Downhole Pipe & Equip. LP v. United States

• Citation: 887 F.Supp.2d 1311
• Court: U.S. Court of International Trade
• Decision Date: 20 November 2012
• Parties: DOWNHOLE PIPE & EQUIPMENT LP and DP–Master Manufacturing Co., Ltd., Plaintiffs, v. UNITED STATES, Defendant, and VAM Drilling USA, Texas Steel Conversions, Inc., Rotary Drilling Tools, TMK IPSCO, and U.S. Steel Corp., Defendant–Intervenors.

887 F.Supp.2d 1311

DOWNHOLE PIPE & EQUIPMENT LP and DP–Master Manufacturing Co., Ltd., Plaintiffs,

v. UNITED STATES, Defendant,andVAM Drilling USA, Texas Steel Conversions, Inc., Rotary Drilling Tools, TMK IPSCO, and U.S. Steel Corp., Defendant–Intervenors.

United States Court of International Trade.

Slip Op. 12–141.

Court No.: 11–00081.

Nov. 20, 2012.

Lehnardt & Lehnardt, LLC, (Mark B. Lehnardt); Chen Law Group, LLC, (Irene H. Chen), Rockville, MD, for Downhole Pipe & Equipment, LP and DP–Master Manufacturing Co., Ltd., Plaintiffs.

Stuart F. Delery, Acting Assistant Attorney General; Jeanne E. Davidson, Director, Washington, DC, Claudia Burke, Assistant Director, Commercial Litigation Branch, Civil Division, United States Department of Justice (Courtney S. McNamara); Office of Chief Counsel for Import Administration, United States Department of Commerce, Nathaniel J. Halvorson, Of Counsel, for the United States, Defendant.

Schagrin Associates, (Roger B. Schagrin, Washington, DC, John W. Bohn, and Michael J. Brown), for VAM Drilling USA, Texas Steel Conversions, Inc., Rotary Drilling Tools, TMK IPSCO; Skadden Arps Slate Meagher & Flom, LLP, (Jeffrey D. Gerrish, Luke A. Meisner, and Robert E. Lighthizer), Washington, DC, for United States Steel Corp., Defendant–Intervenors.

OPINION and ORDER

TSOUCALAS, Senior Judge:

Plaintiffs Downhole Pipe & Equipment, LP, and DP–Master Manufacturing Co., Ltd. (“Downhole” and “DP–Master,” respectively, and “DP,” collectively) move pursuant to USCIT Rule 56.2 for judgment upon the agency record challenging the determination of the International Trade Administration of the United States Department of Commerce (“Commerce”) in Drill Pipe From the People's Republic of China (“PRC”), 76 Fed.Reg. 1,966 (Jan. 11, 2011) (“ Final Determination ”). VAM Drilling USA, Inc., Rotary Drilling Tools, Texas Steel Conversions Services, Inc., United States Steel Corp., (collectively, “defendant-intervenors”), and Commerce oppose DP's motion.

BACKGROUND

On December 30, 2009, VAM Drilling USA, Inc., TMK IPSCO, Texas Conversion Services, Inc., Rotary Drill Tools, and United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Works International Union, AFL–CIO, CLC (collectively, “petitioners” or “domestic industry”) filed petitions with Commerce seeking the imposition of antidumping and countervailing duties on drill pipe from the PRC. Letter from Roger B. Schagrin to the Secretary of Commerce, Re: Petitions for the Imposition of Antidumping and Countervailing Duties: Drill Pipe From the PRC, Public Rec. 1 at 1–4.¹ The parties do not dispute that drill pipe is a specialized high-strength iron alloy tube manufactured in three phases. “First, seamless tubes—called ‘green tubes'—are produced from raw steel.” Pls.’ Am. Mem. Supp. Mot. J. Agency R. (“Pls.' Br.”) at 3–4. Second, a manufacturer uses complex and expensive processes to “upset” and heat treat green tube so as to thicken the ends and increase the yield strength to the desired American Petroleum Institute (“API”) grade. Id. at 3–6. Raw green tube can be processed into “oil country tubular goods” (“OCTG”)—tubular products other than drill pipe, such as casing and finished tubing—as well, but the parties dispute the interchangeability of drill pipe green tube and OCTG green tube. See Pls.' Br. at 32–33; Def.'s Mem. Opp'n Pls.' Br. (“Def.'s Br.”) at 11–15. Lastly, a manufacturer friction-welds a specialized “tool joint” to the ends of the heat-treated and upset tube to complete the drill pipe. Id. at 3, 7–8. A manufacturer may also apply a protective coating or other post-production enhancements to the drill pipe. See Pls.' Br. at 30–31, 35–36.

DP–Master purchases raw green tubes that it upsets and heat-treats to desired API specifications. DP–Master manufactures some, but not all, of its tool joints in-house and friction-welds them to the upset and heat-treated green tubes. DP–Master uses an unaffiliated third party subcontractor—referred to in these proceedings as a “toller”—to apply a protective phosphate coating to its completed drill pipes. DP–Master sells finished drill pipe and other goods directly to companies in the U.S. PR 62 at A–5 to A–6, A–26 to A–27, Ex. A–19; PR 107 at D–5 to D–6.

Domestic industry proposed a broad scope for the antidumping and countervailing duty investigations: “[D]rill pipe ... whether or not conforming to [API] or non-API specifications, whether finished (with or without tool joints attached) or unfinished (including green tubes), and without regard to the specific chemistry of the steel ... [and excluding] tool joints not attached to drill pipe.” PR 1 at 7. In its comments from January 15, 2010 and its comments from January 19, 2010, DP–Master argued that the proposed scope overlapped with an existing investigation into OCTG from China. PR 14 at 2–5; PR 19 at 1–4. Commerce and domestic industry then agreed on revised scope language, which among other changes included a new exception: “The scope does not include ... unfinished tubes for casing or tubing covered by any other antidumping or countervailing duty order.” PR 20 at 2. Commerce initiated the investigation based on industry support calculated using the revised scope. Drill Pipe from the PRC: Initiation of Antidumping Duty Investigation, 75 Fed.Reg. 4,531 (Jan. 28, 2010) (“ Initiation ”).

During the investigation, Commerce directed parties to report factor of production data using “actual quantities consumed to produce the merchandise under investigation.” PR 53 at D–2. In the event that a party could not provide such information, it was to “provide a detailed explanation of all efforts undertaken to report the actual quantity of each [factor of production] consumed to produce the merchandise.” Id. DP–Master notified Commerce that it was having difficulty obtaining the requested factor of production information from its phosphate toller. PR 107 at D–5 to D–6; PR 115 at 6. Nevertheless, once it did report what limited factor of production data it could obtain from its toller, DP–Master did not reveal that it had actually provided data based on purchased quantities instead of actual quantities consumed. Drill Pipe from the PRC: Issues and Decision Memorandum for the Final Determination (Jan. 3, 2011), PR 258 at 45 (“ I & D Memorandum ”).

In Drill Pipe from the PRC: Preliminary Determination of Sales at Less than Fair Value and Affirmative Determination of Critical Circumstances, and Postponement of Final Determination, 75 Fed.Reg. 51,004 (Aug. 18, 2010) (“ Preliminary Determination ”),² Commerce found that DP–Master was selling drill pipe in the U.S. at less than fair value. Commerce selected India as the primary surrogate country, and used Indian data to calculate surrogate values for two key drill pipe inputs relevant to this case. First, Commerce calculated a surrogate value for green tube by averaging listings for prices and offers for J/K–55 grade tube, a finished product similar to green tube, from the January and March 2009 issues of “Metal Bulletin Research” (“MBR”). PR 186 at 7. Second, Commerce established a surrogate value for the tool joints that DP–Master purchased using average unit values of imports under Indian Harmonized Tariff Schedule (“IHTS”) category 8431.43.90. ³Id. Commerce maintained the Initiation scope over DP–Master's objections, but, given “concerns regarding the imprecision of the definition of ‘green tubes suitable for drill pipe,’ ” Commerce declared that it would remove green tube from the scope unless a more definite physical distinction between drill pipe green tube and OCTG green tube emerged in future submissions. PR 187 at 8.

In the Preliminary Determination, Commerce also found that DP–Master was “unable to obtain” certain data from its phosphate toller. Id. at 28. To fill gaps in the data, DP–Master offered “estimated [factors of production] based on [its] knowledge of the production process,” which Commerce found to be “a reasonable proxy to account for the production costs associated with [DP–Master's] ... tolled merchandise.” Id. When Commerce sought to verify the information DP–Master did obtain and report, however, it discovered “for the first time” that DP–Master did not report quantities in the manner Commerce requested, and that DP–Master could not provide records necessary for verification. I & D Memorandum at 45–47.

Following verification and the final comment period, Commerce issued the Final Determination, six aspects of which are presently on appeal. First, Commerce narrowed the scope by adding three physical criteria to the description of subject green tube. Second, in calculating DP–Master's surrogate financial ratio, Commerce elected to use financial information solely from the Indian company Oil Country Tubular, Ltd. Third, contrary to its finding in the Preliminary Determination, Commerce determined that the average unit value of imports under IHTS categories 7304.29 and 7304.23 was the best available surrogate value for drill pipe green tube. Fourth, at DP–Master's urging, Commerce abandoned IHTS category 8431.43.90 and instead used the same surrogate value it chose for the tool joints DP–Master produced in-house to calculate the surrogate value for the tool joints DP–Master purchased. Without prompting from DP–Master, however, Commerce multiplied the in-house tool joint surrogate value by the applicable financial ratio to account for the selling, general and administration expenses (“SG & A”), profit, and overhead that would be reflected in prices offered on the open market. Fifth, Commerce calculated the surrogate value for labor by averaging rates in all countries that produced subject goods, regardless of how much each country actually produced. Lastly, Commerce found that DP–Master's failures with respect to reporting its phosphate toller's factor of production data warranted the application of facts otherwise available and an adverse...