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:

Motor Lead Extension (MLE) For Electrical Submersible Pump (ESP) / Height: 0.43 Inches; Width: 1.11

Inches; Weigh Per Foot: 1.28 Pounds; Length: 30 Feet; Assembly Weight: 38.40 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/

8544602000

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 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 ofthe instructions

provided in Section B ofthe 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

wvvw.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.

Washington, DC 20508

Docket No. USTR-2018-00025

PUBLIC VERSION

Re: Exclusion Request By Apergy Systems, LLC Regarding Motor Lead

Extension (MLE) For Electrical Submersible Pump (ESP) / Height: 0.43

Inches; Width: 1.11 Inches; Weigh Per Foot: 1.28 Pounds; Length: 30 Feet;

Assembly Weight: 38.40 Pounds

Dear Ambassador Lighthizer:

On behalf ofApergy 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 ofmotor lead extension (“MLE”) 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 1

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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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 MLE 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 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 2lobal employees).

Apergy ESP imports ESP components and subcomponents—including MLE—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

fonnation 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

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

33168891
The Honorable Robert E. Lighthizer

October 8, 2018

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PUBLIC VERSION

up to 20,000 barrels per day, horizontal and highly deviated wells, and deep, high-temperature

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 state-of-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. MOTOR LEAD EXTENSIONS

The MLE is a short length of power cable with a specialized connector on one end. It is a

critical part ofthe ESP system and is used for connecting three-phase AC power cable from the

surface ofthe well site to the motor at the bottom ofthe well. It is comiected directly to the

down hole motor with a special connector on one end and is spliced by Apergy ESP’s

technicians to the ESP power cable prior to installation in the well. The MLE is rated for 5,000

Volts and is manufactured ofthree separate legs ofsingle cables, with each legs consisting of

copper conductor wire that is either #2 gauge (0.26 inch diameter) or #4 gauge (0.20 inch

diameter). The MLE also contains insulation and sheathing materials.

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

Schedule (“HTS”) subheading 8544.60.2000; “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

33168891
The Honorable Robert E. Lighthizer

October 8, 2018

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PUBLIC VERSION

voltage exceeding 1,000 V: Fitted with connectors.” This subheading is currently included on

the list of products subject to the additional tariffs under Section 301.3

HI. INFORMATION REQUIRED BY USTR FOR THIS EXCLUSION REQUEST

As we noted previously, the MLE 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 MLE 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 MLE 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 MLE 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.

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

3

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, 28717 (June 20, 2018).

33168891
The Honorable Robert E. Lighthizer

October 8, 2018

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PUBLIC VERSION

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 adversely affecting both domestic consumption and production for export.

To be clear. 100 percent of Aper2V ESP’s customer base is located in the United

States. Thus, the severe economic harm that will be caused by higher tariffs on MLE 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 MLE for captive consumption.

Russian competitors ofApergy for its oil field services will not need to pay the higher duties on

imports of MLE 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 MLE that are

classified under HTS subheading 8544.60.2000 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 MLE in the United States

or in other third countries would take a minimum of 5 years.

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October 8, 2018

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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 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 MLE with the following

characteristics:5

Height: 0.43 Inches

Width: 1.11 Inches

Weigh Per Foot: 1.28 Pounds

Length: 30 Feet

Assembly Weight: 38.40 Pounds

Representative images ofthis type of MLE are shown below:

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

5 Apergy ESP is filing a total of 22 ESP MLE-related product-specific exclusion requests under

HTSUS subheading 8544.60.2000 that address all ofthe different product offerings by size, 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 Honorable Robert E. Lighthizer

October 8, 2018

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The MLE assembly is coiled as shown and shipped individually in a box that is 3 feet x 3 feet x 6 inches

The MLE is a short length of power cable with a specialized connector on one end. It is a

critical part ofthe ESP system and is used for connecting three-phase AC power cable from the

surface ofthe well site to the motor at the bottom ofthe well. It is connected directly to the

down hole motor with a special connector on one end and is spliced by Apergy ESP’s

technicians to the ESP power cable prior to installation in the well.

Imports ofthis product are covered by the ten-digit HTS subheading 8544.60.2000.

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 8, 2018

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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

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

MLE 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

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 MLE.

33168891
n

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 ofthe additional 25 percent tariff on MLE imported from China.

The Honorable Robert E. Lighthizer PUBLIC VERSION

October 8, 2018

Page 9

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. Apergy ESP estimates that imposition

ofthese tariffs on its imports from China will result in additional costs of approximately $

o

], based on annualized projections ofMLE 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.

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

7 i * 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 of MLE 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 of U.S. or other third country supply options besides China.

g

See Attachment A.

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The Honorable Robert E. Lighthizer

October 8, 2018

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wells. The rise in production costs resulting from a 25 percent tariff on MLE 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 ofMLE 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 MLE currently are only available to Apergy ESP from China. The

imported MLE 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 of MLE in China was

therefore not the result ofsuch acts, policies and practices at issue in the Section 301 

Determination.

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The Honorable Robert E. Lighthizer

October 8, 2018

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IV. CONCLUSION

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

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

or improving the profitability of Apergy 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. 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 MLE 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 MLE

that are classified under 8413.91.9080 with the following specifications: Height: 0.43 Inches;

Width: 1.11 Inches; Weigh Per Foot: 1.28 Pounds; Length: 30 Feet; Assembly Weight:

38.40 Pounds. We appreciate your consideration ofthis request. If you have any questions or

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

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October 8, 2018

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* * *

Respectfully submitted,

Jeffrey M. Telep

Patrick J. Togni

Counsel for Apergy ESP Systems, LLC

33168891
ATTACHMENT A
PUBLIC VERSION

Electrical Submersible Pump Motor Lead Extension (MLE) Exclusion

Request of Apergy ESP Systems, LLC (HTSUS Subheading 8544.60.2000)1

Attachment A

Year Annual Import Quantity Annual Import Value

2015 t ] $[ ]

2016 t i $[ ]

2017 t $i

2018 (YTD) t i $[ ]

1 This import data covers all ofthe MLE that are classified under HTSUS subheading 8544.60.2000 that are

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

33169042