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 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:

Electric motors ranging from 15 Kilowatts (“kW”) to 75 kW used in electrical submersible pumps

(“ESP”): Diameter: 5.40 inches. Length: 16.10 feet. Weight: 1077 pounds. HP Rating: 100. kW Rating: 

74.6.

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/

8501528040

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) 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 ofyour trade association) alone. Please provide

estimates if precise figures are unavailable. 11

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 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 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 1

Re: Exclusion Request By Apergy Systems, LLC Regarding Electrical

Submersible Pump Motor / Diameter: 5.40 Inches; Length: 16.10 Feet;

Weight: 1077 Pounds; HP Rating: 100; kW Rating: 74.6

Dear Ambassador Lighthizer:

On behalfof 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 ofthe United States Trade Representative (“USTR”) exclude

imports of certain electric motors ranging from 15 Kilowatts (“kW”) to 75 kW used in electrical

submersible pumps (“ESP”) (referred to as “ESP motors”) from the tariffs that USTR has

imposed on these imports under Section 301 ofthe Trade Act of 1974. We are filing this 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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The Honorable Robert E. Lighthizer

October 8, 2018

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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 motors 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 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 motors—

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).

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October 8, 2018

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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 MOTORS

As noted above, the ESP motor provides the power to turn centrifugal pumps to extract

liquids from oil and gas wells. The motors are 3 Phase AC induction motors and are

manufactured in highly specialized geometries to fit inside oil wells.

Apergy ESP will be importing ESP motors with power ratings ranging from 7.5 kW to 75

kW from China under the eight-digit Harmonized Tariff Schedule (“HTS”) subheading

8501.52.8040; “Electric motors and generators (excluding generating sets): Other AC motors,

multi-phase: Of an output exceeding 750 W but not exceeding 75 kW; Other.” 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 motors are foundational elements within the more

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

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, 28716 (June 20, 2018).

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October 8, 2018

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

facility in The Woodlands, Texas. Because the ESP motors 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 of American workers. The ESP motors 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 motors 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 motors

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The Honorable Robert E. Lighthizer

October 8, 2018

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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 motors for captive

consumption. Russian competitors 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 motors that are

classified under HTS subheading 8501.52.8040 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 motors in the United States or in other third countries would

take 5 years. Apergy ESP therefore respectfully requests that USTR exclude the product that

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

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

Applicable 10 Digit HTSUS Subheading, And The Administrability Of The

Exclusion Request

Pursuant to the guidelines set forth in USTR’s July 11, 2018 notice, Apergy ESP

provides the following information.4 The product covered by this exclusion request is an electric

motor with the following dimensions and ratings:5

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

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October 8, 2018

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Diameter: 5.40 inches

HP Rating: 100

kW Rating: 74.6

Length: 16.10 feet

Weight: 1077 pounds

A representative image ofthis type of electric motor is shown below:

1%

(1

mi

ESP motors provide the power to turn centrifugal pumps to extract liquids from oil and

gas wells. The motors are 3 Phase AC induction motors and are manufactured in highly

specialized geometries to fit inside oil wells. The motors consist of a long, tubular carbon or

stainless steel housing, electric grade silicon steel laminations, copper magnet wire, and various

insulating materials including polyamide film, peek, and high temperature varnish. There is a

shaft that turns when electricity is connected. When shipped, the motor includes an affixed

nameplate that contains manufacturing and product identification information. The motors are 5

5 Apergy ESP is filing a total of 18 ESP motor-related product-specific exclusion requests under

HTSUS subheading 8501.52.8040 that address all ofthe different product offerings by diameter, HP

rating, kW rating, length, and weight. Except for the specifications and physical description, each ofthe

requests and Apergy’s arguments are identical in all other respects.

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October 8, 2018

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shipped either individually in long enclosed metal boxes or can be stacked and shipped together

in a bundle.

Imports ofthis product are covered by the ten-digit HTS subheading 8501.52.8040.

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

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

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 motors 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

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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 motors 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.

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 motors.7 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 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 and

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

The Honorable Robert E. Lighthizer PUBLIC VERSION

October 8, 2018

Page 8

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 motors.

7 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 tariff on ESP motors 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 motors 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

relies on the lower cost ESP components including ESP motors that currently are only available

to Apergy ESP from China. The imported ESP motors are uniquely configured by Apergy ESP

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

States.

The Honorable Robert E. Lighthizer PUBLIC VERSION

October 8, 2018

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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 motors 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

motors 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 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 motors 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

motors that are classified under HTSUS subheading 8501.52.8040 with the following

The Honorable Robert E. Lighthizer PUBLIC VERSION

October 8, 2018

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specifications: Diameter: 5.40 inches; HP Rating: 100; kW Rating: 74.6; Length: 16.10

feet; and Weight: 1077 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.

The Honorable Robert E. Lighthizer PUBLIC VERSION

October 8, 2018

Page 11

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 (ESP) Motor Exclusion Request

of Apergy ESP Systems, LLC (HTSUS Subheading 8501.52.8040)1

Attachment A

Year Annual Import Quantity Annual Import Value

2015 [ ] $[ ]

2016 [ ] $[ ]

2017 [ ] $[ ]

2018 (YTD) [ ] $[ ]

1 This import data covers all ofthe electric motors that are classified under HTSUS subheading

8501.52.8040 that are subject to Apergy ESP’s product-specific exclusion requests.

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