended lead times, defendant-intervenors argue that
certain changes in inventories of subject merchandise showed a likely increase in subject
imports. Def.-intervenors’ Comments 14. Specifically, they argue that “[a]s Petitioners pointed
out in the investigation, and the current majority acknowledged, by the end of the POI, the ratio
of importers’ inventories of subject merchandise to total demand was high and increasing.” Id.
at 15 (footnote omitted). They go on to argue that “[t]his overhang of subject merchandise
would be available to compete in the marketplace in the future with new U.S.-made products,
harming U.S. sales in the imminent future.” Id.
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The ITC, as required by 19 U.S.C. § 1677(7)(F)(i)(V), considered “inventories of the
subject merchandise” in making its threat determination. Defendant-intervenors’ argument as to
importers’ inventories is essentially that the ITC erred in not finding an indication of threat by
comparing importer inventory levels with total demand. In the Remand Redetermination, the
ITC addressed and rejected this argument, which had been presented to the Commission by
United States Steel Corporation. Remand Redetermination 8 n.25. In its response, the ITC
acknowledged that “there was a significant increase in the ratio of U.S. importers’ inventories of
subject imports relative to apparent U.S. consumption throughout the POI” but placed greater
weight on absolute inventory volumes held by importers, which remained roughly the same
from 2008 through interim 2010. Id. (citing Final Staff Report, App. C at 6-7 (Table C-2)
(confidential version)). The Commission specifically considered the impact of these high
inventory levels through the POI and found that “the record did not establish that these relative
inventory increases were a factor having a significant injurious impact on the domestic industry
during the POI, including in interim 2010.” Id. The Commission concluded that “[a]bsent any
significant changes in market conditions that would suggest otherwise, we do not see any basis to
conclude that continued high ratios of subject inventories relative to apparent consumption
would be an indication that subject imports would likely have a significant adverse impact on the
domestic industry in the imminent future.” Id.
The court rejects the argument defendant-intervenors base on the ratio of importers’
inventories to apparent domestic consumption. The ITC cannot be faulted for considering the
data on importers’ inventories in light of other data of record that detracted from an affirmative
threat finding, such as data on market conditions. The standard of review does not permit the
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court to reweigh the evidence so as to reach a conclusion different from the Commission’s on the
record data considered as a whole.
In a related argument, defendant-intervenors contend that the ITC erroneously discounted
the “the significance of the buildup in foreign producers’ and importers’ inventories over the
POI,” having failed to recognize that that “inventory levels are leading indicators of sales, not
concurrent indicators (which is why the statute directs that they be considered as a threat
factor).” Def.-intervenors’ Comments 17-18. But their characterization of a “buildup” in
importers’ inventories “over the POI” is not a fair characterization of the record data, which
showed that combined importers’ inventories of finished drill pipe and drill collars increased
from 2007 to 2008 but remained approximately level thereafter. See Final Staff Report at VII-15
(Tables VII-4b, 4d) (confidential version).
Regarding the defendant-intervenors’ reference to “foreign producer” inventories, the
ITC stated in the Remand Redetermination that “we do not find that any increases in the ratios of
Chinese producers’ inventories of subject merchandise relative to Chinese subject producers’
total shipments and apparent U.S. consumption would be likely to have a significant adverse
impact on the domestic industry in the imminent future, especially given that they had also not
led to injury during the POI.” Remand Redetermination 8 n.25. Defendant-intervenors dispute
the ITC’s reasoning by contending that the patterns of the inventories observed during the POI,
including inventories held by producers in China, portend future injury. Def.-intervenors’
Comments 18. On this record, the ITC was not required to conclude or infer that the inventory
held abroad by Chinese producers required an affirmative threat determination, and it was
reasonable for the ITC to ground its decision in part on data pertaining to circumstances existing
during the POI. Moreover, the Commission reasonably could consider inventory held by
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Chinese producers, which is not necessarily destined for the United States, to be inherently less
probative of future injury than is inventory located in the United States.
Defendant-intervenors also raise an argument they ground in the significance of changes
in inventories of subject merchandise held by purchasers. Def.-intervenors’ Comments 14
(citing 19 U.S.C. § 1677(7)(F)(i)(V)). Defendant-intervenors submit that “purchasers’ total
inventories of finished drill pipe and drill collars increased steadily over the POI in absolute
terms to a peak at the end of the first half of 2010, so they increased tremendously compared to
consumption, given the sharp fall in demand in that time.” Id. at 15 (footnote omitted).
Defendant-intervenors add that “the one type of purchaser inventory that was declining was
Chinese-made merchandise,” which, according to defendant-intervenors, “indicated that
purchasers were using their Chinese drill pipe preferentially[] and were consuming it faster than
they could buy.” Id. at 15-16. Referring to these U.S. purchasers, defendant-intervenors add that
“[t]heir low levels of this product portended stepped-up purchases in the future” and that
“[i]ndeed, the record showed that U.S. purchasers were stepping up their purchases of
Chinese-made merchandise toward the end of the POI.” Id. at 16 (footnote omitted). The court
does not find merit in these arguments.
The record data showed that purchasers’ inventory of subject merchandise declined
generally over the POI. See Final Staff Report at II-18 (Table II-4) (confidential version). The
ITC analyzed these data, together with the data on importers’ inventories of subject merchandise,
to determine whether inventory “overhang” existed that would cause it to alter its conclusion that
a substantial increase in imports of subject merchandise was unlikely. ITC Publ’n, Original
Dissenting Views 45. From the record evidence, the ITC found that “in this market there is no
overhang of inventories from subject sources waiting to be sold into the U.S. market in the
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imminent future.” Id. The Commission did not draw from the record evidence the speculative
inference defendant-intervenors would draw, i.e., that the draw-down of subject merchandise
from purchasers’ inventories relative to the draw-down of domestic merchandise signaled an
imminent increase in the volume of subject imports. Although the statute required the ITC to
consider inventories of the subject merchandise, 19 U.S.C. § 1677(7)(F)(i)(V), nothing in the
statute required the ITC to draw the inference defendant-intervenors advocate. Moreover,
defendant-intervenors fail to identify record evidence that would make such an inference
inescapable, and the court is aware of no such evidence.
4. The Court Sustains the Commission’s Finding that Importers Did Not Use Underselling to
Increase the Volume of Sales of Subject Merchandise
The statute directs the Commission to consider “whether imports of the subject
merchandise are entering at prices that are likely to have a significant depressing or suppressing
effect on domestic prices, and are likely to increase demand for further imports.” 19 U.S.C.
§ 1677(7)(F)(i)(IV). In support of their argument that the Commission erred in finding that
Chinese excess capacity would not lead imminently to increased imports of subject merchandise,
defendant-intervenors challenge a statement contained within a footnote in the Original
Dissenting Views: “As explained below, we find no evidence that importers used underselling to
increase the volume of sales in the U.S. market, a fact that further supports our finding as to
likely volume.” ITC Publ’n, Original Dissenting Views 44 n.20. Defendant-intervenors point
out that the Commission itself acknowledged the fact that “subject imports undersold domestic
like product in most comparisons in 2010,” arguing that “[t]hus, there was evidence of
significant underselling during the most recent part of the POI.” Def.-intervenors’ Comments 20
(citation omitted). Raising various objections to the Commission’s findings and logic, they
argue that “[s]ince Chinese producers have made little progress in eliminating excess capacity
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and only partial progress in reducing inventories, subject merchandise from China would be
likely to continue to undersell U.S. domestic like product in the imminent future as it had begun
to do in the first half of 2010, rather than returning to its pre-2009 pattern.” Id. at 23-24
(footnote omitted).
The arguments put forth by defendant-intervenors are unpersuasive because substantial
record evidence supported the Commission’s conclusion as to underselling. The ITC observed
that the subject merchandise oversold the domestic merchandise in a majority of price
comparisons during the POI but undersold the domestic merchandise in six of eight comparisons
in interim 2010. ITC Publ’n, Original Dissenting Views 53. The Commission added that “the
subject merchandise undersold the domestic product in four of four price comparisons in the first
quarter of 2010, but in only two of four price comparisons in the second quarter of 2010.” Id.
at 53-54 (footnote omitted). The ITC further noted, and the data confirmed, that the margins of
underselling in the two instances in the second quarter of 2010 were much smaller than the
margins of underselling in the first quarter. Id. at 54. The Commission stated that “[w]e do not
consider the underselling observed during the most recent six month period to constitute
evidence that significant underselling is likely in the imminent future.” Id. at 53.
The record evidence that underselling occurred more frequently in interim 2010 than in
the prior three years of the POI, viewed in isolation, might have been seen to contribute to an
affirmative threat determination. But on this record the ITC did not err in finding that importers
of subject merchandise did not use underselling to increase the volume of sales of subject
merchandise in the United States, as there was substantial evidence to support this finding. The
decreasing incidence, and in particular the steeply decreasing magnitude, of the underselling
during the first six months of 2010 supported a conclusion that significant underselling was
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unlikely to cause an increase in subject import volumes in the imminent future, as did the fact
that incidences of underselling by the subject merchandise did not predominate when compared
to incidences of overselling during the POI in general. See Final Staff Report at V-10 to V-15
(Tables V-2 to V-7) (confidential version).
Defendant-intervenors also contend that the ITC’s analysis “rested on a clear error of
fact.” Def.-intervenors’ Comments 20. They point to a statement by the Commission that
“‘[b]ecause subject imports mostly oversold the domestic product when demand was increasing
during the 2007 to 2008 time frame, we expect overselling to predominate in the imminent
future, consistent with the pattern observed during the period examined.’” Id. (quoting ITC
Publ’n, Original Dissenting Views 53). Directing the court’s attention to data on total
consumption of finished drill pipe and drill collars, defendant-intervenors assert that “[t]he
record shows that demand peaked in 2007,” id. (citing Final Staff Report at C-6, C-7 (Table C-2)
(confidential version)) and that “it was decreasing, and it decreased more in 2009,” id. They
submit that the ITC “was thus wrong to conclude that overselling was associated with increasing
demand,” id. at 20-21, and that “[d]emand finally began to increase from the second half of 2009
to the first half of 2010, when underselling increased, so if anything, increasing demand is
associated with large and increasing levels of underselling,” id. at 21.
Defendant-intervenors are correct that the record data on U.S. consumption of the
finished goods show that consumption was higher in 2007 than in 2008. But these data do not
demonstrate an error of fact undermining the Commission’s analysis. Consumption may be a
reliable indicator of demand when supply and demand are in balance, but as discussed
previously, the ITC identified a special circumstance that affected U.S. market conditions: an
overheated demand environment was found by the ITC to have existed in the 2007 to 2008
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timeframe, characterized by “reported supply tightness in the U.S market,” ITC Publ’n, Original
Dissenting Views 42, and also characterized by extended lead times of U.S. producers in 2008
compared to imports of the subject products, id. Original Dissenting Views 42 n.8.7 The ITC
also found that Chinese imports did not compete meaningfully in the premium segment of the
drill pipe market. Id., Original Dissenting Views 60. On these findings and the record facts, it
was reasonable for the Commission to conclude that there was some constraint in the supply of
the domestic products relative to demand in 2008. In this regard, the record showed that subject
imports peaked in 2008—just as the supply of the domestic products would appear to have been
constrained, as shown by the extended lead times—and then declined precipitously in 2009.
Moreover, the consumption data on which defendant-intervenors rely for their “clear error of
fact” argument, when considered in the context of other record data, do not show enough of a
decline in consumption to compel a finding that demand actually fell between 2007 and 2008.
These data show that consumption of finished goods declined only somewhat from 2007 to 2008,
remained relatively high compared to the remainder of the POI, and declined drastically
from 2008 to 2009. Final Staff Report. at C-6 (Table C-2) (confidential version). The
Commission’s analysis that demand, when evaluated according to factors that include not only
data on consumption but other record data, was increasing in the 2007 to 2008 timeframe is
substantiated by the record evidence considered as a whole.
7 The record contained evidence of supply tightness in the U.S. market that was related to
the extended lead times of domestic suppliers. See Drill Pipe & Drill Collars from China: Staff
Report to the Comm’n on Investigation Nos. 701-TA-474 and 731-TA-1176 (Final) at II-13, II-14
(Jan. 26, 2011) (Conf. Admin.R.Doc. No. 523).
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5. The Commission Provided an Adequate Explanation for its Conclusion on Product-Shifting
The Tariff Act requires the ITC to consider, when assessing the threat of material injury,
“the potential for product-shifting if production facilities in the foreign country, which can be
used to produce the subject merchandise, are currently being used to produce other products.”
19 U.S.C. § 1677(F)(i)(VI). Recognizing in its threat analysis that unfinished drill pipe could be
made on certain production lines in China that now make seamless oil country tubular casing and
tubing (“oil country tubular goods,” or “OCTG”), the ITC considered the extent to which such
“product-shifting” was likely to occur in the imminent future. ITC Publ’n, Original Dissenting
Views 45. The Commission concluded that the potential for product-shifting existed but was
“somewhat limited.” Id. Citing record data on imports of unfinished drill pipe and drill collars
from China for the period corresponding to, and extending beyond, the effective dates of
antidumping and countervailing duty orders on OCTG from China, the Commission concluded
that the record “does not indicate any significant surge into the U.S. market of such products
when the OCTG orders went into effect . . . .”8 Id. at 45 & n.26 (comparing record data on
subject imports of unfinished products for interim 2010 with data for the first half of 2009 (citing
Final Staff Report. at C-4, C-5 (Table C-1) (confidential version))).
Defendant-intervenors claim that the Commission’s “product-shifting analysis was
unexplained,” objecting that the ITC “did not explain why they compared imports in the first half
of 2009 to imports in the first half of 2010, rather than comparing imports in the period
8 A countervailing duty order went into effect on January 20, 2010. Certain Oil Country
Tubular Goods From the People’s Republic of China: Am. Final Affirmative Countervailing
Duty Determination and Countervailing Duty Order, 75 Fed. Reg. 3,203 (Int’l Trade Admin.
Jan. 20, 2010). An antidumping duty order followed on May 21, 2010. Certain Oil Country
Tubular Goods From the People’s Republic of China: Am. Final Determination of Sales at Less
Than Fair Value and Antidumping Duty Order, 75 Fed. Reg. 28,551 (Int’l Trade Admin.
May 21, 2010).
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immediately before imposition of the order and immediately after.” Def.-intervenors’
Comments 24 “Had they compared imports of unfinished drill pipe in the second half of 2009 to
imports in the first half of 2010, they would have seen that they increased.” Id. (citing Final
Staff Report at C-4, C-5 (Table C-1) (confidential version)). Defendant-intervenors, however, do
not show that the Commission erred in analyzing the subject data or in providing an explanation
for its conclusion. Subject imports of unfinished drill pipe and drill collars increased from
second-half 2009 to first-half 2010, but from a very low level, having plummeted in
second-half 2009. See Final Staff Report at C-4, C-5 (Table C-1) (confidential version).
Although imports of subject unfinished drill pipe recovered somewhat in first-half 2010, it was
only to a level far below what they had been in first-half 2009. Id. Subject imports of finished
drill pipe and drill collars followed the same pattern in 2009 and first-half 2010, but the ITC
concluded that significant additional finishing is required to produce finished drill pipe, making
product-shifting from OCTG to finished drill pipe less likely. ITC Publ’n, Original Dissenting
Views 45. The record data, considered on the whole, supported the Commission’s conclusion
that no significant surge into the U.S. market of unfinished products occurred when the OCTG
orders went into effect. The court, therefore, has no valid basis on which to conclude that the
ITC’s product-shifting analysis was flawed and thereby merits a remand on the ground that the
product-shifting analysis was “unexplained.”9
9 To further their argument on the issue of product-shifting, defendant-intervenors
characterize as irrelevant certain hearing testimony the ITC cited in support of the conclusion
that “it is unlikely that production could be easily shifted from either” oil country tubular goods
(“OCTG”) or “seamless pipe to production of finished drill pipe.” Def.-intervenors’
Comments 24-25 (citing ITC Publ’n, Original Dissenting Views 45 & n.27). Read in context,
the cited testimony is merely tangential to the point the Commission expressed in the sentence at
issue —that “finishing processes for finished drill pipe are extensive, and thus it is unlikely that
production could be easily shifted from either OCTG or seamless pipe to production of finished
(continued…)
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6. The Commission Did Not Reach a Finding as to Existing Unused Capacity that Lacked a
“Rational Connection Between the Facts Found and the Choices Made”
Alluding to certain of their previous arguments (which the court rejected above),
defendant-intervenors challenge the Commission’s “conclusion that high levels of excess
capacity besetting producers of subject merchandise at the end of the POI would not likely lead
to significantly increased imports.”10 Def.-intervenors’ Comments 26. Taking issue with what
they consider to be certain of the reasons the ITC offered, defendant-intervenors submit that the
conclusion “lacked a ‘rational connection between the facts found and the choices made.’” Id.
at 26-27 (quoting Burlington Truck Lines, 371 U.S. at 168). The court disagrees.
Defendant-intervenors once again base an argument on the Commission’s statement that
“‘we do not consider that the existing unused production capacity in China, or the export
orientation of Chinese producers, indicates a likelihood of substantially increased imports of the
subject merchandise into the United States, given the demonstrated ability of other export
markets to absorb any additional exports from China.’” Id. at 25-26 (quoting ITC Publ’n,
(continued…)
drill pipe.” ITC Publ’n, Original Dissenting Views 45 (footnote omitted). Moreover, the
testimony cited in the footnote addresses the general subject of product-shifting and therefore is
not “irrelevant.” Finally, defendant-intervenors take issue with the Commission’s conclusion in
the next sentence that “‘it is unlikely that producers of subject merchandise in China would shift
to the production of subject merchandise given the lack of motivation to do so in the imminent
future.’” Def.-intervenors’ Comments 25 (quoting ITC Publ’n, Original Dissenting
Views 45-46). They characterize this sentence as “opaque” and assert that “the relevant
incentive to shift production from OCTG to drill pipe is the new order on OCTG.” Id. The
Commission, however, acknowledged that the potential for product-shifting as a result of the
OCTG orders “exists currently.” ITC Publ’n, Original Dissenting Views 45.
10 For example, defendant-intervenors repeat their argument that “[t]he new majority also
asserted that a significant increase in subject imports could not occur absent ‘the backdrop of an
overheated demand environment’ or ’extended lead times of U.S. producers, because only such
an environment had led to increased import market share in 2008.’” Def.-intervenors’
Comments 26 (quoting ITC Publ’n, Original Dissenting Views 44). As discussed previously in
this Opinion, this argument mischaracterizes the finding the ITC actually made.
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Original Dissenting Views 45). Defendant-intervenors argue that “the evidence the new majority
cited—the reduction in the share of total Chinese exports going to the United States—was not
rationally connected to this finding, and the fact that Chinese producers had been unable to ship
enough to third country markets to avoid their excess capacity situation contradicted it.” Id.
at 26. But the evidence showing that an increasing share of total Chinese export production of
drill pipe and drill collars went to third country markets during the POI had at least some
relevance to that finding. The implication of defendant-intervenors’ argument is that a finding
that excess capacity was likely to lead to an increase in subject imports was unavoidable due to
the lack of evidence that third country export markets could absorb sufficient Chinese exports to
allow the Chinese producers to achieve full capacity utilization in the future without expanding
their exports to the United States. As is apparent from the court’s previous discussion, the ITC
did not base the finding of which defendant-intervenors complain on a prediction that third
country markets necessarily would absorb all additional Chinese exports even at full capacity
utilization. Moreover, the ITC based its finding on a range of factors in addition to the record
evidence that third country markets had absorbed a generally increasing share of total Chinese
exports of drill pipe and drill collars during the POI. This included record data that imports of
subject finished merchandise had increased only moderately between 2007 and 2008 before
declining precipitously in 2009, that the U.S. market share of Chinese finished products had
declined over the POI, and that imports of subject unfinished products did not surge between
2007 and 2009. See ITC Publ’n, Original Dissenting Views 44 & n.19 (citing Final Staff Report
at C-4, C-5 (Table C-1) (confidential version)).
In making their argument, defendant-intervenors also misinterpret the issue that the
Commission was discussing. As the Commission itself stated, “the issue before us . . . is not
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simply the amount of excess capacity that currently exists in China but rather whether, given the
conditions of competition in the U.S. market, the Chinese industry is likely to use that excess
capacity to substantially increase shipments to the U.S. market.” Id. at 44. As the ITC
acknowledged, the record contained evidence related to existing unused production capacity that
could serve as support for an affirmative threat finding. For example, the Commission
recognized that reported Chinese excess capacity was extensive, that it increased overall during
the POI, and that for finished products this capacity exceeded apparent U.S. consumption in
2009. Id. at 43-44. The Commission further stated that “[o]n balance, however, we find that
Chinese drill pipe and drill collar producers have the ability to increase shipments to the United
States” and that the Chinese drill pipe and drill collar industry is “export-oriented.” Id. at 44. As
defendant-intervenors point out, there also was record evidence that the Chinese industry
exported a large share of its output, a share that had mainly increased during the POI,
Def.-intervenors’ Comments 6, and that unused capacity far exceeded total exports by the end of
the POI, id. at 7. Defendant-intervenors would surmise that “[t]he undisputed fact that Chinese
producers’ unused capacity was so ‘extensive’ by the end of the POI . . . showed that their export
markets were inadequate to absorb their surplus.” Id. at 6 (citation omitted). According to
defendant-intervenors, “[t]hese findings indicated that Chinese drill pipe producers had a
powerful motivation to significantly increase their exports to the United States: to reduce their
excess capacity” and that the unused capacity, “combined with Chinese producers’ proven ability
to export far larger quantities than they were at the end of the period of investigation (‘POI’),
gave them the means to achieve this end.” Id. at 2.
When viewed in the context of the relevant statutory language, the general argument
defendant-intervenors seem to make concerning the existing unused capacity essentially is that
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the Commission erred in not reaching a comprehensive finding that an increase in the capacity
utilization of the Chinese producers was likely to occur, that such an increase indicated “the
likelihood of substantially increased imports into the United States,” 19 U.S.C.
§ 1677(7)(F)(i)(II), and that the likely increase in subject imports was “imminent” within the
meaning of 19 U.S.C. § 1677(7)(F)(ii). The evidence that unused capacity was extensive and
had increased over the POI, even when coupled with evidence that the export-oriented Chinese
industry had exported a large share of its output, and even when considered with the other
evidence that defendant-intervenors cite, did not suffice to compel the ITC to find that the
existing unused capacity likely would lead to substantially increased exports of the subject
merchandise to the United States. As the court has discussed, the record contained considerable
evidence that detracted from such a finding. The ITC complied with the statute by considering
each of the relevant factors required by 19 U.S.C. § 1677(7)(F)(i) and basing findings thereunder
on the record evidence considered as a whole.
B. The Court Rejects Defendant-intervenors’ Argument that the ITC’s Analysis of the Financial
Performance of the U.S. Industry Was “Fundamentally Flawed”
Defendant-intervenors’ final argument is grounded in certain data on the financial
performance of NOV Grant Prideco, which the ITC identified as “the leading U.S. producer of
finished drill pipe and the second largest U.S. producer of finished drill collars.” ITC Publ’n,
Original Dissenting Views 56 n.97. Defendant-intervenors direct the court’s attention to the
Commission’s statement that “‘because of its dominant size, NOV Grant Prideco’s financial
results have a large impact on the combined financial results of the domestic industry.’” Def.-
intervenors’ Comments 27 (quoting ITC Publ’n, Original Dissenting Views 56 & n.97).
At oral argument on the Remand Redetermination, defendant-intervenors expressly
waived their argument pertaining to NOV Grant Prideco to the extent this argument is framed as
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a challenge to the ITC’s negative injury determination. Oral Tr. 10. Clarifying that they are not
challenging the Commission’s negative injury determination, they expressed an intention to
maintain their argument to the extent relevant to challenging the ITC’s negative threat
determination. Id. The court, therefore, considers their argument only in this context. As
discussed below, what little is left of that argument lacks merit.
The Commission’s discussion of NOV Grant Prideco’s financial performance occurred in
the midst of an analysis of present injury, not threat. See ITC Publ’n, Original Dissenting
Views 56-57. Considered as it applies to the negative threat determination, defendant-
intervenors’ argument can pertain only to the Commission’s finding as to the current
vulnerability of the domestic industry. On that subject, the Commission stated that “[a]s an
initial matter, we do not find that the domestic industry producing drill pipe and drill collars is
currently vulnerable.” Id. at 59. According to defendant-intervenors, the ITC should have
viewed the reduction in profitability of the domestic industry reflected in the reported financial
information of NOV Grant Prideco as related to subject imports. Def.-intervenors’
Comments 28 (“The new majority . . . has no basis for assuming that this substantial reduction in
industry profitability was ‘unrelated to subject imports.’” (quoting ITC Publ’n, Original
Dissenting Views 57)). Defendant-intervenors submit that correction of this error would require
the ITC to “revise its analysis of vulnerability, which rested in part on its conclusion that
‘throughout the period examined, U.S. producers . . . experienced high levels of profitability.’”
Id. at 29 (quoting ITC Publ’n, Original Dissenting Views 59).
The court disagrees that the Commission erred in reaching a conclusion that the domestic
industry was not currently vulnerable. In support of that conclusion, the ITC found that
“throughout the period examined, U.S. producers invested in greater production capacity,
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experienced high levels of profitability, and currently remain in a strong position
notwithstanding the gradual economic recovery.” ITC Publ’n, Original Dissenting Views 59
(footnotes omitted). The ITC proceeded to summarize the various data on the record related to
the vulnerability issue, from which it concluded that “most trends point to a healthy industry that
is weathering its normal business cycle, albeit one that has been exacerbated by the general
economic recession.” Id. at 59-62. Among the trends cited were improving demand for drill
pipe and drill collars, the dominance of domestic producers in the important, growing, and
high-priced premium sector of the market, and the general competitiveness of U.S. producers in
growing export markets. Id. at 60.
When making the statement that U.S. producers experienced high levels of profitability
throughout the POI, the Commission already had acknowledged, in its previous discussion
directed to the question of present injury, the information on the reported financial performance
of NOV Grant Prideco to which defendant-intervenors direct their argument. The ITC
considered the information to result “primarily from a one-time adjustment” that was “unrelated
to subject imports.” Id. at 57. Significantly, the Commission, following that discussion, stated a
finding that “[i]n any event, the finished drill pipe and drill collar industry returned to
profitability in interim 2010 . . . .” Confidential Excerpts from ITC Publ’n, Original Dissenting
Views 28, (Feb. 2011) (Conf. Admin.R.Doc. No. 358) (showing statement redacted from public
version (cf. ITC Publ’n, Original Dissenting Views 57)). In support of that finding, the
Commission cited industry-wide data on operating income and the ratio of operating income to
total net sales. ITC Publ’n, Original Dissenting Views 57-59. As it applies to the threat
determination, defendant-intervenors’ argument fails because it does not challenge that finding.
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The argument defendant-intervenors direct against the ITC’s negative vulnerability
finding is undermined by the Commission’s having analyzed the overall profitability of the
domestic industry during the POI in two ways, one of which considered the effect of the NOV
Grant Prideco adjustment and one of which did not. The former led to the Commission’s
overriding conclusion that even if there had been an interruption in the overall profitability of the
domestic industry that was represented by the one-time adjustment, that interruption was
followed “in any event” by a return to profitability of the industry as a whole. Even were the
court to assume, arguendo, that defendant-intervenors are correct in their assertion that the
adjustment pertaining to NOV Grant Prideco was related to subject imports (an assertion that
defendant-intervenors fail to demonstrate is correct), the court still would be forced to reject
defendant-intervenors’ challenge to the negative vulnerability finding. Absent a challenge to the
finding that the domestic industry, in any event, returned to profitability by the end of the POI,
defendant-intervenors’ argument that the ITC erred in concluding that the industry is not
currently vulnerable is not a plausible one. That conclusion was based not only on profitability
data for the domestic industry at large, including NOV Grant Prideco, but also on various other
indications of the industry’s strength.
III. CONCLUSION
For the aforementioned reasons, the court rejects the various arguments
defendant-intervenors raise in their challenge to the Remand Redetermination. The ITC
complied with the order issued in Downhole Pipe I by reconsidering its previous affirmative
threat determination in the absence of the erroneous findings and unwarranted conclusions the
court previously disallowed. As the court stated in Downhole Pipe I, nothing in that order
precluded the ITC, on remand, from reconsidering those or any other findings. Downhole Pipe I,
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37 CIT at __, 963 F. Supp. 2d at 1347-48. The court concludes that the Remand
Redetermination must be affirmed and will enter judgment accordingly.
/s/Timothy C. Stanceu
Timothy C. Stanceu
Chief Judge
Dated: November 10, 2014
New York, New York
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