PUBLIC VERSION

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

Transfer, Intellectual Property, and Innovation - Form to Request Exclusion ofProduct

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 of your 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 of the product of concern:

Electrical Submersible Pump ("ESP") Gas Separator: Diameter: 4.00 Inches. Length: 2.6 Feet. Weight:

55 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/

8421290065

4. Requestor Information

Requestor Name (Last, First): Tomii, 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 regulations.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 of BCI

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) of the 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 of your trade association) alone. Please provide

estimates if precise 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 of the instructions

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

beyond the apparent size of this 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 of the U.S. Trade Representative

600 17th Street, N.W.

Washington, DC 20508

Docket No. USTR-2018-00025

PUBLIC VERSION

Re: Exclusion Request By Apergy Systems, LLC Regarding Electrical

Submersible Pump (ESP) Gas Separator / Diameter: 4.00 Inches; Length:

2.6 Feet; Weight: 55 Pounds

Dear Ambassador Lighthizer:

On behalf of Apergy 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 of the United States Trade Representative (“USTR”) exclude

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

separators”) from the tariffs that USTR has imposed on these imports under Section 301 of the 1

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

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

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

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, 2018.2

Imposing tariffs of 25 percent on Apergy ESP’s imports of ESP gas separators from

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

Apergy ESP’s customers—100 percent of which are U.S.-based oil and gas companies.

Specifically, the tariffs will adversely affect Apergy ESP because China is the only source of

these products.

We discuss these issues detail below.

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

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

in Broken Arrow, Oklahoma. As of May 2, 2018, Apergy ESP is now a subsidiary of Apergy

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 gas

separators—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 of Texas and New Mexico and the

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

" 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

October 8, 2018

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The Honorable Robert E. Lighthizer

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PUBLIC VERSION

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

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 GAS SEPARATORS

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

between the protector and pump. Its function is to separate liquid from gas by creating a vortex

and mechanical separation of the fluid. The gas separator rotates along with the motor and pump

and discharges the gas back into the oil well to prevent it from entering the pump. This improves

the operating efficiency of the pump and prevents damage to the system.

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

Harmonized Tariff Schedule (“HTS”) subheading 8421.29.0065; “Centrifuges, including

centrifugal dryers; filtering or purifying machinery and apparatus, for liquids or gases; parts

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

to the additional tariffs under Section 301.

Notice ofAction and Requestfor Public Comment Concerning Proposed Determination if

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

Intellectual Property, and Innovation, 83 Fed. Reg. 28710, 28714 (June 20, 2018).
PUBLIC VERSION

III. INFORMATION REQUIRED BY USTR FOR THIS EXCLUSION REQUEST

As we noted previously, the ESP gas separators 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 gas separators at issue are

imported to support downstream manufacturing jobs in the United States, the imposition of

tariffs on these products would cause disproportionate harm to domestic design and

manufacturing operations and threaten the continued employment of thousands of American

workers. The ESP gas separators at issue are not products that should fall within the scope of

this 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 gas separators have

been manufactured in China for decades pursuant to contractual sourcing arrangements in order

to ensure that the products are manufactured according to Apergy ESP’s specifications to support

its U.S. operations.

If USTR 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

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

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

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

The Honorable Robert E. Lighthizer

October 8, 2018

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systems.
PUBLIC VERSION

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 gas

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

customer base throughout the Efnited 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 of Apergy 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 8421.29.0065 would amount

to the U.S. government placing a thumb on the scale for the benefit of foreign competitors.

The full range of manufacturing 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 of supply for ESP gas separators 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 of the Section 301 tariffs. Consistent

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

following information relating to this exclusion request.

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

The Honorable Robert E. Lighthizer

October 8, 2018

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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 ESP a gas separator with the following

dimensions:'1

Diameter: 4.00 inches

Length: 2.6 feet

Weight: 55 pounds

A representative image of this type of ESP gas separator is shown below:

ESP gas separators constitute one assembly of an ESP system that is installed between

the protector and pump. The function of ESP gas separators is to separate liquid from gas by

creating a vortex and mechanical separation of the fluid. The gas separator rotates along with the

5 Apergy ESP is filing a total of 9 ESP gas separator-related product-specific exclusion requests

that address all of the different product offerings by diameter, length, and weight. Except for the physical

description, each of the requests and Apergy’s arguments are identical in all other respects.
PUBLIC VERSION

motor and pump and discharges the gas back into the oil well to prevent it from entering the

pump. This improves the operating efficiency of the pump and prevents damage to the system.

The assembly is a mechanical device consisting of several machined parts that are carbon

steel or stainless steel; tubular housing, end connections, rotating shaft, and several internal parts

that rotate. A shaft and coupling connects the protector to pump. Gas separators are shipped in

crates or enclosed metal boxes and stacked 4 or 8 to a crate or semi-open crate.

Imports of this product are covered by the ten-digit HTS subheading 8421.29.0065.

Apergy ESP believes that, because of the specificity of this 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 of the imports of the 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 of the other components used in the ESP systems that Apergy ESP sells to

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

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

off-the shelf basis.

Further, if Apergy 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

The Honorable Robert E. Lighthizer

October 8, 2018

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PUBLIC VERSION

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 if Apergy 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. 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 consequent job losses that will be

caused by the imposition of the 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 of Apergy ESP’s ESP-related sales are to U.S. customers. Thus,

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

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

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

result in additional costs of $ [ ] million, based on annualized projections of import volumes for

ESP gas separators/1 This significant additional expense would harm Apergy’s business,

inhibiting the company’s growth and profitability and threatening the size of the 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

6 See Attachment A.

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PUBLIC VERSION

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

share to Apergy ESP’s Russian and other foreign competitors.

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 gas separators 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 of ESP 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 of ESP gas separators from China are not

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

2025” 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 more advanced technology

and know-how to design more complex assembled ESP systems resides in the United States, but

the lower-cost ESP components including ESP gas separators currently are only available to

Apergy ESP from China. The imported ESP gas separators are uniquely configured by Apergy

ESP into more complex systems by Apergy ESP’s applications and field engineers in the United

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October 8, 2018

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States.
PUBLIC VERSION

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 of ESP gas separators in China was therefore not the result of such

acts, policies and practices at issue in the Section 301 Determination.

IV. CONCLUSION

In sum, imposition of tariffs of an additional 25 percent on Apergy ESP’s imports of ESP gas

separators from China will not have the desired effect of increasing employment in the United

States or improving the profitability of Apergy ESP's U.S. manufacturing operations. On the

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

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

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

are Apergy ESP’s Russian and other foreign competitors. This is not the result that the Section

301 process was designed to achieve.

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

specific ESP gas separators that are identified in this request from the scope of its 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 of its oil and gas customers in the

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

scope of the Section 301 tariffs is in the best interests of the 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

gas separators that are classified under 8421.29.0065 with the following specifications:

The Honorable Robert E. Lighthizer

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The Honorable Robert E. Lighthizer

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Diameter: 4.00 inches; Length: 2.6 feet; and Weight: 55 pounds. We appreciate your

consideration of this request. If you have any questions or require and further information,

please do not hesitate to call us.

Respectfully submitted,

Jeffrey M. Telep

Patrick J. Togni

Counsel for Apergy ESP Systems, LLC
ATTACHMENT A
PUBLIC VERSION

Electrical Submersible Pump Gas Separator Exclusion Request

of Apergy ESP Systems, LLC (HTSUS Subheading 8421.29.0065)1

Attachment A

Year Annual Import Quantity Annual Import Value

2015 [ ] $[ ]

2016 [ ] $[ ]

2017 [ ] $[ ]

2018 (YTD) [ ] $[ ]

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

8421.29.0065 that are subject to Apergy ESP’s product-specific exclusion requests.

33142904