Downhole Pipe & Equipment, LP v. United States

Slip Op. 13-108
UNITED STATES COURT OF INTERNATIONAL TRADE
DOWNHOLE PIPE & EQUIPMENT, LP,
Plaintiff,
v.
UNITED STATES and UNITED STATES
INTERNATIONAL TRADE COMMISSION,
Before: Timothy C. Stanceu, Judge
Defendants,
Court No. 11-00080
and
PUBLIC VERSION
VAM DRILLING USA, TEXAS STEEL
CONVERSIONS, INC., ROTARY DRILLING
TOOLS, TMK IPSCO, and UNITED STATES
STEEL CORPORATION,
Defendant-intervenors.
OPINION AND ORDER
[Remanding a final affirmative determination by the U.S. International Trade Commission, made
in an antidumping and countervailing duty proceeding, that a domestic industry is threated with
material injury by reason of imports of steel drill pipe and steel drill collars from China]
Date: August 19, 2013
Mark B. Lehnardt, Lehnardt & Lehnardt LLC, of Liberty, MO and Irene H. Chen, Chen
Law Group LLC, of Rockville, MD, for plaintiff.
David A.J. Goldfine, Attorney-Advisor, U.S. International Trade Commission, of
Washington, DC, for defendant. With him on the brief were James M. Lyons, General Counsel
and Neal J. Reynolds, Assistant General Counsel for Litigation.
Roger B. Schagrin and John W. Bohn, Schagrin Associates, of Washington, DC, for
defendant-intervenors VAM Drilling USA, Texas Steel Conversions, Inc., Rotary Drilling Tools,
and TMK IPSCO.
Court No. 11-00080 PUBLIC Page 2
Stephen P. Vaughn, Robert E. Lighthizer, James C. Hecht, and Stephen J. Narkin,
Skadden, Arps, Slate, Meagher & Flom LLP, of Washington, DC, for defendant-intervenor
United States Steel Corporation.
Stanceu, Judge: Plaintiff Downhole Pipe & Equipment, LP (“Downhole Pipe”) contests a
final determination of the U.S. International Trade Commission (“ITC” or the “Commission”)
that a domestic industry is threatened with material injury by dumped and subsidized imports of
steel drill pipe and steel drill collars (“subject merchandise”) from the People’s Republic of
China (“China” or the “PRC”). Compl. ¶ 26 (Apr. 29, 2011), ECF No. 8; see Drill Pipe and
Drill Collars From China, 76 Fed. Reg. 11,812 (Mar. 3, 2011) (“Final Injury Determination”),
Drill Pipe and Drill Collars from China, Inv. Nos. 701-TA-474 and 731-TA-1176 (Final),
USITC Pub. 4213 (Feb. 2011) (“ITC Report”).1 Downhole Pipe, an importer of the merchandise
subject to the antidumping and countervailing duty investigations and a respondent before the
Commission, claims that aspects of the affirmative final threat determination were unsupported
by substantial evidence and otherwise not in accordance with law. Compl. ¶¶ 5-26.
Before the court is Downhole Pipe’s motion under USCIT Rule 56.2 for judgment on the
agency record. Pl.’s R. 56.2 Mot. for J. on the Agency R. (Oct. 19, 2011), ECF No. 28 (“Pl.’s
Mot.”). Defendant-intervenors VAM Drilling USA, Texas Steel Conversions, Inc., Rotary
Drilling Tools, and TMK IPSCO, all petitioners before the ITC, support the ITC’s affirmative
threat determination, as does defendant-intervenor United States Steel Corporation (“U.S.
Steel”). The defendant-intervenors argue that the ITC conducted a proper analysis and that the
threat determination is supported by substantial evidence and in accordance with law. The court
concludes that certain findings and conclusions within the ITC’s determination are not supported
1
Confidential documents within the administrative record are identified by the
abbreviation “CR” and public documents are referred by the abbreviation “PR.” Confidential
information has been redacted from certain footnotes in this public Opinion and Order as
identified by blank spaces within brackets.
Court No. 11-00080 PUBLIC Page 3
by substantial evidence. The court remands the affirmative threat determination to the
Commission for reconsideration.
I. BACKGROUND
The ITC initiated its injury and threat investigation on January 6, 2010 in response to
petitions concurrently filed on December 31, 2009 with the Commission and the International
Trade Administration, U.S. Department of Commerce (“Commerce” or the “Department”). Drill
Pipe from China, 75 Fed. Reg. 877, 878 (Jan. 6, 2010). On March 8, 2010, the ITC published
the preliminary results of its investigation, determining that “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.” Drill Pipe & Drill Collars from China, 75 Fed.
Reg. 10,501 (Mar. 8, 2010); see also Drill Pipe and Drill Collars from China, Inv.
Nos. 701-TA-474 and 731-TA-1176 (Prelim.), USITC Pub. No. 4127, PR 253, (Mar. 2010), at 3.
On January 11, 2011, Commerce determined that subject merchandise was being sold at
less than fair value. 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 (Jan. 11, 2011).
Concurrently, Commerce determined that the Chinese industry was being provided with
countervailable subsidies. Drill Pipe from the People’s Republic of China: Final Affirmative
Countervailing Duty Determination, Final Affirmative Critical Circumstances Determination,
76 Fed. Reg. 1,971 (Jan. 11, 2011).
Commerce published antidumping and countervailing duty orders on March 3, 2011, the
same day the ITC published its final affirmative threat determination, which it based on a period
of investigation (“POI”) beginning in January 2007 and ending in June 2010. Drill Pipe From
the People’s Republic of China: Antidumping Duty Order, 76 Fed. Reg. 11,757 (Mar. 3, 2011);
Drill Pipe From the People’s Republic of China: Countervailing Duty Order, 76 Fed.
Court No. 11-00080 PUBLIC Page 4
Reg. 11,758 (Mar. 3, 2011); Final Injury Determination, 76 Fed. Reg. at 11,812. The
Commission reached its affirmative threat determination on the votes of three of the six
Commissioners (Vice Chairman Williamson and Commissioners Lane and Pinkert) and noted
the dissenting votes of Chairman Okun and Commissioners Pearson and Aranoff. See Final
Injury Determination, 76 Fed. Reg. at 11,813.
Downhole Pipe initiated this action by filing a summons on April 1, 2011 and a
complaint on April 29, 2011. Summons, ECF No. 1; Compl. On October 18, 2011, plaintiff
moved for judgment on the agency record pursuant to USCIT Rule 56.2. Pl.’s Mot.; Pl.’s R. 56
Mem. of Law in Supp. of Mot. for J. on the Agency R. (Oct. 19, 2011), ECF No. 28-1 (“Pl.’s
Mem.”). Defendant and defendant-intervenors responded to this motion on January 25, 2012.
Mem. of Def. U.S. Int’l Trade Comm’n in Opp’n to Pl.’s Mot. for J. on the Agency R., ECF
No. 38 (“Def.’s Resp.”); Mem. of Def.-Intervenors VAM Drilling USA; Texas Steel
Conversions, Inc.; Rotary Drilling Tools; and TMK IPSCO in Opp’n to Mot. for J. on the
Agency R. by Pl. Downhole Pipe & Equipment L.P., ECF No. 39; Mem. in Opp’n to Pl.’s Mot.
for J. on the Agency R. Filed by Def.-Int. U.S. Steel Corp., ECF No. 40 (“U.S. Steel Resp.”). On
February 29, 2012, plaintiff filed its reply. Pl.’s Reply Br. to Def. and Def.-Intervenors’ Resps.
to Pl.’s R. 56.2 Mot. for J. on the Agency R., ECF No. 57. The court held oral argument on
July 26, 2012. ECF No. 75.
II. DISCUSSION
The court exercises jurisdiction over this action under section 201 of the Customs Courts
Act of 1980, 28 U.S.C. § 1581(c) (2006), which grants jurisdiction of civil actions brought under
Court No. 11-00080 PUBLIC Page 5
section 516A of the Tariff Act of 1930 (the “Act”), 19 U.S.C. § 1516a(a)(2)(B)(i) (2006).2
Where, as here, an action is brought under 19 U.S.C. § 1516a(a)(2) seeking review of a final
determination of the ITC reached under 19 U.S.C. § 1673d, “[t]he court shall 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). The ITC’s
determinations must take “into account the entire record, including whatever fairly detracts from
the substantiality of the evidence.” Atl. Sugar, Ltd. v. United States, 744 F.2d 1556, 1562 (Fed.
Cir. 1984) (footnote omitted). The Commission must explain the standards applied and the
analysis leading up to the conclusion, thereby demonstrating a rational connection between the
evidence on the record and the conclusions drawn. Matsushita Elec. Indus. Co., Ltd. v. United
States, 750 F.2d 927, 933 (Fed. Cir. 1984).
The imported merchandise subject to the antidumping and countervailing duty
investigations consists of steel drill pipe and steel drill collars and includes these products in
unfinished form, including “green tubes,” which are drill pipes and drill collars not yet forged
and assembled. ITC Report: Comm’n Views 5-7. Drill pipes and drill collars are used
on onshore and offshore drilling rigs, chiefly in the drilling of oil and gas wells. Id. at 5. Drill
pipes serve as rotational components in an assembly of other components (the “drill stem”) that
includes drill collars. Id. at 5-6 (footnote omitted). Drill pipes are lengths of seamless hollow
tube, generally 30-31 feet long, with threaded connecting pieces (“tool joints”) welded to each
end that are designed to be leak-proof to contain the drilling fluids. Id. at 6 (footnote omitted).
Drill collars are heavy, thicker-walled components of the drill stem that provide stiffness to the
drill stem and add weight to the drill bit. Id. at 7 (footnote omitted). Drill pipe ordinarily is
2
Unless otherwise indicated, further citations to the Tariff Act of 1930 are to the relevant
portions of Title 19 of the U.S. Code, 2006 edition.
Court No. 11-00080 PUBLIC Page 6
designed to meet standards adopted by the American Petroleum Institute (“API”); “premium”
drill pipe is specially designed for harsh drilling conditions that require properties surpassing the
API standards. Id. at 7 (footnote omitted).
Plaintiff raises two claims in this litigation, which the court addresses below. Downhole
Pipe claims, first, that the Commission’s determination of the domestic like product is
impermissible, arguing that the ITC should have considered unfinished drill pipe to be a separate
like product. Pl.’s Mem. 40. Second, challenging numerous of the Commission’s factual
findings and conclusions, Downhole Pipe claims that the Commission erred in determining that
the drill pipe and collar industry is threatened with material injury by reason of imports of
subject merchandise. Id. at 11-39.
A. Plaintiff Is Not Entitled to Relief on its Claim Contesting the ITC’s Like Product
Determination
For the purpose of determining whether one or more domestic industries are injured or
threatened with injury from subject imports, section 771(4)(A) of the Act requires the
Commission to identify as a domestic industry “the producers as a whole of a domestic like
product, or those producers whose collective output of a domestic like product constitutes a
major proportion of the total domestic production of a product.” 19 U.S.C. § 1677(4)(A). In the
investigation giving rise to this litigation, the ITC concluded that steel drill pipes and steel drill
collars, whether finished or unfinished, comprise a single domestic like product. ITC Report:
Comm’n Views 7-17. In so concluding, the ITC rejected arguments that it should find a separate
like product consisting of unfinished drill pipe and drill collars, id. at 7-12, or a separate like
product consisting of “premium” drill pipe, id. at 12-14.
In its Rule 56.2 motion, plaintiff asserts a claim that the Commission’s domestic like
product finding is unsupported by substantial evidence. Pl.’s Mem. 40; see Compl. ¶ 6.
Court No. 11-00080 PUBLIC Page 7
Plaintiff’s Rule 56.2 brief offers only one ground for this claim: “To the extent that the Plaintiff’s
appeal of Commerce’s scope determinations is successful, Downhole Pipe reserves the right to
raise the like-product arguments raised in its prehearing brief, and incorporated by reference
herein.” Pl.’s Mem. 40 (citing Pre-Hearing Br. of Downhole Pipe & Equipment, L.P. and
Command Energy Services, Ltd. (Dec. 15, 2010), PR 154 at 40-44 (“Resps.’ Pre-Hearing Br.”)).
Plaintiff’s prehearing brief before the ITC informed the Commission that scope inquiries were
pending before Commerce on the question of whether green tube for drill pipe falls within the
scope of the antidumping duty order on certain oil country tubular goods from China; products
falling within the scope of another antidumping duty or countervailing duty order are expressly
excluded from the scope of the investigations as defined by Commerce. See Resps.’
Pre-Hearing Br. 40-41. In that brief, Downhole Pipe argued that information on the record of
the investigation at issue in this case demonstrates that green tubes should be a separate domestic
like product. Id. at 42-44.
The Views of the Commission state that “[a]lthough Respondents argued in their
prehearing brief that the Commission should find green tubes to be a separate domestic like
product, Respondents assert unequivocally in their posthearing brief that ‘the Commission
should find one domestic like product consisting of a continuum of drill pipe and drill collar
products.’” ITC Report: Comm’n Views 8 (citing Resps.’ Prehearing Brief at 43; Post-Hearing
Br. of Downhole Pipe & Equipment, L.P. and Command Energy Services, Ltd. (Jan. 12, 2011),
PR 192, at 3 (Resps.’ Post-hearing Br.”)) (emphasis added). The two respondents in the
proceedings before the ITC, Downhole Pipe and another importer, Command Energy Services,
Ltd. (“Command”), filed joint prehearing and posthearing briefs. Id. at 3. The joint posthearing
brief to which the Commission referred expresses the position that the Commission should find a
single like product, and the record does not contain information contradicting the Commission’s
Court No. 11-00080 PUBLIC Page 8
statement that Downhole Pipe changed its position before the ITC, thereby abandoning its
previous position advocating a separate domestic like product consisting of green tubes. Nor
does plaintiff, in its Rule 56.2 motion, direct the court’s attention to any such information. The
court finds from the record evidence that during the investigation plaintiff abandoned its
previous position advocating a separate like product and adopted a position in favor of a single
like product.
The court, in its discretion, declines relief on plaintiff’s claim contesting the
Commission’s domestic like product determination. Plaintiff is advocating before the court a
position exactly contrary to the position it took in the posthearing brief before the ITC that it
filed jointly with Command. The court, therefore, declines to consider the claim on the merits on
the ground of judicial estoppel. See Trustees in Bankr. of N. Am. Rubber Thread Co. v. United
States, 593 F.3d 1346, 1353-54 (Fed. Cir. 2010). Moreover, because plaintiff did not maintain in
the posthearing brief the position it took in its prehearing brief, the ITC did not have occasion to
rule on the specific like product issue plaintiff attempts to raise before the court. It is also
appropriate, therefore, to deny relief on plaintiff’s like product claim for the failure to exhaust
administrative remedies. See 28 U.S.C. § 2637(d) (providing that this Court shall, where
appropriate, require the exhaustion of administrative remedies).
B. The Affirmative Threat Determination Must Be Remanded to the Commission
Plaintiff directs the remainder of its Rule 56.2 motion to contesting the ITC’s
determination that the single domestic industry, although not experiencing present injury, is
threatened with material injury by reason of imports of the subject merchandise. In its motion,
plaintiff challenges various of the Commission’s underlying findings as unsupported by
substantial record evidence. Pl.’s Mem. 11-39. Specifically, plaintiff challenges the ITC’s
findings as to likely volume effects of the subject imports, the findings as to the likely price
Court No. 11-00080 PUBLIC Page 9
effects of the subject imports, and the finding of a likely adverse impact by those imports on the
domestic industry. Id.Sections 705(b)(1) and 735(b)(1) of the Act require the ITC 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. 19 U.S.C.
§§ 1671d(b)(1), 1673d(b)(1). Section 771(7)(A) of the Act defines material injury as “harm
which is not inconsequential, immaterial, or unimportant.” 19 U.S.C. § 1677(7)(A).
In determining whether an industry is threatened with material injury, the ITC is required
“to consider, among other relevant economic factors,” eight specific factors. 19 U.S.C.
§ 1677(7)(F)(i). Particularly relevant to this case is the third specific threat factor: “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). The statute
also contains a ninth, nonspecific threat factor: “any other demonstrable adverse trends that
indicate 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).3
3
The other economic factors prescribed by the statute for the threat determination are as
follows: the nature of the countervailable subsidy, 19 U.S.C. § 1677(7)(F)(i)(I); “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); “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); “inventories of the subject merchandise,” id. § 1677(7)(F)(i)(V); “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.
(continued . . .)
Court No. 11-00080 PUBLIC Page 10
The Commission is to consider the nine statutory threat factors “as a whole in making a
determination of whether further dumped or subsidized imports are imminent and whether
material injury by reason of imports would occur unless an order is issued or a suspension
agreement is accepted under this subtitle.” Id. § 1677(7)(F)(ii). “The presence or absence of any
one factor which the Commission is required to consider . . . shall not necessarily give decisive
guidance with respect to the determination,” which must “be made on the basis of evidence that
the threat of material injury is real and that actual injury is imminent” and not “on the basis of
mere conjecture or supposition.” Id. The legislative history clarifies that the ITC’s threat
determination “require[s] a careful assessment of identifiable current trends and competitive
conditions in the marketplace . . . [and] a thorough, practical, and realistic evaluation of how it
operates, the role of imports in the market, the rate of increase in unfairly traded imports, and
their probable future impact on the industry.” H.R. Conf. Rep. No. 1156, 98th Cong.,
2d Sess. 174-75 (1984), U.S. Code Cong. & Admin. News 1984, pp. 4910, 5291, 5292.
As to present injury, the Commission reached a negative determination despite
concluding that over the POI “the domestic industry suffered significant declines in a number of
basic indicators, including production, shipments, sales, and employment” and that “the
industry’s operating profits were solid in 2007 and 2008, dropped sharply in 2009 (as adjusted)
to an overall loss, then improved in first-half 2010 to a level below the levels of 2007 and 2008.”
ITC Report: Comm’n Views 38-39 (footnote omitted). The ITC found, however, that “[s]ubject
imports played a role in these declines but we cannot find their role to be significant given the
( . . . continued)
§ 1677(7)(F)(i)(VI); the likelihood of product shifting involving raw and processed agricultural
products (not relevant to this case), id. § 1677(7)(F)(i)(VII); and “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).
Court No. 11-00080 PUBLIC Page 11
substantial market turmoil that occurred in 2009 and first-half 2010.” Id. at 39. By “market
turmoil,” the Commission referred to severe declines in oil and gas prices, which reached low
levels in 2009, and to a resulting sharp decline in drilling activity that began in October 2008 and
continued until May 2009 before returning close to 2007 levels by 2010. Id. at 24 (footnotes
omitted).
1. Two Erroneous Findings of Fact, and Two Erroneous Conclusions from those Findings,
Require the Court to Remand the Affirmative Threat Determination
In determining the domestic drill pipe and collar industry to be threatened with material
injury, the Commission reached conclusions on the future volume of imports of subject imports,
the future price effects of those imports, and the impact of those future imports on the domestic
industry. As to volume, the Commission concluded “that subject imports will increase
significantly in absolute terms and relative to domestic consumption and production in the
imminent future . . . .” ITC Report: Comm’n Views 32. On price effects, the ITC found that
“subject imports are likely to enter at prices that will have significant price-depressing and/or
price-suppressing effects.” Id. at 34. On impact of the subject imports, the Commission stated
that “[g]iven that the industry is already in a weakened state, we conclude that, unless
antidumping duty and countervailing duty orders are issued, significant volumes of dumped and
subsidized imports will gain additional U.S. market share in the imminent future and material
injury by reason of subject imports will occur.” Id. at 37.
The Commission summarized four findings of fact to support its conclusion that subject
imports would increase significantly in volume: (1) “subject imports held a substantial share of
the U.S. market throughout the period examined, a share that grew in first-half 2010;”
(2) “importers of subject merchandise have now become suppliers to even the largest U.S.
purchasers and thus have demonstrated access to the full range of the API-grade drill pipe and
Court No. 11-00080 PUBLIC Page 12
collar market;” (3) “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;” and
(4) “the Chinese industry is very large and growing, is export-oriented, possesses substantial
unused capacity, and has an incentive to increase its production and U.S. exports of unfinished
drill pipe in response to the 2010 U.S. antidumping and countervailing duty orders on Chinese
casing and tubing products.” Id. at 32. The Commission based the second finding, as quoted
above, on more detailed findings that it expressed as follows:
The participation of suppliers of Chinese product in the U.S. market has evolved and
grown over the period in ways that indicate further expansion is imminent. During
the preliminary phase of these investigations importer respondents indicated that
subject imports were limited to sales to smaller customers to whom domestic
producers had no interest in making sales. Information on the record in the final
phase of these investigations shows this is no longer the case. Importers of Chinese
product have recorded sales to the largest U.S. purchasers. By the end of the period
examined, most of the largest U.S. customers for drill pipe and drill collars reported
purchasing subject merchandise.
Id. at 28-29 (footnotes omitted). In the quoted paragraph, the ITC discerned a trend in which
large domestic customers did not buy the Chinese products at the beginning of the period of
investigation but did buy subject merchandise by the end of the POI. This perceived trend
caused the ITC to conclude that the participation of Chinese suppliers in the U.S. market has
“evolved and grown over the period in ways that indicate further expansion is imminent.” Id.
at 28. The ITC relied on its perceived trend in concluding that “[t]he fact that suppliers of
Chinese product have broken through a major prior limitation on their reach in the U.S. market
is an indication that their U.S. market share is poised to increase.” Id. at 29 (emphasis added).
In this way, the Commission grounded its threat analysis, in part, on “[s]ubject suppliers’
emergence as providers to even the largest U.S. purchasers [of drill pipe and drill
collars] . . . .” Id.
Court No. 11-00080 PUBLIC Page 13
The record evidence does not support and in fact refutes any finding or inference that
only smaller domestic purchasers, as opposed to purchasers the ITC considered “large,” were
buying subject merchandise at the start of the POI. The Commission relied on certain testimony
given at the Commission’s conference during the preliminary phase of the investigation, held on
January 21, 2010. Id. at 28 & n.231. However, that testimony, even as paraphrased in the
Commission’s preliminary determination and in the Views of the Commission, was not to the
effect that large purchasers do not buy any subject merchandise; it was instead that the largest
domestic purchasers obtained drill pipe and collar predominantly from domestic suppliers.4 See
id. The Commission overlooked record evidence that purchasers it considered “large” did in fact
buy subject merchandise during the first year of the POR. The Commission identified eight U.S.
purchasers of drill pipe and drill collar that it considered to be the largest, according to either the
number of drill rigs owned or operated or the value of total purchases of drill pipe and drill
collars (domestic and foreign).5 ITC Report: Final Staff Report II-7, II-8 (PR 213). Three of
4
The conference testimony of the respondents, as cited by the Commission, [
]
5
The Commission identified six purchasers of drill pipe and drill collar as the largest
according to drill rigs owned or operated: [
] The Commission’s list of large purchasers or drill pipe and drill
collars by purchase volume during the POR (from all countries) [
] Drill
(continued . . .)
Court No. 11-00080 PUBLIC Page 14
these largest purchasers reported having purchased significant quantities of subject merchandise
during 2007, the first year of the POI.6
The record evidence consisting of large purchasers’ questionnaire responses, considered
as a whole, also falls short of supporting the ITC’s finding that the participation of Chinese
suppliers in the U.S. market over the POI broke through a prior limitation to smaller suppliers.
Of the eight largest purchasers, three did not purchase any Chinese drill pipe or collar during
the POI.7 Three others made purchases of Chinese products, but these purchases either ended
in 2007 or fell off substantially after 2007, the first year of the POI.8 Of the remaining two large
( . . . continued)
Pipe and Drill Collars from China, Inv. Nos. 701-TA-474 and 731-TA-1176 (Final), USITC
Pub. 4213 (Feb. 2011) (“ITC Report”), at II-7 (Final Staff Report, CR 523).
6
The record consisting of responses to purchasers’ questionnaires shows [
]
7
[
]
8
[
(continued . . .)
Court No. 11-00080 PUBLIC Page 15
purchasers, one had a purchasing pattern that fails to lend support to the Commission’s finding
that purchases of subject merchandise began during, and grew over, the POI so as to indicate
imminent “further expansion.”9
Concerning the remaining (eighth) large purchaser, the three Commissioners who voted
in favor of the affirmative threat determination and the three dissenting Commissioners disagreed
on the significance of a transaction, or a group of related transactions, in early 2010 that involved
this purchaser and a particular importer of subject merchandise. Redacted Oral
Tr. 8-10(Sept. 30, 2013), ECF No. 93; ITC Report: Comm’n Views 40 n.232 (CR 537); ITC
Report: Dissenting Views 46 n.30 (CR 538). But even were the court to sustain every inference
the Commission drew from the record facts pertaining to this large purchaser, it still would be
unable to conclude that the record evidence supports the larger finding that participation of
Chinese suppliers has evolved and grown over the POI “in ways that indicate further expansion
is imminent.” ITC Report: Comm’n Views 28. The evidence pertaining to the transaction or
transactions occurring in early 2010 involves only one importer and one large domestic
( . . . continued)
]
9
[
]
Court No. 11-00080 PUBLIC Page 16
purchaser; in addition, the record evidence refutes a finding or inference that the transaction or
transactions involved were representative or typical.10
In summary, from its review of the record evidence in this case, and particularly its
review of the evidence contained in the responses to the ITC’s purchasers’ questionnaire
submitted by the domestic purchasers that the ITC considered “large,” the court concludes that
substantial evidence does not support two findings made by the Commission and two general
conclusions the ITC reached on the basis of those two findings. As discussed above, the
impermissible findings were that only smaller domestic purchasers, as opposed to purchasers the
ITC considered “large,” were buying subject merchandise at the start of the POI and that, during
the POI, the participation of Chinese suppliers in the U.S. market broke through a prior limitation
to smaller suppliers. From these erroneous findings, the ITC reached the unsupported conclusion
that “[t]he participation of suppliers of Chinese product in the U.S. market has evolved and
grown over the period in ways that indicate further expansion is imminent,” ITC Report:
Comm’n Views 28, and the related conclusion that “[t]he fact that suppliers of Chinese product
have broken through a major prior limitation on their reach in the U.S. market is an indication
that their U.S. market share is poised to increase,” id. at 29.
10
[
]
Court No. 11-00080 PUBLIC Page 17
Defendant’s counsel acknowledged at oral argument that the record lacks substantial
evidence to support one or more of the ITC’s findings concerning purchasing by large customers
during the POR. According to defendant’s argument, the erroneous finding or findings are not
critical to the chain of causation, and the court should disregard any error is harmless. The court
disagrees.
A court must review an agency determination on the reasoning the agency puts forth. SEC
v. Chenery Corp., 332 U.S. 194, 196 (1947). As the court indicated above, the ITC’s general
finding that “importers of subject merchandise have now become suppliers to even the largest
U.S. purchasers and thus have demonstrated access to the full range of the API-grade drill pipe
and collar market,” which the ITC grounded in the two erroneous findings and invalid
conclusion the court has identified, was one of the four reasons the Commission expressed for
concluding that subject imports would “increase significantly in absolute terms and relative to
domestic consumption and production in the imminent future.” ITC Report: Comm’n Views 32.
In turn, the imminent increase in import volumes that the Commission foresaw was integral to
the affirmative threat determination. Id. at 37 (“Given that the industry is already in a weakened
state, we conclude that, unless antidumping duty and countervailing duty orders are issued,
significant volumes of dumped and subsidized imports will gain additional U.S. market share in
the imminent future and material injury by reason of subject imports will occur.”). Additionally,
the finding of an imminent increase in the volume of subject imports was related to the finding
that these increased imports would undersell the domestic product. Id. at 34 (“[W]e conclude
that, in the imminent future, the aggressive price competition demonstrated by subject imports at
the end of the period examined will likely continue, and the introduction of increased quantities
of subject imports, aggressively priced in an effort to gain market share, will put pressure on
domestic producers to lower prices in a market recovering from depressed demand.”). The
Court No. 11-00080 PUBLIC Page 18
importance the ITC attached to the erroneous findings and the unwarranted conclusions in
reaching its affirmative threat determination does not allow the court to consider the errors to be
harmless.
Arguing for affirmance of the affirmative threat determination, defendant-intervenor U.S.
Steel maintains that the court can and should conclude that substantial evidence supports the
remainder of the Commission’s determination even if also concluding that certain findings were
not lawful. Relying on the decision of the Court of Appeals for the Federal Circuit (“Court of
Appeals”) in Nippon Steel Corp. v. United States, 458 F.3d 1345 (Fed. Cir. 2006) (“Nippon
Steel”), U.S. Steel argues that the determination under review in this case should be upheld based
on an examination of the record as a whole notwithstanding the potentially unlawful finding or
findings. However, Nippon Steel was grounded in an evidentiary record distinguishable from
that presented in the case at bar. In Nippon Steel, the Court of Appeals upheld an affirmative
injury determination of the ITC that had been set aside by the Court of International Trade even
though concluding that this Court was correct in determining that the ITC had made an “obvious
error” when ascertaining the way in which subject merchandise undersold the domestic like
product. Nippon Steel, 458 F.3d at 1353-54, 1358-59. The Court of Appeals concluded that the
affirmative injury determination, despite the error, was supported by an “adequate basis in
support of the Commission’s choice of evidentiary weight” that required deference to the
Commission under the substantial evidence standard. Id. at 1358-59. In this case, the
Commission’s own presentation of its affirmative threat determination causes the court to
conclude that the ITC gave significant weight to the factual findings, and the associated
conclusions, that the court views as erroneous.
U.S. Steel also argues that the transaction in early 2010 involving the aforementioned
eighth large purchaser could have been viewed as a watershed event that signified a meaningful
Court No. 11-00080 PUBLIC Page 19
change for a producer that previously sold only to smaller U.S. customers. This argument is
unconvincing. As the court has pointed out, there can be no dispute that the transaction or
transactions in question involved only one importer and one purchaser and did not reflect a
typical sales arrangement.
In conclusion, the court must reject as unsupported by substantial record evidence the
ITC’s finding that only smaller domestic purchasers, as opposed to purchasers the ITC
considered “large,” were buying subject merchandise at the start of the POI and the ITC’s
finding that, during the POI, the participation of Chinese suppliers in the U.S. market over the
POI broke through a prior limitation to smaller suppliers. The court must also reject the two
conclusions the ITC reached based on these findings, which were that “[t]he participation of
suppliers of Chinese product in the U.S. market has evolved and grown over the period in ways
that indicate further expansion is imminent,” ITC Report: Comm’n Views 28, and the related
conclusion that “[t]he fact that suppliers of Chinese product have broken through a major prior
limitation on their reach in the U.S. market is an indication that their U.S. market share is poised
to increase,” id. at 29. Because, as discussed above, it is apparent from the Views of the
Commission that these erroneous findings and unwarranted conclusions were important to the
affirmative threat determination, the Commission must reconsider that determination on the
whole, in the absence of these findings and conclusions.
2. Additional Explanation Is Required on Two Other Aspects of the Commission’s Affirmative
Threat Determination
Although the erroneous findings and conclusions identified above are alone sufficient to
require the ITC to reconsider its affirmative threat determination, the court also sees a need for
the ITC to provide additional explanation on two other aspects of that determination.
Court No. 11-00080 PUBLIC Page 20
The first of the four findings the ITC presented to support its conclusion that subject
imports would increase significantly in volume was as follows: “subject imports held a
substantial share of the U.S. market throughout the period examined, a share that grew in
first-half 2010.” ITC Report: Comm’n Views 32 (emphasis added). The statement of the finding
summarizes earlier discussion in which the ITC characterized the market share of imports of
subject finished drill pipe and drill collars as fluctuating and “significant.” Id. at 28. It is not
clear whether the Commission, in characterizing the market share of subject imports as
“substantial,” was referring only to finished imports, which it discussed, or also to unfinished
products. The data the ITC cited earlier referred only to finished products. As to the finished
products, the use of the term “substantial” to describe the market share is questionable as applied
to the POI as a whole, in which that market share fluctuated considerably, at times to levels that
would not appear to qualify as “substantial,” and never exceeded a particular threshold. Id.
Moreover, the Commission’s statement that the market share “grew” in first-half 2010 must be
interpreted in light of those data, which showed that the market share of finished subject
merchandise grew from second-half 2009 to first-half 2010 but in first-half 2010 still was
considerably less than it was in first-half 2009. See id. at 28 (citing Final Staff Report
at Table C-2). The same data showed that the increase in first-half 2010 must be seen in the
context of a precipitous drop in that market share occurring in second-half 2009. See id. In view
of the actual data, the court directs the Commission to explain why, and to what extent, it based
its overall determination related to likely future import volume on its stated findings that the U.S.
market share of subject merchandise was “substantial” throughout the POI and “grew” in
first-half 2010.11 In doing so, the ITC should be mindful of the statutory directive that the ITC,
11
In a single paragraph in the Views of the Commission, the ITC tied its findings as to
(continued . . .)
Court No. 11-00080 PUBLIC Page 21
when evaluating a threat of material injury, must consider whether there has been “a significant
rate of increase of the volume or market penetration of imports of the subject merchandise
indicating the likelihood of substantially increased imports.” 19 U.S.C. § 1677(7)(F)(i)(III)
(emphasis added).
A second aspect of the final threat determination requiring additional explanation is the
ITC’s basing of conclusions as to likely future import volume on the finding that “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.” ITC Report: Comm’n Views 32. The
data the ITC cited for its finding, which it presented on page 41 of the Views of the Commission
and obtained from Table C-2 of the Final Staff Report, show a sizable increase in importers’
inventories only from 2007 to 2008 and show modest declines thereafter. Citing a different table
in the Final Staff Report (Table II-4, showing inventory of subject finished products held by
“purchasers,”), the three dissenting Commissioners concluded that “[w]ith regard to inventories
of the subject merchandise, there was no significant increase in inventories of subject product
held by U.S. importers or purchasers over the period examined.” ITC Report: Dissenting
Views 45. The dissenting Commissioners added that “[i]n fact, while inventories of finished
products from U.S. sources predictably increased from 2007 to 2009 as demand declined,
inventories of subject imports of finished products dropped substantially over the same period.”
Id. (footnote omitted). The court directs the ITC to provide additional explanation of its stated
finding in light of all of the relevant evidence of record, including evidence that may detract
from that finding.
( . . . continued)
market share directly to one of the conclusions the court found erroneous for the reasons
discussed above, i.e., the finding that the U.S. market share of Chinese suppliers is “poised to
increase.” ITC Report: Comm’n Views 29.
Court No. 11-00080 PUBLIC Page 22
In directing the ITC to provide additional explanations for two of its findings, the court
does not preclude the ITC, on remand, from reconsidering those or any other findings upon
which the ITC reached its final affirmative threat determination.
III. CONCLUSION AND ORDER: ON REMAND, THE ITC MUST RECONSIDER ITS AFFIRMATIVE
THREAT DETERMINATION AND ISSUE A REDETERMINATION THAT IS SUPPORTED BY
SUBSTANTIAL RECORD EVIDENCE
Because of the importance the ITC placed on the two erroneous findings and unwarranted
conclusions discussed previously in this Opinion, the court directs the ITC to reconsider its
affirmative threat determination on the whole, absent those findings and conclusions, and issue a
redetermination upon remand that is supported by substantial evidence on the record considered
as a whole. For the reasons also discussed above, the court directs the Commission to provide
additional explanation on two other aspects of the affirmative threat determination.
Therefore, upon consideration of the Drill Pipe and Drill Collars From China, 76 Fed.
Reg. 11,812 (Mar. 3, 2011); Drill Pipe and Drill Collars from China, Inv. Nos. 701-TA-474
and 731-TA-1176 (Final), USITC Pub. 4213 (Feb. 2011), and all papers and proceedings had
herein, it is hereby
ORDERED that the U.S. International Trade Commission (“ITC”) shall file with the
court a remand redetermination that complies fully with this Opinion and Order and is supported
by substantial evidence on the record considered as a whole; and it is further
ORDERED that the ITC shall file its remand redetermination within ninety (90) days of
this Opinion and Order, plaintiff and defendant-intervenors shall have thirty (30) days from the
filing of that remand redetermination to comment thereon, and defendant shall have fifteen (15)
days from the filing of the last comment to submit any reply.
/s/ Timothy C. Stanceu
Timothy C. Stanceu
Judge
Dated: August 19, 2013
New York, New York