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 ofBCI

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

Electrical Submersible Pump (ESP) Power Cable: Height: 0.64 Inches; Width: 1.61 Inches; Weigh Per

Foot: 1.88 Pounds; Full Reel Weight: 13,000 Pounds; Feet On Reel: 6,383.

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/

8544604000

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 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 ofBCI

VERSION 1 CONTINUED BELOW 1
PUBLIC VERSION

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

NO

9. Is this product, or a comparable product, available from sources in third countries?:

NO

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: gee 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 9, 2018

VIA REGULATIQNS.GOV

Docket No. USTR-2018-00025

PUBLIC VERSION1

Re: Exclusion Request By Apergy Systems, LLC Regarding Electrical

Submersible Pump (ESP) Power Cable / #2 Gauge Copper Conductor Wire

(0.26 Diameter) As Part OfA Cable With The Following Dimensions Height:

0.64 Inches; Width: 1.61 Inches; Weigh Per Foot: 1.88 Pounds; Full Reel

Weight: 13,000 Pounds; Feet On Reel: 6,383

Dear Ambassador Lighthizer:

The Honorable Robert E. Lighthizer

United States Trade Representative

Office ofthe U.S. Trade Representative

600 17th Street, N.W.

Washington, DC 20508

On behalfofApergy ESP Systems, LLC (“Apergy ESP”), a U.S. manufacturer ofhighly

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 ofpower cable used in electrical submersible pumps (“ESP”) from the tariffs that USTR

has imposed on these imports under Section 301 ofthe Trade Act of 1974. We are filing this

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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PUBLIC VERSION

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 ofpower cable 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.

L 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 offive 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 power

cable—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

October 9, 2018

Page 2

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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 POWER CABLE

The power cable for oil and gas wells is a critical part ofthe ESP system and is used for

connecting three-phase AC power from the surface ofthe well site to the motor at the bottom of

the well. Once onsite, the cable ranges in length from 2,000 feet to 10,000 feet in U.S. oil and

gas wells. The cable is rated for 5,000 Volts. The cable is manufactured from three separate

legs ofsingle cables. Each ofthe three legs consist of copper conductor wire that is #2 gauge

(0.26 inch diameter) or #4 gauge (0.20 inch Diameter), insulation materials, a lead sheath barrier

that is extruded over the insulation, and specialized braided tape for holding and protecting the

lead. The three legs are manufactured individually and then assembled into a flat side by side

geometry. That flat geometry is then secured together with metal armor that is applied over the

three legs by wrapping over the three legs. The armor material is in strips that are XA inch wide.

Armor strip material is either ofthree types: galvanized steel, stainless steel or K500 monel. The

finished cable is wrapped on large steel reels in lengths of 8,000 to 10,000 feet depending on size

of conductor. A protective barrier material is wrapped around the outside ofthe cable to protect

The Honorable Robert E. Lighthizer

October 9, 2018

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it from weather. Shipping, and handling. This barrier covers up most ofthe visible cable but the

cable configuration is clearly visible on the inside ofthe reel. The full reel of cable is loaded onto

a shipping pallet. The entire pallet and reel is 6 feet by 6 feet long x 6 feet tall and weighs

approximately 13,000 pounds depending on conductor size.

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

Harmonized Tariff Schedule (“HTS”) subheading 8544.60.4000; “Insulated (including enameled

or anodized) wire, cable (including coaxial cable) and other insulated electric conductors,

whether or not fitted with connectors; optical fiber cables, made up ofindividually sheathed

fibers, whether or not assembled with electric conductors or fitted with connectors: Other electric

conductors, for a voltage exceeding 1,000 V: Other: Of copper.”. This subheading is currently

included on the list ofproducts subject to the additional tariffs under Section 301.

III. INFORMATION REQUIRED BY USTR FOR THIS EXCLUSION REQUEST

As we noted previously, ESP power cable constitutes a foundational element 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 power cables 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 ofthousands ofAmerican

workers. The ESP power cable at issue should not fall within the scope ofthis action because

they have been in production for more than thirty years to support the design and manufacture of 3

3

Notice ofAction andRequestfor Public Comment Concerning ProposedDetermination if

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

Intellectual Property, and Innovation, 83 Fed. Reg. 28710,28717 (June 20,2018).

The Honorable Robert E. Lighthizer PUBLIC VERSION

October 9, 2018

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complex ESP systems in the United States. ESP power cables 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

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 power

cable 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 power cable for captive

consumption. Russian competitors ofApergy for its oil field services will not need to pay the

higher duties on imports ofpower cable 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

The Honorable Robert E. Lighthizer PUBLIC VERSION

October 9, 2018

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tariffs on ESP power cable that are classified under HTS subheading 8544.60.4000 would

amount to the 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 power cable in the

United States or in other third countries would take a minimum of 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

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

following information relating to this exclusion request:

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

Applicable 10 Digit Subheading OfThe HTSUS, And The Administrability

OfThe Exclusion Request

The product covered by this exclusion request is ESP power cable with the following

dimensions and ratings:5 #2 Gauge Copper Conductor Wire (0.26 Diameter) as part of a

cable with the following dimensions: Height: 0.64 Inches; Width: 1.61 Inches; Weigh Per

Foot: 1.88 Pounds: Full Reel Weight: 13,000 Pounds; Feet On Reel: 6,383.

The Honorable Robert E. Lighthizer

October 9, 2018

Page 6

Representative images ofthis type ofESP power cable are shown below:

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

5 Apergy ESP is filing a total of 2 ESP power cable-related product-specific exclusion requests

under HTSUS subheading 8544.60.4000 that address all ofthe different product offerings by

specifications, size, length, and weight. Except forthe physical description, each ofthe requests and

Apergy’s arguments are identical in all other respects.

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The Honorable Robert E. Lighthizer

October 9,2018

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Loaded on Reel

Ready to Ship Configuration

The power cable for oil and gas wells is a critical part ofthe ESP system and is used for

connecting three-phase AC power from the surface ofthe well site to the motor at the bottom of

the well. Imports ofthis product are covered by the ten-digit HTS subheading 8544.60.4000.

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.

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The Honorable Robert E. Lighthizer

October 9, 2018

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B. Annual Quantity and Value ofthe 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

I 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

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

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

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 power cable.

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Chinese suppliers with new U.S.7 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 ofthe additional 25 percent tariff on ESP power

cable imported from China.

2. Imposition ofthe 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, a|l 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.

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

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

o

power cable import volumes. 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 companies that will not be

harmed by the severe impact ofthe additional tariffs.

The Honorable Robert E. Lighthizer PUBLIC VERSION

October 9, 2018

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n

Apergy ESP is not aware of any U.S. or third country producer with sufficient capacity or lead

times to meet its needs. The cyclical nature ofthe energy industry leads potential U.S. manufacturers to

not manufacture this particular type ofESP power cable, which is considered a highly cyclical niche

product. Given these facts, U.S. producers are unlikely to make the required capital investments

(approximately $70 million) to manufacture this unique product. This product also contains a lead sheath

which also contributes to the lack ofU.S. or other third country supply options besides China.

g

See Attachment A.

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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 tariffon ESP power cable 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 power cable 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 sourced 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 power cable are only available to Apergy ESP from China. The

imported ESP power cable 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

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October 9, 2018

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PUBLIC VERSION

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

policies and practices at issue in the Section 3 01 Determination.

IV. CONCLUSION

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

power cable 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.

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

specific ESP power cable 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.

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The Honorable Robert E. Lighthizer

October 9, 2018

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

power cable classified under 8544.60.4000 with the following specifications : Height: 0.64

Inches; Width: 1.61 Inches; Weigh Per Foot: 1.88 Pounds; Full Reel Weight: 13,000

Pounds; Feet On Reel: 6,383. We appreciate your consideration ofthis request. Ifyou 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

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ATTACHMENT A
PUBLIC VERSION

Electrical Submersible Pump Power Cable Exclusion Request of

Apergy ESP Systems, LLC (HTSUS Subheading 8544.60.4000)1

Attachment A

Year Estimated Annual Import

Quantity2

Annual Import Value

2015 t ] $[ ]

2016 t ] $t ]

2017 t i $i i

2018 (YTD) i j

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

8544.60.4000 that are subject to Apergy ESP’s product-specific exclusion requests. Apergy ESP estimated the

annual import quantity by [

].

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