WORLD TRADE  
ORGANIZATION  G/ADP/Q2/USA/2 
21 October 2010 
 (10-5485) 
Committee on Anti-Dumping Practices Original:   English 
  
 
ARTICLE 16.4 OF THE AGREEMENT 
 
SEMI-ANNUAL REPORT ON PRELIMINARY AND  
FINAL ANTI-DUMPING ACTIONS 
 
Replies to Questions posed by CHINA
1 
regarding the notification of   
the UNITED STATES2 
  
 The following communication, dated 18 October 2010, is being circulated at the request of 
the Delegation of the United States.  
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 Oil Country Tubular Goods   Question 1   China would like to know why the US Department of Commerce (DOC) rejected to 
choose the surrogate financial ratio of ISMT, an India OCTG producer, whose products 
structure and manufacturing experience are very similar to the mandatory respondents in this 
case.   Question 2  
 Please explain why DOC used the financial ratio of Tata, an India pipe producer, who 
not only does not produce the product under investi gation at all, but also has been found by the 
USDOC that it has received subsidies provided by the India government in a recent countervailing duty investigation. 
 Reply to Questions 1 and 2
 
  The final determination in the US antidumpi ng investigation of oil country tubular goods 
(hereinafter OCTG) from China was published in the Federal Register  on 19 April 2010 (75 Fed. 
Reg. 20335).  As indicated in the Federal Register  notice, the United States Department of Commerce 
(hereafter the Department) provided a detailed explanation of its cal culation of surrogate financial 
ratios in the 8 April 2010 Issues and Decisions Memo randum for the Final Determination in the Less 
Than Fair Value Investigation of Certain Oil Count ry Tubular Goods from China (hereafter Issues and 
Decision Memorandum).  The Federal Register  notice and the Issues and Decision Memorandum are 
public documents available on th e Department's website at 
                                                     
 
1 G/ADP/Q2/USA/1.   
2 G/ADP/N/195/USA. G/ADP/Q2/USA/2 
Page 2  
 
  http://ia.ita.doc.gov/frn/s ummary/prc/2010-8994.txt
 and http://ia.ita.doc.gov/frn/summary/prc/2010-
8994-1.pdf , respectively.  The Issues and Decision Memorandum, at Comment 13, details the 
Department's position regarding the issues raised, including its reasons  for calculating the surrogate 
financial ratios using the financial statements of  ISMT, Tata, and, a third company, OCTL.  For 
convenience, the relevant section of the Issues and Decision Memorandum (without footnotes) is set 
forth below. 
 
Comment 13:  Financial Statements for Surrogate Ratios  
 
Department's Position:  Before the Preliminary Determination , parties placed three financial 
statements on the record, for ISMT, OCTL and Ta ta, each covering the FY 2008-2009.  We found all 
three financial statements to be complete, legible,  publicly-available, contem poraneous with the POI, 
and from producers of either identical or comparable merchandise.  In the Preliminary Determination , 
the Department also found that ISMT's financial st atement stated that it is entitled to import duty free 
raw material under Advance Licenses and that it ad justs the higher cost of domestic raw materials 
actually consumed for export/production by accruing the value of the company's entitlement to import 
duty-free material.  The Department has found the Advance Licenses program to be countervailable in 
the past.  Therefore, the Department did not use ISMT's audited financial statement to calculate 
surrogate financial ratios for the Preliminary Determination .   
  In analyzing the remaining two financial statem ents, the Department preliminarily determined 
that Tata is an integrated steel producer with captive mines.  The Depa rtment further found that 
OCTL, like Changbao, is a non-integrated producer of identical and comparable merchandise.  Based 
on this analysis, the Department found that with rega rd to these two financial statements, Tata's level 
of integration is more similar to TPCO's and OCTL's level of integration is more similar to 
Changbao's.  Therefore, the Department prelim inarily determined Tata and OCTL's financial 
statements sufficiently representativ e to value the surrogate financ ial ratios for TPCO and Changbao, 
respectively.   No party placed any additional financial st atements on the record subsequent to the 
Preliminary Determination .  Accordingly, based on the arguments  raised by the parties regarding the 
appropriate surrogate financial statements with which to value manufacturing overhead, SG&A 
expenses and profit, the Department has evaluate d the appropriateness of using each of the three 
record financial statements addressed by the parti es for the final determination, below.  Because the 
Department is applying a margin based on total AFA to Changbao, we have evaluated this issue only 
with respect to TPCO.   
 For the reasons discussed below, for the final de termination, the Department is calculating the 
surrogate financial ratios for TPCO using the fina ncial statements of ISMT, OCTL and Tata (FY 
2008-2009).  The statute directs the Department to base the valuation of the factors of production on 
"the best available information regarding the valu es of such factors in a market economy country or 
countries considered to be appropriate ...".  More over, in valuing such factors, Congress further 
directed the Department to "avoid using any prices which it has reason to believe or suspect may be 
dumped or subsidized prices". 
  Section 351.408(c)(4) of the Department's regula tions further stipulates that the Department 
normally will value manufacturing overhead, SG&A  expenses and profit using "non-proprietary 
information gathered from producers of identical  or comparable merchandise in the surrogate 
country".  In complying with the statute and the regulations, the Department calculates the financial 
ratios based on contemporaneous financial stat ements of companies producing comparable 
merchandise from the surrogate country, some of wh ich may contain evidence of subsidization.  
However, where the Department has a reason to believe or suspect that the company producing 
comparable merchandise may have received actionabl e subsidies, it may consider that the financial  G/ADP/Q2/USA/2 
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  ratios derived from that company's financial stat ements are less representative of the financial 
experience of the relevant industry than the ratio s derived from financial statements that do not 
contain evidence of subsidization.  Consequent ly, the Department does not rely on financial 
statements where there is eviden ce that the company received countervailable subsidies and there are 
other sufficient reliable and representative data on th e record for purposes of calculating the surrogate 
financial ratios.  
  In choosing surrogate financial ratios, it is th e Department's policy to use data from market-
economy surrogate companies based on the "specific ity, contemporaneity, and quality of the data".  
Guidance regarding surrogate values for manufactur ing overhead, general e xpenses, and profit is 
provided by section 351.408(c)(4) of  the Department's regulations, which states that these values will 
normally be based on public information from compani es that are in the surrogate country and that 
produce merchandise that is identical or comparable  to the subject merchandise.  While the statute 
does not define "comparable merchandise", it is th e Department's practice, where appropriate, to 
apply a three-prong test that considers:  1) physi cal characteristics;  2) end uses;  and 3) production 
processes.  In the selection of surrogate producers,  the Department may consider how closely the 
surrogate producers approximate the NME producers' experience.  The Courts have held that the 
Department is neither required to "duplicate the exact production experience of the Chinese 
manufacturers", nor undergo "an item-by-item analysis in calculating factory overhead".      Accordingly, in light of the parties' argum ents, the Department has re-examined the 2008/09 
financial statements of ISMT, OCTL and Tata for purposes of identifying the best available 
information to value TPCO's overhead, SG&A expenses and profit for purposes of this final 
determination and find the following.   
Contemporaneity 
 
 All three financial statements cover the fiscal  period 1 April 2008 th rough 31 March 2009 and 
so fully overlap with the POI, which is 1 October 2008 through 31 March 2009.   
 
Specificity:  Identical/Comparable Merchandise  
  The Department has reviewed the financial statements of all three companies and has 
determined that both ISMT and OCTL produce seamless OCTG, i.e., identical merchandise to that 
covered by this investigation, while  Tata produces comparable merchandise, e.g., other seamless pipe.  
Further, the Department determined that both Ta ta and ISMT produce a broad range of additional 
products.  For example, Tata also produces hot-roll ed, cold-rolled, and galvanized steel products;  
steel rebar, bearings, and wires;  high-precision e quipment, and agricultural implements, while ISMT 
also produces steel bars, cold-drawn precision seamless tubes, hollow bars, tubes for mining;  automotive air bag canisters, transmission shafts, and cl utch parts;  bearing rings and tubes;  hydraulic 
cylinders;  construction equipment;  and energy.  Conversely, OCTL, as a processor and reconditioner 
of OCTG products, e.g., drill pipe, tubing, OCTL DS connection, and casing pipe, has a much 
narrower product line than the other two Indian producers.   
 
Level of Integration  
 
 In re-examining the financial statements on the record of this investigation, the Department 
finds that the potential surrogate companies are ex tremely varied in their respective levels of 
integration.  First there is Tata, a fully integr ated company whose operations begin with mining ( i.e., 
iron ore and coal), and continue with steelmaki ng all the way through to finished product production 
(e.g., seamless pipe and the other products identified above), at one end of the spectrum.  At the other 
end of the spectrum is OCTL who is a processor of al ready formed pipe, rather than an integrated 
steel and pipe producer.  In other words, OCTL's primary raw materials consumption is limited to G/ADP/Q2/USA/2 
Page 4  
 
  casing pipes, production tubing and drill pipes.  Finally there is ISMT somewhere in the middle.  
ISMT's primary input is steel and steel scrap, from which it forms seamless pipe and the other products identified above.    
Subsidies  
 
 The Department has carefully reviewed each of the three financial statements in question and 
finds that two of them provide evidence of havi ng benefitted from subsidies the Department has 
previously found to be countervailable.  As discussed above with regard to the Preliminary 
Determination findings, record evidence continues to support a finding that ISMT benefitted from the 
Advance Licenses program, which the Department h as previously found to confer a countervailable 
subsidy.  However, the Department does not agr ee with Petitioners that the record supports a 
conclusion that ISMT participated in a CDR program.  In addition, the Department further finds that 
Tata also benefitted from a subsidy program, the DEPB Scheme, which the Department has 
previously found to be countervailable.  Accordi ngly, the Department does not need to address 
TPCO's argument regarding subsidies found for Ta ta in another, non-contemporaneous period, 
because the financial statements from the 2008-2009 FY already provide evidence of subsidies.  
Finally, the Department continues to find, as in the Preliminary Determination , that OCTL's financial 
statement does not provide any evidence that it benefitted from subsidie s the Department has 
previously found to be countervailable.  
 
Selection of Surrogate Statements  
 
 In examining the three financial statements at issue to determine which best meet the statutory 
directive to base the valuation of the FOPs on th e best available information, the Department 
determined that while all three of the financial st atements at issue are cont emporaneous, none of them 
meet all of the Department's remaining criteria.  Firs t, with regard to specificity, the Department finds 
that TPCO has a mix of merchandise that it produces including line pipe, drill pipe, casing, tubing, pressure cylinders, and couplings.  While there is some overlap in the product mix between TPCO and 
each of the three potential surrogates, none of th em produce an identical product mix to TPCO.  For 
example, ISMT and TPCO both produce finished se amless OCTG.  However, unlike TPCO, ISMT 
also produces construction equipment or automotive air bag canisters.  Similarly, both TPCO and Tata 
produce seamless pipe products but Tata, unlike TPC O, also produces bearing rings and agricultural 
implements.  OCTL, on the other hand, has a much  more similar product line to TPCO's than the 
other two companies as it is primarily a finisher of pipe and pipe-related products.    In this case, ISMT, OCTL and Tata each produce merchandise that is identical and/or 
comparable to the subject merchandise.  Thus their financial statements are all representative of, 
though not identical to, the experience of TPCO in this regard.  While, OCTL's product line is 
generally more similar to TPCO's the discussion below indicates that this does not necessarily 
translate to OCTL having a more similar producti on experience to TPCO than the other Indian 
producers.  Accordingly, there is no compelling r eason, on this basis alone, to either include or 
exclude any one, or more, of the producers from th e calculation of the surrogate financial ratios.  
 
 Next, after considering all available informa tion on the record, the Department determines 
that none of the Indian producers reflect the same degree of integration as TPCO. TPCO is an integrated producer that purchases some billets, but  also has extensive purch ases of coal, ore, steel 
scrap and other raw material inputs to produce its own steel which it then further processes into 
formed steel products such as sea mless steel OCTG, casing, tubing, line pipe, boiler tubes, high-
pressure cylinder tube, and hydraulic support tubes.  Wh ile TPCO is not as integrated as Tata in that it 
does not conduct its own mining, it is much more integrated than ISMT, which does not produce its 
own steel from mined raw materials but purchases st eel bars, steel scrap, and various irons as its  G/ADP/Q2/USA/2 
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  primary production inputs.  Finally,  TPCO is significantly more integrated than OCTL, a processor of 
pipe, whose primary input is formed pipes and tubes.    As a general matter, the Department agrees with Petitioners that the degree of integration is a 
relevant factor that can affect overhead rates, as a fully integrated producer will have an overhead to 
raw material input ratio that is higher than the sa me ratio for a non-integrated producer, other things 
being equal.  Accordingly, the Department has prev iously found the level of integration to be an 
important distinction among the potential surrogate steel companies' financial statements.  After 
considering all available information on the reco rd, as discussed above, the Department determines 
that none of the Indian producers reflect the de gree of integration represented by TPCO in this 
investigation.  
  Consequently, application of the overhead ratio  based solely on ISMT or OCTL's data results 
in understating the overhead expense because the ratio does not reflect the expenses incurred to 
produce steel, the major input into OCTG as expe rienced by TPCO. Conversely, as argued by TPCO, 
application of the overhead ratio based solely on Tata's data results in overstating the overhead 
expense because TPCO does not incu r the costs of mining, as does Tata.  Therefore, for the final 
determination, to capture an appropriate leve l of overhead expense incurred by TPCO, it is 
appropriate to apply an overhead ratio based on the average of the three Indian producers, ISMT, 
OCTL and Tata.    
 With respect to subsidies, as discussed in de tail above, two of the three potential surrogate 
companies, ISMT and Tata, benefitted from ac tionable subsidies during this period.  In Crawfish-PRC 
04/17/07 IDM at Comment 1, the Department noted that wh ere it has reason to believe or suspect that 
a company may have received countervailable subsidi es, financial ratios derived from that company's 
financial statements may not constitute the best available information with which to calculate 
surrogate financial ratios.   
  Nevertheless, the Department has used financia l statements with some evidence of subsidies 
when the circumstances of the particular case warrant ed.  For example, the Department determined, in 
Fish-Vietnam 03/21/07 , that it was appropriate to use a financial statement where there was 
insufficient information on the record regarding the subsidy program to warrant disregarding the 
financial statement.  The Department also has previously accepted the financial statement of a 
surrogate producer (Pidilite Industries Limited) which contained evidence that the company received a subsidy that the Department had found to be countervailable.  In  that case, the only other reliable 
alternative was the Reserve Bank of India data, which was not industry-specific and comprised 
two sets of data, one based on 997 selected public lim ited companies based in India and the other 
based on 2,204 selected public limited companies based  in India.  Consequently, the Department 
found, in that case, that the financial ratios of Pidilite, a producer of identical merchandise, represented the best available information on the r ecord in comparison to the extremely broad-based 
data from the Reserve Bank of India, notwith standing that the company had benefitted from 
actionable subsidies.    
 In this case, applying surrogate financ ial ratios on the sole basis of the single 
contemporaneous financial statement that does not  evidence actionable subsidies would result in 
significantly understating those ratios with respect  to TPCO.  Accordingly, in this case, the 
antidumping statute's mandate to rely on the best available information in selecting surrogate values 
means relying on all three producers' statem ents, including those with subsidies.  
 
 Based on this overall analysis, the Department  determines that none of the three Indian 
producers in question are fully representative of th e production experience of TPCO.  The Department 
also determines that relying on any single one of those producers' financial statements would 
significantly understate or overstate TPCO's financ ial ratios.  Therefore, given the Department's G/ADP/Q2/USA/2 
Page 6  
 
  preference for using multiple financial statements in  order to determine surrogate financial ratios for 
manufacturing overhead, SG&A expenses, and profit, the Department has used the average of the 
audited financial statements of all three Indi an producers, ISMT, OCTL and Tata, to calculate 
surrogate financial ratios for TPC O in the final determination. 
 Question 3 
 
 China would be interested in knowing DOC's long-established standards or practices on 
choosing surrogate values or surrogate companies in anti-dumping investigations.  And in what way does the DOC to guarantee that the surrogate val ue to calculate normal value is consistent 
with each paragraph of Article 2.2.2 of the Anti-dumping Agreement.  
Reply
 
  The Department's longstanding practice and criteria for choosing surrogate values in 
antidumping investigations involving responding companies from countries designated as non-market 
economies are fully available in the public domain.  Fo r example, the relevant statutory provisions are 
found at Section 773(c) of the Tariff Act of 1930 ( i.e., 19 USC 1677b(c)); the relevant regulatory 
provisions are found at 19 CFR 351.408; and a descr iption of the Department's practice with respect 
to the non-market economy surrogate country selecti on process is found in the Department's Policy 
Bulletin 04.1 (March 1, 2004).  These laws, regula tions and policy bulletin are available from a 
number of public sources including the Department's website.  See, e.g., 
http://ia.ita.doc.gov/regs/index.html
 and http://ia.ita.doc.gov/policy/index.html .  The Department's 
practice is fully consistent with  US law and the WTO Antidumping Agreement and has been upheld 
by US courts.  All US laws and re gulations pertaining to this practice have been notified previously to 
this Committee.   
 
  
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