US imposes tariff on Chinese OCTG imports

The US Department of Commerce imposed tariffs on oil country tubular goods (OCTG) imported from China after determining they were being sold in the US at margins ranging from 29.94% to 99.14%.

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Apr. 13 -- The US Department of Commerce imposed tariffs on oil country tubular goods (OCTG) imported from China after determining they were being sold in the US at margins ranging from 29.94% to 99.14%.

Reactions to final determination of the federal antidumping duty investigation were mixed. “Ohio’s workers and products are one of our state’s greatest economic strengths, and the determinations by the US Department of Commerce and the International Trade Commission are removing artificial barriers to job creation and economic growth in Ohio’s manufacturing industries,” said Ohio Gov. Ted Strickland (D), who testified with other officials from the state at a Dec. 1 commission hearing on the matter.

“We are already seeing companies growing and creating jobs because tough federal action ensured American companies had a fair, level playing field with companies in China,” Strickland said in an Apr. 13 e-mail to OGJ.

A second antidumping petition involving Chinese drillpipe imports is still pending before the ITC, noted Brian T. Petty, executive vice-president for government affairs at the International Association of Drilling Contractors. “To the extent that it inhibits development, especially in shale plays which require a huge amount of pipe, this could affect our destiny,” he said. “Companies may have to slow down their plans for onshore shale plays. Drilling in the Marcellus may not be as aggressive.”

Lewis E. Leibowitz, a partner in Hogan & Hartson LLP’s Washington office who will be addressing IADC’s onshore drilling conference May 20 in Houston, confirmed the ruling’s bigger question is its potential impact on domestic oil and gas production. “By imposing tariffs of potentially prohibitive proportions, is the US consigning itself to a shortage of pipe necessary to produce more domestic oil and gas? Are we getting it right? I’m not sure that we are,” he said.

Suppliers respond
OCTG and drillpipe manufacturers and suppliers’ responses also were mixed. “It’s a sad day for end users in the US. The price increase is going to be passed on to producers, and it subsequently will go down to the retail energy customers,” said Gary B. Wade Sr., president of Omni Pipe Solutions in Houston. A Division of AAA-Treasure International Companies, Inc. Chinese OCTG and drillpipe made inroads in the US market when domestic manufacturers couldn’t meet demand, he told OGJ. It may have been subsidized and possibly even dumped, he conceded, but it also was high-quality.

“We operate in a competitive market, and any mill has the opportunity to compete based on a number of factors including quality and price,” said Scott DuBois, president of Houston-based Premier Pipe LLC, which sells OCTG from both domestic and overseas manufacturers. The Apr. 9 ruling and tariffs reflect that Chinese manufacturers weren’t competing fairly in the US, DuBois said.

“We have a number of mills that have announced capital projects over the next several years both in the US and from countries engaging in fairly traded OCTG,” DuBois said, adding, “I believe we will have adequate supplies of OCTG competing for a share of this market. Markets work, and if there is a need and an opportunity, a mill will fill it.”

William Kerins, president of Wheatland Tube Co., Sharon, Pa., said, “We were one of the petitioners, and we’re pleased with the Commerce Department’s response to the antidumping petition. We think the duties represent a fair duty assigned to product that was being dumped in this country. It shows that when companies like Wheatland provide information that products are being dumped, the ITC and Commerce Department will enforce trade laws.”

Kerins said Wheatland felt the impacts and had to lay off employees when Chinese manufacturers dumped product and sent significant tonnages to the US the last few years. “We still have to see the effect of the product that’s lying on the ground. When we went before the ITC last fall, there were 10-12 months of Chinese product on the ground,” he told OGJ.

Orders collections
In a fact sheet issued with the ruling, ITC said DOC will instruct the US Customs and Border Protection Service to begin collecting a cash deposit or bond from the Chinese OCTG manufacturers equal to the weighted-average dumping margins, adjusted for export subsidies found in the final determination of a companion countervailing duty investigation. US imports of OCTG from China reached $1.1 billion in 2009, it added.

Final duties may not be determined for years because China still is a nonmarket economy that calculates its products’ normal value “through a complex process, which yields strange and very startling results,” Leibowitz said. “As a result of this retrospective system of collection, importers who are liable for these duties won’t import it if they have another market. That’s the larger issue we face.”

Leibowitz said US petitioners against Chinese imports have filed both dumping and countervailing duty petitions in the last 3 years. “In China’s case, those subsidies are calculated in ways [that] may violate World Trade Organization rules—this issue is being tested as we speak—but the tariffs are both antidumping and countervailing duties,” he said.

Kerins confirmed other countries also have duties placed on their US sales from earlier cases. “But no one has been as flagrant violating trade laws as China. We saw it with standard pipe several years ago, and more recently with OCTG. They tend to jump from one product to another,” he said.

‘It’s unfair’
Omni Pipe Solutions’ Wade said his is the only domestic OCTG supplier owned by an African-American and that he approached overseas manufacturers when he was unable to do business with US drillpipe and OCTG makers. “Losing Chinese imports will cut off all of my sources for my customers. I think it’s unfair for US steelmakers to go to the US government and say that Chinese imports are unfair when their practices are unfair, particularly with minority-owned companies such as Omni,” he said, adding that he has discussed the problem with US Rep. Sheila Jackson-Lee (D-Tex.).

Wade said Omni, which does $10-20 million/year of business, qualifies as a small disadvantaged business eligible for federal set-asides in government contracts. That eligibility could extend to companies in a federal business relationship such as oil and gas producers with federal leases, which could significantly increase his company’s revenue. “I’m against dumping. I’m also against discrimination,” Wade told OGJ.

“The way the antidumping and countervailing duty laws work are like blunt instruments,” said Leibowitz. “There is insufficient production in the US to meet OCTG and drillpipe demand. Production from China the last few years has filled that gap. The way the duties are imposed, it is essentially impossible for more Chinese product to come into the US. We’re going to have to work with domestic production and other imports.”

Domestic manufacturers have filed other trade complaints with the ITC against OCTG and drillpipe manufacturers in other countries, Leibowitz said, adding, “If they begin to fill the gap between domestic production and imports we recently brought in from China, there’s no reason domestic producers couldn’t file more cases and possibly create a shortage of drillpipe and tubing.”

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