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:

Pumps used in electrical submersible pumps (“ESP”): Diameter: 5.38 inches. Length: 8.50 feet. Weight: 

347 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/

8413702004

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 if precise figures are unavailable.

2017 Value:

2016 Value:

2015 Value:

See attached.

See attached.

See attached.

2017 Quantity: See attached.

2016 Quantity: gee 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

wvvw.kslavv.com

October 6, 2018

VIA REGULATIONS.GOV

The Honorable Robert E. Lighthizer

United States Trade Representative

Office ofthe U.S. Trade Representative

600 17th Street, N.W.

Washington, DC 20508

Docket No. USTR-2018-00025

PUBLIC VERSION1

Re: Exclusion Request By Apergy Systems, LLC Regarding Electrical

Submersible Pump (ESP) Pump / Diameter: 5.38 Inches; Length: 8.50 Feet;

Weight: 347 pounds

Dear Ambassador Lighthizer:

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 ofpumps used in electrical submersible pumps (“ESP”) (referred to as “ESP pumps”)

from the tariffs that USTR has imposed on these imports under Section 301 ofthe Trade Act of *

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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The Honorable Robert E. Lighthizer

October 6,2018

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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 ofESP pumps 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.

The only manufacturers ofthis pump outside of China are Russian companies that

directly compete with Apergy ESP and other U.S. companies in the U.S. oil and gas

industry. The Russian competitors’ manufacturing output is totally dedicated to captive

consumption, however, and thus there is no other source for this key input that is used by

Apergy ESP to provide oil and gas lift technologies to its customer base, 100 percent of

which is located in the United States. Accordingly, a failure to grant this product-specific

exclusion request would have the unintended consequence of benefiting the Russian oil and

gas industry at the expense ofthe entire U.S. oil and gas industry.

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

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).

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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 pumps—

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

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 PUMPS

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

the motor, protector, and gas separator. The ESP pump is a multi-stage centrifugal pump. The

function is to pump the liquids from the oil and gas well by adding pressure to lift the fluid out of

the well. Each pump is configured to deliver a certain amount offlow rate and pressure

depending on the specific well.

The Honorable Robert E. Lighthizer

October 6, 2018 PUBLIC VERSION

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

Tariff Schedule (“HTS”) subheading 8413.70.2004; “Pumps for liquids, whether or not fitted

with a measuring device; liquid elevators; part thereof: Other centrifugal pumps:

Other.. .Submersible pumps.” This subheading is currently included on the list ofproducts

subject to the additional tariffs under Section 301.3

III. INFORMATION REQUIRED BY USTR FOR THIS EXCLUSION REQUEST

As we noted previously, the ESP pumps 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 pumps at issue are imported to support

downstream manufacturing jobs in the United States, the imposition oftariffs ofthese products

would cause disproportionate harm to domestic design and manufacturing operations and

threaten the continued employment ofthousands ofAmerican workers. The ESP pumps at issue

are low technology products that 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 pumps 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

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).

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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 clean 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 pumps

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

throughout the United States that employs thousands ofAmerican workers.

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 will not need to pay the higher duties on ESP pump imports

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 pumps that are classified under HTS subheading

8413.70.2004 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

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ESP estimates that folly developing an alternative source ofsupply for ESP pumps 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

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 an ESP pump with the following

dimensions:5

Diameter: 5.38 inches

Length: 8.50 feet

Weight: 347 pounds

A representative image of an ESP pump is shown below.

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

5 Apergy ESP is filing a total of 40 ESP pump-related product-specific exclusion requests 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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The ESP pump is a multi-stage centrifugal pump. The function is to pump the liquids

from the oil and gas well by adding pressure to lift the fluid out ofthe well. Each pump is

configured to deliver a certain amount offlow rate and pressure depending on the specific well.

The assembly is a purely mechanical device consisting ofmachined parts: long tubular housing

that is machined from carbon steel or stainless steel, end connections that are machined from

carbon steel or stainless steel, a rotating shaft that is machined from K500 monel or 718 inconel,

internal pump stages that are machined from Type 1 Ni-Resist castings, and miscellaneous

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elastomers and bolts to complete the assembly. Pump stages are the primary components and

consist of an impeller and diffuser. Pumps are shipped in enclosed metal boxes or semi-open

specialized crates and stacked 4 or 8 to a box or crate. Each pump has a nameplate identifying

the specific model.

Imports ofthis product are covered by the ten-digit HTS subheading 8413.70.2004.

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 requested annual

import quantity and value data.

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

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

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

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ESP pumps 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 that will be caused by the imposition of

the additional 25 percent tariff on ESP pumps 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, 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. This severe economic harm to U.S.

interests will not help to achieve any policy goals ofthis Section 301 action and instead will only

benefit Russian competitors.

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

result in significant additional costs. Apergy ESP anticipates [

This significant additional expense would harm Apergy’s business, inhibiting the company’s

growth and profitability and threatening the size ofthe workforce at Apergy’s facilities in

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 pumps.

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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. This severe economic harm would trigger loss ofmarket share to

Apergy ESP’s primary competitors, which are Russian-based companies that manufacture

similar inputs only for captive consumption.

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 pumps 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 pumps 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 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 relies on the

lower-cost ESP components including ESP pumps that currently are only available to Apergy

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ESP from China. The imported ESP pumps 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 pumps in China therefore does not fall within any ofthe

Chinese acts, policies and practices that are intended to be addressed as a result ofthe Section

301 Determination.

IV. Conclusion

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

pumps 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 of

Apergy ESP and its entire U.S. customer base. This severe economic harm would not serve any

ofthe policy goals ofthe Section 301 process and would benefit Russian competitors. This is

not the type ofresult that the Section 301 process was designed to achieve.

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

specific ESP pumps 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

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grant this product-specific exclusion request regarding ESP pumps that are classified under

HTSUS subheading 8413.70.2004 with the following dimensions: Diameter: 5.38 Inches;

Length: 8.50 Feet; and Weight: 347 pounds. Finally, the requested exclusion would be

administrable by CBP. We appreciate your consideration ofthis request. If you have any

questions or require and further information, please do not hesitate to call us.

Respectfully,

Jeffrey M. Telep

Patrick J. Togni

Counsel for Apergy ESP Systems, LLC

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ATTACHMENT A
PUBLIC VERSION

Electrical Submersible Pump (ESP) Pump Exclusion Request

ofApergy ESP Systems, LLC (HTSUS Subheading 8413.70.2004)1

Attachment A

Year Annual Import Quantity Annual Import Value

2015 t $[

2016 t j $t

2017 [ ] $t ]

2018 (YTD) t i $[ i

1 This import data covers all ofthe ESP pumps that are subject to Apergy ESP’s product-specific exclusion

requests.

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