PUBLIC VERSION

Section 301 Investigation: China's Acts, Policies, and Practices Related to Technology

Transfer, Intellectual Property, and Innovation - Form to Request Exclusion of Product

When submitting a product exclusion request using this form, enter the specified

information in the following fields and explain the basis and rationale for your statements.

By completing this form, you certify that the information provided is complete and

correct to the best ofyour knowledge.

1. Indicate whether the comment contains business confidential information (BCI), is a public

document, or is a public version of a BCI document.

Public Version of BCI

2. Please provide a complete and detailed description ofthe product of concern:

Electrical Submersible Pump ("ESP") Protectors: Diameter: 5.13 Inches; Length: 4.0 Feet; Weight: 183

Pounds.

3. 10-digit HTSUS item number* for product you wish to address in this product exclusion request:

*Use numerical characters only with no special characters (example: 1023456789). For help in finding

the HTSUS item number associated with your product, see https://hts.usitc.gov/

8413919080

4. Requestor Information

Requestor Name (Last, First): Togni, Patrick

Organization Name: |Apergy ESP Systems, LLC

Note: Representatives submitting on behalf of an organization must enter information below.

Requestor Representative: King & Spalding, LLP

5. Requestor's relationship to the product: Importer

6. Does this submission in reguIations.gov include additional attachments?

YES

7. Please indicate whether any additional attachment contains business confidential

information (BCI), is a public document, or is a public version of a BCI document.

Public Version ofBCI

VERSION 1 CONTINUED BELOW 1
PUBLIC VERSION

8. Is this product, or a comparable product, available from sources in the United States?:

10. Please provide the value and quantity (with units) ofthe Chinese-origin product of concern

that you purchased for each calendar year specified. Limit this figure to the products

purchased by your firm (or by members ofyour trade association) alone. Please provide

estimates ifprecise figures are unavailable.

2017 Value: See attached. 2017 Quantity: See attached.

2016 Value: See attached. 2016 Quantity: See attached.

2015 Value: See attached. 2015 Quantity: See attached.

11. Please provide information in support your request, taking account ofthe instructions

provided in Section B ofthe Federal Register notice (note: text entered below can extend

beyond the apparent size ofthis box).

See attached.

VERSION 1 END 2
PUBLIC VERSION

King 8c Spalding 1700 Pennsylvania Avenue, NW

Washington, DC 20006-4706

Phone: 202/626-2390

Fax: 202/626-3737

www.kslaw.com

October 8, 2018

VIA REGULATIONS.GOV

The Honorable Robert E. Lighthizer

United States Trade Representative

Office ofthe U.S. Trade Representative

600 17th Street, N.W.

Docket No. USTR-2018-00025

PUBLIC VERSION

Washington, DC 20508

Re: Exclusion Request By Apergy Systems, LLC Regarding Electrical

Submersible Pump (ESP) Protector / Diameter: 5.13 Inches; Length: 4.00

Feet; Weight: 183 Pounds

Dear Ambassador Lighthizer:

On behalf ofApergy ESP Systems, LLC (“Apergy ESP”), a U.S. manufacturer of highly

engineered products and technologies used to drill for and produce oil and gas efficiently, we

hereby request that the Office ofthe United States Trade Representative (“USTR”) exclude

imports of protectors used in electrical submersible pumps (“ESP”) (referred to as “ESP

protectors”) from the tariffs that USTR has imposed on these imports under Section 301 ofthe

1 Apergy ESP requests business confidential treatment of certain information in this document.

Disclosure ofthe information marked “Business Confidential” in this request would endanger trade

secrets or profitability and the information would not customarily be released to the public.

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Trade Act of 1974. We are filing this exclusion request in accordance with the guidelines

announced in the Federal Register notice that USTR published on July 11, 2018.

Imposing tariffs of 25 percent on Apergy ESP’s imports ofESP protectors from China

will cause severe economic harm to Apergy ESP’s U.S. manufacturing operations and to Apergy

ESP’s customers—100 percent ofwhich are U.S.-based oil and gas companies. Specifically, the

tariffs will adversely affect Apergy ESP because China is the only source ofthese products.

We discuss these issues detail below.

I. APERGY ESP’S U.S. PRODUCTION OPERATIONS

Apergy ESP Systems, LLC is a former subsidiary ofthe Dover Corporation and is based

in Broken Arrow, Oklahoma. As ofMay 2, 2018, Apergy ESP is now a subsidiary ofApergy

Corporation headquartered in The Woodlands, Texas. Apergy Corporation provides highly

engineered products and technologies used to drill for and produce oil and gas efficiently and

safely around the world. More than four out of five Apergy employees are located in the

United States (2,588 U.S.-based employees out of 3.141 global employees).

Apergy ESP imports ESP components and subcomponents—including ESP protectors—

from China to produce complex ESP systems in the United States. These systems are an

essential form of artificial lift used by the U.S. oil and gas industry to produce most oil wells,

including the prolific shale wells in the Permian Basin ofTexas and New Mexico and the

Bakken formation in North Dakota. Apergy’s ESP systems optimize field production and

mitigate operations risks for the most challenging well scenarios, including high- volume wells

2

Procedures to Consider Requestsfor Exclusion ofParticular Productsfrom the Determination

ofAction Pursuant to Section 301: China’s Acts, Policies, and Practices Related to Technology Transfer,

Intellectual Property, and Innovation, 83 Fed. Reg. 32181 (July 11, 2018).

The Honorable Robert E. Lighthizer PUBLIC VERSION

October 8, 2018

Page 2

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The Honorable Robert E. Lighthizer

October 8, 2018

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PUBLIC VERSION

producing up to 20,000 barrels per day, horizontal and highly deviated wells, and deep, hightemperature wells. Apergy ESP designs and assembles its innovative ESP systems at its 93,000

square-foot headquarters and technology center in Broken Arrow, Oklahoma, which boasts stateof-the-art laboratory, manufacturing, and testing facilities. Apergy ESP employs 216 engineers,

sales, finance, and operations personnel in Oklahoma and at its other facilities in Dickinson,

North Dakota, and Odessa, Texas. Apergy ESP’s U.S. employees work to optimize well

production throughout the nation, further supporting thousands of additional American jobs in

the oil and gas sector.

II. ESP PROTECTORS

As noted above, the ESP protector is one assembly of an ESP system that is installed

between the motor and pump. The ESP protector provides multiple functions in the system

including preventing well fluid from entering the motor, carrying thrust forces from the pump to

prevent them from being transmitted to the motor, and equalizing the hydrostatic pressure that

occurs when the system is installed several thousand feet into the oil and gas well. The primary

function is to transmit power from the rotating electric motor to the pump via a series of

connected shafts.

Apergy ESP will be importing ESP protectors from China under the eight-digit

Harmonized Tariff Schedule (“HTS”) subheading 8413.91.9080; “Pumps for liquids, whether or

not fitted with a measuring device; liquid elevators; part thereof: Parts: Of pumps:

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Other.. .Other.” This subheading is currently included on the list of products subject to the

additional tariffs under Section 301.

DDL INFORMATION REQUIRED BY USTR FOR THIS EXCLUSION REQUEST

As we noted previously, the ESP protectors are foundational elements within the more

complex ESP systems designed and assembled in the U.S. at Apergy ESP’s facilities in Broken

Arrow, Oklahoma; Dickinson, North Dakota; and Odessa, Texas and Apergy Corporation’s

facility in The Woodlands, Texas. Because the ESP protectors at issue are imported to support

downstream manufacturing jobs in the United States, the imposition oftariffs on these products

would cause disproportionate harm to domestic design and manufacturing operations and

threaten the continued employment ofthousands ofAmerican workers. The ESP protectors at

issue are not products that should fall within the scope ofthis action because they have been in

production for more than thirty years to support the design and manufacture of complex ESP

systems in the United States. The ESP protectors have been manufactured in China for decades

pursuant to contractual arrangements in order to ensure that the products are manufactured

according to Apergy ESP’s specifications to support its U.S. operations.

IfUSTR denies this product-specific exclusion request and continues to impose tariffs of

25 percent on these imports under Section 301, it will cause disproportionate harm to Apergy’s

Oklahoma-based business, Apergy’s Texas-based business, and to downstream U.S. customers in

the oil and gas industry that depend on ESP systems to safely and effective produce U.S. shale

oil and gas wells. These additional costs will be passed on to U.S. consumers through increased

a

Notice ofAction andRequestfor Public Comment Concerning Proposed Determination if

Action Pursuant to Section 301: China’s Acts, Policies, andPractices Related to Technology Transfer,

Intellectual Property, andInnovation, 83 Fed. Reg. 28710, 28714 (June 20, 2018).

The Honorable Robert E. Lighthizer PUBLIC VERSION

October 8, 2018

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prices for ESP systems in the U.S. market. ESP systems are used to produce 90 percent ofU.S.

shale oil and gas wells, so imposition oftariffs on these inputs will negatively impact the

continued viability U.S. oil and gas industry by leading to increased prices for these essential

systems.

To be clear. 100 percent of Apergy ESP’s customer base is located in the United

States. Thus, the severe economic harm that will be caused by higher tariffs on ESP protectors

imported from China will be felt not only by Apergy ESP, but by its hard-working customer base

throughout the United States. The increased costs would also put Apergy and other U.S.

suppliers at a competitive disadvantage compared to Russian competitors that manufacture ESP

pumps for captive consumption. Russian competitors ofApergy for its oil field services will not

need to pay the higher duties on imports of electric motors used in ESP systems into the United

States, allowing them to underbid Apergy and all other U.S. competitors. Apergy ESP is not the

only U.S. company that depends heavily on Chinese sources for ESP inputs. Thus, imposing the

additional tariffs on ESP protectors that are classified under HTS subheading 8413.91.9080

would have the perverse effect ofthe U.S. government placing a thumb on the scale for the

benefit offoreign competitors.

The full range ofmanufacturing operations needed by Apergy ESP and other U.S.

suppliers does not exist in the United States and would take several years to develop. Apergy

ESP estimates that fully developing an alternative source ofsupply for ESP protectors in the

United States or in other third countries would take 5 years.

Apergy ESP therefore respectfully requests that USTR exclude the parts and components

that Apergy ESP will import from China from the scope ofthe Section 301 tariffs. Consistent

The Honorable Robert E. Lighthizer PUBLIC VERSION

October 8,2018

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with the guidelines set forth in USTR’s July 11, 2018 notice,4 Apergy ESP provides the

following information relating to this exclusion request.

The Honorable Robert E. Lighthizer PUBLIC VERSION

October 8, 2018

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A. Description Of The Product Covered By This Exclusion Request, The

Applicable 10 Digit Subheading Of The HTSUS, And The Administrability

Of The Exclusion Request

The product covered by this exclusion request is an ESP protector with the following

dimensions and ratings:5

Diameter: 5.13 inches

Length: 4.00 feet

Weight: 183 pounds

A representative image ofthis type ofESP protector is shown below:

4 83 Fed. Reg. 32181 (July 11, 2018).

5 Apergy ESP is filing a total of 10 ESP protector-related product-specific exclusion requests

under HTSUS subheading 8413.91.9080 that address all ofthe different product offerings by diameter,

length, and weight. Except for the physical description, each ofthe requests and Apergy’s arguments are

identical in all other respects.

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ESP protectors constitute one assembly of an ESP system that is installed between the

motor and pump. ESP protectors provide multiple functions in the system including preventing

well fluid from entering the motor, carrying thrust forces from the pump to prevent them from

being transmitted to the motor, and equalizing the hydrostatic pressure that occurs when the

system is installed several thousand feet into the oil and gas well. Its primary function is to

transmit power from the rotating electric motor to the pump via a series of connected shafts.

The assembly consists ofseveral machined parts that are carbon steel or stainless steel,

rotating mechanical seals, specialized thrust bearings, molded elastomers, and a rotating shaft

that transmits power from the motor to pump. Protectors are shipped in long enclosed metal

boxes or are stacked 4 or 8 to a crate in a specialized semi-open crate that is 2 feet wide by 4 feet

tall by 10 feet long..

Imports ofthis product are covered by the ten-digit HTS subheading 8413.91.9080.

Apergy ESP believes that, because ofthe specificity ofthis product description, U.S. Customs

and Border Protection (“CBP”) will be able to administer this exclusion readily.

B. Annual Quantity and Value of the Chinese-Origin Product That the

Requestor Purchased in the Last Three Years

In Attachment A, and at USTR’s request, Apergy ESP provides the annual quantity and

value ofthe imports ofthe product covered by this exclusion request.

C. Rationale For Requested Exclusion

1 Apergy ESP will not be able to obtain this product from nonChinese sources over the next five years

Apergy ESP has spent several years working with its Chinese suppliers to ensure that

their products will satisfy Apergy ESP’s exacting technical and quality specifications and that

they will work well all ofthe other components used in the ESP systems that Apergy ESP sells to

The Honorable Robert E. Lighthizer PUBLIC VERSION

October 8, 2018

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customers in the United States. Because these parts and components—including ESP

protectors—are custom-designed products, they cannot be purchased from other suppliers on an

off-the shelf basis.

Further, ifApergy ESP could replace its current Chinese suppliers with new U.S.- or

third country suppliers, Apergy ESP would need to undertake a lengthy qualification process for

these new suppliers. Based on its past experience, Apergy ESP believes that the process of

qualifying a new supplier to produce these products would take five years to fully replace the

ESP protectors that are currently sourced from China. Moreover, even ifApergy ESP undertook

this qualification process, it is not clear that Apergy ESP would find new suppliers who could

provide it with the same quality or technical specifications as its existing Chinese suppliers.6 In

other words, it is simply not possible for Apergy ESP to quickly replace its Chinese suppliers

with new U.S. or third country producers, and it would certainly not be able to do so within time

frames that could avoid the significant economic harm and consequentjob losses that will be

caused by the imposition ofthe additional 25 percent tariff on ESP protectors imported from

China.

2. Imposition of the Section 301 duties on Apergy ESP’s imports

from China will cause severe economic harm to Apergy ESP

and its U.S. customers

As noted above, all ofApergy ESP’s ESP-related sales are to U.S. customers. Thus,

denial ofthis product-specific exclusion request will cause severe economic harm to Apergy ESP

and cascade through the entire U.S. oil and gas industry.

6 In this regard, Apergy ESP notes that it has had longstanding relationships with its Chinese

suppliers. Over a long period oftime, these suppliers have demonstrated that they are able to provide

Apergy ESP with the custom-designed, technologically sophisticated parts and components needed in

Apergy ESP’s ESP protectors.

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The Honorable Robert E. Lighthizer

October 8, 2018

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PUBLIC VERSION

Apergy ESP estimates that imposition ofthese tariffs on its imports from China will

result in additional costs of approximately $[ ] million, based on annualized projections of

import volumes for ESP protectors.7 This increase would negatively impact Apergy’s business,

inhibiting the company’s growth and profitability and threatening the size ofthe workforce at

Apergy’s facilities in Broken Arrow, Oklahoma; Dickinson, North Dakota; and Odessa, Texas,

as well as Apergy Corporation’s facilities in The Woodland, Texas, where the imported inputs

are assembled into complete ESP systems. The increases would also result in loss ofmarket

share to Apergy ESP’s primary competitors, which are Russian-based and other foreign

companies that will not be harmed by the severe impact ofthe additional tariffs.

As detailed above, Apergy sells its assembled ESP systems to U.S.-based vendor partners

in the oil and gas industry, who use the systems to safely and efficiently produce U.S. shale

wells. The rise in production costs resulting from a 25 percent tariff on ESP protectors will also

threaten the U.S. businesses in the oil and gas sector who depend on a reliable supply of

Apergy’s finished ESP systems as the safest, fastest and most cost-effective way to meet their

production goals. Such a substantial increase in the cost ofESP systems would jeopardize these

downstream businesses and their employees, and could ultimately lead to downsizing and

layoffs, thus trading U.S. jobs for Russian jobs.

3. Technology transfer requirements and the “Made in China

2025” Plan are not applicable

Finally, we note that Apergy ESP’s imports ofESP protectors from China are not subject

to forced technology transfer. They are also not covered by China’s “Made in China 2025”

7 See Attachment A.

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The Honorable Robert E. Lighthizer

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program. As a result, the concerns that caused USTR to impose duties on imports from China are

not implicated by the products being imported from China by Apergy ESP.

To the contrary, the U.S. based ESP industry has been sourcing the relevant ESP

components and subcomponents from China since the 1980s. The higher-level technology to

design higher-level assembled ESP systems resides in the United States, but the lower-cost ESP

components including ESP protectors currently are only available to Apergy ESP from China.

The imported ESP protectors are uniquely configured by Apergy ESP into more complex

systems by Apergy ESP’s applications and field engineers in the United States.

The now decades-long relationships with Chinese suppliers resulted from the

development ofjoint manufacturing arrangements between several U.S. firms and Chinese

suppliers. The production ofESP protectors in China was therefore not the result ofsuch acts,

policies and practices at issue in the Section 301 Determination.

IV. CONCLUSION

In sum, imposition oftariffs of an additional 25 percent on Apergy ESP’s imports ofESP

protectors from China will not have the desired effect ofincreasing employment in the United

States or improving the profitability ofApergy ESP‘s U.S. manufacturing operations. On the

contrary, imposition ofthe tariffs on these imports will cause severe economic harm to the

employees ofApergy ESP and its entire U.S. customer base. This severe economic harm would

not serve any ofthe policy goals ofthe Section 301 process. The only entities that would benefit

are Apergy ESP’s Russian competitors. This is not the result that the Section 301 process was

designed to achieve.

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In light ofthese considerations, Apergy ESP respectfully requests that USTR exclude the

specific ESP protectors that are identified in this request from the scope ofits announced duties

under Section 301. Granting this request will allow Apergy ESP to maintain its current work

force levels and cost levels which also will benefit all ofits oil and gas customers in the United

States. Given the foregoing, Apergy ESP believes that excluding these imports from the scope

ofthe Section 301 tariffs is in the best interests ofthe United States and will not undermine the

goals that the Administration hopes to achieve with these tariffs.

Accordingly, USTR should grant this product-specific exclusion request regarding ESP

protectors that are classified under 8413.91.9080 with the following specifications: Diameter;

5.13 inches; Length: 4.00 feet; and Weight: 183 pounds. We appreciate your consideration

ofthis request. If you have any questions or require and further information, please do not

hesitate to call us.

Respectfully submitted,

The Honorable Robert E. Lighthizer PUBLIC VERSION

October 8, 2018

Page 11

Jeffrey M. Telep

Patrick J. Togni

Counsel for Apergy ESP Systems, LLC

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ATTACHMENT A
PUBLIC VERSION

Electrical Submersible Pump Protector Exclusion Request

of Apergy ESP Systems, LLC (HTSUS Subheading 8413.91.9080)1

Attachment A

Year Annual Import Quantity Annual Import Value

2015 [ ] [ ]

2016 [ ] $[ ]

2017 [ ] $[ ]

2018 (YTD) [ ] $[ ]

1 This import data covers all ofthe ESP protectors that are classified under HTSUS subheading

8413.91.9080 that are subject to Apergy ESP’s product-specific exclusion requests.

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