[Federal Register Volume 76, Number 156 (Friday, August 12, 2011)]
[Notices]
[Pages 50173-50176]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-20570]


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DEPARTMENT OF COMMERCE

International Trade Administration

[A-570-965 and C-570-966]


Drill Pipe From the People's Republic of China: Initiation of 
Anti-circumvention Inquiry

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.

SUMMARY: In response to a request from VAM Drilling U.S.A., Texas Steel 
Conversion Inc. and Rotary Drilling Tools (collectively the 
``Petitioners''), the Department of Commerce (the ``Department'') is 
initiating an anti-circumvention inquiry to determine whether certain 
imports of drill pipe from the People's Republic of China (``PRC'') are 
circumventing the Drill Pipe Orders.\1\
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    \1\ See Drill Pipe from the People's Republic of China: 
Antidumping Duty Order, 76 FR 11757 (March 3, 2011); Drill Pipe from 
the People's Republic of China: Countervailing Duty Order, 76 FR 
11758 (March 3, 2011) collectively the ``Drill Pipe Orders.''

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DATES: Effective Date: August 12, 2011.

FOR FURTHER INFORMATION CONTACT: Paul Walker, AD/CVD Operations, Office 
9, Import Administration, International Trade Administration, U.S. 
Department of Commerce, 14th Street and Constitution Avenue, NW., 
Washington, DC 20230; telephone: (202) 482-0413.

SUPPLEMENTARY INFORMATION:

Background

    On June 14, 2011, pursuant to section 781(b) of the Tariff Act of 
1930, as amended (the ``Act''), and section 351.225(h) of the 
Department's regulations, the Petitioners submitted a request for the 
Department to initiate an anti-circumvention inquiry of the Hilong 
Group of Companies Co., Ltd. (``Hilong'') \2\ to determine whether pipe 
\3\ and tool joints produced in the PRC, and friction welded together 
in the United Arab Emirates (``UAE''), which are allegedly products of 
the PRC exported from the UAE, are circumventing the Drill Pipe 
Orders.\4\ In their request, the Petitioners contend that Hilong's PRC 
drill pipe facility exports PRC-produced pipe and tool joints to 
AlMansoori/Hilong in the UAE, which friction welds the pipe to the 
tools joints, and then exports them to Hilong USA, which enters and 
sells the drill pipe as UAE origin merchandise. The Petitioners argue 
that because Hilong's PRC-produced pipe and tool joint are assembled in 
the UAE, and enter the United States as UAE-origin merchandise which is 
of the same class or kind as the merchandise covered by the Drill Pipe 
Orders, this constitutes circumvention.
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    \2\ This includes Hilong's U.S. affiliate, Hilong USA LLC. 
(``Hilong USA'') and its joint venture affiliate Almansoori/Hilong 
Petroleum Pipe Company (``Almansoori/Hilong'') located in the United 
Arab Emirates (the ``UAE'').
    \3\ ``Pipe'' is heat treated and upset green tube, minus the 
tool joint. See Circumvention Request at 3.
    \4\ See the Petitioners' June 14, 2011 submission 
(``Circumvention Request'') at 1.
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    On June 16, 2011, the Petitioners certified that all parties on the 
scope service list were served with their request. On July 6, 2010, the 
Department issued a supplemental questionnaire to the Petitioners 
regarding the request to initiate the anti-circumvention inquiry. On 
July 13, 2011, the Petitioners provided a response to the Department's 
supplemental questionnaire.\5\ Hilong did not submit comments regarding 
the Petitioners' circumvention allegations.
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    \5\ See the Petitioners' July 13, 2011 submission 
(``Circumvention Request Supplement'').
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    On July 27, 2011, the Department extended the deadline to initiate 
an anti-circumvention inquiry by 8 days, pursuant to section 351.302(b) 
of the Department's regulations.\6\ On August 3, 2011, the Department 
extended the deadline to initiate an anti-circumvention inquiry by 14 
days, pursuant to section 351.302(b) of the Department's 
regulations.\7\
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    \6\ See Letter to Petitioner, dated July 27, 2011.
    \7\ See Letter to Petitioner, dated August 3, 2011.
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Scope of the Orders

    The products covered by the orders are steel drill pipe, and steel 
drill collars, whether or not conforming to American Petroleum 
Institute (``API'') or non-API specifications. Included are finished 
drill pipe and drill collars without regard to the specific chemistry 
of the steel (i.e., carbon, stainless steel, or other alloy steel), and 
without regard to length or outer diameter. Also included are 
unfinished drill collars (including all drill collar green tubes) and 
unfinished drill pipe (including drill pipe green tubes, which are 
tubes meeting the following description: seamless tubes with an outer 
diameter of less than or equal to 6 \5/8\ inches (168.28 millimeters), 
containing between 0.16 and 0.75 percent molybdenum, and containing 
between 0.75 and 1.45 percent chromium). The scope does not include 
tool joints not attached to the drill pipe, nor does it include 
unfinished tubes for casing or tubing covered by any other antidumping 
or countervailing duty order.
    The subject products are currently classified in the following 
Harmonized Tariff Schedule of the United States (``HTSUS'') categories: 
7304.22.0030, 7304.22.0045, 7304.22.0060, 7304.23.3000, 7304.23.6030, 
7304.23.6045, 7304.23.6060, 8431.43.8040 and may also enter under 
8431.43.8060, 8431.43.4000, 7304.39.0028, 7304.39.0032, 7304.39.0036, 
7304.39.0040, 7304.39.0044, 7304.39.0048, 7304.39.0052, 7304.39.0056, 
7304.49.0015, 7304.49.0060, 7304.59.8020, 7304.59.8025, 7304.59.8030, 
7304.59.8035, 7304.59.8040, 7304.59.8045, 7304.59.8050 and 
7304.59.8055.
    While HTSUS subheadings are provided for convenience and customs 
purposes, the written description of the scope of the investigation is 
dispositive.

Initiation of Anti-Circumvention Proceeding

    Section 781(b)(1) of the Act provides that the Department may find 
circumvention of an antidumping duty order when merchandise of the same 
class or kind subject to the order is completed or assembled in a 
foreign country other than the country to which the order applies. In 
conducting anti-circumvention inquiries, under section 781(b)(1) of the 
Act, the Department will also evaluate whether: (1) The process

[[Page 50174]]

of assembly or completion in the other foreign country is minor or 
insignificant; (2) the value of the merchandise produced in the foreign 
country to which the antidumping duty order applies is a significant 
portion of the total value of the merchandise exported to the United 
States; and (3) action is appropriate to prevent evasion of such an 
order or finding. As discussed below, the Petitioners have provided 
evidence with respect to these criteria.

A. Merchandise of the Same Class or Kind

    The Petitioners state that the Drill Pipe Orders cover the drill 
pipe assembled in the UAE because it is the same class or kind as the 
drill pipe produced in the PRC. The Petitioners assert that the drill 
pipe assembled in the UAE contains the same components as the drill 
pipe produced in the PRC, i.e., green tube which is subsequently heat 
treated and upset, and tool joints. According to the Petitioners, the 
only distinction is that the friction welding of the pipe to the tool 
joint occurs in the UAE instead of the PRC. The Petitioners provided 
affidavits, as well as an e-mail from one of the Petitioner's 
customers, which indicate that Hilong USA has imported merchandise 
identical to that which is subject to the Drill Pipe Orders.\8\ Since 
the merchandise being imported into the United States from the UAE is 
physically identical to the subject merchandise from the PRC, pursuant 
to section 781(b)(1)(A)(i) of the Act, this drill pipe is of the same 
class or kind as the drill pipe subject to the Drill Pipe Orders.
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    \8\ See Circumvention Request at Attachment 3; see also 
Circumvention Request Supplement at Exhibit 5.
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B. Completion of Merchandise in a Foreign Country

    The Petitioners state that the drill pipe subject to its anti-
circumvention inquiry request is made from pipe and tool joints 
produced in the PRC, then exported to and assembled in the UAE for re-
export to the United States. The Petitioners maintain that the pipe is 
subject merchandise before the assembly performed by Almansoori/Hilong 
in the UAE, which consists of friction welding the PRC-produced pipe to 
the PRC-produced tool joints. The Petitioners posit that the completed 
merchandise is then exported to the United States as UAE-origin. 
Therefore, the Petitioners conclude that, pursuant to section 
781(b)(1)(B)(ii) of the Act, Hilong's drill pipe is merchandise 
assembled in another foreign country (the UAE) from merchandise that is 
produced in a country (the PRC) already subject to the Drill Pipe 
Orders.\9\
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    \9\ See Circumvention Request at 4.
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C. Minor or Insignificant Process

    The Petitioners argue that for the purposes of section 781(b)(1)(C) 
of the Act, the process of friction welding the pipe to the tool joint 
in the UAE is ``minor or insignificant'' as defined by the Act. 
According to the Petitioners, the most fundamental aspect of the 
production process--the forming of seamless green tube by rotary 
piercing billet in an integrated or electric furnace, and the forming 
of tool joints from alloy steel bars that undergo a number of processes 
that require various specialized and expensive equipment--occurs in the 
PRC.\10\ Citing to a normal value build up consisting of factors of 
production consumption ratios reported by VAM Drilling, and surrogate 
values used in the antidumping investigation, the Petitioners contend 
that pipe and tool joint production account for about 75 percent of the 
cost of manufacture of the subject merchandise.\11\
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    \10\ See Circumvention Request at 5; see also Circumvention 
Request Supplement at 1-2.
    \11\ Because this information is business proprietary, its 
specific content cannot be discussed here. See Circumvention Request 
at 5 and Attachment 4a; see also Circumvention Request Supplement at 
2 and Exhibit 1.
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    The Petitioners maintain that only a small percentage of the cost 
of manufacture consists of friction welding the pipe to the tool joint. 
The Petitioners provided evidence of the costs VAM Drilling incurs to 
subcontractors for friction welding pipe to tool joints.\12\
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    \12\ Because this information is business proprietary, its 
specific content cannot be discussed here. See Circumvention Request 
Supplement at 2 and Exhibit 1.
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    The Petitioners reason that an analysis of the relevant statutory 
factors of section 781(b)(2) of the Act further supports its conclusion 
that the UAE processing is ``minor or insignificant.'' These factors 
include (1) the level of investment in the foreign country, (2) the 
level of research and development in the foreign country, (3) the 
nature of the production process in the foreign country, (4) the extent 
of production facilities in the foreign country and (5) whether the 
value of the processing in the foreign country represents a small 
proportion of the value of the merchandise imported into the United 
States.
(1) Level of Investment
    The Petitioners provided an affidavit from VAM Drilling asserting 
that the cost of a friction welding line is approximately $20 million 
U.S. dollars (``USD'').\13\ The Petitioners provided an additional 
affidavit that asserts that one of VAM Drilling's affiliates has 
invested $650 million in a rotary piercing mill to produce pipe, 
although this company already has its own steel mill for producing 
billet.\14\ Further, the Petitioners provided publically available 
information that Tianjin Pipe Company indicates that the costs for a 
pipe production facility with a mill to produce billet is $1 billion 
USD.\15\ Thus, the Petitioners conclude that the cost of investing in a 
friction welding line is approximately two percent of the cost of 
investing in a pipe production line.
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    \13\ See Circumvention Request Supplement at 1-2 and Exhibit 1.
    \14\ See Circumvention Request Supplement at 1 and Exhibit 2.
    \15\ See Circumvention Request Supplement at 1-2 and Exhibit 3.
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    The Petitioners argue that, based on their own experience in the 
UAE market, with regard to drill pipe, Almansoori/Hilong is engaged in 
assembly operations, and is essentially an export platform for PRC-
origin drill pipe and is not an integrated production facility. 
Consequently, the Petitioners assert that little investment has been 
made in the UAE by Hilong in the assembly of drill pipe.
(2) Level of Research and Development
    The Petitioners state that, similar to the level of investment, 
because Almansoori/Hilong's drill pipe operations only involve the 
friction welding of pipe to tool joints, little or no research and 
development are required to set up and operate the UAE company to 
assemble Chinese components.\16\
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    \16\ See Circumvention Request at 6.
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(3) Nature of the Production Process
    According to the Petitioners, the nature of the production process 
for friction welding pipe to tool joints requires little machinery or 
equipment. The Petitioners contend that once a tool joint is attached, 
the drill pipe is exported to the United States.\17\ The Petitioners 
argue that the drill pipe assembled in the UAE contains the same 
components as the drill pipe produced in the PRC, i.e., pipe friction 
welded to tool joints, and the only distinction is that the friction 
welding of the tool joint to the pipe occurs in the UAE instead of the 
PRC. As a consequence, the Petitioners maintain that before the pipe is 
friction welded to the tool joints, the pipe is of the same class or 
kind as the drill pipe produced in the PRC that is subject to the Drill 
Pipe Orders.
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    \17\ See Circumvention Request at 3.

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[[Page 50175]]

(4) Extent of Production in the UAE
    As stated above, the Petitioners contend that the extent of 
production in the UAE is simply friction welding PRC-produced pipe to 
PRC-produced tool joints. As noted above, the Petitioners state that 
this process is completed by the single friction welding line by 
Almansoori/Hilong in the UAE.
(5) Value of Processing in the UAE as Compared to Drill Pipe Imported 
Into the United States
    The Petitioners assert that assembly in the UAE of pipe and tool 
joints adds little value to the final product exported to the United 
States. The Petitioners posit that the value of the final product is, 
most significantly, the pipe and tool joints, which, as noted above, 
comprise approximately 75% of the cost of manufacture. Also as noted 
above, the Petitioners maintain that only a small percentage of the 
cost of manufacture consists of friction welding the pipe to the tool 
joint.\18\ Thus, the Petitioners maintain that the completion 
activities in the UAE add very little to the drill pipe that is 
exported to the United States because pipe and tool joints supplied by 
Hilong are sourced from the PRC.
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    \18\ See Circumvention Request Supplement at 2 and Exhibit 1.
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D. Value of Merchandise Produced in PRC

    The Petitioners argue that the evidence, as noted above, in its 
anti-circumvention request clearly supports their position that the 
value of the pipe and tool joints produced in the PRC, and assembled by 
Almansoori/Hilong, represents a significant portion of the total value 
of the merchandise exported to the United States, as measured by a 
percentage of the cost of manufacture.

E. Additional Factors To Consider in Determining Whether Action Is 
Necessary

    The Petitioners argue that the additional factors contained in 
section 781(b)(3) of the Act must also be considered in the 
Department's decision whether to issue a finding of circumvention 
regarding the importation of drill pipe from the UAE.
(1) Pattern of Trade
    The Petitioners state that section 781(b)(3) of the Act directs the 
Department to take into account patterns of trade when making a 
decision whether to include merchandise assembled or completed in the 
UAE within the scope of the Drill Pipe Orders. Based on an analysis of 
publically available information from the ITC's Dataweb of U.S. import 
data, the Petitioners assert that after the initiation of the 
investigations in January 2010, imports of drill pipe from the PRC fell 
significantly.\19\ The Petitioners note that Almansoori/Hilong was 
founded in 2006, but did not begin production until 2009.\20\ The 
Petitioners state that they are unaware of when Almansoori/Hilong began 
affixing pipe to tool joints, and only recently became aware of 
Almansoori/Hilong's commercial operations involving drill pipe in 
recent months, in conjunction with information concerning drill pipe 
exports to the United States from the UAE.\21\ The Petitioners provided 
data which shows that in 2011 imports of drill pipe from the UAE 
increased.\22\ Specifically, the Petitioners provided DataWeb data 
which shows that in the first five months of 2011 the imports of drill 
pipe nearly doubled compared to the first five months of 2010.\23\ 
Moreover, the Petitioners provided evidence that a very large shipment 
of drill pipe entered the United States in June 2011.\24\ One of the 
Petitioners, Rotary Drilling Tools, provided an affidavit which states 
that a U.S. distributor of drill pipe is marketing Almansoori/Hilong-
produced drill pipe as having avoided dumping duties by assembling the 
pipe and tool joints in the UAE. The Petitioners contend that these 
patterns of trade are consistent with an assembly operation in the UAE 
established by a PRC producer who is no longer able to supply drill 
pipe directly to the United States due to the antidumping duty order in 
place.
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    \19\ See Circumvention Request at Attachment 6; see also 
Circumvention Request Supplement at Exhibit 4c.
    \20\ See Circumvention Request Supplement at 4.
    \21\ Id.
    \22\ See Circumvention Request at Attachment 6.
    \23\ Id.
    \24\ See Circumvention Request Supplement at Exhibit 5.
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(2) Affiliation
    The Petitioners state that section 781(b)(3) of the Act directs the 
Department to take into account whether the manufacturer or exporter of 
the merchandise is affiliated with the person who uses the merchandise 
to assemble or complete in the foreign country the merchandise that is 
subsequently imported into the United States when making decisions on 
anti-circumvention rulings. The Petitioners have provided an affidavit, 
as well as website pages, indicating that Hilong operates a joint 
venture in the UAE, Almansoori/Hilong.\25\ Furthermore, the Petitioners 
have provided an affidavit which indicates that Almansoori/Hilong 
operates a friction welding line in the UAE.\26\ The Petitioners 
contend that, based on proprietary information, Hilong USA imports 
drill pipe as having been finished in the UAE and is, thus, able to 
avoid dumping duties.\27\ The Petitioners maintain that through minor 
assembly operations in the UAE, Hilong is actively circumventing the 
Drill Pipe Orders. According to the Petitioners, the acknowledgement of 
affiliation and the timing of the exports from the UAE to the United 
States support a conclusion that Hilong's assembly of PRC-produced 
drill pipe components in the UAE is circumventing the Drill Pipe 
Orders.
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    \25\ See Circumvention request at Attachment 3; see also 
Circumvention Request Supplement at Exhibits 6 & 7.
    \26\ See Circumvention Request at Attachment 3.
    \27\ See Circumvention Request Supplement at Exhibit 4.
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(3) Subsequent Import Volume
    The Petitioners state that section 781(b)(3) of the Act directs the 
Department to take into account whether imports into the foreign 
country of the merchandise have increased after the initiation of the 
investigation which resulted in the issuance of an order or finding 
when making a decision on anti-circumvention rulings. While the 
Petitioners were unable to provide evidence of trade flows of pipe and 
tool joints between the PRC and the UAE, the Petitioners note that they 
are unaware of any imports of pipe or tool joints into the United 
States by Almansoori/Hilong prior to the initiation of the 
investigations in January 2010.\28\ The Petitioners note that U.S. 
import data shows that, after the initiation of the investigations, the 
UAE became a source of drill pipe to the United States when Almansoori/
Hilong began operations.\29\ The Petitioners argue that Almansoori/
Hilong's initial shipments, starting in February 2011, support the 
conclusion that the UAE had not, until recently, been a source of drill 
pipe shipments to the United States.\30\
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    \28\ See Circumvention Request at 9.
    \29\ See Circumvention Request at Attachments 5 & 6; see also 
Circumvention Request Supplement at Exhibits 4 & 5.
    \30\ Id.
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Analysis of the Request
    Based on our analysis of the Petitioners' anti-circumvention 
inquiry request, the Department determines that the Petitioners have 
satisfied the criteria under section 781(b) of the Act to

[[Page 50176]]

warrant an initiation of a formal anti-circumvention inquiry. In 
accordance with section 351.225(e) of the Department's regulations, if 
the Department finds that the issue of whether a product is included 
within the scope of an order cannot be determined based solely upon the 
application and the descriptions of the merchandise, the Department 
will notify by mail all parties on the Department's scope service list 
of the initiation of a scope inquiry, including an anti-circumvention 
inquiry. In addition, in accordance with section 351.225(f)(1)(ii) of 
the Department's regulations, a notice of the initiation of an anti-
circumvention inquiry issued under paragraph (e) of this section 
includes a description of the product that is the subject of the anti-
circumvention inquiry--drill pipe that contain the characteristics as 
provided in the scope of the Drill Pipe Orders, and an explanation of 
the reasons for the Department's decision to initiate an anti-
circumvention inquiry, as provided below.
    With regard to whether the merchandise from the UAE is of the same 
class or kind as the merchandise produced in the PRC, the Petitioners 
have presented information to the Department indicating that, pursuant 
to section 781(b)(1)(A) of the Act, the merchandise being exported from 
the UAE by Almansoori/Hilong may be of the same class or kind as drill 
pipe produced in the PRC, which is subject to the Drill Pipe Orders. 
Consequently, the Department finds that the Petitioners have provided 
sufficient information in their request regarding the class of kind of 
merchandise to support the initiation of an anti-circumvention inquiry.
    With regard to completion or assembly of merchandise in a foreign 
country, pursuant to section 781(b)(1)(B) of the Act, the Petitioners 
have also presented information to the Department indicating that the 
drill pipe exported from the UAE to the United States is assembled by 
Almansoori/Hilong in the UAE from pipe and tool joints produced in the 
PRC. We find that the information presented by the Petitioners 
regarding this criterion supports their request to initiate an anti-
circumvention inquiry.
    The Department believes that the Petitioners sufficiently addressed 
the factors described in section 781(b)(2) of the Act regarding whether 
the friction welding of pipe to tool joints in the UAE is minor or 
insignificant. Specifically, in support of their argument, the 
Petitioners relied on their own experience and surrogate values from 
the less-than-fair-value investigation. Thus, we find that the 
information presented by the Petitioners supports their request to 
initiate an anti-circumvention inquiry. In particular, we find that the 
Petitioners' submissions suggest that (1) little investment has been 
made by Hilong in its drill pipe welding operations in the UAE, (2) 
Hilong has fully integrated production facilities in the PRC, and 
therefore, research and development presumably takes place in the PRC 
rather than the UAE, (3) the friction welding of pipe to tool joints in 
the UAE does not alter the fundamental characteristics of the drill 
pipe, nor does it remove it from the scope of the Drill Pipe Orders, 
(4) Almansoori/Hilong has a lower investment level than companies that 
manufacture pipe and tool joints and (5) friction welding pipe to tool 
joints adds little value to the merchandise imported to the United 
States. Our analysis will focus on Almansoori/Hilong's assembly 
operations in the UAE and, in the context of this proceeding, we will 
closely examine the manner in which this company's processing materials 
are obtained, whether those materials are considered subject to the 
scope of the Drill Pipe Orders, and the extent of processing in the 
UAE, as well as the manner in which production and sales relationships 
are conducted with the alleged PRC and U.S. affiliates.
    With respect to the value of the merchandise produced in the PRC, 
pursuant to section 781(b)(1)(D) of the Act, the Petitioners relied on 
one of its member's information and arguments in the ``minor or 
insignificant process'' portion of its anti-circumvention request to 
indicate that the value of the pipe and tool joint may be significant 
relative to the total value of finished drill pipe exported to the 
United States. We find that the information adequately meets the 
requirements of this factor, as discussed above, for the purposes of 
initiating an anti-circumvention inquiry.
    Finally, the Petitioners argue that pursuant to section 781(b)(3) 
of the Act the Department considers the pattern of trade, affiliation, 
and subsequent import volumes as factors in determining whether to 
initiate the anti-circumvention inquiry. Here, we find that imports of 
drill pipe from the PRC decreased after the initiation of the 
investigations, that the Almansoori/Hilong joint venture in the UAE is 
affiliated to Hilong, and that the U.S. import data submitted by the 
Petitioners suggests that imports of drill pipe have risen since the 
investigations.
    Accordingly, based on the Petitioners' submissions, we have 
determined that we have a sufficient basis to initiate a formal anti-
circumvention inquiry concerning the Drill Pipe Orders, pursuant to 
section 781(b) of the Act. In accordance with section 351.225(l)(2) of 
the Department's regulations, if the Department issues a preliminary 
affirmative determination, we will then instruct U.S. Customs and 
Border Protection to suspend liquidation and require a cash deposit of 
estimated duties on the merchandise.
    This anti-circumvention inquiry covers Hilong and its affiliated 
companies in the UAE and United States. If, within sufficient time, the 
Department receives a formal request from an interested party regarding 
potential circumvention of the Drill Pipe Orders by other UAE 
companies, we will consider conducting additional inquiries 
concurrently.
    The Department will establish a schedule for questionnaires and 
comments on the issues. In accordance with section 351.225(f)(5), the 
Department intends to issue its final determination within 300 days of 
the date of publication of this initiation. This notice is published in 
accordance with section 777(i)(1) of the Act.

    Dated: August 5, 2011.
Ronald K. Lorentzen,
Deputy Assistant Secretary for Import Administration.
[FR Doc. 2011-20570 Filed 8-11-11; 8:45 am]
BILLING CODE 3510-DS-P